What drives productivity profit? If we hire another salesperson, operations would need to deliver. People are already working hard within available hours. They are worried about getting things done. Or fail to deliver. What happens when sales pick up?
Thoughts of the day: Productivity does drive profits. Look for systems- enhancement opportunities. Build the organization from the bottom up, adding extra hours at the lowest possible cost. Keep a lid on overtime, whatever you do. Work with sales to build in margin for things customers want. Reforecast weekly, with a 12-week look-ahead to stay on top of potential increases.
Productivity leads to profits
Are there new or updated computer systems that will boost efficiency anywhere along the line, from order-taking to production, to delivery, invoicing, and collections? Use leases of equipment and software to keep costs down and spread the investment out over time while pursuing efficiencies. Run a forecast of costs and savings to be sure upgrades will lead to improvements in the bottom line.
Use processes to cut out waste and increase efficiency. Take a look at how routine and smooth all of the production work is. Ask employees to track and report on errors. Use those reports to find and fix problems and thereby reduce production costs. Consider sharing a portion of the cost savings with employees as one-time bonuses, as a reward for thinking about how to do things better.
Most employees are looking for opportunities to boost their personal income. Eventually, they’ll look for jobs outside the company if they can’t get big enough raises internally. Keep the best employees close by giving them opportunities to increase skill, responsibility, and pay. Teach employees that raises beyond the cost of living are earned and reward people who take the initiative to produce more, faster.
Success, clarity, and impact
Identify several areas of production that would benefit from upgrading skills and improving how things are done. Keep good employees fully employed in slack times by devoting a percentage of work time to education. Test out new ways of doing things when it’s not so busy so it’s clear where changes will deliver bottom-line results.
It often seems easier to let employees earn a bit extra by letting them take on overtime when things get busy. Make sure only a few hours of production each week come from overtime. It’s cheaper to take on a few hours of overtime than it is to commit to a full-time, or even a part-time, employee week in and week out. If things go beyond a few hours, the profits from additional sales can go right out the window.
When production starts to pick up, put out ads for new hires and start interviewing. Line up, several good production candidates. If things stay busy, once specific positions exceed 10 to 20 hours of overtime – which, at a time-and-a-half pay rate, is worth 15 to 30 hours of straight time – it’s probably time to make an offer to one or more qualified candidates.
Grow, compete, and convert more leads
When sales first tick up, the sales team may hesitate to increase prices. Those initial extra orders seem so wonderful, the temptation is to not risk losing anything by negotiating. That has to change quickly, as increased production will use up old inventory, and ordering new materials will probably cost more – and then there’s that overtime to pay for.
Have a meeting each week to monitor backlog, delivery schedules, production snags, inventory status, workforce depth, sales pipeline, profit margin, and hot customer and prospect needs. Have both sales and operations sit down to talk about what’s coming and brainstorm how to manage through any bubbles.
Set up a flash report that helps identify trends as they flow through from pipeline to orders to production and profit. Graphs are usually easier to read than raw numbers. Post information so employees can talk about results and contribute ideas on how to make things better.
Looking for a good book? Try “The Improvement Guide: A Practical Approach to Enhancing Organizational Performance” by Gerald Langley, Ronald Moen, Kevin Nolan and Thomas Nolan.
