systems

The 5 critical steps to turning your business into a profit machine. Step 3

In step 2 we worked on  marketing your vision and the strategies you needed to put in place to tell your target market all about your USP.
Now, it is time to begin automating your business, putting systems in place to allow you to continue working on the bigger picture rather than the day to day.
3. Automate your business:

Ok, so you know where you’re going, you’ve decided on how you’re going to market and you’ve got a CRM or similar to measure the results of your sales team.Now, you need to put systems in place so that you the owner are not a part of the business, so that it runs without you.To do this requires a thorough analysis of your business; who does what, when, why, where?Rather than just writing down verbatim what each person does, take the extra time to work out the right way, the most efficient way to do that task, then document it.Where are the gaps and what’s falling through them? What can be done better?Before coming to Australia 11 years ago, I worked as an Industrial Engineer for a large engineering company supplying pipeline components for the oil & gas industry.I worked in what they called the Methods Department with 12 other people and it was our job to streamline processes, maximize efficiencies by whatever means be it technological, multi-tasking, tooling, training etc.One particular project I worked on reduced the cycle of a particular process from 4 hours to just 13 minutes! Just by studying the process and comparing it to “best-in-world” technology, then implementing same.Was there investment?

Of course, but let’s look at the ROI; 4 hrs = 240 mins

240 / 13 = 18.46!!! That’s 18 components completed in the same time as one previously!

What was the investment? $98,000, but if we look at the gains:

Labour cost of $80 p/h X 240 mins = $320 for 1     = $320

Labour cost of $80 p/h X 13mins    = $320 for 18 = $17.77

This project paid for itself in 33 weeks and 12 years later it is still cutting edge technology!

Since I implemented this change in their French branch in 1998, it has since been rolled out globally (this is a company with 66000 employees). What do you think the real ROI is on this implementation? I would conservatively say, millions!

So as I said, don’t just describe each and every process. You’re going to have to study each process anyway, so you may as well look at possible ways of improving it. That’s also a good reason to have a fresh pair of eyes involved; after all you don’t know what you don’t know.

I had a prospect recently who complained that he needed to move to bigger premises; later when the prospect became a client and I got the opportunity to explore further, the reality was very different. It turns out that this particular business owner (a prefabricated home builder) thought he was doing the right thing manufacturing the roof first as for engineering calculations this is the first part of the house designed and anxious to keep the factory busy he eagerly sent them straight in to production.

The problem is the roof is obviously the last part of the house required on site, so his yard was full of large cumbersome roofs he couldn’t ship, to make matters worse, this also meant that he was paying for the labour and materials for these roofs long before he could invoice them, never mind being actually paid for them! Obvious I know, but a serious dent to cash-flow!

While you are looking at the processes, it wouldn’t hurt to also consider the plant layout, can it also be improved? Is there an opportunity for cell manufacturing for example?

As an industrial engineer I had the opportunity to consolidate my employer’s Scottish plant into their French plant; all 200 machines, lathes, mills & CNCs.

I took advantage of the opportunity to also review current work practices. This resulted in several work centres being moved so that the operator could work on 2 processes simultaneously. It also increased production output by 66%

What would these sorts of increases do for your business?

How about procurement? Are there opportunities there for improvement e.g. terms of trade, consignment stock etc? Are you aware that by improving your inventory turnover you are also releasing hard cash that can be better used elsewhere?

I always remember one particular case whereby the company always kept a minimum of 12 winches in stock, the supplier also kept a minimum of 20 winches in stock and they were only five minutes away! At over $1000 each, that’s a lot of money tied up for no good reason, especially as the company was only using on average 6 winches per month.

A client in the balustrade business last year came to me complaining about being behind budget, yet having large order books & couldn’t understand what was wrong. After investigation it was a simple matter of “horses for courses”.

This particular client was struggling to fulfil orders because his company was going over the top with the product supplied versus the product required.

In effect they were having every single item outsourced to a stainless steel fabrication company who used TIG welding ( a painfully slow, skilled process) to assemble. I quickly found a product of equal quality which simply clicked together, orders were fulfilled and budgets were quickly surpassed.

So investigate just what you can and can’t do in the procurement area.

I have found over the years that the best place to start is with an analysis of the workflow i.e. how a job or sale of a product makes its way from enquiry to sales order, then through your particular admin & accounting departments into production, delivery and final payment. Document every step, have your employees who are accountable for each step document what they do also; compare notes, encourage feedback. Don’t be afraid to ask if they could improve the process, remember they are the ones doing this all day, every day.

Create SOPs (Standard Operating Procedures) for each process, write scripts, take photos, and produce videos where applicable.

From answering the phone to invoicing, manufacturing to dispute resolution – have the process documented.

Create an Organisation Chart: Make sure that it focuses on the roles required to achieve your Strategic Vision rather than the actual people who currently perform those roles. Include roles that will be required in the future even if you do not yet have people to fill them.

All this documentation may seem like an awful lot of work but the rewards are enormous! The time and effort put in at this stage will determine just how much of a sale-able asset you have.

Shortly after arriving in Australia, I worked as the Manufacturing Manager in the number 1 engineering plastics supplier in Australia. They were number 1 precisely because the systematized everything. 18 weeks of the year every Wednesday at 8am all staff were required to attend compulsory training, each week was different and everything from customer service to product information was covered.  And the result? The business sold for tens of millions.

Imagine again, two years from now as you walk that potential buyer through your business, how maybe now that the business runs without you, you’re not even sure you want to sell but it feels good to hear just how much your business is now worth.

Don’t take shortcuts here, many companies simply copy and paste these documents from the net and unfortunately it shows.  Again put yourself in the shoes of a customer, in this case the potential buyer of your business sometime in the future; are these generic documents or are they tailor-made policies and procedures for your company?

Are they professional looking? Are they reviewed and updated periodically and not just done once and left on the shelf?

Is everyone aware of and does everyone follow these procedures to the letter? Have all the staff been trained in the application of these procedures?  This doesn’t mean you shouldn’t use Internet; of course you should, it’s a fabulous research tool. There are some great resources, tools, templates and spreadsheets available and you would be silly to re-invent the wheel. However, it is imperative to customize the resources you download to your particular business.

Please make sure also to give credit to the authors of material you download. A great starting point for your research would be www.businessballs.com Again, I have no association with the owners of this site, but it does have some great info on there!

In Step 4 we will look at the importance of human capital i.e. your people. You can subscribe to this post by clicking the button on the right and you will be notified when it is published.

In the meantime there is plenty to be done in regards to putting business systems in place, I will be going into greater detail of each step in future posts but for now you can begin be conducting an analysis of the workflow in your business. Who does what? When? In what sequence? Have each person write down step by step what they actually do. Take photos, better still create videos of each process. All of this will be useful when you tackle Step 4 and work on your people their skill-sets, the organizational structure now and how it will need to be to achieve your strategic vision,

So until then,

John

About the author of “5 Critical Steps to Making Your Business Investor Ready”:

With over 26 years in manufacturing and a good many of those in management roles I have successfully implemented the 5 critical steps several times. As a business growth consultant I help business owners become investor ready. It is also something I am very good at and enjoy doing.

What I offer is to work side-by-side with you and your senior management team to:

  • Prioritize problems/issues to be resolved
  • Agree on expected outcomes
  • Agree that this is something I can resolve
  • Agree on the value of these outcomes i.e. extrapolate the added value of the exercise to your company and what this is worth.

To put your mind at ease, if the work that needs to be undertaken is not within my expertise I will say so.

If I don’t honestly feel that I can help you get to that day with the potential buyer where you really do have a saleable (and valuable) asset then I will decline the contract.

Imagine again its 12 months or two years from now.

A potential buyer walks into your business and asks to see how things operate….

Will you be investor ready?

John

0425 781 752

johnmaher@tpg.com.au

http://au.linkedin.com/in/themakeithappenguy

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