Opportunity for Operations in Troubling Times

January 1, 2011

Though it is hard to visualize it while you are struggling to turn a profit, there are opportunities to be found amid our current economic troubles. The trick is to identify the opportunities and to have the knowledge and foresight to take advantage of them.

It is not news to anyone that we are in an economic crisis. Every day the newsman tells us stories about layoffs, retrenchments and collapses. Correspondingly there are lots of articles being written about what individuals and companies can do to survive or even prosper in a climate like this. This article and the others contained in this newsletter also offer that kind of guidance but we narrow the focus down to what operations professionals can do to help their companies.

When times are tough, the old adage, “cash is king,” is even more important. As operations professionals, the things we can do to improve the company’s cash position fall into two major categories – increase sales and decrease costs. We’ll explore both those categories.

Increase Sales – The most obvious way to survive tough times is to increase sales or at least minimize the loss in revenue. Here’s a few ways to keep the top line in top shape.

Get closer to your customers

This is a great time to get closer to your customers. Whether you sell business to business or direct to consumers, your customers are experiencing the same uncertainty that you are. Make a point to understand their uncertainty. Find out what your customers need and want. Customer needs and wants fall into four areas: price, quality, delivery and service. When you discover their needs in those four areas, then find a way to meet those needs and exceed their expectations.

Increase your marketing

Increasing marketing when cash is tight may sound counterintuitive. Marketing costs money and you’re trying to save money. We agree it is a challenge but it can be done. Look for free or inexpensive ways to keep your name in front of your customers. For example, email marketing is free. Send regular emails to your customers. Tell them about specials and close outs, or offer incentives. Send newsletters like this one telling your customers all the good things your company is doing. Keep in regular communication with customers and when they are ready to purchase, your name will be on their minds.

Offer incentives to your sales force

Sales people will sell what they get rewarded to sell. If you have some slow moving items you need to get rid of, then offer the sales people extra commissions for selling those items. If you want to push your higher margin items, then offer a special bonus to the person who brings in the greatest profit each month. Your sales force is your greatest tool to drive sales. Motivate them to help you sell what you most want sold.

Work receivables / shorten days outstanding

It’s amazing how much money some companies leave uncollected. Go back over your accounts receivable records. Increase your collection efforts to shorten the time between invoice and payment.

Decrease costs – This is where the real opportunities lie. Every dollar of increased sales puts only a piece of that dollar to the bottom line. Every dollar of decreased costs puts that whole dollar on the bottom line. Below we help you get to the bottom of improving the bottom line.

Eliminate waste

In tough times you have to make every effort, every hour, every dollar count. You can not afford to waste a moment in eliminating waste. Waste can be defined as any activity or material that does not add value to your customer, any activity that does not directly contribute to the completion of your product or service. The tracking and elimination of waste must be an on-going activity in your company and it is even more important in tough times. When waste is not actively sought and removed, it will continue to build. You must make a habit out of seeking and eliminating waste by doing what is commonly called continuous improvement.

Improve productivity

Productivity comes from doing the right thing and doing it right. To assure the workforce is doing the right thing and doing it right, the workforce must possess the skills to respond to constant change, constant demand for more and constant quickening of the pace. You can learn more about improving productivity in an article, “How To Improve Productivity” which is available free on our web site.

Reduce overhead

Stop spending money you don’t need to spend. The quickest way to lower overhead costs is to reduce non-essential spending. Companies are increasingly turning to outsourcing to control overhead. The overhead functions most often outsourced are IT, HR, and Facilities. Consider if you should outsource the functions that are not part of your core business.

Another source of overhead is IT complexity. Managing a patchwork of different systems can cost you money. Implementing a new integrated system suite can reduce your overhead dramatically.

Decrease inventory and manage the remaining inventory more smartly

Inventory, whether in finished goods or components, is a drain on your cash. You have to pay to store it, insure it and control it. To reduce that outflow, you need to understand what you have in current inventory and take appropriate action.

Reduce your supply base

You can often reduce costs and leverage value from your supply base by optimizing the number of suppliers or rationalizing your supply base. You need to define those key suppliers who will enable you to achieve lower prices through leveraged volume, standardized service, lower number and costs of procurement transactions and lower cost to manage the supply base. It will also be easier to monitor supplier performance with a smaller number of suppliers.

Execute perfectly

Do everything on-time, the first time. You can save a surprising amount of money if you can make all your efforts count. Whether you are developing a new product, adopting lean philosophies, or implementing new technology solutions, you have to carefully plan and execute the activities required to achieve your goal. Here are a few ideas you can use to improve your execution.

  1. Break work into daily tasks. That way you know every day if you are on plan.
  2. Review your plan at the start of every day. If you’ve broken your tasks down to daily increments, you should ask two questions at the beginning of every day. Did you get yesterday’s tasks done? Will you complete today’s tasks on time?
  3. Make sure every task is assigned to one person responsible for completing it. It may take more than one person to complete the task but you need to have a single person who is accountable for that task.
  4. Every time you fail to execute a task as planned, identify the root cause of the failure. Use those root causes to prevent the next failure.

Upgrade systems

It’s a maxim of modern times; you can’t avoid death, taxes and new technology. At some point, every business faces the need to replace old systems with something new. The need to upgrade may be in driven by a need to maintain a desire to become more efficient through the use of technology, or simply to address an existing system that is no longer meeting the needs of the business. Whatever the driver, the implementation of new technology is to be expected.

An upgrade project is a good way to keep those people employed adding value to the company until business picks up. Also, you are not overwhelmed with business so you can focus your time and energy on infrastructure improvements and you won’t feel like you are trying to change the tires while driving 55 miles per hour.

If you can’t avoid new technology any more than your can avoid death and taxes then you might as well embrace the current economic strain as an opportunity to make the change.

We said at the beginning of this article that there are opportunities to be found in these troubled times. The ideas presented in this newsletter are designed to get you thinking about some specific actions you can take. Like we said earlier, the trick is to identify the opportunities and to have the knowledge and foresight to take advantage of them.

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