It is crucial to standardize processes in your company. See how you can do this with the help of standard operating procedures to improve your performance exponentially. Probably you are asking yourself why I talk about standardization when I often mentioned that all businesses operate in a highly uncertain environment?
Then, another issue is how to start standardizing when uncertainty leads to obsolescence, inapplicability, or the wrong way of doing things in the company. However, here I want to talk about some subjects related to standardization or how you can standardize processes. So, it will become clear why you should standardize.
What I Will Cover Here?
- Why do you need to standardize processes in your company?
- A real-world example of a company without standard operating procedures? Learn what happened to a real company, losing a large part of their high margin because of the lack of standardized processes.
- Why are process variations problems for your small business? Why do process variations happen? What do you need to do to avoid such mistakes?
- How do work mistakes become a significant problem for your company? How do standardized processes not let the appearance of working errors?
- What is the biggest problem? Does the lack of quality systems produce negative effects for your small business? How do quality systems impact uncertainty?
- What do you need to do before you start standardizing processes with standard operating procedures? It is essential before you begin with standardization to implement one important and most critical step.
- Example of staff selection system as a part of your human resource department. What are the most critical processes for your staff selection system?
- How can you standardize processes with standard operating procedures? Example of the evaluation process for selection of new employees for your small business.
- What to include in your standard operating procedure (SOP)? What are the most critical elements you need to incorporate into your standard operating procedures?
Why You Need to Standardize Processes in Your Company
Here, I will share one of my experiences with a company related to standardization.
I have worked with a company where my task as a consultant was to help create systems, processes, and related procedures to increase their productivity and, therefore, profitability. In the beginning, my task was to conduct interviews and record the current situation to see what exists, how it works, and the outputs of their current systems. When I reviewed the figures, I have noticed that the current system brings large problems. Even the company’s average margin 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.
Typically, the entrepreneur has noted this from the records in the books. Still, the problem is not high material costs, inventory, or fixed costs despite the sales volume. The problem is because of the processes or the mechanics pursued through those processes and human activities.
Process Variations as Problem
During the recording of the current situation, one of the first discoveries was significant variations of the required time for making one of its main products. On the other side, these products bring the most significant income. The survival of the company will depend on this income. There were cases for the same product, produced with the same materials, delivered by the same suppliers to be produced at different times. Sometimes they produce the product in ten days. But, sometimes, the next order realization time was 24 days, and sometimes months.
Now, the question is, why does this happen? We have the same process, the same raw materials, the same suppliers, the same employees. And still, production time varies. Higher production time simultaneously increases working hours, so they quickly start eating that margin of over 50%. Some customers start canceling their orders because the contract defines explicitly when the product is totally functional. Again, the company is losing the advantage of a high-level margin. This is a serious problem.
Work Mistakes as a Problem
Another interesting issue from the 12 discovered at the recording stage was the production errors. Because of that, the company has more considerable production time.
So, the product did not comply with the standards for which the customer pays. Here, the delivery process leads to rejection by the customer. This means returning to the plant for re-processing, saving what can be saved, and integrating new elements as raw materials. Again, this eats a large part of the current margin. I have noticed that about 23% of the margin is going to purchase additional raw materials. The reason for this is because of the non-quality products produced. All of this leads to disastrous results, although the potential is significant at the start. The errors bring losing customers who will never want to do a job with the company again.
The Biggest Problem: The Lack of Quality Systems
This company’s biggest problem is the lack of quality systems with proper standard procedures that will constantly provide highly productive completion of the work.
When it comes to uncertainty, the only uncertain part of the chain is suppliers. This is because they 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 by the company. But, it doesn’t mean that you don’t need to provide robust processes for procuring raw materials or delays in delivery by suppliers. It means that you will need to include suppliers in one robust process that will provide better delivery and predictability.
Before You Start to Standardize Processes, Build All Necessary Systems
If you want to achieve your goals, you need to have systems. They will bring constant production with the highest possible quality at all times. The systems are composed of various subsystems or processes that will do the work. The processes describe all standardized activities that will need to be done to produce standardized outcomes.
For instance, let’s take the system for staff selection and provide staff with the proper skills and knowledge. This system is part of a human resource department. This system will have the following processes:
- The process to attract staff 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. This SoP ensures that everyone will be ranked according to the actual capabilities or the true potential they have for your company’s needs.
- Employment process that will provide a 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 higher. But, it is not all. The standardized process with the appropriate standard operating procedures 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 the same as is expected. For example, the evaluation process for potential employees can have the following procedures:
- Standard operating procedure for the analysis of an individual’s previous experience. This SoP is used 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 the standardized practical doing of some work.
- SoP 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.
- SoP for assessing and ranking prospective staff. This is the output and will have a priority list of potential employees for your company.
What to Include in Your Standard Operating Procedure (SOP)
Although they can be a collection of different activities, each of the procedures will be a specific type of standard. These SOPs will contain the procedure’s objectives, 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 to how you can implement them.
You can notice that you will facilitate the work of the persons responsible for doing the work. Here I talk about standardized procedures that are standard in a company. In addition to these standards, there should also be standards that will ensure the products and services quality. These standards will satisfy the customer’s expectations like functionality, color, shape, size, speed, etc. You can easily create standards that define the raw material quality and what your suppliers will need to achieve with these standards. On the other hand, all standard procedures must contribute to implementing quality standards. This means that the procedures will depend on the quality standards.
There are also other standards like specifications. These are special standards that provide technical information about the proper operation with the specific equipment. These are processing methods such as welding, cropping, scraping, dimensions and tolerances, temperature, pressure, time, etc. But, this is a different subject.
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