Hidden Profits Blog

Are you frustrated because you have to wait until after the financial month end close to obtain any information about your company or departments operating results?  This happens in too many companies today!  In my last post, The Real Value of Information Technology, I reviewed the 4 critical areas to create value in Information Technology.  The first was real time information for better decision making.  

Jack Welch retired Chairman of General Electric said   ‘An organization’s ability to learn, and translate that learning into action rapidly, is the ultimate competitive advantage.’ 

So how can you as an executives learn fast and translate that learning into action rapidly? 

First, you need to have critical information at your fingertips in real-time.  So what is critical information commonly known as KPI’s (Key Performance Indicators).  Every company is different, however, KPI’s are generally financial or statistical values or percentages/ratios that indicate to you when critical operations are moving in the right direction. You know what your KPI’s are and once those are defined then we can define what is required provide them instaneously.  

Information Technology is critical to obtaining KPI’s on a real time basis. 

1.  Use technology to load data at it’s origin.  This can include mobile devices and/or internet to process sales in the field, receive products and inventory, load information from vendors, transfer data from manufacturing equipment or monitoring equipment, load agriculture data, etc. It can also include direct file transfer from customers, vendors and partners. This data is generally then loaded into an ERP system and optionally into a Business Intelligence system. 

2. ERP systems today process data from sub-modules (sales, manufacturing, purchasing, AP etc.) directly into the general ledger and/or job cost system on a real time basis.  An ERP system is a key component to process data and prepare/present information instantly. Processing data instantly is one of the key reasons to upgrade an old ERP system to a new system.

 3. A final puzzle piece in the technical stream to provide instantaneous information is the Business Intelligence system.  These systems provide functionality to dynamically process data into information and present it in numerical, graphical or text format into MS Office products and/or feed directly to mobile devices or web-based applications.  Data can be displayed in numerical or graphical formats and you can drill to detail transactions. Business Intelligence systems and mobile devices are the key components in transforming data into information immediately that enables you to learn, make decisions and act rapidly to make corrections.  As Jack Welch indicated this provides a distinct competitive advantage and the value of the technology used is invaluable!

For more information on how to define KPI’s and implement a fully integrated Business Intelligence system contact LJR Consulting Services at 818-709-6583 or info@ljrconsultingservices.com.

Do you feel like the Information Technology (IT) bills never stop coming?  It seems like there are always upgrades, maintenance costs, new software that must be purchased.  The question becomes ‘What Value Do We Receive From That Investment?’ That is actually a very good question.  Most IT executives would answer that there is almost 100% uptime, business transactions are processed with stunning accuracy and speed, employees have access to recent releases of Office software to better do their jobs, everyone has email with near 100% uptime, response time is quick and everyone has smartphones with email.  All  that is true and important, I mean just think of how the average office worker would do their job without email, MS Office and the standard accounting system used  in business. 

However, the value of Information Technology (IT) should go much further than that, especially today.  We have instant connectivity to the internet almost anywhere and from devices that we hold in our hand.  We use those devices to access our personal information instantly while many busy executives still wait until the end of the month and later to access critical business information.  In our personal lives we interact with each other quickly and learn more about each other than ever before with social media. Yet companies still have limited interaction with suppliers and sometimes customers.  

 In order to move to the next level of IT value there are 4 key areas that should be addressed.

1. Real time information for better informed decision making
2. Information provided suppliers to improve supply chain and customers in the form of new or add-on products and services
3. Optimized business operations and back-office from increased use of technology
4. Innovative interaction and collaboration with suppliers, partners and customers 

In many cases companies already have the technology to add value in these four areas but there is a lack of communication between IT and business and often a lack of innovative thought on the part of both business and IT to address these opportunities.  The reality is businesses that add technology value in these four areas will be the businesses that stand out, attract customers, attract ‘A’ level talent and become more profitable.

I will address each of these value opportunities in subsequent posts.  If you would like an evaluation of how your company can increase value in these areas, call us at 818-709-6583  for a free 90 minute consultation. 

Almost all corporations today provide mobile devices – smart phones, iPad, etc. to employees.  The question is ‘Are they used for more than just phones, email, Facebook and Twitter?’ There are many business applications for which these devices can be used that increase the value to the business and improve business efficiency and performance.

Here are some types of business applications that can add value to the operation.

1.  Key Performance Indicators (KPI), business alerts, and other business information displayed via mobile device.  This could be any piece of key information that is important to executive management in monitoring business activity.  Some examples are:

• Daily sales
• Cash balances
• Key project alerts
• Profitability by key customer
• Manufacturing statistics
• Crop ratings for agriculture

2.  Purchase order/requisition entry and approval. One of the key reasons that company’s have for not using electronic purchase orders is that it is inconvenient to be at a computer when making a purchase. For industries in which employee’s that need to make purchases and do not easily have access to a computer providing a mobile device application to create and approve purchase orders greatly enhances the efficiency of the company and the AP department.

3.  Purchase Order receipt – for companies such as construction or agriculture that receive product deliveries in locations without computer access, the ability to receive PO via mobile devices reduce manual data entry and provide more accurate inventory control. 

3.  Delivery orders and authorizations for product delivery companies.  Many companies that deliver product such as food, uniforms, beverages, etc.  or provide on-site service such as plumbers, HVAC repair, electronic repair, still print the delivery orders daily for drivers.  Once the product is delivered the customer signs the paper order and often companies then scan those documents into a system for access by customers.  By downloading the orders to mobile devices the addresses can be input to GPS automatically for directions, the actual cost of the delivery or service calculated on the mobile device, customer authorization recorded and the completed order uploaded to the corporate ERP system and made available to customer facing applications.  All this is done with no data entry which can significantly reduce time and cost.

 4.  Customer Orders.  Company’s with sales reps that take orders in the field the entry of the order and contract signing can be competed on the mobile device. 

5.  Customer facing applications – many companies have already added the applications that are already available on the web to mobile devices.

These are just a few ideas on how to use mobile devices to improve corporate efficiency.  If you would like your organization’s systems reviewed  and  opportunities for mobile device applications identified, contact me at 818-709-6583 or by email lynda.roth@ljrconsultingservices.com 

•  Excessive warranty returns
• Shipping problems and late customer deliveries
• Less than 100% customer order fulfillment
• Over 50% of receivables that was over 120 days.

Outsourcing is seen as one of the best and quickest ways to reduce cost.  The popular thought is that you outsource non-core business functions to companies and locations that can do it cheaper than your team can if it is kept in-house.  While I agree that outsourcing is an option to be evaluated, it is not necessarily the panacea that has been suggested.

First, what is meant by outsourcing?

Many think it means using a company that is not in the US to perform a back office or non-core corporate function.  While a lot of outsourcing is done offshore, that is not the only definition of outsourcing.  You can outsource the function to a company in the US. The broad definition of outsourcing is to hire another company to perform internal corporate functions. The term for outsourcing to a company outside of the US is termed Offshoring.

 Next, how much of the function is to be outsourced? 

Outsourcing is generally when an entire department/function like Accounts Payable, Accounts Receivable or Information Technology is transferred to another company,  However, outsourcing can be done on selected functions within a larger functional department.  Some examples of partial outsourcing are:

• Instead of completely outsourcing all IT functions, you can outsource selected development to development firms, or outsource infrastructure maintainence to an infrastructure firm, or outsource data base administration. 
• In Accounts Payable you can outsource just the payment process to a bank 
• In Accounts Receivable you can outsource payment receipt to a bank and customer collections to a collection firm.

I have worked with numerous clients in which outsourcing looked like a possible alternative, however, upon assessing the company several key items came to light.

1. In the majority of cases a large part of the reason the cost of back office business functions was high was due to extremely inefficient and ineffective business processes. This was the result of numerous manual functions sometimes in spite of adequate computer business systems and sometimes because of inadequate computer business systems.
2. Another major  reason was multiple business systems resulting from corporate acquisitions that were not consolidated onto one system and standard business process
3. Organization and people are also one of the reasons why companies struggle with many operations that they consider outsourcing,

By addressing these issues, many companies can be competitive with outsourcing options.  By not outsourcing you also don’t have to worry about the disadvantages and loss of control that comes with outsourcing. Finally, if there is still a decision to outsource, it can be done in a more effective manner and thus better ensure success.

If you are interested in having an assessment of your systems and processes contact me at 818-709-6583 or info@ljrconsultingservices.com

There are always a certain amount of corporations that have found themselves in a situation of negative profitability and/or declining sales.  If these cases are prolonged they are in need of a fundamental business change and infusion of cash in order to survive – A Corporate Turnaround.  In the last couple of years the number of companies in this situation has increased significantly.  The common approaches to address these situations are:

1. Assemble a finance team get a cash infusion from a bank, finance company or investor
2. Assemble a team to arrange the sale of all or part of the company
3. Cut expenditures and employees across the board in the company
4. Bring in a consultant to address the revenue side of the business
5. Re-organize under bankruptcy protection

While I agree that some or all of these approaches may be necessary in any given situation, I believe that except for the cases in which the company is liquidated, Information Technology also plays a vital role.  I have been working with several clients in the last couple of years that find themselves in the situation where revenue is down, cash flow is down, cash is hard to find and the company is in serious trouble.  In one situation the client had already attempted to sell the company 3 times and was unable to come to terms with a buyer.  In another, they had already brought in management consultants to address the issues and increase sales.  In another the company was still in good position but the owner knew there were big bumps in the road and wanted to address them before they became serious.  In all cases the biggest hindrance to management was the lack of information, financial, sales and production about what was happening in the business so that productive decisions could be made.

Why was there such a lack of basic information?  In all cases the root of the problem consisted of the following:

• Computer systems which were not integrated – each company utilized a minimum of 2 major systems in the business and sometimes more
• Significant manual processes that prevented timely and accurate information from being processed in the computer systems
• Inadequate and untimely reporting regarding financial and operational results
• Lack of an adequate system to track sales performance

Because of the above Information Technology problems, the companies were unable to answer the following basic business questions:

• How much are sales down over previous years and in what product lines, customers or geographic areas?
• What sales do we have in the pipeline and what are the expected future revenues?
• Where are sales coming from in terms of products, customers and geographic regions?
• What is the productivity of operational staff and how can we increase the productivity?
• Where are the greatest expenses and what are the best cuts to make?
• What is the projected cash flow for the next month, quarter and year?
• What is the status of AR and collections, if collections are down why?

Now I know what most people would say – hire a staff of accountants to come in and generate those reports.  Ok let’s say we do that.  First, these types of reports are not static.  Management needs these reports on a daily or weekly basis.  How many accountants and how much time will be required to compile this information on an ongoing basis?  In most cases it would be unrealistic.  So what can Information Technology do?

First, there are numerous Business Intelligence (BI) systems available today that can be used to gather data from multiple systems and create reports, trend analysis, dashboards for management to have meaningful information as soon as data is entered into the systems.  This is especially important when analyzing sales and production data.  The majority of these systems can access Excel spreadsheets and any ODBC data base.  So even if there is no CRM (Customer Relationship Management) system and sales information is in spreadsheets, important management reports may be obtained from them.  Then the next question is ‘Aren’t BI systems expensive and difficult to implement?’  Traditionally that has been the case but today there are several systems that are very inexpensive and they will build a dynamic data store from the raw data.  These may not be a long term solution but can be implemented rather quickly to start providing management with critical information.

Second, in some situations the BI data can be used to create interfaces between systems that are not integrated. One of the biggest issues I see is operational systems that are not integrated with an accounting system.  Some of the BI systems can be used to capture the operational transactions and generate Excel spreadsheets of the journal entries that can then be integrated to the accounting system.

Third, I.T. is no longer just an internal data gathering operation that is used to create financial statements and tax returns.  Technology and automation are used to follow up on sales leads and prospects, survey customers, create new sales channels, provide customer and vendor self-service, provide for entry of data at the source, streamline operations and improve many other business functions.  By effectively utilizing information technology and business process automation, many time consuming and inaccurate business processes can be streamlined and made more accurate.  Much of this technology is relatively inexpensive.  For example, there are many services offered by banks, financial institutions and vendors that are free or very low cost to implement.  Many systems especially CRM (Customer Relationship Management) and prospect follow-up systems are available as a service at a low monthly cost. 

By implementing timely management reporting, integrating systems and automating business processes many companies can find solutions to their business problems, provide better information to investors and lenders and even improve the chances for an acceptable sale of the business.  Times are challenging and information technology is not a silver bullet but it is an arrow that should be in every executive’s quiver. 

For information and an evaluation of your Information Technology contact me at info@ljrconsultingservices.com or 818-709-6583

I attended an APICS event last night and the presentation by Robert Fox focused on lean & Six Sigma and why we would want to implement them. Most of us associate ‘lean’ with manufacturing as the concepts which originated at Toyota were focused on the manufacturing process to reduce cost in manufacturing, reduce lead times and improve quality. 

These concepts also apply to non-manufacturing businesses and to the non-manufacturing processes in all business, which I have referred to as the Financial Supply Chain (see my blog posts How to Evaluate the Financial Supply Chain http://www.hiddenprofitsblog.com/how-to-evaluate-the-financial-supply-chain and The Financial Supply Chain http://www.hiddenprofitsblog.com/the-financial-supply-chain).

While in last night’s presentation the concepts were not new, the approach and the reasons were certainly very thought provoking.  Lean processes and going lean are almost always associated with reducing cost.  That of course is a very laudable goal.  Last night the focus was on the goal of increasing throughput or capacity.  Which of course once you reduce waste and time of the process you automatically increase throughput.  We normally do not look at that side of the coin.  In manufacturing, Mr. Fox talked about how increased capacity provided the opportunity to make and sell more products without increasing the costs of production.  We usually think of increasing a capacity with the need to add plant space and/or additional locations machinery and people.  However, if we have reduced waste, thus freeing up capacity we can in fact increase the quantity produced and sold without increasing cost.  This makes the additional products produced very profitable. 

The same is true when we look at non-manufacturing processes or the Financial Supply Chain.  Even though the focus for the last couple of years has been on the slowing economy, layoffs etc., the reality is that many companies are growing.  As companies grow they rarely are evaluating their processes to be efficient.  The workload grows with the company, often faster, and they simply keep hiring staff and increasing office space to manage the workload.  Often as part of this lead times increase.  So what does this look like in the financial supply chain?

The number of AP invoices increases and often the number of late payments increases.  So the AP department grows and everyone scrambles to find ways to make sure that invoices are paid on time. The assumption being that the more people in AP the more invoices can be processed in a timely manner.  This often results in chaos.

As the number of customers increases, the number of AR billings and cash receipts increases.  Often the time to get invoices out to customers increases.  AR personnel are busy with billing and applying payments and they don’t pay attention to collections.  So, often cash inflow slows down.  And of course the number of AR personnel increase to handle the billing and cash receipts.

Slowed billing and payments start to create an imbalance in cash flow so now there becomes an increased reliance on working capital lines of credit, which of course increases interest expense.

Month end close processes become more cumbersome and more accountants are hired in accounting to address all the needs of the close process and management’s increasing need for information. 

Of course you also have the ancillary costs of more office space, additional locations, increase personnel in HR and Payroll and increased management levels.

What would happen if at this point the company embarked upon implementing lean business processes to optimize the financial supply chain? We could increase capacity and throughput in the non-manufacturing processes! The business would be able to grow at the same pace or maybe even faster, without the explosive growth in personnel and cost.  Management would have better information for making decisions which could further enhance growth.  Customers would probably have less complaints which would also further enhance growth.

This has in fact been my experience with many clients.  In my most recent project, the client was planning to double in size, which would have made them almost a billion dollars in revenue with locations all over the US and Mexico. By designing lean processes for AR/Cash Application, Purchasing/AP, HR/Payroll, Budgeting, Capital Assets and Financial Close, they project they will be able to absorb that growth with the current staff levels.  An accomplishment most CFOs would consider impossible. 

If you would like an assessment of how your company could benefit from lean business processes contact us at 818-709-6583 or info@ljrconsultingservices.com

I am reading a new book by John C. Maxwell entitled ‘How Successful People Think’.  An intriguing title.  If you are not familiar with John C. Maxwell he is a very dynamic speaker, and an expert on Leadership.

 Available on Amazon tinyurl.com/25pp34c  

One of the chapters in the book is about Creative Thinking.  Maxwell quotes Annette Moser-Wellman the author of ‘The Five Faces of Genius’ who states ‘The most valuable resource you bring to your work and your firm is your creativity’.  Maxwell states ‘Creative thought isn’t necessarily original thinking. Most often creative thinking is a composite of other thoughts discovered along the way.’

When I read the chapter, I thought about how so many companies either do not take on projects like lean process design that require new thought or engage in those projects and don’t see any benefit. There is much written about why projects fail and what is required to be successful and in all of those numerous articles I have not seen ‘Creative Thought’ as one of the requirements for success or lack of creative thought as one of the reasons for failure.  However, after reading and thinking about the chapter, I believe it just might be the key ingredient for success.

Maxwell listed the following as characteristics of creative thinkers.

• Value Ideas – this is a requirement for a lean project and you need many ideas for improvement
• Explore Options – also key so the team can explore multiple ways to perform the process
• Embrace Ambiguity – certainly when a team is initially evaluating how to ‘lean’ a process there is much ambiguity on exactly how things will be done, what technology might be available to lean the process and how it would all be implemented.
• Celebrate the Offbeat – in order to get to a truly different process that saves time and cost, the team must think out of the box and brainstorm.  Some of the ideas will seem way crazy but may have merit.
• Connect the Unconnected – so often in evaluating how to make a process more efficient the team needs to consider process steps that are not normally connect to the process being evaluated.  For ex. When a company looks at Accounts Payable, what really needs to be addressed is the entire Procure to Pay process which may address areas not normally connected in the company.
• Don’t Fear Failure – a team must try multiple options and ask many questions before finding a satisfactory revised process.  Some of the options may not work, also the new process will probably be improved again at a later time. Don’t be afraid to try and revise.

Maxwell’s list on How to Discover Creative Thinking is a primer for companies who want the get the most from employees and provide an environment in which employees feel valued and motivated to improve the business.

Remove Creativity Killers – in most companies today creativity is dead and buried.  The most important role for executive management is to remove creativity killers and create an environment that encourages creativity.

Think Creatively by Asking the Right Questions – This is a key skill to teach employees who are team members on a lean project.  The right questions are those that stretch the mind beyond the obvious.  Too many lean projects fall short because team members only ask the obvious questions. 

Develop a Creative Environment – having an area where the lean teams meet and have tools just for the lean process that enable them to explore ideas, put them on paper and move components around is very conducive to creative thought.

Spend time with other creative people – not only do you need creative thinkers from your team, the project will greatly benefit from outside team members.  These may be consultants, representatives from customers and vendors, representatives from key advisors like banker and accountant. These people bring a totally different perspective and insight on what other companies do to a lean project and business process re-design.

Get Out of Your Box – to me that means not only thinking outside the box but looking at how other more efficient companies perform the same processes, technology that might be available to enable a change that could not happen without the technology.  For example, a company in which employees are not near a computer in the course of their job, may resist performing functions that require entering or manipulating data on a computer.  However, with smartphone, iPads and the internet, applications can be created in which access to a workstation or laptop is not requried to use the technology.  You can also apply generally accepted processes from one area of the company or industry to another process.

So bring Creative Thinking to your Lean Projects. 

If you would like to spend time with other creative people – Call LJR Consulting Services for a free consultation  818-227-5025

Have you gone on a corporate crash diet in the last couple of years.  After the binging in the early 2000’s and the financial collapse in 2008, many companies felt it necessary to put themselves on a crash spending diet.  So what do I mean by that.  They did one or more of the following;

• Reduced staff corporate- wide by 10%, 15%, 20%
• Halted all spending on marketing, training etc.
• Halted all capital spending on improvements, acquisitions, product development

So now it is almost 2 years later and the problems from these actions are starting to be felt.  These actions were taken to preserve the company but now the results may very well have put the company on an unsustainable path. Why does this seemingly correct response become unsustainable.  Frequently this creates a downward spiral in which

• Customers become unhappy because service suffers
• Employees become unhappy because of increased workloads and overtime
• Productivity suffers because of increased workloads
• Sales suffer because of lack of marketing and the above results of downsizing

Or the second scenario is that the company weathers the storm and sales come back company starts to grow and now they begin hiring again because they are short handed.  The end of this scenario is that they have brought all the cost back that was shed and now they are vulnerable to the next downturn.

A better approach and one that will lead to sustained improvement is to evaluate all business process and systems.  Determine where there is waste and inefficiency and quantify the impact to profit and cash flow of eliminating or reducing the waste and inefficiency.  Often by identifying and implementing these sorts of targeted cost reducing strategies not only are the costs in the business reduced to be in line with the economic conditions, but the company becomes stronger and more competitive.

We have discussed the Financial Supply Chain and the importance to cash flow and profitiabilty for optimizing it.  Optimizing the Financial Supply Chain is a function of optimized business process and effective information technology.  In my last post, I recommended that business process be addressed before selecting new information technology systems. You want to optimize in this order so you can define requirements for the systems needed and the functionality required in each system.  So how to go about evaluating the effectiveness of the current Financial Supply Chain, selecting and prioritizing the processes to be optimized and creating the new system requirements. I  recommend the first step is an assessment to determine where your problems are and cost to the company of the current Financial Supply Chain processes. 

What is involved in an assessment.  A good assessment will address 4 key areas:

1. Information technology infrastructure
2. Information systems – ERP, Operations, Reporting, Document Management etc.
3. Business Processes
4. Organization – Finance and IT

The first step is to evaluate the business processes in operations, finance, sales and other supporting departments.  Inefficient processes that you are looking to identify are:

• Duplicate data entry
• Extensive use of Excel spreadsheets
• Duplication and multiple filing of paper such as invoices, purchase orders, employment applications etc.
• Manual processes to support lack of system integration
• Non-standardized processes due to multiple systems i.e. multiple ERP or accounting systems
• Lack of integration with customers, vendors & bank
• Processes that employees feel are inefficient
• Departments that do not have access to ERP, CRM systems
• Month- end close process that requires more than 3 days

The second step is to evaluate the information systems and technology infrastructure.

• What ERP or CRM system is being used, is there more than one
• When was the last time ERP system was upgraded & what is the technology platform
• What processes are a result of issues with the ERP, CRM or other key operational systems
• What custom in-house developed systems are being used, how old are they, how are they supported
• What systems are used to create financial reports/information for finance, outside organizations, operational management
• What are the issues the frustrate the IT organization
• Is there a consolidated data center
• Do all employees have access to the core systems and servers
• How are applications integrated
• Are applications outsourced

The third step is to evaluate the Finance and IT departments

• How are the departments organized – are there multiple IT and/or finance departments
• Who heads the IT department and do they address strategic business issues
• What skill sets do each of the members of the IT department possess
• What functions are outsourced and with what organizations

These are the key components of an assessment.  By evaluating these areas you can define functions within the organization that are inefficient.  After you have identified inefficient processes the next steps are to create continuous improvement teams to define solutions to improve efficiency.

Often a consultant trained in lean methodology may provide key insights in the business processes and be able to recommend technology solutions.  If you would like assistance with your assessment or process design please contact LJR Consulting Services at 818-227-5025 or email me at lynda.roth@ljrconsultingservices.com