BE BAD

Employee Suggestion Program Cuts Costs, Increases Profits

If you want to succeed in business today, particularly in the face of increased competition from around the globe and the crisis in Asia, look for ways to eliminate waste and cut costs.

That's the message from John Tschohl, founder and president of the Service Quality Institute in Minneapolis. "Companies that identify ways to cut costs are rewarded with higher sales and greater profit margins and solidify their place in the market," he says. "On the other hand, companies that don't hit their earnings projections can lose 20 to 50 percent of their stock in less than a week."

Graco, a Minneapolis-based manufacturing firm, can testify to the truth of Tschohl's statement. When the company instituted several cost-cutting measures, it reduced expenses from 43 percent of sales in 1994 to 35 percent in 1997 and saw its stock price jump 60 percent.

Wal-Mart has reaped similar benefits. As a result of cost-cutting measures that included reducing the dollar amount of inventory on hand by $1 billion in 1997, the company's stock rose 20 percent during the first quarter of 1998.

At the other end of the spectrum, Eastman Kodak, facing increased competition from Fuji, recently announced that it will eliminate 10,000 jobs--10 percent of its payroll--in an effort to improve profits. In Chicago, Fruit of the Loom is cutting its workforce by 19 percent--2,900 employees--and is closing its Louisiana manufacturing plant.

How does a company identify areas in which waste can be eliminated and costs cut? "One of the most effective ways is through an employee idea campaign that involves the entire workforce," says Tschohl, whose company markets an employee suggestion program called Buck-A-Day, or BAD. The program, which is available in both English and Spanish, asks every employee to find a way to reduce costs by at least $1 a day.

"The problem with companies in this country is that they're only interested in ideas that will save $50,000 at a crack," Tschohl says. "But, if a company has 1,000 employees and each of them saves that company $1 a day, with an average of 250 working days a year, the company will realize a savings of $250,000. If the company generated net profits of 5 percent, those savings are equivalent to a $5 million increase in sales. It would take about $4 million in capital to generate that $5 million. It's less expensive to reduce costs."

The following chart compares the suggestion programs of Japan and the United States. Information was obtained from a Japanese Suggestion Association study and the Employee Involvement Association.

Activity	Japan	U.S.
Suggestions per eligible employee	32.4	.17
Percent of workers participating	72.0	6.5
Percent of suggestions adopted	87.0	35.0
Average award value	$2.50	$592.00
Average net savings per suggestion	$129.00	$7,906.00
Yearly net savings per employee	$3,792.00	$469.70

"Basically, through BAD, we're looking for relatively simple savings, small steps that can be taken to reduce materials or the time taken for a particular operation," Tschohl says. "The emphasis is on cost-saving ideas that can be implemented easily and that will have an immediate payoff. The idea is to get employees to consider each job and then ask, 'Is there a better, less-expensive way to do this?'"

The BAD campaign focuses on five categories: reducing costs, identifying recurring problems, improving quality, eliminating delays, and generating revenue. Although the idea-collection phase of BAD lasts only three weeks, the cost savings generated by the program have a permanent impact on the organization.

At American Bankers Insurance Group in Miami, Florida, 525 employees participated in BAD and offered suggestions that generated more than $170,000 in savings. At the Hospital of St. Raphael in New Haven, Connecticut, employees made more than 800 suggestions during the first four days of its BAD campaign. The Plastics Division of Mobil Chemical in Jacksonville, Illinois, received almost 1,200 BAD ideas from 950 employees, which resulted in estimated savings of $228,000. BlueCross/BlueShield of Memphis, Tennessee, tied its BAD campaign to its suggestion program a Kane Magnetics, headquartered in Pennsylvania, employed BAD last March and found that improved communications was a welcome byproduct of the program. During the program, the company established cross-functional teams of employees. "We didn't have more than one person from a department on a team," says Chris Tyler, president and CEO. "I was on a team with a fellow in production, who then felt comfortable coming to me with ideas. The program was a big help in getting people to talk to each other."

Kane Magnetics' employees submitted approximately 1,300 ideas, according to Paul Vavala, project manager. "There was some duplication, so we got about 400 usable ideas," he says. "We have already implemented about 20 percent of those ideas, which will result in savings of about $1 million, and we are investigating the other ideas." When all the ideas are implemented, however, Kane could realize a savings of up to $2 million, says Tyler, a return on investment of 140 to 1.

If any business is to survive in today's increased competition, it must cut costs. To do so, says Tschohl, it must involve every employee and study every opportunity to eliminate waste. "Most U.S. companies don't understand how important each employee suggestion can be," he says. "You have to identify every possible way to eliminate waste and save money. Consumers no longer will accept increased prices to keep companies in the black. If you want to survive, you must identify ways to dramatically eliminate waste."

John Tschohl is an international management consultant and speaker. Described by Time and Entrepreneur magazines as a "customer service guru," he has written several books on customer service, including The Customer is Boss, Cashing In, and Achieving Excellence Through Customer Service. As president of the Minneapolis-based Service Quality Institute, he has developed more than 26 customer service training programs that have been distributed and presented throughout the world.