It is important to standardize processes in your company. See how you can do this with the help of standard operating procedure to improve your performances exponentially. Probably you are asking yourself why I talk about standardization when often I mentioned that all businesses operate in a highly uncertain environment?
After such a question can be opened another issues as how to standardize when in the moment of implementation, the uncertainty will lead to obsolescence, inapplicability, or wrong way of doing things in the company. Yes, these questions are important. However, here I want to talk a little bit about some subjects related to standardization, or some things about how you can standardize processes. So, it will become clear why you should standardize.
Why You Need to Standardize Processes in Your Company
Here, I will share one my experience with a company related to standardization.
I have worked with a company where my task as a consultant was to help in the creation of systems, processes, and related procedures to increase their own productivity and therefore profitability. At the beginning my task was to make interviews and record the current situation to see what exists, how it works, and what are the outputs of their current systems. When I reviewed the figures, I have noticed that the current system brings large problems. Even the average margin of the company provides the potential for very high profitability, still this high profit margin does not provide what the entrepreneur wants. Somewhere over 50% margin bring only 8% profit after deduction of material costs and employees.
Normally, the entrepreneur also has noted this from the records in the books, but clearly the problem is not high material costs, inventory, or fixed costs that exist despite the sales volume. This is caused by the processes, or the mechanics pursued through those processes and human activities in the processes.
Process Variations as Problem
One of the first discoveries during the recording of the current situation was big variations of required time for making one of the main products of the company. These products, on the other side, bring the biggest amount of income from which depends the survival of the company. So, there were cases of the same product, produced with the same materials, delivered from the same suppliers once to be produced for 10 days, then the next order time was 24 days, and for some orders months.
Now, the question is why this happens? We have the same process, the same raw materials, the same suppliers, the same employees… And still production time varies. With higher production time at the same time increases working hours, so they quickly start eating that margin of over 50%. Some customers start canceling their order because in the contract is specifically defined when the customer will have the product totally functional. Again, the company is losing the advantage of high level margin. That’s a serious problem.
Work Mistakes as a Problem
Another interesting issue from totally 12 issues discovered at the recording was the production errors. This issue is also one of the reasons for higher production time. Simply, the product was not in compliance with standards that are paid by the customer. Here, the delivery process leads to rejection by the customer, return to the plant for re-processing, saving what can be saved and integrating new elements as raw materials. Again, this is something that eats large part of the current margin. I have noticed that about 23% of the margin is going for the purchase of additional raw materials because of the non quality products produced. It all leads to disastrous results, although at the start the potential is large. Also, this lead to lost customers who will never want to do a job with the company again.
The Biggest Problem: The Lack of Quality Systems
The biggest problem of this company is the lack of quality systems with proper standard procedures that will constantly provide highly productive completion of the work.
Well, now when it comes to uncertainty, the only uncertain part of the chain is suppliers who can deliver raw materials with delays, or without the proper level of quality. Everything else remains as delays in production, variable employee productivity, downtime of equipment, quality of the work… All these things can be managed directly from the company. This doesn’t mean that you don’t need to work on providing robust processes when it comes to procurement of raw materials or delays in delivery by suppliers. It means that you will need to include suppliers in a powerful process that will provide better stability in the delivery and predictability.
Before You Start to Standardize Processes, Build All Necessary Systems
To achieve company’s goals, it is necessary to have systems. These systems will bring the constant production with the highest possible quality all times. The systems are composed of various subsystems or processes that will do the work. But, the processes are comprised of standardized activities that will need to be performed to produce standardized outcomes.
Let’s take for instance the system for staff selection and providing staff with the proper skills and knowledge. This system is part of a human resource department. This system will have following processes:
- Process to attract staff that will always allow you to have the opportunity to hire a quality workforce.
- The evaluation process for staff attracted to ensure that you will not have the wrong employments in the future.
- The selection process to select the best suitable staff who will ensure that everyone will be ranked according to the actual capabilities or the true potential that have for the needs of your company.
- Employment process that will provide fast and efficient formalization of employment of selected persons, and
- New employees training process to ensure quick integration of new employees into the work of the company.
If you have processes in your company, you will have many innovation opportunities. Also, when you standardize processes, this opportunity will be much greater. But, it is not all. Standardized process with appropriate standard operating procedure will give you opportunities for continuous process improvement possibilities.
Standardize Processes With Standard Operating Procedure
As you can see, a system will have multiple processes and each of these processes will have a particular purpose. If you want these processes to be functional, you must have more procedures for each process. So, you will ensure the output of the process to be exactly the same as it is expected. For example, the evaluation process for potential employees can have the following procedures:
- Standard operating procedure for the analysis of individual’s previous experience to develop certain figures related to proper skills that can have the potential employee.
- Standard operating procedure for testing the individuals to check the ability of the potential employee. These tests can be made through standardized tests or through standardized practical doing of some work.
- Standard operating procedure for interviewing individuals to further estimation of their abilities.
- Standard operating procedure for contacting previous employers to ensure that there aren’t some problematic behaviors earlier.
- Standard operating procedure for assessing and ranking prospective staff that as the output will have a priority list of potential employees for your company.
What to Include in Your Standard Operating Procedure (SOP)
Each of the procedures, although they can be a collection of different activities will be a certain type of standard. These SOPs will contain objectives of the procedure, expected outcomes, action steps and expectations of those actions, measures you want to monitor, responsible person and manager. The procedure can also include attachments of drawings, images, videos, or everything related about how it can be implemented.
You can notice that you will facilitate the work of the persons who will be responsible for doing the work. Now, here I talk about standardized procedures that are some kind of standard in a company. In addition to these standards, there should be also standards that will ensure quality of the products and services. These standards will satisfy the customer’s expectations such as functionality, color, shape, size, speed etc. Starting with these standards, you can easily create standards that will define the quality of the raw material and suppliers themselves. On the other hand, all standard procedures must contribute in implementation of quality standards. This means that the procedures will depend on the quality standards.
There are also other standards called specifications. These are a special kind of standards that provide technical information about proper operation with the specific equipment. For example, methods of processing such as welding, cropping, scraping, dimensions and tolerances, temperature, pressure, time etc. But, this is a totally different subject.