Entries Tagged 'Operations' ↓

My service manager just passed a letter to me. It came from an irate customer. I think the customer is dead wrong, and just blowing off steam. What do you think I should do?

Thoughts of the Day: Whether your company is right or wrong, this customer just did you a favor. Think about the reasons listed in the letter. Decide who’s accountable for the loss, and make them become part of the solution.

Every lost customer is an opportunity to learn more about how your company handles itself. Consider this a wakeup call. Even if you can’t get this customer back, you can try to figure out who’s likely to leave next, and what to about it.

Because this customer just wrote a letter, the door to communicating is open. Seize the opportunity. Write back, and follow it up with a phone call. Minimize damage from this loss as you learn what to do to insure future customers stick with your company.

Let the customer know you appreciate the feedback. Say that it’s not the policy of the company to frustrate customers, and that you want to learn more about what happened. Even if the customer is in the wrong, find out why there’s a mismatch between customer expectation and your company’s ability to deliver.

Get to the bottom of the disconnect. Check out all notes on previous transactions. Ask yourself, and your employees a number of questions.

• Should your company have taken on this customer to begin with?
• Did the relationship shift from good to bad, and if so, what caused the shift?
• What did this customer need that your company couldn’t supply, but could supply in the future, and how could your company make money doing so?
• What would it cost to get the customer back, how long would they stick around, how much would they buy, at what profit? Is it worth trying to get them back?

Perhaps your staff didn’t understand how to take care of the customer. Or, they could have thought the customer’s requests were unreasonable and they acted to protect the company. Whatever the reason, make sure that employees understand the cost of the loss and become part of the solution for making it up.

When sales is charged with getting customers, and operations isn’t charged with keeping or replacing lost customers, a revolving door can open up. Work comes in the front door, and quickly goes out the back door. Sales costs increase as word gets around that your company has problems keeping customers. Opportunity to disperse the cost of sales across multiple orders is gone as customers quickly pack it in.

Instead put performance review measures in place that make people in operations take the hit for lost customers. Have a hand-off process between sales and operations when new customers come on board. Once operations accepts the customer, it’s their baby to keep.

Consider if there’s a need for training. Do people in operations make the connection that customers pay for their jobs to exist? Do they have the skills to communicate effectively, especially when there’s a problem? Can they conduct diagnostics and create alternate solutions?

Make operations responsible for the solution. You may want someone outside of operations to do the direct research with the customer, to avoid head butting and to get accurate feedback. Once the feedback is in, however, turn back to operations and ask how they’re going to make up for the loss. What can they do to expand other customers? Do they need to cut back personnel to preserve operating margin?

Looking for a good book? Strategic Customer Service: Managing the Customer Experience to Increase Positive Word of Mouth, Build Loyalty and Maximize Profits, by John A. Goodman.

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My head of operations had a less than positive annual physical. Nothing life threatening, but the warning about physical health was a wake up call for all of us. Things should be in place, in case something happens to her, or anyone else in operations. Our clients depend on us to deliver as promised. It’s important. What do you suggest?

Thoughts of the day: Get organized by laying out the chain of command and who does what. Document processes and standards. Get people trained. Practice by removing key players.

The first question to ask is: Is there an organization chart for operations, and is it detailed enough? Put down on paper who reports to whom. If responsibilities overlap, show every reporting line, and why people go to one person rather than another.

Map out the functions that happen in operations, from the time a customer places an order, until the order is out the door and the customer is satisfied. Put each activity in a box with arrows showing the progress from one box to the next. Indicate who typically deals with the tasks described in each box.

Define individual jobs. Which person does what? How do people hand off tasks that are described on the operations map? Who is responsible for quality assurance? Customer communication? Who do people go to if there’s a problem.

Define the standards. What is an acceptable error rate? How long should it take to complete specific processes, and tasks within processes. What’s the minimum and maximum order range, for materials that are kept in inventory?

Perfection is usually not worth the cost. Some degree of error is usually acceptable, as long as there’s also a recovery process laid out that gets implemented whenever errors happen. If things need correction, show the return route they would take through the Operations Map.

Consider doing time and motion studies, including pictures. Document what people do, to produce the goods or services that the company delivers. How long should each step in the process take to complete? How long is too long?

Write out the answers: Who purchases materials? Who are the preferred vendors? What price list, or price history, gets referenced when placing an order? What materials have negotiated deals?

Define how inventory gets counted, and who’s responsible, where inventory is kept, who has access to it, and how it’s organized. Take pictures of inventory storage and put them into a book. Make it easier for the next person to visualize what inventory should look like.

Document key contacts outside the company. Some vendors and customers are contacted regularly. Make sure there’s a list of who to go to, for what purpose, including phone, email and snail mail addresses. Remember to include auxiliary vendors, such as banks, trucking firms and IT support.

Once you have everything mapped out and documented, it’s time for training. Make sure every person, up through the top dog, has a back up. Have the back up shadow the person they’re replacing. Then have the primary person take a day off and leave their job in the hands of their replacement.

Regular meetings of all players involved in operations can speed communication and reduce gaps if someone is suddenly called away. Meet weekly to discuss overall operations. Meet daily to plan how the day will go, to recap the previous day and to address problems and other open items. These meetings are where you can share information, brainstorm, and catch small problems before they become big ones.

Consider a weekly quality meeting, and another to discuss customer relations. The meetings don’t have to be lengthy, but holding them regularly is important. Include more people from operations, rather than less, and consider inviting people from other areas of the company as well.

Build an operations manual, documenting everything that happens. Make it a bible. Train people to use and update the manual, as they learn tasks and take over responsibilities.

Looking for a good book? The Disaster Recovery Handbook: A Step-by-Step Plan to Ensure Business Continuity and Protect Vital Operations, Facilities, and Assets, by Michael Wallace and Lawrence Webber.

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The work we do is so labor intensive. And, we don’t have a lot money to throw at the problem right now. I feel like we’re caught between a rock and a hard place, wasting money doing things inefficiently, but afraid to make a substantial upfront investment to improve profits down the road.

Thoughts of the Day: Don’t try to solve the entire problem at once. Use trials to see what has the greatest impact. Ask vendors for financing terms. Think two steps down the road.

Before trying to implement automation solutions, make sure you have an efficient work process laid out. You may find cost reductions simply by better organizing workflow. At the very least, eliminate glitches in the current workflow, so that problems don’t carry over into the new automation systems.

Form a project improvement team, made up of people who are doing the work day-to-day. Ask them to step back and look at how work is handled, from start to finish. Assign a specific group to analyze repetitive tasks and find ways to streamline.

Organize tools, materials and personnel. Make the most commonly used materials and systems the most accessible. Cut out time wasted looking for used items by assigning locations for everything. Figure out ways to standardize, leading to efficiency with training, ordering, and quality management.

Reduce idle time and waiting around by changing the order in which tasks are completed. Consider assigning specialists to handle tricky as well as repetitive activities. Build routines by handling repetitive work at the same time each day, or week, if possible.

Define standards for acceptable work product. Sometimes “good enough” isn’t. Other times the effort to produce “the best” is wasted on customers who would have been happy with “good enough”. Find out exactly what customers want, and build those requirements into what’s produced. Consider opportunities to raise prices as delivery speed and quality improve.

If problems crop up repeatedly, find out why. Look for glitches due to lack of material and equipment, as well as the need for training. Higher than expected error rates are warning signs. Once the bugs are out manually, only then is it time to automate.

In today’s fast changing automation world, solutions are plentiful, and can range in price from extremely expensive to down right cheap. Some options work better than others. Many of the end-to-end solutions don’t produce as much efficiency at each step as smaller, more targeted solutions.

Once the project improvement team has laid out optimum work flows, have them research automation solutions. Suggest they look at smaller solutions to start, picking pieces of the system to automate. Ask them to set up a process for looking at, and evaluating, options.

Don’t just rely on proposals to gather input. Find out what works, and what doesn’t by visiting companies, talking with people who are working with tools you’re considering. Look for parallels to work done in your company. Explore benefits of hand held tools – for minute-by-minute data gathering and information exchange.

Encourage debate. Focus the team on finding the best solutions. Keep people from getting trapped into defending an option just because they’ve researched it.

Build a budget and a priority timeline. Don’t confuse expense with value. Prioritize automation solutions as most likely to reduce waste, and make work go easier and faster, resulting in better quality outcomes and higher profits.

Pick one or two solutions to start. Budget money for training and downtime as people learn to do things a new way. Ask vendors for help with training and financing.

Don’t try to pay for everything upfront. Finance the purchase, giving improvements time to pay for themselves. Predict the return before making the purchase, and hold everyone’s feet to the fire to deliver profits as predicted.

Encourage the team to look ahead 3 years and debate how work and customer demands will change. Ask them to consider what will need to be handled faster and cheaper, what will be eliminated. Build a timeline and budget to implement changes, taking into account their future forecast.

Looking for a good book? Pull Production for the Shopfloor (Shopfloor series).

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What’s the right amount of overtime? Just spent the weekend looking at costs and found that we are spending $3,500 – $4,000 / week in overtime. Seems like it’s becoming a habit for everyone here, one that’s costing me some serious money. Bet we could cut out $100k per year, easily, from our expenses, if we cut out overtime. On the other hand, I don’t want to commit to additional staff in uncertain times like these. If things slow down, I can reduce overtime more easily than I can staff. Would appreciate your input.

Finding the right balance between overtime and full time is tricky. Make sure you understand the real cost of labor. Keep competitors at bay by promptly handling customer requests. Control overtime authorizations as the business grows. Do what you can to add new talent at a lower cost.

Make sure that you’re charging enough to pay for all employee costs. Calculate the  MINIMUM amount your company should charge for an hour of labor, just to break even. Add up both direct costs – labor including overtime – and indirect costs such as health care, uniforms, cell phones, etc. Divide an individual’s total cost by the company’s gross profit % goal. That’s your minimum. Double the minimum to insure your company is making money. If your customers won’t pay that, you’ll have to figure out how to operate more cost effectively.

If you can’t afford overtime, consider putting employees on a 35 hour work week. If you have to flex up hours, the next 5 hours are at regular time, not time and a half. Hire additional staff to fill the cut back gap. Put a strict limit on overtime, as in ZERO, except in case of emergencies when customers will pay extra.

Most companies today report that their backlog of work is shorter. They are working hard to meet quickly with customers. Keep competitors away by making sure that customers needs are promptly handled. This means that a steady pool of labor has to be available to quickly ramp up when groups of customers call in at the same time.

If you think you can afford some overtime, do a comparison calculation. Note that many of the extra costs, health insurance, bonuses, and field related costs such as mileage and cell phones, don’t increase with overtime. But they may increase if you add staff. So an hour of overtime may be less costly than it looks, when compared to adding staff.

Consider using overtime selectively to  reward employees who are willing to go the extra mile. Some companies find that in this recession they have cut back on bonuses, cost of living and performance increases. Selective overtime helps employees close the income gap they may be feeling at home, while getting additional income from clients to pay for the increase in payroll.

Make sure you’re not going overboard with individual overtime authorizations. As people work additional hours, they can get tired and slow down. Overtime often cuts into productivity and leads to increased mistakes, which can be costly to correct. Limit the number of overtime hours each employee is allowed to work, and monitor quality to insure people can keep up with the additional workload.

If customer volume stays up, then consider hiring. Think about starting with part timers who willingly pick up additional work when it’s available. Use new temporary and part time help to build up the company’s future labor pool. Make sure that part time employees’ goals include working their way up to full time hours.

Managing overtime is a day-to-day call. 5% of payroll going to overtime isn’t tragic. If 30% of payroll is going to overtime hours, it’s time to look for the next hire. Focus experienced employees on the most technical work. Bring in new people at a lower pay scale, and have them do more entry level work. Watch labor costs drop dramatically as you shift costs around.

Looking for a good book? No Boundaries: How to Use Time and Labor Management Technology to Win the Race for Profits and Productivity, by Lisa Disselkamp.

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I’m starting to think about selling my company. What can I do in a short period of time to prepare?

Figure out what you want from the sale. Make sure the financials tell the story you want to tell. Do what you can to get the business to run without you. Decide who will most likely value what you have, and who can afford the purchase. Build a team of advisors and a back-up plan.

Start with some basic questions. Do you want out, cash in hand? Do you have a minimum amount you need to make from the sale? Do you want a job with the new company? Are you planning to do additional work in the industry, or do you want to walk away and never look back?

Can I produce reports that show a clear picture of the business, both the strengths and the weaknesses? Do the details match my story of what I’m selling, and why? Do I have a financial advisor who can talk with a potential buyer and support the selling process?

How much of the company depends on me? Why would a buyer purchase the company, if the company is just me? Who can step up to do what I do? Do the people in my company have an incentive to stick around through a sale process?

Thinking through a list of potential buyers is crucial, and goes back to your earlier questions about what you want out of the deal and what are your company’s strengths and weaknesses. You probably know as much as anyone about other players in your industry. That’s an obvious place to look.

Once you’ve gone through industry players, start to list less obvious options. Who is looking to get into the industry? Who wants clients and client relationships like the ones your company has already built up? Who is looking for proven human capital talent? What processes does your company have in place, that you’re particularly good at, and who would find those a benefit in their business?

Get your financials well organized and clear so a buyer trusts what you’re telling them. Don’t be afraid of showing your company’s weaknesses, such as too much overhead, not enough sales, too much debt, not enough reserves. Many buyers look for problems they can fix and profit on. And the problems will come to the fore when you go through due diligence, so you might as well be upfront about them.

You may or may not want to tell your team that you’re thinking of selling. On the one hand, they’ll figure out something is up sooner or later anyway. On the other hand they may get nervous and start looking for a job. You can offer key employees an incentive to stay through the sale and transition. You can also get an idea from potential sellers as to what they’re looking to buy. If they’re looking for talent, it will be important for you to do some selling to your employees on the advantages of sticking with it.

When considering buyers, look for bigger, profitable companies. You want to be sure your potential buyer has the muscle to get the deal done. They are likely to be more sophisticated, and more demanding. Don’t let those traits discourage or intimidate you.

Review your list of current advisors. Do you have an accountant and a lawyer who have experience helping their clients negotiate their way through a sale? Do you have a business broker who can help build a target list of potential buyers? Who do you trust to advise you as you go through the ups and downs finding a buyer and closing a deal?

Consider your options, as you start to go through the selling process. Find more than one potential buyer, at least a primary and a backup. If you’re not sure you’ll get what you want out of the sale financially, make a plan for how you’re going to close the gap – with the business or outside of it. Negotiate from strength because you’ve already figured out how to deal with the variable.

Looking for a good book? Sell Your Business Your Way: Getting Out, Getting Rich & Getting On With Your Life, by Rick Rickertsen.

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We’ve been trying a lot of new things lately, in order to increase revenue and profit. Unfortunately, while revenue is up, profits are down. I’m getting discouraged. By now I thought we’d be making a lot more than we are. What are your thoughts?

Excellence evolves over time, based on trial and error and learning from mistakes. The more new things attempted, the higher the stress level on all participants, which increases the likelihood of errors and lost profits. Expecting that things will turn around quickly can be a big miscalculation.

The quest for new products and services, in order to stay ahead of the profit curve, is crucial in any company. That means that this owner is right to be searching for additional revenue and profit. The frustration this owner feels may be due to too many trials all at once, not enough budget to fund trials, and not factoring in the cost of the learning curve.

Consider the overall flow of work through the shop. Identify areas that are already getting good productivity marks, and which areas need work. Set goals to improve the low profit groups. Assess whether problems stem from people, machinery or the production demands of the product or service that’s flowing through that area.

Productivity is a measure of output, with the goal of increasing profits by producing more goods or services through a reduction in labor and material costs. Look at how you measure productivity – by product, by time, by unit, by profitability. Get people on the line involved in suggesting ways to measure and improve productivity. Have them track and post results daily. Look for improving trends.

Evaluate production demands being placed on low performance groups. What is the likely throughput for that group, and how close to that threshold are they? Are they trying to produce at or near 100%, which means no ability to recover whenever there’s downtime? Try to set production at 80% of capacity. At that capacity, ask, can we make the money we want? If the answer is yes, keep going. If not, consider whether you should continue to produce the product or service, or cut it out altogether.

If production problems stem from people, work on training, accountability and improving individual performance. If it’s machinery, consider whether it’s time to replace equipment. In both cases, people and equipment, factor in longevity of the product or service. Is there still profitable demand? Should you continue upgrading or should you let it go?

When it comes to new production, lay out a schedule of trials over a multi-year period. Consider who will be involved in each test, and try not to have people dealing with more than one or two tests at a time. Assign new trials to the stronger productivity groups, even if that means adjusting your plan for the order in which new products or services roll out.

Develop a realistic budget for new product or service launches. Make sure that there’s enough throughput from sales to meet minimum productivity requirements. Define the likely loss ratio, and improvement curve. Factor in time and material losses related to training, breaking in new equipment and gearing up production. Before starting, set aside funds equal to 2 – 3 times the estimated loss ratio, as a cushion.

Set realistic timeframes for new trials. One rule of thumb if this: if you’ve never done it before, triple the time and cost estimates. If it’s been done before, but not consistently well, double the time and cost estimates. Only plan on the proposed budget for time and cost once production is routine.

Only engage in trials for which there is money set aside to fund the projected loss ratio. Encourage teams to work to beat the planned loss ratio, but be prepared to fund the losses as planned. When losses exceed plan, stop to take a look at whether it’s time to shift to a new trial, or continue working out the kinks with the current one.

Looking for a good book? Manufacturing Planning and Control Systems for Supply Chain Management: The Definitive Guide for Professionals, by Thomas Vollmann, William Berry, David Clay Whybark, F. Robert Jacobs.

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Andi Gray is president of Strategy Leaders Inc., www.StrategyLeaders.com, a business consulting firm that specializes in helping entrepreneurial firms grow. She can be reached by phone at 877-238-3535. Do you have a question for Andi?  Please send it to her, via e-mail at AskAndi@StrategyLeaders.com  or by mail to Andi Gray, Strategy Leaders Inc., 5 Crossways, Chappaqua, NY 10514. Visit www.AskAndi.com for an entire library of Ask Andi articles.

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