In the last issue we looked at how shipped-on-time is the essential major measure of success and is a gauge of speed, as well as why it’s critical for CEOs to measure their cash-to-cash cycle. Now let’s look at the three remaining features of the Executive Command Center.
Capacity is the muscle that supports strong growth. The ability to increase capacity without capital investment provides great leverage for the company. In my experience, companies who think they are at capacity often have 20% or more additional capacity available. In one recent case, we found they actually could grow as much as 300% without capital expenditure.
The ability to grow capacity is a function of two things – using what you have, and outsourcing those activities you don’t need to do. One client recently outsourced the simple assembly and mailing of a particular product with excellent and unexpected results. Not only did inventory drop, but shipped-on-time increased, lead-times shrank and none of the inventory passed through the warehouse, resulting in lower costs and improved use of space. We called the program Vendor Managed Delivery (VMD) and it saved my client almost half a million dollars.
Lead time is agility, which is provided by reducing lead-times in everything you do. Lead-time reduction not only cuts costs, but allows you to be much more responsive to the needs of the market place, and to change quickly to provide innovative solutions and stay well in front of the competition.
During World War II, Henry Kaiser built the Liberty Ships used to help deliver much needed supplies and equipment to our allies. President Roosevelt challenged him to reduce the time it took to build one from 176 days to 150. Kaiser brought his team together and reduced it to four days! Yes, that’s right, four days. That’s measured from when the keel was laid to when the completed ship was launched. Now that’s exponential improvement. Agility – the ability to change quickly – is key to reaching new levels of performance.
Turn-and-earn is the final key tool in the Executive Command Center. It tells you item by item what the margin is and how fast it turns in inventory. It also allows you to examine the 80/20 rule to identify which parts yield 80% of your revenue, which ones comprise most of the value in your warehouse, and which ones have high and low margins. Many companies don’t track performance by product or part and thus risk big surprises when they discover that the parts they thought were profitable are not, or the parts they thought moved quickly actually comprise a major component of inventory. I have yet to find a company that uses this report on a regular basis to help manage profitability and cash flow. Many IT systems in the marketplace don’t include this important tool.
So what happened to Company A and Company B from the last issue? As you recall, Company A retained me because they expected significant growth due to new product rollouts, and they wanted to be sure their supply chain component could support that growth. Company B’s banker suggested a check-up, because while margins were holding steady, inventory turns seemed low and there was too much slow-moving inventory.
In both cases we reduced inventory by over $500,000 in just a few months by selling it through normal and other channels and captured the cash flow and profitability from those sales. In company A we also changed the way they purchased materials to bring in more frequent smaller quantities, which really brought down the level of inventory. We also found that plant capacity could be increased at least 40% with no capital investment and perhaps by as much as 300% with a few additional pieces of machinery and a second shift. By reducing costs, increasing pricing and eliminating poor performers, we substantially improved the profit and cash flow for the company, allowing them to accelerate their plans for the future.
At Company B, we modified the way products are managed to improve what I call the ramp-up/ramp-down process. This means giving as much attention to reducing or eliminating old products as to bringing in new products. We explored the potential of supplier regionalization to reduce lead-times and supply chain risk. Now while their inventory turns are improving, lead-times are coming down and the bank is more comfortable with cash performance. The owners are happy too, as they can fund growth through cash flow from operations and the bank, and not out of their own pockets.
The Executive Command Center is designed to provide the operational power you need for profitability and growth. It will ultimately yield tremendous increases in the value of your company and your ability to compete in the global market place. Do you have the elements of the Executive Command Center in place in your business? Do you have the jet fuel you need to take off to new levels of performance? Do you have the speed, agility and muscle essential to your success? Call me to find out how to harness the power of the Executive Command Center for your company.
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