Cash Flow: Not Just For the CEO

FreeImages.com/Nick Benjaminsz

Often considered to be the domain of the CFO, cash flow can be impacted by more than just finance and accounting. Sales, operations, supply chain and others can dramatically impact the speed with which cash flows into and through the organization.

Being able to look at your entire business model and see ideas to improve the cash-to-cash cycle requires outside the box thinking. Challenging what is possible and making no excuses can free up potentially millions of dollars in cash flow. How would you spend an extra couple million dollars?

To read more, visit this edition of Growth Accelerator.

© 2019 Rick Pay – All rights reserved.

Cash Flow: Not Just For the CFO

FreeImages.com/Nick Benjaminsz

Often considered to be the domain of the CFO, cash flow can be impacted by more than just finance and accounting. Sales, operations, supply chain and others can dramatically impact the speed with which cash flows into and through the organization.

Being able to look at your entire business model and see ideas to improve the cash-to-cash cycle requires outside the box thinking. Challenging what is possible and making no excuses can free up potentially millions of dollars in cash flow. How would you spend an extra couple million dollars?

To read more, visit the latest edition of Growth Accelerator.

© 2017 Rick Pay – All rights reserved.

Agility and Speed: Two Keys To Successful Operations

Watching the Rose Bowl earlier this month I saw Penn State’s impressive running back, Saquon Barkley, who has a great combination of agility and speed. The agility allowed him to avoid tacklers close to the line of scrimmage by rapidly changing direction, often several times. Then, once past the first five yards or so, his speed allowed him to outrun the defensive backs to make a touch down. That combination of agility and speed should provide Penn State fans with many good game-watching experiences.

In your business, agility and speed can be significant competitive factors driving growth, profitability and cash flow. Agility relates to how fast you can change. For example, can you respond to short-term changes in the sales forecast, or changes in labor such as sickness or unexpected turnover, or to a crisis?

Speed relates to how fast things get done, how short lead times are, how responsive your organization is to customers, and how soon your customers get their products. Many customers will pay more for speed.

I’ve always said that the key for operations is to keep sales in the critical path. Agility and speed contribute greatly to that.

© 2017 – Rick Pay – All Rights Reserved

Who Owns The Empty Shelves?

Strong process discipline is vital for top performance. By discipline, I’m referring to the tenacity, diligence, and persistence people exhibit in their work.

Let me give you an example. I’ve been working with a retail company whose sales have been trending down for the past 12 to 18 months. There could be several reasons for this, but as I reviewed their operations and observed the activities on the sales floor, I noticed a number of empty spaces on the shelves. Every time I visited the store, I would look in the same spots and I noticed that the same spaces remained empty.

Every process should have an owner, so I asked who owns stock replenishment. Not surprisingly, the stock replenishment process had no specific owner. To make things worse, the people who usually stocked the shelves were busy with other responsibilities, so stock replenishment only got done when it was convenient or in response to a special request to stock a shelf.

If product isn’t readily available, some customers will ask a sales person, but many will simply go down the street to a competitor to find what they need. This was contributing to the decline in sales.

The discipline of process management (and execution) helps achieve top performance. In this case, the added revenue may have reversed the downward trend in sales.

© 2016 – Rick Pay – All Rights Reserved

Are Your Suppliers Ready to Ramp?

Boeing is facing an unprecedented ramp up of production for its 737 Max aircraft. According to an article in the Wall Street Journal (August 21, 2015 p. B1 – Boeing Scrambles to Get Key Part), Boeing has the opportunity to go from less than one aircraft per month to over 50 by 2020, the fastest ever increase in jetliner production.

But there’s a problem. It seems the supplier of a key engine part may not be able to respond to that level of growth. While Boeing is confident in its own processes and their ability to ramp up, one part in their supply chain could hold them back. This is the essence of Benjamin Franklin’s proverb, “for want of a nail the shoe was lost.” Many companies fall into the trap of certifying suppliers at current demand levels without exploring their capability to ramp-up rapidly in response to new market demand.

Being ready to ramp-up and ramp-down can prevent excess inventory and lost sales. Is your supply chain ready for a fast ramp-up? Can your suppliers (who have performed well in the past) respond to a significant change in demand?

© – 2015 – Rick Pay – All Rights Reserved

The Essential Gauge

The dashboard of a small airplane has a number of gauges that provide a litany of information to the pilot. There’s one big dial right in the middle that’s extremely important: the artificial horizon. In the center is a round ball, the top half of which is white and the bottom half is black. It rotates and moves to show the pilot what the plane’s attitude is relative to the ground. Watching it, you know if you’re going up or down, or even whether you’re upside down. Obviously, this is an essential gauge.

The big dial on the dashboard for most organizations (regardless of type), is shipped-on-time. This might also be call DIFOT (delivered in full, on time) or perfect order. Perfect order includes specific reference to quality. Most practitioners consider all three of these measures to be equal. Ship good product, complete and on time.

Not only does this apply to products, but also to services. For instance, the accounting department could measure shipped-on-time related to the monthly financial statements. Are they accurate? Did you close the books in 5 days or whatever your commitment is, and deliver them to managers or your bank on time? For sales, did you enter all of the orders accurately and on-time?

Measuring shipped-on-time for your organization is a big gauge. It just might keep you from crashing into the ground.

© 2014 – Rick Pay – All Rights Reserved

Is Inventory Growth a Good Measure of GDP?

I find it interesting that the government uses inventory growth as a sign the economy is getting better while Lean efforts consider it a waste. GDP (gross domestic product) is a measure of economic growth that uses consumption, investment, government purchases and net exports to indicate whether the economy is expanding. Investment includes growth in wholesale inventories. So in other words, if companies are building up stock, it’s considered a good thing in economic forecasting.

In reading the government guidelines for the numbers, it appears they think that increases in inventory indicate an increase in demand and increased “economic activity.” So, if you convert $10,000 in raw materials to $20,000 in finished goods (including the value added), it helps the economy. However, if those goods are never sold, it doesn’t show up. Just the conversion is tracked. The later sale of that inventory is only reported at the level of profit or value added in the sales process. Companies may increase inventory in anticipation of future sales, but if those sales don’t occur, the companies sit on inventory that has already been counted in GDP.

Perhaps the government should recognize that many companies are getting lean and are trying to hold down inventories as a means to free up cash, reduce costs and improving profitability. To me, the real measure of GDP is the consumption of goods and services by the final customer. If they don’t buy, the economy is not healthy.

© 2014 – Rick Pay – All Rights Reserved

Tell Them What You Need

I recently sat in on a conversation between two people from Sales and two people from Supply Chain Management trying to determine why the company had run out of parts that were needed to satisfy demand. Sales claimed they had submitted a forecast that should have covered the demand. During the conversation, the salespeople mentioned how they had gone into the system before they submitted the forecast to see how many parts the company had, and noticed that most were already allocated. So they submitted an adjusted forecast to allow for the allocated product. In effect, while trying to help, they effectively mislead the Supply Chain team as to what the real demand was. This is unfortunately a common occurrence and can stem from either trying to help, or from not trusting the Supply Chain team to do their job.

When Sales submits a forecast, it should reflect what is needed to satisfy demand for the period, without regard to the current status of inventory. Supply Chain should then determine what they need to either buy, reallocate or transfer to cover the demand. Trying to do the other person’s job for them often results in confusion and poor service levels. Sales should forecast what they need.

© 2013 – Rick Pay – All Rights Reserved

How Managing Customer Demand Can Reduce Materials Cost Volatility

There are a number of ways to reduce materials costs or at least make them more predictable in volatile times. A method that world class companies use is managing customer demand. It seems counterintuitive to be able to manage demand, but companies like Toyota do it all the time.

Managing demand is the process of matching your capacity, output and lead-times with the customer’s needs. It is essentially an available-to-promise approach to providing product/services to the customer. By providing that, you smooth the flow, which is essential to cost reduction.

From Sales Force to Demand Management Force

The first people who must be convinced that this is possible are your own sales force. They may be so accustomed to responding to customer’s needs that they don’t bother to inquire about alternative solutions.

In my prior position, we sold lock-boxes to auto dealers to keep the keys for the car on the car. This way the auto salesperson didn’t have to leave the customer to get the keys for a test drive. We knew our capacity was 800 units per day, so to smooth demand we set up a schedule bucket system to provide the sales people (mostly telemarketers) with detailed demand/capacity status. They knew minute by minute how much of today’s and tomorrow’s buckets were available. Once full, that bucket was no longer available and the ship date would move out appropriately. What we found is the customer didn’t care (within reason) how long it took, so long as they knew when they would get it. Our lead times were typically 3 – 4 days.

Using this bucketed demand smoothing system had several benefits:

1)     The customer could rely on when they would get their product

2)    We could smooth our production and significantly reduce production costs

3)    We provided steady demand to our suppliers and significantly reducing their costs. It was a win/win/win in every way.

© 2012 – Rick Pay – All Rights Reserved

Shipped on Time and Other Measures

If you’re going to measure one thing in an organization, it’s shipped on time. If you can’t ship on time you won’t have any customers and then nothing else matters. Measuring shipped on time by orders, not line items, makes a big difference. An incomplete order – even if it’s on time – doesn’t make customers happy.

Tracking inventory turns is another important aspect to measure. Inventory absorbs money, takes up storage space, requires people to move it, accrues interest that you pay to the bank, and in many cases eventually goes obsolete and becomes an expense. Gross profit margin is another important measure, because it reveals improvement (or lack of improvement).

Key measures are not only a way to show people how they’re doing, but they have the power to change behavior and establish accountability. One of my clients had a 24% shipped on time rate when they came to me a few months ago. This week it’s in the mid-80s. They also cut their backorders partly by tracking them and posting the numbers every day. In the past at this company, the sales department saw operations as an adversary. Now the sales manager is applauding operations and saying, “Now we’d better get out there and sell.” Keeping sales in the critical path is what allows the business to flourish and revenue to grow, and forecasting and planning is the front end of it.

© 2012 – Rick Pay – All Rights Reserved