Have you calculated the true cost to your business of the wage increases planned for New Zealand? We have a triple whammy on the way.
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5 days additional paid sick leave per year from late 2021
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A minimum wage increase to $20/hour from April 2021
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Matariki – an additional paid public holiday starting in 2022
Many employers tell me they are worried about how their business will survive with these recently announced Government imposed wage cost increases. Some politicians and ex-politicians are trying to persuade us that increasing wages will result in increased productivity. In my view, there is no basis for these claims.
These wage cost increases imposed through legislation are beyond your control. If you want to remain in business, you will have no option but to comply.
What to do?
We recommend you focus on what you can control.
Where will you get the extra money to cover these extra costs? There are three options:
- Increase prices – this may result in lost sales and put you in a worse financial position.
- Reduce costs/expenses – marketing is usually the first to go. This can be a fatal mistake.
- Increase productivity – probably your best option but where do you start?
Process improvements can provide significant productivity gains.
Process improvements
Developing a strategy of Continuous Improvement in your business can provide significant productivity gains across the business. These will generally come from working smarter not harder.
We strongly recommend you consider a focussed formal approach to continuous improvement. If you’d like to know more about this, we should talk.
Real-life examples
The following are examples from companies I have worked with or am still working with, that increased productivity from process improvement. Every business will have examples of inefficient processes that need to be identified and improved.
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Using technology to fast-track timesheet entry in an engineering business
Triple timesheet entry was reduced to single-point entry by introducing a timesheet app for staff to use. Estimated weekly time saving of 3 hours. Also, job costs are now updated in real-time. Gains were made by both production and admin staff, Annual time saving $10,000. Which repetitive processes could you streamline in your business using technology?
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Automating monthly commission payments for a professional services business
Instead of collating data from several Excel spreadsheets each month, admin staff began using Xero’s reporting function to create the monthly commissions file. A saving of 10 hours per month was achieved. Annual time saving $8,000. Is your accounting antiquated? Get a fresh set of eyes to take a close look at your procedures.
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Relocating the packing slip printer for an engineering supplies business
For years, staff printed packing slips in a small annexe at the back of the Admin office. Once printed, they hand-delivered the slips to the warehouse counter, repeating the process up to 20 times a day. They had been doing this for years. The solution, relocate the printer to the warehouse counter. Annual time saving $12,000. If the reason for doing something is because ‘that’s the way we’ve always done it’ – it’s time for a rethink!
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Moving to larger premises for an overcrowded engineering business
If you have outgrown your factory space, your productivity will drop. I had an engineering business client whose staff were taking a total of 2 hours at the start of the day and again at the end of the day to move vehicles and equipment in and out of the factory before work could start and finish. They finally relocated to much larger premises, recovering the rent increase through the increased productivity of the team and they still had room to grow. Every time I saw the business owner over the next year, the first thing he said was, “We should have done this move years ago”. The annual rental was $14,000 higher than their smaller premises. Their productivity improvement recovered this twice over!
The takeaway
You can see from these examples how productivity/efficiency gains can be achieved in many ways and across many areas of business. Sometimes it is obvious that change needs to occur but the effort required to do so seems overwhelming. Now you’ve seen the evidence. In each of these examples, the gains are significant and well worth the effort.
However, many NZ industries currently struggle to employ skilled staff in our ‘low productivity economy’. Subsequently, they are unable to realise the business growth opportunities available to them. With this in mind, you must maximise the utilisation of the resources you have. If you can’t engage the skilled staff you need, optimise the potential of the staff you have. Are you actively working on identifying areas where gains can be made? Do you have a plan to implement change?
Many business owners are time-poor. They are unable to find or make the time to develop a plan to identify productivity and efficiency improvements. You may not have anyone inhouse to lead a process improvement project but don’t despair. Help is available! More and more business owners are engaging the assistance of one of our team to assist them with business issues they can’t resource internally. Some issues perhaps fall outside of your comfort zone so even more reason to address them. Make these gains sooner rather than later to enjoy more savings.
Now is a great time to make changes and never has there been more pressure on the bottom line to do so with the wage cost increases on the horizon. Get in touch with us today and let’s start a conversation which, for many of our clients, has been a game-changer.
By Trevor Clark | Partner | Business Advisor
More reading
Read Trevor’s article on Continuous Improvement