Operations

business builder operations  

No more fire drills:
Gain control with redone procedures

by Cheryl Harelstad  

Does your business resemble a fire drill most days? You know this hair-raising scene: People running around in a frenzy trying to find, expedite or deliver your company’s product or service.

It’s a common occurrence in rapidly growing companies because employees tend to wear multiple hats, procedures are often outgrown and there’s little time to re-organize.

Companies can stop the chaos by developing controls that improve the flow of work, material and information so that everyone focuses on a common goal. When owners and top managers take a holistic view of the organization they can identify improvements to enhance operations and, ultimately, do more with less. The only investments needed are time and patience .

Step 1: Define your market strategy.
Begin by asking this question: How is your company known in the marketplace? Is it the low-cost provider or the high-quality source?

Do you pride yourself as a product innovator or the most responsive service provider among the competition? Defining what makes your company unique is critical to developing internal processes, a set of procedures, to support it.

It’s impossible to be best at everything. Executives frequently make the mistake of attempting to “be all things to all customers.” This strategy generally leads to overall mediocre performance and loss of market share over time.

For example, a business known for its customer responsiveness may have a sales team that competes for business and relies on the company’s ability to ship product or service within 24 hours to customers. Achieving this strategy may require lower inventory turns, additional staffing flexibility, or world-class distribution processes. It’s very unlikely that the same company would succeed as the low-cost provider and a new-product innovator.

Step 2: Break it down by department.
Next, break processes down to determine what actions each functional area should take to support the defined strategy. A good starting point is to invite one person from each department to a meeting and map out what happens when orders come into the company via phone, fax, web and/or salesperson. Document all steps and the amount of time each takes.

Using the documented process, follow actual orders as they flow through the organization. Note where the actual steps and time delays differ from the written procedure or do not support the business strategy. Share your findings with employees. Generally people are surprised at how long it takes an order to get through the fulfillment cycle and the barriers that get in the way. There’s great benefit in doing this exercise cross-functionally so that everyone understands each other’s jobs and perspectives.

The following example illustrates the benefit of examining cross-functional processes:  Assume order No. 1 is waiting for a credit check, and the credit department is short-handed. The shipping manager pre-packs the order and holds it in the warehouse. A second order for the same item is received but additional material is needed to fill it. The material happens to be on back-order and purchasing needs to expedite delivery.

Eventually order No. 1 ships three days after receiving it. Order No. 2 is delayed due to material shortage and eventually ships seven days late. The bottom line is that both orders are shipped late and customers are dissatisfied. A cross-functional review may lead to a simple change in procedure, better data-sharing between departments, improved cash flow, and improved on-time delivery performance that is critical to the company’s market strategy.

Leveraging past technology investments can also help owners do more with what they already have by taking a fresh look at their systems. Once processes are mapped, it’s easier to see gaps that could be closed by using features already available in the software. In the above scenario, using a software feature called “soft allocation of inventory” would have alerted purchasing to expedite material earlier, and allotted the available inventory to ship order No. 2 on time.

Step 3: Measure it.
What does this new behavior look like? How will strategies be measured at both the company and individual department level? What performance indicators will help employees see how they affect savings or revenue on a regular basis? By selecting and tracking the right performance indicators, you can motivate the right behaviors.

Back to our illustration: The order held for credit check may be considered on time if shipped within 24 hours of the credit release. But the customer may consider it to be late because the clock started when the order was placed. If on-time and in-full shipments are the company’s market differentiator, it is critical that measurements be based from the customer’s perspective.

Step 4: Review and re-tool.
As owners or top managers, it’s important to spend time in each department to watch how work is done and see why it gets off course. A monthly review of front and back office functions is helpful. If there’s management turnover or major volume spikes, it’s also time to ask: Is there anything we should be doing differently?

Watch for cross-functional goals that may be in conflict with each other. Actual work steps often vary from the procedure manual or there may be significant savings available by taking a closer look at outdated actions on an annual basis. For example, an accounts-payable clerk may be paying bills “in a timely and efficient manner” but well before the terms negotiated with suppliers. The net result is a hit to the company’s available cash.

Very often in smaller companies the sales and marketing functions are operating on their own without connecting well with the operations side of the business. For example, a company’s product strategy may shift over time and its supporting sales-and-operations plans may be out of sync. Redesigning the fulfillment process may mean changing manufacturing and vendor lead-times to meet the sales forecast.

Remember: The devil is often in the details and won’t be evident without careful review of how work, material and information flow. No business runs at 100 percent precision. By establishing a regular set of procedures, the fires will not rage out of control when problems do arise.