We know that for a company to survive, it must constantly find ways to increase profits. So, how to increase profits? Recently, I had a phone call with lean management expert Hu Guangshu to ask his views. Hu Guangshu is a lean management expert with practical experience, having guided many industry leaders. I'll name a few you might have heard of: Huayuyu, M&G Stationery, Zujianli, and Mixue Bingcheng. After chatting with Mr. Hu for an evening, he said: To increase profits, besides reducing costs and increasing efficiency, there is another way: reduce waste. That's interesting. Mr. Hu also gave me a case study that inspired me, so today I want to share this topic with you. Reducing waste: focus on the big, let go of the small Reduce waste. Okay. But many bosses go astray on the path of reducing waste. It even becomes a "performance show," like setting air conditioning no lower than 26 degrees, using single-sided toilet paper instead of double-sided, giving two fewer mooncakes... Another example: ineffective meetings. A small meeting with 10 people, average hourly wage 100 yuan, lasting 4 hours, costs 4,000 yuan. Usually, a 50-yuan reimbursement has to wait months, but a casual small meeting spends 4,000 yuan without the boss batting an eye. 50 yuan. 4,000 yuan. Small head. Big head. Reducing waste should be prioritized, focusing on the big and letting go of the small, and it should be scientific. Not "not losing out at all." What does that mean specifically? Mr. Hu has consulted for Yuehui Wuji Roll. He said, let's use Yuehui as an example. Guess how many steps it takes for a box of Yuehui Wuji Roll to reach you? 1. Buy frozen products from upstream; 2. Thaw; 3. Process; 4. Marinate; 5. Freeze; 6. Transport to downstream merchants. Six steps. Did you notice that half of these steps are spent on handling frozen products and thawing? So, can we skip freezing and directly use fresh products? How much waste can this reduce? Nearly 40 million yuan. Regarding changing from frozen to fresh, Hu Guangshu shared two reasons why Yuehui did this: First, the cost of inventory loss is too high. How high? On average over 27 million yuan per year. Frozen chicken, pigeon, and quail purchased from upstream need a warehouse for storage. With a warehouse, you need someone to watch it, and energy for refrigeration and thawing. Having inventory means the possibility of not selling, and there will be loss. Regarding inventory loss, Mr. Hu mentioned an empirical value: 25%. What does that mean? That is, a quarter of the 27 million is wasted. Wow, that's 6-7 million yuan wasted a year. Some listed companies don't even have 6-7 million in annual profit. But if you directly use fresh products, the six steps become four: 1. Buy fresh products from upstream; 2. Process; 3. Marinate; 4. Transport to downstream merchants. At the same time, profit increases by 6-7 million. That's the first point: reduce inventory waste. Second, frozen products themselves also have loss. What loss? Moisture. Thawing causes loss of moisture from cells. How much water is lost? Frozen chicken loses about 8% to 13%. Think about it: if you buy a pound of chicken, about one tael (50g) turns into water and is lost after thawing. Yuehui purchases 320 million yuan of goods a year; at 10%, that's 32 million. Every year, 32 million yuan flows away as water. What a huge waste. Add the 6-7 million from inventory loss, and using frozen products wastes nearly 40 million annually. So, what does "not losing out at all" mean? Those who win battles are always willing to pay the price first Question: Why don't others switch from frozen to fresh? Because many companies lack the awareness to organize inventory. You have to go into the procurement business process, from supplier production to delivery, to logistics cycles, and get down on the ground with a magnifying glass to find: where can we improve? Once you find the problem, sometimes you need to be willing to take a loss to solve it. For example, Yuehui: switching to fresh means you can't stock too much at once. It doesn't last long and spoils easily. Also, if the fresh products spoil during delivery, who bears the loss? Everyone uses frozen products; it's common sense. Like leftover meat at home, you freeze it to keep longer and save worry. Using fresh products is not worry-free. The entire procurement process has to change. No problem, I'll change the process. So Yuehui began to gradually adapt the entire process to "just-in-time production." Previously, chicken inventory was kept for a week, but it could be delivered every two days. The supplier is in Suqian, Jiangsu, and delivering chicken to the factory in Hebi, Henan takes 4 to 6 hours. It's feasible. Each batch is processed immediately upon arrival. This greatly improves turnover. No problem, if it spoils, it's on us. Yuehui went to talk to upstream supplier Wens: "From now on, supply us with fresh products, not frozen. It's good for you too: you don't have to freeze, saving energy and money. I won't ask for a price reduction." "If it spoils on the way, it's on Yuehui, not Wens. Don't worry. You just need to deliver every day instead of once a week. No need to discuss price; I'll sign a multi-year agreement with you." Wens thought: okay. If it spoils, it's on you, right? And the price isn't reduced, and I save on electricity for freezing. Let's do it. Not only that, Yuehui also went to talk to distributors, proactively helping them reduce inventory. Other factories might want distributors to take as much as possible, putting pressure on them. But Yuehui said, we hope you always use the freshest; take one batch at a time. Distributors naturally prefer Yuehui. Gradually, a positive cycle began. As the process improved, Yuehui finally reduced inventory from 27 million yuan to just over 1 million yuan. That's a 95% reduction. A very small inventory can support a factory with 320 million yuan in purchases and about 400 million in sales. Although they paid some costs proactively, compared to the big waste reduced, the cost was well worth it. After this change, its profit margin increased from over 10% to over 20%. Process. Craft. Method. Very satisfying. But can you tell me, how do you find these wastes? Eight types of waste that hinder efficiency Answer: Look for wastes that hinder production efficiency. The first is waste of employee motivation. How to improve employee motivation? Toyota gives an answer: everyone in the company looks for waste, "from bottom to top." What does "from bottom to top" mean? Some companies are used to top-down strategy and bottom-up execution, which is "top-down." Even if lower-level employees find waste, feedback to the top is ignored. So they just follow orders, which is less error-prone. Toyota, on the other hand, encourages lower-level employees to proactively find problems and discuss solutions to develop work processes. Take the installation of front seats in a Toyota factory as an example. How to install front seats? Take screws. Install screws. Then enter a code to indicate completion. Initially, experienced workers trained new ones. If new workers didn't tighten screws properly or entered codes incorrectly, experienced workers had to help. In this small task, should you install the front two screws first or the back two? Everyone has their own habits, leading to varying efficiency. For example, let's say installing the front ones first saves 2 seconds compared to the back. How much waste can screws cause? 10 million cars, each with 20 screws, saving 2 seconds per screw equals 400 million seconds. What does that mean? 12 years. If everyone standardizes and follows this order, it would be a huge saving. Then, write this procedure into the process. Automation, just-in-time. Both new and old employees follow this. When a large number of new employees arrive, efficiency won't suffer because experienced workers can't handle it. Who can discover this waste? Who knows best about installing front seats? The answer is the operators on the production floor. They certainly know more about installation details than CEOs or professional managers. They discuss and improve the process, report it up, and the top listens to the bottom. Thus, Toyota, from bottom to top, has employees at every level proactively watching their work, determined to find waste and optimize work. This reduces waste of employee motivation. Great. Great. Do you have a sense of "true waste" now? Hu Guangshu has a course on Dedao called "Lean Management Practice Course," which categorizes waste that can be mined in enterprises into 8 types. If there is a conflict between types of waste, you might calculate and prioritize the one that saves more. Besides the inventory waste and waste of employee motivation we discussed, what else? Don't hide them; tell me quickly. Don't worry, don't worry. There are 6 more; let's go through them one by one— 1. Waste of overproduction. For example, if a company produces fast and has high capacity, is it particularly powerful? But if most of what is produced is unsold, then whether it's overproduction or maintaining unsold goods, it's a huge waste of manpower and resources. 2. Waste of waiting. For example, waiting for supplier delivery, waiting for financial approval... If the previous step takes a long time, and employees in the next step are idle, it greatly delays progress. 3. Waste of transportation. After production, products need to be transported. Increased logistics costs and material loss during transit are transportation waste. 4. Waste of rework and defects. Repeated modifications and re-production are waste of rework and defects. It's like spending money once to achieve a goal, but having to spend twice or three times. 5. Waste of over-processing. But you might say, everyone is motivated, not reworking, and has customers in mind, optimizing products for them. However, if customers don't perceive your optimization, they won't pay for it. If no one pays for the money spent, over-processing is waste. 6. Waste of motion. Back to Yuehui. Mr. Hu shared that, for example, they marinate quail on the workbench. After marinating, when the next batch is lamb skewers, they need to wash and rinse the table. How long does this action take? 20 minutes. During these 20 minutes, everyone is busy washing the table, right? Not idle. Later, Yuehui reduced it to 5 minutes. But 5 minutes is still too long. What about reducing to 1 minute, or even 1 second? Spread plastic film on the table. After marinating quail, lift the film, replace it, and continue with lamb skewers. In 5 minutes, you can marinate a certain amount of quail, and that's how much capacity you gain. The more capacity you gain, the more profit you bring. This reduces waste of motion. Okay. That's all eight types of waste. Final thoughts The eight types of waste are more about awareness than ability. Did you notice that many things have a whole logic behind them beyond what we see on the surface? Take an extra step to find the root of the problem. Only by finding the root can you improve results more effectively. For example, when it comes to efficient communication, you might think of talking more, not understanding needs. When it comes to environmental protection, you might think of saving resources, not the circular economy. Back to reducing waste: you can't just copy what others do and only copy "using single-sided tissue." Wish you eliminate waste. Wish you have a profitable constitution. Let's encourage each other. _PS: Click Read Original to view more about the 6th China FMCG Conference & 3rd China FMCG Hard Discount Conference & 3rd China FMCG Distributor Conference...