Category Archives: Manufacturing & Operations

How Do You Gain Commitment to Plan Revisions? Three Thoughts

Situation: A company goes through an annual strategic planning process followed by an annual business planning process. At mid-year they do a review and correction. The challenge is that if the company is behind plan, the management team does not take ownership of plan revisions – it becomes “the CEO’s Plan.” How do you gain commitment to revisions in the annual plan?

Advice from the CEOs:

  • Throw out your current process and start over.
    • The challenge is to gain more buy-in and accountability. This only comes if the targets come from those responsible for delivering them – both for the original plan and if any revisions need to be made.
    • Look at who you involve within the organization – can you drive involvement deeper to generate additional buy-in across the organization?
    • Hire an outside facilitator to guide you through the process instead of chairing the meeting yourself. This prevents the resulting plan from becoming “your” plan. It also changes the culture of the meeting as well as the buy-in.
  • If you use a bottom-up / top-down process, moderate the plan results with an eye to two realities:
    • Bottom-up input from the sales team is rarely more pessimistic than the CEO’s input. If it is ask what is happening.
    • Make sure that your top-down numbers are empirical and based on the best market research that you can obtain.
  • If your plans have consistently fallen short over recent years:
    • You may be baking the targets too high.
    • Consider building the revenue plan optimistically, but build the expense plan conservatively. This helps control expenses and attain profitability targets.
    • So that the two plans are not misaligned, review them more frequently – perhaps quarterly on a formal basis with monthly reviews – so that if your revenue plan is meeting targets you can adjust spending to support production and delivery.
    • It is common to have one set of numbers for sales and a different, more conservative, number for expenses. As long as you conduct frequent review and adjustment of the expense number to sales performance, this works. Many companies also use different targets for operations than what they present to the Board – with the more conservative numbers for the Board.

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How Can You Reduce Costs By Consolidating Services? Four Suggestions

Situation: A small company wants to reduce costs by consolidating accounting and operational communications between remote divisions, with home office coordination. Can you more effectively reduce costs by consolidating services or is it better to set up parallel but complimentary accounting and operational communications in each division?

Advice from the CEOs:

  • There are a number of things that need to be considered, including:
    • Whether the existing legacy system is off the shelf with modifications or was custom designed for your operation.
    • Does the current system meet your needs, and do operators understand it? Is operational understanding diffuse or can only one or two people operate it?
  • How similar are the divisions in terms of product, customers and operations?
    • Do divisions serve distinct, non-overlapping customers with different product lines?
    • Are there important operational differences, for example are some divisions union, and others non-union?
    • On an ongoing basis, except for accounting, do divisions function as complimentary or distinctly separate businesses?
    • How complex are the product and pricing offerings? Could you consider a simple solution like QuickBooks or are there are complexities to your business model and accounting that the off-the shelf or web-based systems can’t address?
    • How much historical data from your current system is needed to support ongoing and future operations?
  • The simplest solution may be to run your current system off of a server, with multiple nodes connected to the system – a direct connection at your home office, and point-to-point lines connecting your remote offices. This will solve both your data transfer and communications needs.
    • Hire a computer consultant to set this up and assist you in establishing a link. It will cost some money, but will save you time and money in the long-run.
  • If you decide to change your accounting system, do so at the end of your current fiscal year. Trying to change accounting systems in the midst of a fiscal year creates an accounting nightmare for a small business.

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Do You Continue a Difficult Partnership? Five Alternatives

Situation: A company has a key relationship with a major corporation. They recently completed work in Phase I of a multi-phase project which was fraught with difficulties. Now they are evaluating whether and how to proceed with Phase II. Do you continue a difficult partnership?

Advice from the CEOs:

  • What made Phase I difficult?
    • Initial work was done to original specs and on time. The partner then asked for additional work and a change to the original specs, but would not agree to pay for these changes. As a result, the company lost money on Phase I.
  • What alternatives exist?
    • In brief, you must fundamentally change the terms of engagement. You can convert everything to time and materials, so that when the partner makes changes or asks you to make changes, they pay as they go.
    • A second alternative is to reconstruct the project as a waterfall project with a fixed price up front. You agree to X iterations, at Y cost per iteration. Each iteration has a deadline and the work completed as of each deadline constitutes the final work on that iteration. You charge for additional iterations if the partner wants additional work after the final negotiated iteration.
    • A third alternative is to set a price that is 2x your estimated price, recognizing that there may be a need to change specifications during development. You will provide documentation of your time and effort. If at the agreed end of the project you have not used all of the funds budgeted, you refund the difference to the partner.
  • Adjust how you communicate with the partner as you renegotiate. Do not assume that silence constitutes agreement. Provide written documentation of your understanding at the close of each negotiation and invite them to correct any misunderstandings. Require that both sides sign this documentation to confirm agreement. Do not proceed until there is clear mutual understanding on all key points.
  • Purchase and use software to track any changes to requirements during the project. This will enable you to document both the changes requested and their waterfall effect on other portions of the project.

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How Do You Shift From Regional to National Operations? Three Foci

Situation: A company has a network of regional offices, operating under loose oversight from the home office. Increasingly, large customers are asking for national service agreements, but the company struggles to coordinate uniform national service delivery. How do you shift from independent regional to coordinated national operations?

Advice from the CEOs:

  • If you want to act like a national company, then organize like a national company. Create a national account office which will take the lead in negotiating national contracts. That office will then coordinate with the regional offices to assure that service delivery occurs according to contract.
    • As the national office is built, it will be important for them to understand how service delivery may vary between states because of differences in state regulations. This will require a manager who is experienced and knowledgeable in your field. This may be a promising current regional manager or an outside individual from your industry.
    • You will also want to define customer categories which will enable you to classify current and prospective customers as regional or national accounts. You may want to consider three customer categories, for example Regional, Emerging National and National Accounts.
  • The key to success will lie in your incentive and professional development structures.
    • If region managers receive their incentives and promotions primarily for developing regional business, then this is where they will focus.
    • If you want the region managers to shift their activity and priorities to creating and servicing national contracts, then bias both your incentives and professional development programs accordingly.
    • For region managers, continuity of business will be a top priority, as this enables them to maintain region performance. To come on-board with the new program, they must perceive a value for both themselves and their customers.
  • Once you have determined your structure, look for high profile wins that drive the structure. Reward and promote those who produce these wins.
    • These producers will become your champions for change.
    • The message will spread quickly across the organization.

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How Do You Shift Culturally from R&D to Production? Seven Steps

Situation: An early stage company needs to move from an engineering/R&D focus to a production focus. Cash availability and business plans dictate that this must happen very rapidly – within 4 months. How do you coordinate a rapid cultural shift from R&D to production?

Advice from the CEOs:

  • You will need an experienced VP of Operations.
  • Operations and production engineers are a different personality type than R&D engineers. The latter are creative and seek new and more effective ways to solve problems, while production engineers thrive on perfecting a process and getting it right every time. You will likely have to adjust the team to assure that you have both types.
  • Reorganize the current engineering team into R&D and Production engineering teams.
    • A core R&D team reports to the CTO.
    • Another team reports to VP Ops and will cover product manufacturing, process improvement and logistics and QA.
  • What are the most important steps to take first?
    • Have a heart-to-heart conversation with the individuals who you have assigned to production responsibilities.
    • Get back together in small groups or one-on-one with your production group and explain that to meet the company’s objectives – and everyone’s long-term financial objectives – there must be a change. Explain the cost in stark dollars of what the failure to make this change means to the company and to the team. Challenge them to assist you in developing solutions that will allow you to meet your corporate objectives.
    • Allow some learning opportunities to arise. Let team members make the occasional mistake and use these as coaching opportunities for the group to show what happened, why it happened, and why it can’t be repeated.
    • Separate standard and special order production into two groups. Each group will have to meet their own performance objectives and metrics – but all objectives and metrics must support the company’s objectives.
    • Early on you may want to require CEO sign-off on production sheet changes, but within a system that allows you to easily determine material from non-material changes.

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