Improving processes is one of the most effective methods to speed up productivity and cut costs in any business. If you improve a process by just 1% consistently, those small gains will add up to major improvements.
This process is called the principle of 'aggregate marginal gains,' and it emphasizes small continuous improvements that can over time add up over time. These improvements can amount to something significant, whether you’re an Olympic cycling coach or work in the industrial distribution business.
How Dave Brailsford Used the Aggregation of Marginal Gains Principle
In 2003, British cycling coach Dave Brailsford took on a difficult challenge. Brailsford was hired to lead the British cycling team in the Olympics, but the team had not managed any significant wins before he was brought on board. That trend changed when he led the British cycling team to seven out of ten gold medals at the 2008 Beijing Olympics.
How did Brailsford manage to drive so much success? In an interview with Harvard Business Review in 2015, Brailsford said, “It struck me that we should think small, not big, and adopt a philosophy of continuous improvement through the aggregation of marginal gains. Forget about perfection; focus on progression and compound the improvements.”
The team looked for areas that could possibly affect a cyclist's performance and created a plan of improvement. For example, they evaluated the mechanics area and found that dust had been accumulating on the floor, weakening bike maintenance efforts. They also invested in special trainers who helped the team understand how to improve their cycling techniques. During competitions, they brought their own mattresses and pillows so athletes could sleep in the same position every night.
These are just a few of the improvements made by the team, but they make an enormous difference when you put all the small improvements together. After just five years under Brailsford's leadership, Britain dominated Olympic cycling from 2008 through 2012.
How the 1% Improvement Rule Helps Industrial Distribution Businesses
Cyclists aren’t the only people who can benefit from aggregate marginal gains. Imagine if you could improve your business just 1% a day. As an industrial distributor in the fluid power, motion control, hose and accessories, and engineered products industries, the challenge is examining which areas of your operations or business processes are mission critical and determining any inefficient processes that could use improvement. Improving can be challenging.
- Commitment. To make small changes a success, you need an “all hands-on-deck” commitment. One negative person can throw a wrench in the entire effort.
- Focus. Focus on one area at a time and improve just that one thing until it's done right, then move on to the next area.
- Choosing realistic goals. If you bite off more than you can chew, your projects will take longer than expected and may never see completion.
- Willingness to learn. It is important to self-educate and learn as much as possible. Keep an eye on the industry from your trade associations, such as NAHAD, NFPA, AHTD, PTDA, or IDCO, as well as what your competitors may be doing.
- Validate. Use your data to see if the change has made any positive difference over time. If it does not work, examine what happened, and try again!
- Implement and Monitor. If the change was successful, implement it on a broader scale, but continue to monitor the results.
Assessing the Effectiveness of the 1% Improvement Rule
In an example by Douglas Wick on the Strategic Discipline blog, he cites the seven key areas companies can influence to impact cash flow by improving just 1% over a given period.
- Cost of Goods Sold
- Accounts Receivable
- Accounts Payable
- Inventory (Turns)
- Overhead Expense
Wick also shares a formula for determining the effectiveness of the 1% improvement process.
- Document your Net Cash Flow and EBIT (Earnings Before Interest and Taxes) for the past rolling 12 months or previous fiscal reporting year.
- Next step is to collaborate and discuss with your team the impact of a 1% improvement strategy in each the seven key areas.
- Lastly, estimate the positive impact on your Net Cash Flow and EBIT over the coming 12 months.
- What could these positive enhancements do for your business if you acted on the one percent continuous improvement strategy?
The Power of Small Change Over Time
Implementing a continuous improvement mentality has been proven to be successful in many areas of business operations. Did you know:
- 1 in 4 improvements save time, each saving on average 270 hours in the first year of implementation.
- 1 in 10 improvements save money, on average about $31,000, in the first year of implementation.
- Any type of positive improvement you make to your business processes will enhance the employee and customer experience.
The Path to Continuous Improvement
Dovetailing on the seven key areas mentioned by Wick, here are some additional KPI’s you should be keeping an eye on and taking the initiative to make that 1% continuous improvement.
- Customer Feedback. According to SalesForce, 66% of customers expect companies to understand their unique needs and expectations and 66% say they are generally treated like a number. What can you do to make your customers feel valued?
- Analyze employee productivity. According to Atlassian, an average employee spends 31 hours a month in meetings. That is a lot of meetings – are they all necessary?
- Examine your operational costs. Partnering with the right ERP provider can help you streamline your operations. G2 says ERP software can reduce operational costs by as much as 23% and administration costs by as much as 22%.
- Determine if your ERP system is working for you or against you. According to G2, only 5% of businesses use their ERP system effectively.
How ERP Software Supports Your Company’s Continuous Improvement Plan
While continuous improvement is ideal, it does create a new challenge – managing growth. As your industrial distribution business makes continuous improvement, you’ll need to have a plan in place to handle higher transaction volumes, process more sales orders, pick added inventory, and manage new customers. It’s a good challenge to have, but a challenge, nonetheless.
Simply put, it’s not easy managing a distribution company, especially when you reach exponential growth. The good news is that there are resources available to help you enable continuous improvements while running your business more efficiently.
ERP software is one major tool to help distributors embrace continuous growth and streamline their operation. Integrating your business functions and processes into a unified platform across every department gives you a high-level view of how your business is performing across several key performance indicators (KPIs). The right ERP software can also provide your organization with feature-rich tools that help small and medium-sized businesses improve business processes and increase profits, including:
- Inventory management
- Sales management
- Purchase order processing
- Shipping & receiving
- Accounting & financial reporting
Embrace Continuous Improvement with TrulinX
The bottom line is that a 1% improvement can positively impact your industrial distribution processes and operational efficiencies. Better yet, the TrulinX Software System makes it quite easy to obtain.
TrulinX helps industrial distributors and fabricators increase efficiencies, track costs, as well as provides the ability to forecast your operation's future performance. TrulinX is designed for today’s business environment – flexible enough to adapt as your company grows and customizable so that it fits perfectly into any industry or vertical market.
With TrulinX, you can also take advantage of our world-class customer service and focused implementation process. Our team of experts will collaborate with you from start to finish to ensure a smooth implementation process that is tailored to meet your specific needs.
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