Process Optimization and the Current Financial and Economic Crisis

One of the main mantras I have heard over my working life is the phrase — ‘squeeze out the fat’. Process optimization has been a major contribution to profit margins in many businesses — the same businesses that are suffering in this current collapse.

Not only do we find companies that have moved from maintaining a cash balance to cover current payables such as procurement and payroll into more innovative approaches to fund these routine activities from a credit line or other borrowing. But places such as where my wife works that have systematically cut back on staffing and de-skilled shift roles so that even though education requirements are being raised for nurses — university is not enough, one must have advanced degrees, more jobs are being moved to less educated staff (registered practical nurses). In the past, staff levels were set based on average patient loads — so if the load dropped there was more time for training, and if it increased then folks were just really busy. Now the staff load is varied by demand — scheduled staffing is kept to a minimum and when workloads change everyone scambles and pulls in extra people, so personal lives take a toll. In the same way, many places changed their inventory practices to minimum stock and use of ‘just in time’ approaches to push the cost of supply assurance to someone else (often someplace else).

But when conditions change — increased border security slowing goods transit, sickness reducing the available staff, global credit collapse cutting off funding, the situation changes rapidly from ‘good management and cost control’ to chaos in very short order — with a liberal helping of gloom and doom. There are no reserves to draw on.

It makes me wonder if folks have forgotten what fat is all about — it is personal insurance against uncertainty, a buffer against the unknown. This is different from process inefficiency and waste, but do we discrimanate? Can we tell the difference? Seems we have lost the sense of uncertainty about life and decided to work without a net. And when life demonstrates that we are not in control, we prefer to be abused rather than dig into the storehouse.

I would hope that one of the results of the current chaos is a reinstated respect for buffers against uncertainty and why we are all provided with fat. We have survived because we are endowed with protection mechanisms against uncertainty, seems that it is time to put some of this back.


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