Productivity Leads to Profits

If we hire another salesperson, operations has to be able to deliver. People are already working hard within the constraints of their available hours – and they are worried about things they’re not getting done now. We don’t want to fail to deliver. What happens when sales picks up?

Thoughts of the day: Look for systems- enhancement opportunities. Build the organization from the bottom up, adding extra hours at the lowest possible cost. Keep a lid on overtime, whatever you do. Work with sales to build in margin for things customers want. Reforecast weekly, with a 12-week look-ahead to stay on top of potential increases.

Are there new or updated computer systems that will boost efficiency anywhere along the line, from order-taking to production, to delivery, invoicing and collections? Use leases of equipment and software to keep costs down and spread the investment out over time while pursuing efficiencies. Run a forecast of costs and savings to be sure upgrades will lead to improvements in the bottom line.

Use processes to cut out waste and increase efficiency. Take a look at how routine and smooth all of the production work is. Ask employees to track and report on errors. Use those reports to find and fix problems and thereby reduce production costs. Consider sharing a portion of the cost savings with employees as one-time bonuses, as a reward for thinking about how to do things better.

Most employees are looking for opportunity to boost their personal income. Eventually they’ll look for jobs outside the company if they can’t get big enough raises internally. Keep the best employees close by giving them opportunities to increase skill, responsibility and pay. Teach employees that raises beyond cost of living are earned and reward people who take the initiative to produce more, faster.

Identify several areas of production that would benefit from upgrading skills and improving how things are done. Keep good employees fully employed in slack times by devoting a percentage of work time to education. Test out new ways of doing things when it’s not so busy so it’s clear where changes will deliver bottom-line results.

It often seems easier to let employees earn a bit extra by letting them take on overtime when things get busy. Make sure only a few hours of production each week come from overtime. It’s cheaper to take on a few hours of overtime than it is to commit to a full-time, or even a part-time, employee week in and week out. If things go beyond a few hours, the profits from additional sales can go right out the window.

When production starts to pick up, put out ads for new hires and start interviewing. Line up several good production candidates. If things stay busy, once specific positions exceed 10 to 20 hours of overtime – which, at a time-and-a-half pay rate, is worth 15 to 30 hours of straight time – it’s probably time to make an offer to one or more qualified candidates.

When sales first tick up, the sales team may hesitate to increase prices. Those initial extra orders seem so wonderful, the temptation is to not risk losing anything by negotiating. That has to change quickly, as increased production will use up old inventory and ordering new materials will probably cost more – and then there’s that overtime to pay for.

Have a meeting each week to monitor backlog, delivery schedules, production snags, inventory status, workforce depth, sales pipeline, profit margin and hot customer and prospect needs. Have both sales and operations sit down to talk about what’s coming and brainstorm how to manage through any bubbles.

Set up a flash report that helps identify trends as they flow through from pipeline to orders to production and profit. Graphs are usually easier to read than raw numbers. Post information so employees can talk about results and contribute ideas on how to make things better.

Looking for a good book? Try “The Improvement Guide: A Practical Approach to Enhancing Organizational Performance” by Gerald Langley, Ronald Moen, Kevin Nolan and Thomas Nolan.

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Inventory is an Effective Tool for Saving Money and Planning

Last time we did inventory was 3 years ago. Inventory is a big project. It takes a lot of time and manpower to do it. Know our counts are off, but not sure how much value we’d get from doing a complete inventory count, especially when compared to what it would cost us.

Thoughts of the Day: Inventory counting is easy to put off, but prioritizing the activity can have significant benefits. Keep in mind that things are much more likely to be treated with care, tracked and accounted for, if people know you’re watching. Set up a place where inventory gets counted, assign duties for counting, write up guidelines on how a count gets done.

Need a reason to do inventory? How about these?
• Your company’s hard earned money went into purchasing inventory. If goods disappear, become obsolete, or just sit around and collect dust, it’s like throwing money away.

  • Margins can look better or worse than they actually are if inventory is under or over reported. If you don’t know what things cost it’s impossible to plan.
  • Without regular inventory counts you have no way of knowing for sure what’s on hand.
  • Excess inventory takes up space in the warehouse, and warehouse space costs money.
  • What happens if all or part of your warehouse is damaged or destroyed. How will you prove what you had on hand? In the meantime, how do you know if you have enough / too much inventory insurance?
  • Without an accurate inventory count it’s easy to get caught short of the most essential and fast moving items. When that happens rush order and express shipping costs get added onto your purchases. That erodes your margin.
  • It’s also easy to bulk up on inventory items that are no longer moving quickly. A periodic review of what’s in inventory would show where you had excess stock on hand. That would be your signal to cut back on the frequency of orders for those parts. Having to write off inventory parts that don’t move can be costly.
  • Your bank will lend against inventory if it knows what you have on hand. Miss an opportunity to show the bank hard assets and you’ll end up paying a higher interest rate for an unsecured credit line, if you can get one.
  • Consider what inventory would be worth if it was out working for you, producing revenue from customers. If it sits around unused, you’ve lost the opportunity to turn inventory into something worth 2-30 times what it cost you.

Convinced it’s worth doing an inventory count? Here’s how to get started. Build a checklist of standard inventory items. Use it to help your people know what inventory they should be looking for. Set up a schedule to regularly count portions of the warehouse, instead of trying to do it all at once. Make notes on where specific inventory is kept, so you can find it more easily the next time.

As you go through the inventory count, record what’s in use and what seems to be obsolete. Set aside obsolete items and assign someone the job of looking for a secondary market to buy those items. Check if goods can be returned to the manufacturer. Keep track of inventory that is damaged. That’s the responsibility of the warehouse. Ask them to be accountable.

Do an internal inventory of items such as trucks, office furniture, computer equipment, office supplies, etc. Laptops, keys and cell phones can be especially problematic to keep track of as people come and go from the company. Make notes on items that need to be repaired, refurbished and replaced. Plan orders to match the company’s cash flow cycle.

Have people who do not regularly handle inventory do the count. Ask the people who are regularly touching the inventory to step away, do something else for the period of time that the count is going on. Consider hiring temporary help to assist in the counting process.

Make space to count items. Assign space on shelves to specific inventory, and check that’s the only thing on those shelves. Anything that doesn’t belong, move it to a holding area until it can be given a location and added to the list of standard inventory to be counted.

Make notes on inventory findings. Share those with warehouse, operations, and finance staff. Agree on changes that need to be implemented to increase control in the future.

Looking for a good book? Accounting for Inventory, by Steven M. Bragg.

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Set Standards to Help Family Business Thrive

We have a few family members in the business, and a lot of tension. It’s important to me that we learn how to get along at work, so that we don’t tear the family apart. It seems like a lot of the disagreement happens when it’s not clear who is in charge, or when one family member has an opinion about what is or isn’t acceptable for another family member to be doing. Does this happen in other families? And what can we do to make things better?

Thoughts of the Day: Just about every privately held business is family owned in some aspect, and therefore open for conflict. Laying out clear lines of authority can help. Allow people room to make their own decisions, backed up by charging everyone with responsibility for fixing their mistakes. Set rules to clarify level of authority and decision making power. Set goals to get everyone on the same page.

Whether the business gets discussed at the breakfast table or staff meetings, anytime that family members weigh in with their opinions there’s opportunity for conflict. Conflict can be deep seated, loaded with family baggage and complicated. Assessing a family member’s ability to perform can be clouded by your relationship with them. Add in the challenges and pressure that go with running a business and you could be sitting on a powder keg.

Surveys indicate that over half of all privately held businesses have 2 or more family members working together in the business. While the majority of business owners indicate they’d like to have a family member take over, only around 1/3 believe that will actually happen.

With the odds so much against making a great success of employing family members, why do so many try and make a go of it? There are lots of reasons:
• the chance to share in building something
• opportunity to keep family members close
• pride that comes from pursuing and succeeding at a common purpose
• creating possibilities for family members to try their wings

The trick is to remain focused on the opportunities, and to avoid the downsides. Start by agreeing who is in charge of what. Draw up an organization chart. Assign duties and create individual job descriptions. Where there’s overlap, decide ahead of time who will be in charge in case of disagreement.

Learn when to keep your mouth shut. Most people are way too free in the way they dispense advice to others in the family. Doubly so, when working together in the family business. Avoid laying blame, demanding answers, or otherwise communicating in anything other than a totally professional manner, especially when talking with other members of the family.

Set up separate work spaces, so that each family member has a place to go to. In times of conflict, encourage the use of space to cool off. Instead of forcing family members to continue engaging, walk away. Learn to table discussions before they become heated. Come back to debate topics when all participants have cooled off.

Once assignments are handed out, expect all family members to step up and tackle what’s on their plates. If they’re not ready for the responsibility, consider the options – reduce duties, get training, assign a mentor. If mistakes get made, hold family members accountable for fixing the problems they created. Don’t step over them to take charge.

When you first start working together, or by the end of today if you’re already working together, set up rules on how decisions get made. For example, if the decision falls in an area that reports to an individual, they get total support from other family members for any decisions they make related to that area. Decisions that cross departments need agreement by both department heads. Define how far any one family member can go in binding the company, spending money, giving out orders to employees, hiring, firing, etc. Set up a committee to arbitrate disputes.

Family members generally want what’s best for the company. They want the company to thrive, and it’s in their best interests to make that happen. Conflict usually erupts around the tactics of how to get from here to there.

Brainstorm, and use goals to create a picture of what the future can look like. Post those goals, and refer to them regularly. Check that everyone is clear on the next steps that need to happen in order to work towards goals. Review progress regularly to identify what’s working, and where people may need additional support.

Looking for a good book? Family Business Governance: Maximizing Family and Business Potential, by John L. Ward and Craig E. Aronoff.

 

Andi Gray is president of Strategy Leaders Inc., https://www.strategyleaders.com, a business consulting firm that specializes in helping small to mid-size, privately held businesses achieve doubled revenues and tripled profits in repetitive growth cycles. Interested in learning how Strategy Leaders can help your business? Call now for a free consultation and diagnostic process: 877-238-3535. 
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Bringing family into the business has its risks

“I want to bring my son into the business. He runs a business of his own that is related to what my business does. I am concerned that his business doesn’t make enough money to support him, and as his life progresses, a family as well. What do you suggest?”

Bringing a son or daughter into an up and running business is the dream of many parents. Unfortunately it’s a dream fraught with challenges. The success rates of second- generation companies are only slightly better than those for a startup, which should really make you take pause.

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Succession planning in a family-owned business

“This family owned business was started by my parents, and I need help with ownership transition. I?ve been working here nearly 10 years. My problem is this: I can?t get my parents to let go. Each year I take on more responsibility. And each year we have more disagreements about how things should run. For example, when it comes to strategic planning – we have nothing on paper. I know they mean well, but their need to control is frustrating, and it gets in the way of progress. Since they?re the majority stockholders, there?s not much I can do about how decisions are made when there?s a disagreement. I feel like I?m walking through quicksand some days.”

Generational transfer and family business ownership can be very tricky issues. Family businesses survival rates are low: less than 1/3 make it to the second generation, less than 1/6 get to the third. This low business survival rate exists, even though the turnover volume is high: close to 90% of U. S. businesses are defined as family owned and statistics indicate that over 1/3 of them are dealing with inter-generation ownership transfer issues right now.

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