We all want to maximize our profit. The good news is that most contractors in the landscape industry actually have room to increase the profit line on their financial statements and, despite what many think, it’s not just about adding sales! The real ticket to boosting your profits lies in understanding- and –maximizing – your capacity.
If you invoiced your clients for every hour worked with a proper allowance factor for non-billable hours included in the billable rate and if all of the material, equipment, and subcontracting items were estimated properly on every project, then a gross capacity can be easily calculated for your company based on the total number of hours your company has available to bill its clients each year. Once you understand how to calculate your gross capacity, you’ll see the important role “waste elimination” plays in improving your numbers. Extra crews and more sales may increase your capacity, but it’s going to cost you at the same time. Waste elimination not only saves you money, but it earns you more money in the process.
In other words, it’s not just what you add to the pot, it’s also what you take away that counts! Eliminating waste, inefficiencies and mistakes allows you to spend more time on the work that you can charge your customers for – the billable work. Every hour saved from mistakes or unproductive time is another hour you can use to get through billable work.
It has been my experience in working with hundreds of landscape contractors and dissecting their financial statements that the most common problem lies in efficiency. Most companies I have worked with are astonished to realize they are operating at 50 – 70% of their actual capacity. The unused capacity comes in many forms but ultimately it is waste. To reach your full gross capacity, you need to rid your company of inefficiencies. Unfortunately, waste can be difficult to detect upfront. It takes some work on your part, and some serious critical thinking to identify and eliminate waste. To help you get started, here are 9 different types of waste to look for:
1. Overproduction – Taking unneeded steps while producing the work and using the wrong equipment for the job. Examples include over-excavating areas, or spending too much time chipping or ‘crafting’ stonework.
2. Waiting – Waiting for information, decisions, specifications, material, specialized skills, subcontractors, or equipment.
3. Unnecessary Transportation – Moving equipment, people, and materials more than required as a result of poor planning.
4. Excess Inventory – Wasted inventory that doesn’t get used; bringing too much material to site resulting in loading, unloading, re-loading, and re-unloading.
5. Unnecessary Movement – Results from poor work area design – wasted motion field workers need to make to reach material or equipment during production.
6. Defective Work – Any work that needs to be re-done as a result of defects or changes in scope.
7. Extra Processing – Unused paperwork + reports, relying on post-work inspections instead of proper procedures, unnecessary, inefficient processes.
8. Unused Employee Creativity -Losing time, ideas, skills, or improvement ideas by not engaging or listening to employees.
9. Saying ‘No’ – Resisting change, ignoring waste, and not empowering workers to improve their work processes + procedures.
Eliminating these types of waste will help you reach your full capacity by turning inefficiency into profit. To help get you started, take a look at your workplace and, bearing in mind the 9 types of waste, consider the different behaviors and practices that contribute to waste in your own company. For more information on the types of wastes, check out the great book series: The Toyota Way (www.thetoyotaway.org).
A Lean Landscaping Production system is a waste reduction and continuous improvement system that will provide systems and processes to help landscape companies produce high quality services with an outstanding level of safety at a competitive price, while realizing exceptionally high profits and an increased work-life balance for the employees who follow the systems. We have followed these principles in our own landscape company for almost ten years and have consistently improved profits and employee compensation packages while working less year after year. At the heart of lean landscaping lies your people and your efforts for continuous improvement. By focusing on these key areas of your business, positive change begins to take place rapidly.
A well-planned hiring and recruiting system coupled with good training will help you find, hire and develop an empowered and capable workforce. The most important thing to remember here is TRAINING and INCENTIVE. If you want to see meaningful change – you need to get everyone understanding why the change has to happen and how it will benefit them. People don’t resist change – nobody resists change when it’s a raise or promotion. People resist change when they can’t see their benefit. You should have a plan, a system, and training in place to communicate the benefits.
Continuous improvement allows your company to reach full capacity. A landscape company that operates at full capacity is capable of compensating its employees much better than the current standard in the industry. People enjoy working in professional, well-organized organizations that have systems and processes to make work easier and more predictable. Organizations with systems and processes actually allow people a lot more freedom because the systems run the operation rather than a “micro-manager.” Employees are empowered to make good decisions based on the fact that they have a framework to follow and a repeatable system to use when attempting to complete their duties.
Lean Landscaping is founded on the following principles, as discussed in The Toyota Way (www.thetoyotaway.org) which will govern the way your company makes future decisions:
1. Long Term Decision Making – all of your decisions need to be based on long term improvements, even at the expense of the short term gains that could be made using easier or less expensive solutions.
2. Create Continuous Flow in every Process –systems and processes used in your operation need to be linked together to allow your team to communicate and eliminate the waste in the overall system. Estimates are linked to budgets. Job planners (crew goals) are linked to estimates. Job costing and accounting3. Material Management System – By using a proven material management system, field personnel can manage their material requirements more accurately which is often a major source of waste and a flow inhibitor.
4. Level Out the Work – By estimating and scheduling work using a proven system, a company can ensure that all of the work is being completed efficiently since it is much easier to manage the production needs.
5. Get it Right the First Time – By building a culture of stopping to fix problems as they occur and completing work properly the first time a company natural eliminates a great deal of waste that occurs in re-work.
6. Standardized Work –Creating standard operating procedures (SOP’s) will increase quality and speed simply because your employees can make independent decisions and complete their tasks with confidence.
7.Use Visual Aids – Adding signs and labels in your facilities and organizing tools and equipment on the projects with visual aids will eliminate a great deal of confusion and waste.
8. Embrace Technology – Using proven technologies to improve communications and obtain maximum efficiencies in all systems and processes.
9. Develop Exceptional Leaders – Hire and train the right individuals to supervise your people, implement the systems and build your culture.
10. Become a Learning Organization – By implementing the continuous improvement system and creating a culture of waste elimination your team will crave training and education to improve themselves and the company.
Waste doesn’t just cost money. In fact, the cost of wasted time, equipment, and materials isn’t even the biggest cost. The biggest problem with waste is that it robs you of billable opportunity. Every hour that is not spent going back to past jobs and fixing errors and every hour that is saved by following more efficient systems is an hour added to potential billable work.Focus on improving your team and operations with proper waste elimination training and free up more time for billable work. At the end of the day, billable work generates the maximum amount of revenue, benefiting company profit and producing a higher cash advantage for wages.
While all this may seem like a large undertaking, I can honestly say that it can be fun and it is very fulfilling. This is something that has no beginning and end. It’s something that will be with you and your company throughout your career. It’s a way of doing business. I can assure you that as a business owner if you are looking to make improvements in your work life balance, while increasing your profits and company performance, this is the solution.
Mark Bradley is president of The Beach Gardener and the Landscape Management Network. To learn more about waste elimination and understanding your capacity, check out www.landscapemanagementnetwork.com.