On episode 8, “Don’t Settle For a Plate of Spaghetti”, we’re joined by Kyle Stemple, CPA, CGMA, principal & director of manufacturing services at Rea & Associates, specializing in manufacturing accounting and consulting. As a Lean Six Sigma Green Belt, Kyle will uncover some of the common inefficiencies that plague business owners and impact their profits. Additionally, during this session we’ll explore the business imperatives of maintaining effectiveness, along with efficiency, as a balanced approach for better business operations and maximum productivity.
Transcript
Mark: Welcome to Unsuitable on Rea Radio the unique financial services and business advisory show that challenges your old-school business practices and the traditional business-suit culture. You’ll hear from industry professionals who think beyond the suit and tie to offer meaningful, modern solutions to help you enhance your company’s growth. I’m your host Mark Van Benschoten. Today we’re going to talk to Kyle Stemple, who is a Lean Six Sigma green belt. Unfortunately, Kyle has seen some inefficiencies over the years. He’s going to share some stories today that help provide us with some easy solutions. Welcome to Unsuitable, Kyle.
Kyle Stemple: Thanks, Mark.
Mark: Really glad you’re here and you made the drive in. You were on time. I was late. I apologize for that. Before we get started, are you a fan of football?
Kyle Stemple: Of course.
Mark: Ohio State?
Kyle Stemple: Ohio State.
Mark: Would you say they’re efficient?
Kyle Stemple: At times.
Mark: At times? Where would they be inefficient you think?
Kyle Stemple: In the red zone, Mark …
Mark: In the red zone?
Kyle Stemple: … in the red zone, definitely, yeah.
Mark: How would you describe that to a football novice watcher, somebody who doesn’t know a lot about football?
Kyle Stemple: It’s about when you get opportunities to make sure you score on those opportunities. A lot of teams can move the ball within the twenties, between the twenties. Not too many teams can make it to get it in the red zone and then, in turn, get a touchdown.
Mark: I’m going to have you come to my house and explain that to my daughters so they can learn a little more about football. I appreciate that. You talk about efficiencies and opportunities. I bet that applies to businesses also. I think some people think of efficiencies as I need to get this out quicker. I need to issue this product faster. Is efficiency all just about speed?
Kyle Stemple: Mark, from how people look at efficiencies, when I talk about efficiency, I also have to use the word “Effectiveness,” because what happens is if we are in there talking about efficiency, what we’re telling our people is to speed up, speed up, and speed up. What ends up happening with that is if they’re making defective products or widgets, they’re just going to speed up the amount of defects they have. Not only do we need to be efficient. We also have to be effective in what we’re doing.
Mark: You mentioned widgets, which is the capture-all term when you’re describing any manufacturing. Does efficiency apply beyond the manufacturing side?
Kyle Stemple: Most of the very, what I’ll call, very successful business are both efficient and effective on both the shop floor as well as the office. Some of the biggest inefficiencies I see is the communication and processes between the shop floor and the office.
Mark: You said communication. I thought it was going to be verbal. It’s more than that.
Kyle Stemple: Communication in a business environment is much more than just verbal, written. It’s understanding businesses have to have sound processes in place to make sure that everybody knows what they need to do with that piece of paper, with that widget or whatever it is. It’s much more than what ends up happening is we’ve got to make sure that we have sound business processes in place rather than a bunch of personal preferences.
Mark: It’s not all about me is what you’re saying?
Kyle Stemple: Exactly.
Mark: Damn it.
Kyle Stemple: You’re a fast learner, Mark.
Mark: Please note that for my personnel file. You talk about inefficiencies, ineffectiveness. We talk about business and the shop floor. Would it be for an office setting, a service setting for our type of business?
Kyle Stemple: Most definitely, Mark. Lean Six Sigma has come a long way over the years. It obviously, got its start in manufacturing, the Toyota way and some different businesses that have done the factory floor. What we’ve found is everything, all Lean Six Sigma really has to do with is processes and quality. Everything we do in life, Mark, is a process. The way you do your hair in the morning, the way you brush your teeth, it’s a process. You don’t vary from that process. One of the things I found is now over time those processes change. I’ve been doing my hair the same way for the last five years.
Mark: What hair is that?
Kyle Stemple: Exactly. As you can see, it’s eroding. Two, three years from now, when I decide to shave it, I’ve altered my process. It’s actually going to make me more efficient in the morning.
Mark: You’ll get to work five minutes earlier?
Kyle Stemple: Exactly, think about that five minutes over a year, Mark. That’s some serious billable time.
Mark: You could tell it’s October, because …
Kyle Stemple: Exactly, exactly.
Mark: All right, a question I was going to ask later, but I’ll ask it now. Do you ever say, “Yeah, I’m efficient,” and you’re done, and you don’t worry about it anymore?
Kyle Stemple: No, I think the biggest thing with Lean and Six Sigma and process is that there is a term they use called “Continuous improvement,” because if you really step back and you look at your processes to see how efficient, effective they are, what you do, you find that there is little tweaks you’ll make over time. What happens is when you change one thing to make that piece more efficient and more effective what ends up happening, it might create another bottleneck down the line. We’ve got to focus on these processes and realize that we’ve got to look for continuous improvement.
Mark: I think it’s important, the continuous improvement that you’re always looking for. You’re never satisfied I would assume. How do you know when you have a problem?
Kyle Stemple: One of the easiest ways that I always like to explain to people is that what you’ve got to do. You’ve got to step back and, what I’ll call, “Map out” your processes. Whether you’re a manufacturer and you’re going to map out the flow of raw material through your process to the end product to the shelf and to the shipping point or whether you’re in an office atmosphere and you’re tracing that paperwork through your billing process. You’ve got to map out those processes and see that they flow very, very well. I always say if you do that and you’ve got something by mapping that out and you’re drawing lines and it looks like a plate of spaghetti, you’ve got a problem.
Mark: You could have a problem and not even be aware of it.
Kyle Stemple: Most definitely, Mark, I think that even some of the best and most successful businesses I’ve ever seen always have room for improvement. A lot of times, they don’t even realize they have an issue.
Mark: Just thinking about myself, and my processes that I go through and I do have a little more hair than you, maybe [each don’t 00:06:48]. That’s intriguing. You map this out. You just don’t address it when you feel you have a problem. You step back, look what you’re doing, see if you … That’s an excellent point. I had never thought about that, Kyle.
Kyle Stemple: Mark, I think you know what happens is that what we find in our processes whether it’s our everyday life, whether it’s here at Rea, whether it’s a business owner, is that something leaks through the cracks. Something is an exception. Something is out of the ordinary. What we end up doing, rather than stepping back and looking at our entire process to see what happened, we basically, put a Band-Aid on it. Basically, what we’ve done now was we just add an additional step to the process to make sure that something never happens again when in all honesty, it might not have been an issue. We are all human. We all make mistakes. You don’t manage your process to every exception. There are going to be exceptions out there.
Mark: You’re a business owner. You’re an executive. You maybe even run a nonprofit. I assume there will be applicability to exempt organizations.
Kyle Stemple: Yes, Mark, like I said before, everything we do, whether it’s in our personal life, in our business life, nonprofit, for-profit, everything we do it all surrounds around processes.
Mark: I’m operating. Revenue is up. Costs are down. Receivables are being collected quicker. I’m probably going to be and it’s like I’m doing a pretty good job of efficiency. If I hear you correctly, you need to step back and still take a critical eye to what is going on.
Kyle Stemple: Most definitely, Mark, one of the things you’ve got to look at is you’ve got to look at that process as a whole. Inefficient companies can still make money. It’s just a matter of what I’ve found when I’m out consulting is hey, business owner XYZ, hey, I made two-hundred thousand dollars. Why didn’t you make four? The problem is a lot of business owners can’t see the problem in front of them. They’re making money. They’re doing okay, but are they really making what they should?
Mark: Why do you think that businesses’ processes are inefficient? What do you think causes it?
Kyle Stemple: Personal preferences, I think what ends up happening is a lot of companies, in my opinion, most companies don’t have true formal processes in place. What ends up happening is that their processes are made up of a lot of people’s personal preferences. What I mean by that is that John has a process for AR and Betty has a process for AP. If those people aren’t there, can someone walk into the position and know exactly what the company’s process is, not John and Betty’s process?
Mark: Is there anybody ever do a study as to the cost of inefficiencies, an average business can improve by X amount? Has anybody ever done a study like that?
Kyle Stemple: I don’t know if there is a specific study out there. I am sure there’s all kinds of statistics we can find by industry and that. What I do a lot with clients when we’re consulting and we’re looking at their results of their operations and that and are they … I do work with a lot of manufacturers. I’ve done everything from help them set up their shop floor to time studies, to identifying their bottlenecks, figuring out what are their true costs of manufacturing that product? There is just so much that you can see when you start looking at those numbers. In my opinion, numbers don’t lie.
We can always come up with exceptions. Some of these things you say, “Yes, there is an exception.” The key is we’re not managing to those exceptions. When you start looking at that stuff apples-to-apples, you’re really going to find out that there is lot of … I’ll go with I try to keep business pretty simple. You look at a company, revenue. Let’s talk about revenue for a second. Revenue in my opinion, you don’t have a lot of control over it, meaning and what I mean by that is that our price that we charge for our product or service is market-driven. Unless you have something that’s just out-of-this-world and nobody can replicate it, the market and our economy …
Mark: Dictate it.
Kyle Stemple: … drives the price. The only thing in revenue I think you’ve got a lot. You’ve got some decisions as a business owner is who do you want to do business with? Now, when you look at the cost side of the equation and you take those same things, whether you’re in a service industry like we are, Mark, and seventy-five percent of our costs are payroll-related or whether you’re in the manufacturing business where you’re buying commodity products to manufacture your good, guess who determines price, the market. The economy determines price.
Mark: Same, yeah.
Kyle Stemple: I think the biggest opportunities in businesses today is your number one asset and what you can control are your people and your processes. In all honesty, the businesses that go from good to great and that are really going to go above and beyond are the ones that have good processes and have great people.
Mark: Do you encourage the customers, your consulting clients, or just any individual to … Is it a continuing education of the process? Do you hear just that constant feedback, here’s what’s going well?
Kyle Stemple: Yeah, one of the things when you look at Lean Six Sigma, one of the thing, one of the biggest drivers is the voice of the process and the voice of the people. One of the things I really advise clients to do is really to dig in and ask their employees how they think how we can be better and how we can change because nine out of ten times, nobody knows the work better than the people doing the work. If you rely on your employees and you really dig in and ask them what they believe that we can make better, most of the time, they’re going to have the answers.
Mark: Do you have any stories you can share with us on that, Kyle?
Kyle Stemple: Yeah, for example, you talk about, I can go back and talk about what the client. They were building a new location, a manufacturer. They were looking at how should I set up this building for the flow of our raw materials in the building to our shipping of the product out? What we did is we started looking at the building. We started looking at the setup. We actually then turned and mapped out the whole building space as well as their equipment, the size of their equipment, and the flow through that building to get their equipment out in the most … Basically, what we want to do is minimize the amount of touches and minimize the amount of rework and loops in the processes.
Mark: You’re doing with the employees who would actually be working on that, on the …
Kyle Stemple: Most definitely, Mark, like I said before. When you sit down and you’re doing that, the employees know more about the process than we do.
Mark: That must be hard for a business owner to accept, right?
Kyle Stemple: It is at times. The fact of the matter is, if they build a great environment and they’ve had a great culture, business owners, the best business owners that run the most successful businesses are the ones that at times sit back and listen to the employees. If you do some teamwork and you do that and you work through those processes, and you think them through you can come up with world-class processes and improvement ideas and great processes.
Mark: I’m getting the sense this doesn’t just apply for the hundred-million-dollar manufacturing company or the hundred-million-dollar service organization.
Kyle Stemple: Not at all, Mark, this is from as little a companies that have five-hundred thousand to revenue to a hundred and fifty million. One of the things you’ll see is a lot of large manufacturing-type companies that have sizable sales have these type of people, Lean Six Sigma green belts, black belts, master black belts, actually in-house. When you get down to what I’m going to call the “Core” of our business, anywhere from that two million to twenty-five-million-dollar space, they normally don’t have the resources and that to have somebody in-house. That’s probably where the core of our consulting and our ability has been able to help some of these clients to succeed.
Mark: Do you enjoy it?
Kyle Stemple: It’s awesome. The best thing for me is anytime. I don’t enjoy sitting behind a desk. I don’t enjoy clients coming into the office to meet with me. I would rather get out to their locations. There is nothing more than understanding their company not just from the number standpoint, but understand what operations and activities are driving those numbers.
Mark: When you’re out there with clients, typically we meet with the CFO, the accountant and the owner. Do you ever just talk to maybe a plant supervisor something like that?
Kyle Stemple: Yeah, one of the things that I always ask clients to do is give me a tour because there is a lot. I call it, “Management by walking around.” There is a lot that you can learn just by walking through their operations. Then I try to get them and I always try to set them up to get me, to take me through their process beginning to end. Where does your raw materials come into the building? In a service industry, what is the first point of contact? How does that move onto the next stage? Basically, what you’re trying to do is get an idea in your head of how that information or that widget is flowing through the process.
Mark: You mentioned the example, an inefficient business made two-hundred thousand. The question is why didn’t they make four-hundred. I view that as potential. That’s what I try to stress to people in my life. Let’s try to reach our potential. We’re always striving for that. It sounds similar. Efficiencies lead to not [hitting 00:16:39] potential. Then we take those out of our system and we’re going to be reaching our potential.
Kyle Stemple: Exactly, trying to get everything you can out of your employees and the business and that and really working together to get everybody rowing in the same direction.
Mark: It doesn’t mean working five extra minutes a day. It means understanding the process, what’s the best process, working as a team to develop that process, evaluating it.
Kyle Stemple: Most definitely, I always like to call that, Mark, “Working smarter, not harder.”
Mark: That’s a good point. We’re running out of time, here, Kyle. One question we ask every guest. If you could have one super power, what would it be?
Kyle Stemple: X-ray vision.
Mark: We’ll stop there. Thank you for joining us on Unsuitable today, Kyle. Listeners, do you have a question or topic you would like us to tackle? We’re always up for suggestions. You can email us at rea.news@reacpa.com. Don’t forget to visit our website at www.reacpa.com/podcast for past episodes and additional resources. You can also subscribe to Unsuitable on iTunes and never risk missing an episode. Until next time, I’m Mark Van Benschoten for Unsuitable on Rea Radio encouraging you to loosen up your tie and think outside the box.