You have taken on a new position or decided that a step change needs to be made to improve your business’s efficiency. Where do you begin and how do you make the transfer effective without slowing down the business to an unprofitable margin, alarming customers with late deliveries, or creating a total disarray of the business? We have witnessed many businesses over the years go through a restructuring plan that has severely effected the business in a negative financials and has forced the owners to recoil initiatives. These businesses then pull back to a ’year over year’ small percentage change and never make the step changes necessary to evolve the business thereby capturing new markets. There are steps that can be taken and a strategic plan that can be developed whereby all owners know what is expected and the pace of which improvements will occur. The following points must be considered to be successful on your journey.
1. You need a Vision that states where you want the company to evolve to in one, three, five and ten years. That vision must be accepted by the CEO, COO and the Board of Directors.
2. There must be a yearly strategic plan. This plan must be clear and must state details, expectations and risks.
3. Know your risks and the impacts of them. Divulge them at your strategic plan discussions. Too many plans are overly optimistic and do not inform the owners of the inherent failures that can happen to even the best strategy.
4. Contingency plan every avenue of defined risk. It is acceptable to have different levels of risk in your plan. Categorize them and all high and medium risks must have contingencies constructed ahead of time to ensure that the effects are minimized.
5. Do not change the plan to hit financials quarter points. You can adjust your strategy to accomplish the tasks necessary but you must not chase a metric for a quarter point and change your strategy in a haphazard manner.
6. Assure you understand how changes affect costs, workers and managers. Minimize wastes of people waiting, overproduction, procurement or idle equipment, and excessive stagnation and transportation of product.
7. Process change one piece at time. When you process change in too many areas, you cannot understand the data and the attributes. Therefore, you cannot construe a cause and effect relationship as the changes and their effects are muddled together.
8. Use Kaizen bursts to implement small changes to a larger value stream improvement.
9. Realize that new capital is a financial drag. The more the expense that capital incurs, the more cost structure you must absorb immediately. Think small and less expensive. Anyone can engineer a process with the most elaborate equipment. A good plan is one that uses current resources and equipment with some intermediate investments.
10. Realize that this is not easy. Never become discouraged. A failure or setback is merely an opportunity for improvement. You can accomplish the tasks if you plan out your process improvements. We tend to apply these improvements to the manufacturing world. In reality, the service industry needs the same overhaul and drive for efficiency.
Tag: strategy
The decision of re-shoring work to domestic suppliers and internal to your own operations can be a contrived and convoluted strategy. Many corporations have historically arrived at the conclusion that the short term savings from global outsourcing would benefit the company to extremes that were not realized for extended timespans. In addition, the quality from developing nations and low cost initiatives require a larger infrastructure to support in both the quality and logistic factions. The incurred costs for excessive quality checking and support infrastructure can undermine any potential financial savings and often substantially increase overall costs. Attrition is intensifying offshore, leading to inconsistent and unsettled operations. Combined with a rise in global salary demands, improper offshoring has driven overall costs to an uncompetitive state. This does not translate to a total de-globalization of supplies but has created a multifaceted solution for sourcing strategy. Approximately twenty to twenty-five percent of products that were outsourced globally over the last decade are projected to return to the United States in the next five years. Therefore, there is credence in re-shoring but logic must direct the operation.
There are several steps in the decision process. They include financial modeling, footprint optimization, site selection, production planning, supply chain selection, manpower needs (support and direct labor) and most importantly the implementation of lean. The process is one that will take substantial effort but developing your strategy is the most important faction of your justifications. The process needs to start with an efficiency and cost analysis of products procured and produced. You need to construct a model that takes the cost of the product, the cash conversion cycle costs, the cost of cash velocity, the cost of poor quality and its effects on customers and the required inventory costs that are required to offset longer delivery distance and delays. After that comparison is completed, you need to analyze the impacts of delivery delays and poor quality on customer retentions. While a subjective conversation will occur, there can be a valuable cost associated with outsourced product’s impacts on customers that can be quantified. The analysis will lead you to a pareto analysis of high cost and high pain products that are currently outsourced.
The next step is analyzing the top ten to twenty percent of these products and determining if you have internal capabilities or will need to near source the products. Near sourcing may be more profitable if you do not have the capacity and capability to insource them to your facility. After the pareto is completed, your procurement department must then quote sources for external suppliers and the operations management within your company must analyze the internal production costs. This will allow a full comparison of price. There may be decisions that sway internal or near sourcing that have quality performance indicators in them. You may need to review supplier quality performance and customer satisfaction with peer companies. You will find that companies that are involved in the re-shoring of manufacturing are eager to share the data they have collected. Your internal operations may not be the best answer as your quality performance may be lacking in certain areas. Factor your quality into the equation and determine if you are indeed the best option for production. When all your data is collected you will have a list of products to possibly go forward with for insourcing efforts.
The next stage is the estimation of the strengths, weaknesses, opportunities and threats to your plan. This is the risk assessment that accommodates the financial conclusions. Weigh each element and create a numeric score for each category of risk and opportunity. Of course, risk to the customer carries the highest weight and discretion. The cumulative score then can create a cost factor to apply to the financial data. An example of this is a product that is significantly higher cost in the domestic market because of environmental, technical expertise, health and safety risks to employees and regulations, capital re-investment necessity, and supplier developed nuances that you have no knowledge regarding processes. This would carry a higher percentage factor that would be applied to insourced costs.
Finally, create a contingency plan for each part number. Do not assume that the current supplier will provide products expeditiously if you fail in your re-shoring efforts. You must create a sound contingency plan as this effort is not an easy one. You may also want to review your business strategy for a “Made in America” product line and a “Global Product” line. Many initiatives are in place to promote re-shoring efforts and customers may be willing to pay a premium for the “Made in America “line. There is so many intricacies in these decisions that they should be low risk, well analyzed, and be part of an overall vision and plan for your company.
It is the time to set next year’s goals and expectations. You should not wait until the first of the year arrives and attempt to set the plan and goals for new year. We all have completed our pro forma for next year and estimated our EBITs, but have we created our strategic plans that will yield double digit growth? Estimating the financials for the upcoming year will not suffice and allow success. Below is a short list of initiatives that we should look at for the upcoming year.
1. Set your goals for cost of poor quality. Understand how you are going to measure it. Are you going to include the rework, the loss of productivity due to poor quality, customer returns and investigation costs, and repair costs? Whatever you measure in the upcoming year, assure that you show a reduction and have projects with milestones established to begin in January. Do not set yourself up for the next year by having a bad first quarter and chasing the year’s goals to recover those costs. Make your goal a reflection of projects you will manage and not a wish list. Spell out the plan’s expectations month by month with start dates, cost realization dates, project completion dates, and determine who the leader is for each project. Set your report out dates for the next year and schedule the team’s calendars to assure that teams know when they are going to review projects with the executive team.
2. Create a process improvement team and set expectations. You should know where your efficiency losses are and establish which ones you are going to tackle and the order and timeframe for those projects. Set a reasonable amount of tasks. Many businesses will create a wish list that is too large for the staffing. Scheduling too many tasks for your workforce can only lead to frustration, fractured efforts, and a disengaged workforce. Strategically assign those tasks, determine reasonable expectations, and set a detailed review schedule for the plan’s events on a regular basis. Become involved as a leader because your workforce will prioritize their efforts by the attention and involvement your leadership displays in the upcoming year.
3. Assure that you have an active environmental health and safety plan to improve the safety and ergonomics of your operation. Remember, people want to be treated fairly and they will engage more if you are concerned for their well-being. Strive to improve the ergonomics in the workplace. Recordable and lost time injuries are bad for a business’s reputation and finances, but they also can disengage a workforce quickly. Care about your employees and make it a passion to evolve the workplace to a safer environment. Embrace their concerns as you would your family members. They are your livelihood. If you do not have a methodology to collect the employee’s risks, hold a “stand-down” for four hours to collect ideas from employees. Take those ideas, Pareto them by risk to employees and aggressively burn them down. Assure the plan attacks these on a monthly basis. Form subcommittees to address these ideas. Everyone in the organization can take ownership of a task as safety is everyone’s job.
4. Train your employees early and on a repetitive regular schedule. You should have already met with your employees and determined their training needs. Now you must schedule a plan to deliver on those internal and external needs. Do not leave this as a human resource task. It is a leadership responsibility that our reports are enriching themselves each year. You may want to look at your most unproductive weeks in the previous years and declare them training weeks. This allows you to write off the week from deliveries and profit based on poor historical performance. Typically, the first week of the year, the week of July 4th and Labor Day week are poor performers as the previous quarter has just ended and people include additional vacation days to long weekends. Put training into this week and declare the week as a non-production week. Planning this activity allows customer commits to be maintained by overproduction in prior weeks and planned delivery commits pushed out of these weeks where possible.
5. Create production start plans that are visual and observable to all employees. Plan on Gemba walks daily and review these start plans. These plans are critical to success. If you start on time, you will finish on time. Don’t leave the plan’s execution to the planners and materials department to manage. All directly involved employees must understand the plan, discuss it daily at Gemba walks, and assure that procurement, operations, quality, and the materials department understands when the production starts for every job. This is critical for mixed model production. This plan is should not be in a notebook but must be displayed on some visual system that all employees can monitor. The more visuals you have in your company, the more self-managed it becomes.
Remember that strategic planning will assure 2016 will be better than 2015. Don’t wait until the year begins to invoke the plan as you will have an overly burden the last two quarters of the year. If you have not already shared your vision and plan with the entire organization, do it early in the year