How Do You Optimize Your Supply Chain? Six Suggestions

Situation: A company wants to improve the efficiency of its supply chain. The company produces a custom product, for which there are few qualified materials suppliers. From the CEO’s standpoint, this presents challenges, particularly when there are delays in materials and parts supply. How do you optimize your supply chain?

Advice from the CEOs:

  • In supplier negotiations, know your BATNA – Best Alternative To No Agreement. Put this in dollars and cents so that you know your negotiating limits.
  • A recessionary or slow growth environment is the perfect time to negotiate! This gives you the opportunity to work with an outstanding order on terms that either your supplier or customer needs. For example, if you are experiencing delays in shipments from your supplier, offer a purchase commitment of “x” terms for “y” years at “z” price in exchange for higher priority on their production schedule. You can work the same way with your customers.
  • If you supply a custom product, especially on a sole-source basis, tie yourself to the hip of the engineering organizations of both your supplier and your customer. This gives you leverage when either the purchasing department or a contract manufacturer intermediary tries to push you on price and terms.
  • Be a squeaky wheel on shipments or payments due – but not in an irritating way with too much pressure.
  • Europe Union RoHS and REACH regulations make it imperative that manufacturers and service companies be aware of hazardous substances in products that they design and manufacture. The list of hazardous substances being monitored and/or restricted is expected to grow to 3,000 in coming years.
  • Contracts serve two purposes: a legal tool, and a way to drive behavior. They are an opportunity to assure that both parties are on the same page and under the best circumstances serve as process documents.

Special thanks to Bijan Dastmalchi of Symphony Consulting for his contribution to this discussion.

Is It Wrong to Hire Family Members? Six Considerations

Situation: A small but very profitable business was founded and has been run for two generations as a family-owned and operated business. To boost performance, the CEO hired a general manager with a good background who is not a family member. The general manager has told the CEO that he feels that there are too many family members in the business. The CEO likes hiring people she trusts, particularly friends and family that she has known for a long time. Is it wrong to hire family members?

Advice from the CEOs:

  • Don’t try to change what you’ve already done – plan for the future.
  • Acknowledge the GM’s idea. Tell him that you appreciate his suggestions. Suggest that he test hiring more non-family members to cover one of your low risk market segments. Measure the performance of this team versus the other teams within the business.
  • The challenge with family members is accountability and objectivity. The question for the family owners is whether they have the freedom to act in the interests of the company. Can they put family ties aside when someone is not serving the interests of the company?
  • The essential question for the family that owns the business is – what do you want to maximize? If it’s loyalty and longevity – keeping the family together, employed and in harmony – they can be good. If it’s profits and performance – family and friends can be difficult if emotional ties cloud business objectivity.
  • The upside to family is loyalty and trust. That said, family and extended family friends are different. The latter don’t have the same ties or sense of loyalty.
  • Can you keep employees for too long? Yes. Make sure that you evaluate all employees every year. Establish job and performance standards and make sure that all employees – family and non-family – are held to the same performance expectations.

How Do You Optimize Quality Improvement? Six Suggestions

Situation: A company’s reputation is based on quality of work. The CEO notes that occasionally they have mishaps due to suboptimal documentation. They are considering a concerted quality effort.  Based on your experience, would you do this whether or not you were bound by ISO requirements? If so, would you hire an outside consultant to guide your efforts? How do you optimize quality improvement?

Advice from the CEOs:

  • Some companies have successfully used ISO to force documentation. ISO provides a structure to enforce keeping the company and employees diligent and honest.
  • Other companies have used standard operating procedures (SOPs) for field as well as internal functions to speed completion of documentation and accelerate invoicing. These companies may or may not have ISO requirements.
  • One company tried to go cheap – implementing process improvement without a qualified consultant. While the effort was eventually successful, it took way too much time and money. From this experience, they recommend hiring someone who is experienced and who already has a template to guide the process.
  • To test the experience of an outside consultant, start with a small project to get the company accustomed to the process and to evaluate the consultant’s efficacy.
  • If the choice is to work on this yourself with your employees, start by documenting what happens correctly. Once you have done this, work on improvements to address problem areas.
  • This is not a simple exercise – plan for it and use the right inside or outside person to guide the process.


How Do You Deal With a Deadbeat Customer? Four Thoughts

Situation: A company faces a difficult situation. One of their customers placed a substantial order for custom product a year ago. They have taken delivery of some product but the bulk of the order is still in the company’s warehouse. The company negotiated a cancellation fee with the customer, but they haven’t paid. What is the best option for the company? How do you deal with a deadbeat customer?

Advice from the CEOs:

  • Because the customer is unresponsive, be ready to take legal action. Get an attorney. The initial process to prepare for a suit may cost $5,000-7,000. Therefore be prepared to sue for damages plus legal fees, with the threat that liens will be put on the customer’s business during the settlement process.
  • Once everything is ready for a suit, talk to the customer – the message is either they pay in full what they owe or you’re ready to file a suit which will cost them much more.
  • The Uniform Commercial Code may cover you for custom product. Check this out. This is important so that the company won’t be exposed to a countersuit for filing a frivolous suit.
  • A route which may be less expensive is to hire a lawyer on a contingency basis. Contingency lawyers may want up to 40% of the settlement or judgement to take a case, and the value of the case has to be large enough to attract their attention.


How Are You Responding to Market Instability? Seven Thoughts

Situation: Market swings in recent weeks have shaken up some people. A CEO is curious about how other companies are seeing this as well as how the see their companies doing in the current economy. How are you responding to market instability?

Advice from the CEOs:

  • Business turned back up two years ago, and we are working on major sales opportunities.
    • Actions Taken:
      • We reduced executive expenses.
      • We are sharing a bookkeeper with another business to reduce salaries.
  • In April we increased staff to respond to strong first quarter demand; however since April revenue is flat to declining.
    • Actions Taken:
      • Let a few people go, may have to do more of this.
  • The current economy benefits our industry because our service thrives in an uncertain economy. We have not yet had to make adjustments.
  • We continue to see a big shift from direct hire and full-time to temp and part-time employees – this is working in our favor. Weaker competitors have closed shop.
  • Business is going well. Most customers have cash. The major decision that we face is how much to grow. We’ve seen some project cancellations, but not enough to hurt.
  • What concerns you about the future?
    • Availability of credit lines.
      • Varies by bank and your relationship with the bank.
      • Securing additional or increased lines may be difficult.
      • Anticipating a raise in rates by the Fed, lines may carry a higher interest rate.
    • The trickle-down effect from consumer spending continues to be weak. We are looking for opportunities less sensitive to swings in consumer spending.
    • Receivables are being pushed out.
  • What are you doing about this?
    • Proactively having employee meetings and being straight with employees about how the company is doing.
    • Good opportunities to lean up:
      • Cutting expenses.
      • Cutting less productive employees.

Have You Hired People with Disabilities? Six Suggestions

Situation: A company is expanding. Some jobs that need to be filled are either utilitarian or don’t require full mobility. Labor through agencies runs $20/hour including agency fees. The CEO considering hiring the disabled including wounded warriors for this work. Have you hired people with disabilities?

Advice from the CEOs:

  • In San Mateo County California there is a group called Community Gatepath. They assess the work and work requirements and the company pays for disabled services a fair price piece basis. This worked well for sample product with simple packaging.
  • National groups include and the Small Business Association which can assist with any regulatory questions pertaining to hiring the disabled.
  • Working with Easter Seals one company hired high functioning disabled individuals. For everyone involved, it was a very positive experience.
  • If you are interested in hiring disabled veterans, organizations like Hire Heroes USA provides both resumes and assistance. Tax credits are available for hiring disabled veterans.
  • There may be issues around how disabled workers process information or how they handle emotional situations that are different from non-disabled workers. Sensitivity among those supervising is important.
  • Interview and investigate the sponsoring organization and arrangements. Make sure that they are set up well for your needs as well as those of the disabled workers.

How Do You Get New Employees Up to Speed? Seven Thoughts

Situation: A company has a new set of employees coming up to speed, but this is happening slowly. The work environment is semi-skilled, with learning curves for new office employees and apprentices. How do you get new employees up to speed?

Advice from the CEOs:

  • Provide a competitive level of compensation to journeymen and higher level office employees. Make these levels of skill to which office employees and apprentices aspire.
  • Develop a mentor program. Provide chits (company currency) to both the mentor and the mentee for learning each new processes. Make awarding these chits a big deal. For example, the mentor and mentee collect their chits from the CEO who then takes them down to the treasurer to collect on the chits.
  • As appropriate, create a team learning environment. Game theory has demonstrated that both basic and more advanced skills can be successfully taught in a team game environment where there is both competition and rewards for attainment.
  • Set up a system where successful training is demonstrated bench performance.
  • Establish Operator 1, 2 and 3 levels to qualify for graduated levels of jobs or responsibilities. This creates a career track and an incentive to go for the next level. Celebrate employees as they move from level to level.
  • Company celebrations are important. Celebrate birthdays, tenure anniversaries, skill level attainment, career track attainment, and so on at monthly meetings or events.
  • Hire slow/fire fast. Give new employees a fair shake, but if their mentor doesn’t see promise in them, let them go.

When Does It Make Sense to Buy a Company? Three Guidelines

Situation: A Company has a key customer that wants to upgrade the Company’s status as an approved supplier. This comes with a catch – the customer demands that the Company reduce the amount of its total revenue represented by its business with the customer. The customer doesn’t want the Company to be overly dependent upon them or their business. One option that the Company may explore is purchasing another business. When does it make sense to buy a company?

Advice from the CEOs:

  • The Company may be working under a false premise.
    • If the Company is truly a critical supplier, the customer is not likely to go away just because they don’t like a single ratio on how the Company runs its business.
    • The risk that the Company takes on buying another business is that this distracts the Company and ends up jeopardizing current business both from thus customer and others.
    • It makes more sense to explore acquiring another company if the Company’s broader goal is to become more diversified, or if new business commitments are forthcoming from this or other current customers.
  • What about this strategy makes sense?
    • Provided that the purchase of another company makes strategic sense, it may be feasible to finance the purchase of that company through a leveraged buy-out.
    • Be sure to build an earn-out with incentives contingent upon the seller staying on and helping to maximize long-term value of business.
  • As an alternative to buying another business, it may be possible to build a new lower cost/price version of the Company’s current product or service and build a new customer base for the lower cost version. This is how automobile companies use the same or similar frames, engines and many of the same components to create different cars for different markets.

What Efficiency Metrics are Most Important? Six Suggestions

Situation: An early stage manufacturing company has established repeatable operations that produce the desired quality. The CEO now wants to focus on efficiency. Early research suggests a number of areas on which they could focus. Based on your experience, what efficiency metrics are most important in manufacturing?

Advice from the CEOs:

  • Much depends upon what is being manufactured, and both the complexity and labor intensity of the manufacturing process. Start with the basics: looks for a relevant quality metric, and a time / delivery metric. Test these for relevance to your operations and adjust or change them as necessary over time.
  • Start with simple metrics and make them more complex over time.
  • On an ongoing basis, monitor your processes for continuous improvement. If an employee comes up with an improvement that increases efficiency and saves money, recognize and reward that employee.
  • Be selective. Limit your focus to 2-3 metrics per quarter. Make first period performance the baseline for the next period.
  • Areas in which to focus:
    • Cycle times.
    • Statistical process control to monitor:
      • Yield
      • Throughput
      • Fall-out
    • On time delivery to production schedule.
    • Quality check at end of production – yield rates versus pre-set targets.
    • Use Google to see what others are using. Google “Manufacturing Performance Indicators”.
  • As you develop your efficiency metrics, include your most effective metrics in performance measurement for bonus awards.

How Do You Counteract the Dog Days of August? Three Ideas

Situation: A CEO knows that his employees have been working hard and have been productive all year. Now that we’re coming to the end of the summer, he’s concerned that in the past he has seen an energy drop every August. What can be done to increase the voltage? How do you counteract the Dog Days of August?

Advice from the CEOs:

  • Anoint a “Champion of Fun.”
    • The Champion of Fun should be an employee – not management.
    • This may be a team of two people who focus on different things – one for small, day to day activities, and one for big events, like a Habitat for Humanity day.
    • Provide a budget for the Champion. Allow discretion to create excitement around the office or workplace. This includes posters announcing events and other ways to make the most out of each event or activity planned.
    • If out of office activities are anticipated, encourage employees to involve family members if they wish. Maybe a picnic and softball game at a local park, or an early evening of go-kart racing.
  • Create a sense that your employees have some control over their environment. This adds energy.
    • Circulate an Office Depot catalogue and give each employee a budget that they can spend to dress up their space.
    • It’s amazing how much a small investment like this can rejuvenate people and the overall atmosphere.
  • Bring in lunch as a surprise a couple of times during the month. Take some extra time and let people enjoy each other’s company. This is for deepening personal connections, not for lunchtime business discussions.