5 Ways Businesses Waste Money | Common Money Wasters

Globally we can all agree, businesses despise wasting money. Is your business achieving goals? How is your business cash flow? Knowing where your business could be wasting money might help you figure out where to start improving your bottom line. Here are some common money wasters where businesses waste money.

It is very common for all businesses to experience these common money wasters regardless of the size of the company. Companies will invest time and money to determine what is negatively impacting their bottom line, but may not see these common money wasters.

Let’s look at these 5 main areas:

Inventory
Workstation Setup
Purchasing & Accounting
Design
Business Goals

Inventory

Carrying excess inventory hurts business cash flow. This isn’t a surprise, yet many businesses still struggle to manage their inventory. Businesses waste money on excessive inventory and constant disorganization just to name a couple of inventory issues.

How much time is wasted every day trying to find missing parts?

Is there a process for receiving inventory, storing inventory in a defined location, and tracking inventory as it is used?

Is excess inventory being used before purchasing more?

Are people using the inventory process consistently? Are they trained?

Workstation Setup

The workstation setup is important for both the office and manufacturing plant. Having the tools to do our job efficiently prevents unnecessary delays in getting the tasks completed.

Do you need to search for items before starting a new task?

Are all of the tools you need to finish a task within reach or do you need to walk somewhere to get them?

How much of your day is wasted trying to find what you need so you can finish the task at hand?

Purchasing & Accounting

The Purchase Order is a legal document that should never be taken lightly on either side of the transaction. Businesses waste money when they don’t monitor the purchase and accounting processes.

The terms of the agreement need to be clearly identified and understood in the purchase order. Once the purchase order is accepted, then the company should make sure that their vendors are delivering according to these terms laid out. It boggles my mind on how companies pay invoices when the services provided clearly didn’t meet the terms of the purchase order.

On the flip side if the purchase order is written with no specific requirements, then it is very difficult to go back to the vendor when things don’t turn out the way you expected. Outlining contract expectations, payment terms, and product specifications are necessary to include in the purchase order. If changes are necessary then the purchase order must be revised to reflect those changes.

What about invoices that don’t match the purchase order? Are you constantly revising the purchase order to reflect invoices? Why?

The purchase order is a legal document. The vendor agreed to the pricing before sending the products or delivering on their service. Invoice errors need to be communicated to the vendor before making the decision to change the purchase order to match the increase in valuation.

Constantly changing purchase orders to reflect invoice differences is a sure sign that something is broken within the purchasing and accounting process.

Design

If you are a design Engineer please keep an open mind here. I’m going to try and explain why your creations, your babies, need reviewing by other people before being released to production. This is not a reflection on you personally. Take a deep breath.

Ready? Good. Before releasing a drawing for production, we need to try and think about the end-users. The end-users, in this case, are the production workers. They need to be able to look at that drawing and know what to do to create your masterpiece.

Here is the kicker. They need to look at that drawing and know the length of that part or location of that assembly without having to do the math first. They aren’t given time in their production schedule to do the math, their job is to make parts or assemble them according to your drawing and the Bill of Material.

Guessing is not an option, making assumptions are not an option, and spending time calculating dimensions affects overall schedules. It is important to make sure time isn’t wasted on the production floor trying to figure out missing dimensions, or sort through bill of material errors.

That being said, please do not get frustrated when drawings come back with questions. Look at this as a learning experience. People have different viewpoints and seeing through their eyes is a way we can all improve as Engineers and Designers.

Business Goals

If you are a manager or a business owner, I’m going to be straightforward with you right now. You’ve spent hours thinking about what goals you have for the business, and where you need to improve financially to achieve those goals. Percentage improvements or dollar targets are sent out for each goal to make them measurable. They look measurable to you, but are they to your people?

Do all managers understand how the goals are being calculated? Are they able to help their people set personal goals, in turn helping the company meet its goals? Every baby step matters to adding up positive change, but if there is confusion then it is hard to meet targets.

What if you define the goals, then map out key positive influencing factors that will help meet those goals? The metrics used to measure the business should match the goals for the year. It should be clear to everyone how their job impacts those metrics. They will then know they are helping the business grow.

As an employee, it was difficult to set goals for the year when management didn’t know how the business goals were being measured. When there is a disconnect between management levels in understanding goals, this will force staff to work toward their individual perceptions of those goals.

How will this be a problem? When goals are misunderstood, then people are driving changes in the business that might not positively influence the end goals. This disconnect results in a risk of one project outcome positively affect the goal, while another will negatively affect it. Both teams thought they were working toward the same goal.

Businesses waste money when they assume everyone clearly understands how the goals are measured and how their individual jobs affect those goals.

The Bottom Line

Whether you own a small business or work for a large corporation, there are common money wasters that affect the success of the company. These common areas are just some of the ways businesses waste money. Being able to look for signs of waste will help you make improvements to the business bottom line.

Know your inventory health. Take time to create defined locations for parts. Create an inventory database to track usage, so that you know what you have on hand, how often it is used and the inventory valuation that you are carrying.
Make sure people have their workstations set up to do the task expected of them. If they are spending time finding parts or tools, then improvements are needed.
Keeping control over the Purchase Order agreement terms, revisions, and making sure vendors are invoicing correctly is critical to managing the money.
The quality of an Engineering drawing impacts productivity of workers and the end quality of the product. It is important to ensure all necessary dimensions are in the drawing. Production workers shouldn’t need to do math while trying to do their job, The bill of material is important for identifying those individual components, making revision control very important as well.
When your people have a clear understanding of how to measure their goals for the year, and they know how to roll these goals into the overall business goals then the money is well spent. Everyone is focused on the same goals.