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Author: Peter Holtgreive

When Buying Bulk for a Discount Hurts You: A Lean Methodology Perspective

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Is bulk ordering worth the discount?

Anyone who has gone to Sam’s Club or similar places understands what it means to buy in bulk. In some cases, it makes a lot of sense. Large families, or business who go through a lot of a certain supply can really save time and money by buying larger quantities at a lower price. Some businesses can even earn a discount for doing this. But, before you jump into buying bulk, let’s take a look at it from a lean methodology perspective.

The Basics

Business ‘A’ maintains a warehouse of supplies and has found that they use 12,000 widgets a year to produce their gadgets. Every month, they purchase 1,000 widgets and pay a dollar per unit. To protect themselves from supply chain interruptions, they keep a month’s supply in stock. This means they have $1,000 dollars of inventory on the shelf. This inventory takes up 10 square feet.

The Score

Karen, the bookkeeper has been paying the $1,000 a month bill every month for a year, but today, she gets a notice from the supplier that says, “Business A, do we have a deal for you! If you buy 15,000 widgets in bulk, we will offer you a 10% discount.” Karen, believing she is making a rockstar move to help the budget, cuts the check for $13,500.

The order comes in and instead of delight, the production manager is upset. Where in the world is he going to find 150 square feet of space to store the widget order? They decide to spend a few man hours clearing a space. This creates $15,000 of inventory on the shelf.

The Problem from a Lean Methodology Perspective

While some business owners would look at this $15,000 of inventory as an asset, the majority of it is considered “cold” stock, which means that it has to be sold to have any value. It takes up space that could be used for production. There are also conditions in which the supply will outlast the demand, leaving the business with useless inventory. This could include:

  • Gadget 2.0 requires a different style of widget
  • Gadgets become obsolete and something new needs to be created
  • Demand drops due to new competitor
  • The suppliers for any other component of the gadget change
  • Manufacturing requirements/codes change

Once stock is sitting on a shelf in the business, it depreciates in value. By the third year, cold inventory is costing the business money!

To make matters worse, the production manager was in the process of buying a new piece of equipment at a cost of $10,000 that was going to save $600 per month in operating cost and increase the production capacity.  Buying the equipment is no longer possible as the money is now tied up in over a year’s worth of inventory

In lean methodology, we look at the entire process of managing inventory, including how much stock to carry, when to order, how to move the oldest inventory first, and how to protect ourselves from interruptions in the supply chain. We look at when taking discounts helps, and when it hurts.

Do you have inventory on your shelves that is three or more years old? Do you know how much (minimum) stock to have on hand and when to order? Do you have a process for managing ordering, discounts and interruptions? If not, I can help.

Contact us today to learn more about lean inventory management or lean methodology to use in your business to make it more effective, efficient, and profitable.

How Most Businesses Handle Process Management and Why it Fails

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process management Frankenstein

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I recently helped a company who was struggling with inventory management. The General Manager had a white board full of problems, each representing a hole, and she didn’t know how to fill those holes. She kept trying different processes, but each attempt led to a new leak in the pipeline. Employees were becoming confused and frustrated because it seemed that things kept changing. 

Does this sound familiar? Sadly, this is how most businesses handle process management.

This trial-and-error approach to fixing a problem is something I see all the time. It is what I call a “Frankenstein” process. This activity consists of holding parts of a process together with temporary fixes (Band-Aids) that really only stop the heaviest bleeding. Eventually, all the bandages fall off and I get a phone call to help. 

What do I do in regards to process management that is so different than what management has already done? A few things. 

First, I’m objective. I see situations from the outside and can ask the questions that those internally can’t or won’t. For example, if a company is having space constraints and the owner has his yacht parked in the warehouse that would better be used as a production floor, I can point that out without fear of losing my job. 

Second, I’m specialized. Those working in their respective fields are knowledgeable about their job. Whether that’s operations, HR, sales, or whatever. My specialty and training is in Lean process management. I have unique skills, training and tools that help me hone in on the specific task at hand. This means that I am focused on solving any issues of inefficiency. 

Third, I have the time. Just as these workers have skills in their own area of expertise, they also have the bulk of their working hours full with, well, work. As a consultant and Lean Sensei, I am able to devote specific hours to work on solving a problem at a deeper level. I don’t look for areas to smack on a fix, but rather I do diagnostics for the underlying cause of the problem symptom. 

A doctor would never do a surgery without knowing what they were going in for, but in business I see this happen very often. I slow things down and get to the root. From there, we build a process with buy-in so it sticks, build feedback loops to ensure they are working, and put in place strategies for continuous improvement to prevent the process from coming out of remission. 

 

If you are ready to tackle the Frankensteins in your business, we can help. As a lean sensei and lean management consultant, we provide a complete review and analysis of the business processes that create efficiency and profitability, and the barriers to them. If you are ready for true process management, let’s talk.

Contact me today to learn more. Together, we will create a continuous improvement culture and healthier bottom line. 

Why It’s Never Been More Important to be Lean than During/Post COVID

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COVID-19 has taught us in business quite a bit about agility, emergency preparedness, and the importance of processes. We have learned what matters, how to make shifts in the face of restrictive ordinances, and decision-making under extreme pressure. 

We’ve seen businesses close as they couldn’t manage change, while others thrived. Never before has being efficient been so relevant, and necessary. Those who grew during this time may now be facing a decrease and are planning to adjust once again. As restrictions are lifted, others may be looking at adapting to a new normal. Processes and change management have become a focus. 

For me, these have always been a primary objective. What do processes look like, what are they producing, and how can we improve efficiency? 

Lean Operations for Emergencies 

Emergency situations often reveal the holes in our processes. This is often why organizations, such as schools, run mock drills to test their effectiveness. Those regular drills help teachers prepare for fires, storms, and other dangers. 

Similarly, I look at processes so that when emergencies happen, we know where the holes are. The additional benefit is that when there isn’t an emergency, processes run smoother and more efficiently. 

Understanding processes and closing efficiency gaps allows management to make better decisions under pressure. They also are more agile because they understand the full workflow and can anticipate the waterfall effect of problems at any point of the flow. 

Lean Inventory During Shortages/ Delays 

Inventory should be an asset, not a waste of money. Managing appropriate levels of inventory and having a grasp on supply chain is key. How did this last year impact production in regards to inventory? Did it run smoothly, or did it stall? Did product design or workflows change in response? Did deadlines and shipping meet expectations? 

Visual inventory management, min/max ordering and other tools can be implemented to support the best possible outcomes to maximize floor space and reduce cold inventory. Understanding and preparing for inventory issues ultimately impacts profitability. 

Supply chain interruptions were incredibly disruptive during COVID and taught us a bit more about how to be prepared and shift when we can’t get standard supplies. 

Lean Staffing in the Midst of Change 

In the face of COVID, some employees are anxiously looking to return to positions. Others, like teachers and waitstaff, may chose other career paths, possibly permanently. Until we are back to a full reopening, it’s hard to know what staffing demands will look like. 

HR managers will have their hands full managing this changing dynamic and the secret to success is found in the process. Not only will managing the paperwork and policy management be critical, but training staff to get them fully productive will be important. 

The better the processes, the less important the employee’s beginning skill set is. Hiring the right people and teaching them the required skills will be a key in rebuilding staff as the country reopens.

A Little Reflection 

How did your processes hold up this last year? Did it reveal some holes that could use patching? Are you preparing for the new normal to come? Do you need support in building processes to support the coming changes? How can I help? 

 

PBEX, LLC is a lean consulting firm specializing in uncovering the holes in organizational processes that result in loss of any kind. We start with a complete review and analysis of the business processes that create efficiency and profitability, and the barriers to them. Contact us today to learn more and to schedule your review with a lean consultant.   

 

Employees: Your Biggest Headache or Greatest Asset?

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Employee management doesn’t have to be hard. Overall, I think it has to do with perspective. There are certain managers and owners who are employee-first thinkers. And there are some who don’t really consider employees at all. They are very different manager styles and they each lead to problem solving and decision making with very different outcomes. 

I’ve heard an owner once ask where the employees were when he looked out at the production floor. It was a break time, but he was thinking about numbers, not people. He was often heard making comments about employees being his biggest headache. 

If you’ve never heard of the DiSC Assessment, it’s a four-quadrant personality test used by organizations to show a bit more about how people behave. It shows us that some people really value tasks and numbers while others value relationships and feelings. 

This same owner had a manager who was on the opposite side of the spectrum, focused on employee relationships. I personally tend to fall more on this side, even though as a lean consultant I am always looking at numbers and productivity. Maybe the term ‘human capital’ can come into play here as well.

I see employees as one of the greatest assets in a company. It’s true they can be a headache, but that’s only if the right processes aren’t in place to set them up for success. Lean methodology looks at waste and efficiency. If we hire right, train well, and focus on setting employees up for success within the larger framework of productivity and outcomes, we create an organization-wide win. These win-win scenarios are what makes employee management easier.

A Real Life Example 

I once worked with a large local car dealership where the owner made sure to walk through all the buildings and departments each morning to great each and every one of his 250 employees. He knows everyone by name and asks them about their families. The employees love him as an owner and would do anything for him. Many of his employees have been working there for an average of 10 or more years. 

He also asks about their jobs and what could make business even better, then he listens to them and works on making business improvements based on their feedback. His dealership is one of the best in the state. 

He sees his employees as an asset, and therefore has an asset. 

The owner who sees employees as a headache, has a headache. 

It’s all a matter of perspective. What’s your perspective? Could it use a shift? Sometimes a different view can make all the difference in seeing an employee as an asset rather than an obstacle, and I can help facilitate that. Working together, we can merge the worlds of productivity, process and expectations to the asset that is your staff, in order to build win-win-win scenarios. 

 Employee Management and Human Capital

Have employees been a headache or an asset to you? Are you ready to change your perspective? PBEX, LLC helps by providing a complete review and analysis of your employee processes. We look at the numbers and systems in place that create efficiency and profitability, or that set the employee up to fail. Then, we offer consulting and lean process improvement training to support your organizational goals. Contact us to learn more about lean methodology as it relates to employee management and to schedule your review today and learn more about employee management.

Is Over Promising, Under Delivering a Good Business Strategy?

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business strategy chess piece

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In business strategy and theory there is a concept of under promising and over delivering. This means the business strategy is built on doing more than the customer expects. Some examples of this include telling the customer their product will ship on Wednesday when you know it will ship on Monday. Or, it could be including an extra pair of socks in an order of 6 when the customer wasn’t expecting it. 

This strategy brings up several points that are sound and one that isn’t. Let’s take a look. 

Great Business Strategy: Setting Customer Expectations 

If you know there is no way you are going to be able to ship the product on Wednesday, and yet you tell the customer that so they will be happy, it isn’t an effective business strategy. It may buy you time before they are calling back upset, but really, that is just delaying the inevitable. 

The main problem is that it isn’t based on customer satisfaction. This is actually overcommitting and under delivering– a surefire way to unhappy customers. 

Instead, commit to something realistic for when life happens- for example, there’s a delay in the supply chain, a key employee is out sick, or changes need to be made to the product before it can ship. Communicating a time range, rather than a specific date, allows for potential problems to be addressed while still meeting customer expectations. 

Another Great Solution: Trumpeted and Surprised Bonuses 

Some companies lay out specific rewards they are giving customers – these are “trumpeted”. When an auto dealership announces they will give to a charity for every purchase, this is an example. When you get a free gift with purchase as a bonus and you weren’t aware of it, it’s a surprise. One company I knew gave client gifts after they spent a certain dollar amount with the company, but the clients weren’t aware of that until the gift actually arrived. 

These are both great ways to over deliver and create customer delight and in essence under promise and over deliver. This could lead to direct referrals or free word of mouth, especially if the happy customer takes to social media with your above and beyond gesture. And, above and beyond gestures are a long-term business strategy that is proactive, rather than reactive.

A Poor Business Strategy: Unrealistically Over Committing 

Setting goals to making promises that are unrealistic or unachievable will backfire. It can be damaging to the organization’s reputation as well as staff self-confidence. Eventually, customers will start to learn your organization doesn’t follow through on promises. 

Bottom line, if you can’t do it consistently, you aren’t creating a good customer experience. Rather than over or under promising, find ways to build processes that lead to consistent products, services, delivery and communication – together these create a winning business strategy for long-term growth.

 

PBEX, LLC provides a complete review and analysis of the business processes that create efficiency and profitability, and the barriers to them. Whether you need help building consistency in delivery, or closing gaps, we can help. Providing lean consulting and training, we are ready to support your organizational goals. Contact us today to learn more about lean business management and to schedule your review with a lean sensei focused on business strategy. 

Inventory Management: Jumping Over Dollars For Dimes

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A few years ago, I encountered a business owner who had recently acquired a company that was going out of business after 15 years. Part of the purchase included materials, some of which were also 15 years old. This acquisition also meant merging the owner’s two companies, each with their own property, into one larger space. 

The owner planned the build out on the new, bigger property, but he was so anxious to turn the abundance of new raw materials into product, he became blind to other areas that needed attention. 

“This happens a lot in life – we get so focused on something, we neglect others. In business, this often looks like jumping over dollars for dimes.” 

Space was made to house significant inventory, which reduced space for other areas, such as production and offices. However, when we looked at the inventory, we found most of it wasn’t useable, and could be sold, trashed or recycled. Doing this freed up significant space that allowed for significantly more floor space, allowing for greater future expansion. We used lean inventory management tools to help us determine what really was needed and usable and what was waste.

Lean Inventory Management

We can’t get blindsided by the desire to make money at the cost of the team that helps us create it. We can’t be so eager for dimes that we jump over dollars to get to them. Instead, we should be looking at everything in our businesses as: Does it make money or cost money? 

The goal of lean inventory management is to eliminate or reduce things that cost money and increase those which make it. Sometimes that is really clear – like eliminating dead inventory. Other times, it’s harder to see, like investing in sufficient office space for workers. Either way, an outside observer can see these blind spots and help navigate effective and efficient change, reducing long-term costs. 

My role as a Lean consultant includes not only seeing the blind spots, but also seeking understanding to the systems of the business to discover and close gaps. Not only do I look for these inefficiencies, I lead management with tools that help them with continuous improvement so they can find and solve issues as they come up – or even before they come up. 

My objective eye prevents businesses from jumping over dollars for dimes, and when cash flow matters, that’s an important perspective to have. If you are struggling with inventory management and want to get lean, PBEX, LLC provides a complete review and analysis of the business processes that create efficiency and profitability, and the barriers to them. Providing consulting and lean process improvement training, we are ready to support your organizational goals. Contact us today to learn more about lean business management and to schedule your review with a lean consultant.   

 

Using a Feedback Loop for Better Productivity 

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I work primarily in the manufacturing industry, helping them with lean methodology to improve efficiency and decrease waste. Inevitably when I am called in to help, management thinks the main problems stem from the production floor – if only they could increase production, all the problems will resolve. 

I listen and then go right to the front office, because what they do impacts the rest. We have to start at the beginning of the process. If order taking isn’t done correctly, it doesn’t matter how efficient the production team is. 

If we use the analogy of building a house, the front office is the foundation. You could hire the best contractors in each of their respective trades and skill levels, yet if the foundation isn’t good, the home will have issues. All the repairs made to the house would simply be temporary fixes, and they’d add up over time. Fixing the foundation is the only solution, and fixing it after the house is built, is the most expensive repair to make. 

In business, in order to make sure the foundation and structure is correct, a feedback loop or loops should be put in place. A feedback loop is simply a process that purposefully gathers information to be used for improvements. 

“A feedback loop can be customer or employee focused but the goal is the same: continuous improvement.”

Productivity and feedback loops go hand in hand because in order to solve issues with decreased production, we have to look at the system as a whole. We need to gather information, and continue to gather information, in order to discover the underlying issue. 

Let’s use a client example: 

I had a client in the service industry who was struggling with low production. They hired more staff to solve the problem, but were facing the same issue, just with more people. Management felt that if technicians could complete more jobs in a day, revenue would increase, but they couldn’t figure out how to motivate them to do so. 

When I talked to the field technicians, they felt if they had more streamlined routes, they could produce more. As usual, frontline staff and management were blaming each other, creating a cycle of under-productivity. This was our first feedback loop – gathering information from staff.

We used an internal feedback loop to hear from employees what problems they were seeing. We also used a customer feedback loop to find out what was and wasn’t working regarding their service. Most customers were happy, but the ones that weren’t had a theme: the field technicians weren’t showing up when the office said they would. 

When I sat with the order takers, I discovered they weren’t notating the arrival window the customer needed in their notes. This meant technicians were arriving too early, or too late, resulting in a “no job” or reschedule. This important part of the process fell through the cracks when a software change happened, changing the order takers’ input process. 

Ultimately, the issue wasn’t with the production team, but those taking the orders. This created a domino effect that resulted in lower productivity. Without a feedback loop, the company was working to fix the problem they thought they hadrather than the real problem. 

Resolving the real problem increased productivity, improved customer satisfaction, and reduced employee frustration. That’s the power of a feedback loop! 

If you are ready to be proactive, or have found some process holes that need to be filled, that’s my expertise. PBEX, LLC provides a complete review and analysis of the business processes that create efficiency and profitability, and the barriers to them. Contact us today to learn more. 

How COVID Taught Us the Value of Being Adaptive in Business

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While COVID-19 had started to spread in Wuhan China late in 2019, it’s spread to the US was late January, with it being declared a pandemic in March. For those of us business owners and leaders, this pandemic has taught us quite a few things. From a macro level, it showed us how important contingency and emergency plans are. It shows us the value of forecasting and diversifying and being adaptive in business. 

Imagine if any of us had thought in December of 2019 that our businesses, suppliers or vendors may be shut down? Imagine if any of us, just 3 months earlier, had the insight to prepare for workforce, school and even restaurant closures. If we had a glimpse into the future, months before the national emergency and subsequent shelter-in-place orders, how would we have planned differently? 

There is no way to plan for every emergency, but frequently I find many businesses have not planned for ANY of them. Some may have planned once, but haven’t visited those policies since the day they were photocopied and dispersed. However, being adaptive in business means not only do we have a plan, we review it. In lean methodology, this is known as continuous improvement.

What we learned from the restaurant industry 

One real life example of how I saw companies being adaptive, both successfully and not, was the restaurant industry. Many restaurants had been offering “to-go” options prior to the restaurant shut down from COVID. Some restaurants quickly were able to scale up this business component, while others really struggled. 

One famous Italian chain of restaurants allowed us to order online, but when we showed up, there were cars all over the place. After two staff came out to talk to me, a third brought me the wrong order. It was clear online ordering was set up, but the specific location had no systems in place to help the process go easier when it came to getting the food out the door. 

To contrast this, we also went to a Mexican restaurant, and when we ordered, we were asked what color and type of car we were driving. When we arrived, parking spots were marked and someone came out in just a few minutes after we arrived, with the correct order. 

Where does this happen in your business? 

When has your business needed to adapt to a change and it went well, or poorly? 

The main component to being adaptive is communication. What needs to change? How do we implement this shift? How do we communicate the new processes? How will we know if it is working or not? Who else needs to have a say in this? 

Do you have systems in place to navigate adaptations, regardless of the source? Is it time to? Next time change comes, will you be ready to shift gears?

 

PBEX, LLC provides a complete review and analysis of the business processes that create efficiency and profitability, and the barriers to them. Providing consulting and lean process improvement training, we are ready to support your organizational goals. Contact us today to learn more about lean business management and to schedule your review with a lean sensei.   

 

Supply Chain Interruptions and Inventory Management in Crisis

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image of empty pallets

Sometimes it takes a global pandemic to reveal holes in our business processes. Some industries have felt the sting of supply chain interruptions and inventory management.Did you run out of supplies? Did a supplier shut down? Was the demand placed on your business increased or decreased?

Likely, your business faced some sort of change in these recent events, and while it is (hopefully) unlikely we will face anything of this magnitude again in the next hundred years, being prepared for disasters needs to be a part of our business plans. 

Lean Methodology in Times of Crisis 

Lean methodology looks to eliminate waste and improve efficiency – it is the opposite of hoarding. However, that doesn’t mean prudent supplies aren’t on hand. Using a visual inventory method, we make it easy to know when to restock – but what if your supplier suddenly goes under? Whether from a natural or man-made disaster, businesses have seen this happen for decades. 

While developing process maps, it is the role of a Lean Consultant to look at all areas where there could be disruption that creates inefficiency. When done well, we overcome these obstacles proactively. Of course, no one can predict the future or prepare for every possible outcome, but strategic planning around the most likely potential problems helps us resolve most of them, or at least allows us to have some agility in the face of crisis. 

The Case of Envelopes 

In one specific organization I worked with, there was a supply chain issue that was causing company-wide problems. It was an issue with semi-custom envelopes and a replacement couldn’t be found. These envelopes were used for sending out a uniquely large invoice, and because of this, invoices stopped going out, causing cash flow issues. 

We looked at alternates for envelopes and found a solution that saved money on both envelopes and invoices. Because this was a reactive fix, it took some time to implement, however, we were able to adjust and smooth into a new process. 

Being Proactive to Avoid Supply Chain Interruptions

Instead of being reactive, a proactive approach could have anticipated a supply chain disruption and allowed us to make changes to avoid or lessen the impact. The only way to really be proactive is to audit current processes and examine where there are potential problems, and then stay on top of those with a continuous improvement mindset. 

Looking at processes deeply helps us to understand where we currently are and what adjustments need to be made if, all of a sudden, demands increase or decrease. It allows us to make changes quickly to capture opportunities, rather than fail as we slip into holes we didn’t know existed. 

Change will always happen in business. Whether large or barely significant, they can give us space for improvement if we are open to learning. 

 

If you are ready to be proactive, or have found some holes now that need to be filled, that’s my expertise. PBEX, LLC provides a complete review and analysis of the business processes that create efficiency and profitability, and the barriers to them. Contact us today to learn more. 

Does Your Business Have an Emergency Plan in Place? 

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emergency plan image of exit sign

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Reading the news on any given day can create fear of the next big thing for us to be concerned about. Terrorist attacks, virus spread, natural disasters, workplace violence, and more can all be unsettling. While there is no possible way to plan for everything, having an emergency plan in place, and the ability to be agile and adjust, are very important. 

The better documented and managed your current processes are, the easier it will be to make adjustments in order to keep things moving as seamlessly as possible. 

When an emergency hits, your physical office could be shut down, supplies could be limited, income could slow or boom, demand could become higher than you can keep up with, and communication needs are heightened. A business crisis plan lays out actions to take in case of such an emergency.

How to Create an Emergency Plan

First, start by documenting processes. What are you currently doing and who is doing it? What is required for each worker to do their job? What supplies or equipment is needed? Identify your mission critical tasks and what is required for them to function. 

Second, take note of your risks. What part of your processes are at risk? For example, do all supplies come from one chain? Consider what natural or man-made disasters the company may face. For example, if tornadoes are more prevalent in your area than a tsunami, you may want to make a plan for that and not others. Start with the highest risk first. 

Third, create an emergency management plan. Create a plan for chain-of-command and expedited decision-making. Create a communication tree so information can be quickly spread to those who need it most. 

Fourth, build your emergency plan. Decide who needs to be part of building your emergency plan and meet to do so. Consider supplies needed for both evacuation and taking shelter. Determine how to communicate the plan to employees, customers and vendors. 

Document your plan and let people know how to access it. If relevant, keep disaster sheets in appropriate areas for quick access, such as near specific equipment or safety areas. Some organizations keep emergency supplies in specific places throughout the building. Be sure these are marked and accessible. 

Finally, practice and reassess. Once your plan is in place, consider practicing it to work out any bugs and find any gaps in protocol. Plan for times to re-evaluate the emergency plan to update it for changes in business processes or new threats or risks. 

 

Uncertain times will ebb and flow, so having an emergency action plan in place will help you move forward during these times with more ease. It all starts with identifying your needs and documenting your processes, which is exactly what I have expertise in. Schedule today to begin a conversation about your emergency plan.