Hidden Profits Blog

Finding the Gold in Your Business

Hidden Profits Author:

Lynda J. Roth

As the president and founding partner of Woodland Hills-based LJR Consulting Services, Lynda advises clients on ways to improve profitability and productivity through both technology and business processes. She also works with companies and private equity firms on the role of information technology in mergers and acquisitions.



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5 Ideas to Utilize Mobile Devices for Business Applications

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 

 

To Outsource or Not To Outsource

Filed under: Information Technology, Lean Business, Offshoring, Outsourcing, Uncategorized, business process, lean accounting — Lynda Roth at 10:51 pm on Monday, November 8, 2010

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

Why Create a lean business

Filed under: Lean Business, business process, finance department, lean accounting — Lynda Roth at 3:22 pm on Friday, August 20, 2010

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

Creative Thinking and the Lean Company

Filed under: Creative Thinking, Information Technology, Uncategorized, business process, lean accounting — Lynda Roth at 1:18 am on Friday, June 25, 2010

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

 

 

 

The Corporate Crash Diet - when reducing cost and laying off staff becomes unstainable

Filed under: Information Technology, Uncategorized, business process, finance department, lean accounting — Lynda Roth at 10:35 am on Tuesday, June 1, 2010

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.

 

How To Evaluate the Financial Supply Chain

Filed under: ERP Selection, Information Technology, Uncategorized, business process, finance department, lean accounting — Lynda Roth at 5:51 pm on Monday, May 31, 2010

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

What Is First The Chicken or The Egg?

Filed under: ERP Selection, Information Technology, Uncategorized, business process, lean accounting — Lynda Roth at 11:37 am on Sunday, April 18, 2010

This is an age old question and today the chicken and egg that I am going to discuss is redesign of business process versus selection of an ERP system and which should come first.  If you listen to most ERP vendors and system integrators they will definitely say - Select the ERP system first. They say this because they believe that the ERP system has bulit-in best business processes so then you can redesign your business processes based on how the ERP system is designed.  While I agree that ERP systems do have good process design in them, more goes into business process redesign than just how the ERP system functions.  Also, the company will have much better understanding of what they need from an ERP system if they have thoroughly reviewed their business functions and processes prior to an ERP evaluation.  So while you will not design processes down to the level what screens in the system are used to process a transaction, you will define the following

  •  what functionality will be used and the importance of each system function
  •  how data will flow in the organization
  •  what new policies and controls will be required as a result of the new processes and ERP system
  • what departments will perform what functions.

Some say it really doesn’t make any difference you can do this in either order.  Well let’s look at some examples and the situations that can arise from selecting an ERP system before you define business process.

Selecting the wrong ERP system.

I had a client a couple of years ago that is obtained because the owners were concerned about the rapid increase in the need for accounting personnel in their company, how long it took to complete the financial close process and the inadequacy of the financial information they had to manage the business.  I spoke with them and performed a detailed assessment.  The result of the assessment was that they had significant duplication of effort between operations and accounting, poor integration of systems and extremely manual processes.  They were using an old version of one of the Microsoft ERP systems and an upgrade with a complete revision of processes that would move origination of transactions to operations would greatly have increased their efficiency and information.  I also found out that they had purchased a new ERP system a year before I arrived and had done nothing with it.  It was not implemented at all.  This ERP system was a highly rated system that they had purchased because a very good sales rep from the company had convinced them it would solve all their problems.  We implemented the system which was adequate.  However, what solved the majority of their problems was modifying the processes and organizational responsibilities to originate transactions in operations, utilize additional functionality such as Purchase Orders and upgrading other key systems such as ADP payroll.  While the new ERP system was used, it was not necessary.  The company could have saved significant investment by simply upgrading the system they had and making the business process change.  Had they completed the assessment and business process analysis prior to the purchase of the ERP system they would not have made that mistake.

Implementing ERP and receiving little or no benefits.

A client last year requested that I help them with an ERP evaluation.  They desperately needed a new system for multiple reasons including new business process.  I suggested that they redesign the business processes prior to detail evaluation because I knew there would be much contention and resistance to change in this company.  They felt they needed to move forward quickly with the ERP evaluation and assured me they would perform a detailed business process design after the system was selected.  So we did fairly detailed requirements analysis to support the ERP evaluation.  This was critical because it did help them to select the right ERP system.  After a 3 month evaluation process they purchased a quality system that would provide them the platform to make the necessary changes to their business.  However, where the problems arose is that once the system was purchased, all the management just wanted the system implemented.  They were no longer interested in putting in the time and energy to redesign the business process and data flow to obtain the maximum benefit from the very hefty investment in the ERP system.  Instead they configured the system just the way they used the old system, they did not clean up any data and after 8 months of implementation they moved the new system to production.  To their great surprise they had worse problems than with the old system.  Why?  Because now they were using a system that had race car like functionality like it was an old clunker.   Except for solving technical problems they obtained absolutely no benefit.  Now they will spend more money to fix this problem.   

System Selection Done Right

A client I am currently working with has the problems that I see all the time.  The company has grown dramatically in the last 10 years and has completely outgrown their systems and processes.  I performed an assessment for them last year, and they already knew they were going to need a new ERP system.  However, they were unsure as to what was the most important functionality and how they would implement some of that functionality like purchase order in their organization.  So they agreed to embark on a business process design using lean business process techniques.  They continued to prepare their ERP requirements utilizing information from the lean business process project that we coordinated.  As a result they have now worked out policy issues, defined details on the impact to operations of certain new functionality, defined how they will integrate other custom systems with the ERP modules.  Now they are in the process of reviewing the ERP systems on their short list.  The business process project has given the executives a level of understanding of how ERP systems work and what their business will need that they would not have had otherwise.  They will make a much more informed ERP decision and be able to implement it much faster with significant benefit to the organization.

My experience with these and numerous other clients over the years indicates that a company that performs a fairly detailed business process review and design based on lean business practices and standard ERP functionality will make a much more informed ERP decision and experience a much higher ROI and level of satisfaction from their ERP implementation.

For help with your business processes or ERP systems contact LJR Consulting Services at 818-709-6583 for a free consultation.

Creating A Strategic Finance Function

Filed under: Information Technology, business process, finance department, lean accounting — Lynda Roth at 6:40 pm on Saturday, March 20, 2010

In the competitive economic environment on the 21st century, finance is expected to be strategic and focus on providing accurate and very timely information for operation decision making and optimizing profits and shareholder value.  In addition the finance team in today’s businesses is responsible for developing appropriate controls and reducing risk to the operation. That puts big demands of the CFO and finance function.

In my last post I discussed the Financial Supply Chain and the importance of its optimization on working capital and sustained profitability.  This week I found an article from 2006 which again reinforces the importance of an optimized Financial Supply Chain in enabling the Finance Function to be more strategic.  The title of the article is ‘Best Practices in Creating a Strategic Finance Function’ by Katharina Muellers-Patel.

http://whitepapers.zdnet.com/abstract.aspx?docid=28204

In 2006, the author showed the breakdown of Finance function and the time devoted to them as follows:

Transaction Processing - 44%

Controls   -  21%

Management - 18%

Decision Support - 17%

So 65% of the finance function in companies is consumed by transaction processing and the controls of the transaction processing function.  Most of that time can be eliminated through efficient use of information technology and organizational and process efficiency.  The article sites that at that time top performing companies allocate only 30% to transaction processing and 45% to decision support and management activities. While that is a significant improvement I believe it can be better. The article sited that the main source of differences between the top performing vs. lower performing companies are the organizational structure for finance and the type of Information Technology (IT). 

The organizational structure generally focused on shared services finance organizations and outsourcing.  The primary benefit from outsourcing is the use of lower cost labor.  In my experience the problems associated with outsourcing of financial transaction processing is that the information transfer between the company systems and the outsource company’s system makes the organization cumbersome.  Also, since the primary  benefit is lower cost labor, eventually the cost of that labor will begin to increase thus lessening the benefit.  Also, there is no additional benefit to profitability.

In general companies tend to opt for a shared services organization.  The key to the success of this structure is not just creating the organization, but also creating optimized process and efficient utilization of technology.  For example, creating a shared services organization in which each of the combined organizations utilize different financial systems or different instances of the same system does not provide any benefit to the company.  Instead it places greater strain on the employees in the shared services organization as they must learn the different systems and continuously log on and off of systems in order to process all the transactions.  I have seen this situation at multiple clients and they are always a mess.  The article sites 3 different examples of companies that created shared services organizations especially one that continued to obtain improvement by changing technology platforms.  The shared service function was AP.  The initial structure the shared group used the multiple systems from each of the original companies.  Then they made significant improvement by just moving to a single ERP  platform and at the time of the writing they were changing the platform again to create a completely automated and integrated procure to pay function.

The study in the article showed that in general companies that had automated more than 66% of their finance processes had average finance costs of 1.2%  of revenues while companies with less automation had average finance costs of 3.0% of revenue.  Companies that relied on manual process and spreadsheets had process costs of $2.21 per $1000 of revenue while those with efficient automated processes had costs of $0.72 per $1000 of revenue.  The study also showed a correlation between the significance of the cost reduction and the simplicity of the information technology systems.  IT simplicity refers to standardized applications, integration of systems, and use of ubiquitous user interfaces such as web and smart phones and integration with partners (banks, vendors, and customers).

Today automation is much more that simply implementing ERP systems.  For an assessment of your companies finance processes and technology call LJR Consulting Services at 818-709-6583.

The Financial Supply Chain

Filed under: Uncategorized, business process, lean accounting — Lynda Roth at 8:15 am on Wednesday, March 3, 2010

I am reading a new book ‘Optimizing Back Office Operations: Best Practices to Maximize Profitability’ by Zahid Khalid.  While the title may sound a little boring, I was so excited to find this book. It is a very good read and definitely not boring!  Zahid has gone into detail of the business case for creating lean business processes in back office operations.  He has given the name ‘Financial Supply Chain’ to all the operations that are performed to consummate the business transactions for a company and document them per accounting and regulatory requirements.  This is a perfect description of these processes because

1. It is a simple and easily understood metaphor for all the business processes

2. It describes the importance of these business processes.

www.amazon.com/Optimizing-Back-Office-Operations-Profitability/dp/0470531894

Most business people understand the importance of the Operations Supply Chain and impact on the businesses profitability.  If your operations supply chain is inefficient, manual, and ineffective, most businesses would be out of business in today’s competitive environment.  As Zahid points out many companies like Dell have grown dramatically and become leaders in their industry because of the advances and often complete redesign of their Operations Supply Chain.  As with Dell, the Operations Supply Chain has given them a competitive advantage.

Zahid asks the question ‘What is the compelling reason for taking the plunge into the world of financial supply chain?’  Answer ‘ CASH’!  He states that independent studies conducted by several research firms estimated that between $500 billion and $1 trillion is tied up in unnecessary working capital globally in the financial supply chain.  That is a lot of money and a lot of lost profitability!!!!   As Zahid points out  ‘Working capital optimization improves cash flow, thereby minimizing reliance on lines of credit and other short-term borrowing.’ It also reduces time required to perform the tasks of the financial supply chain, reduces the number of employees required, improves the accuracy of the information produced and provides that information in a timelier manner for decision making.

Let’s discuss each of these benefits in a little detail

1.  Minimize reliance on lines of credit and borrowing.  In the easy money days of a couple of years ago most executives did not worry about how much they used credit and just accepted it as a need in business.  Now, however, with banks pulling back on credit, executives are seeing their ability to meet the demands of their businesses severely restricted.  Reducing dependence on credit now means survival to many businesses.

2.  Reducing time required to perform the tasks of the supply chain.  This has numerous benefits since when we reduce time we reduce cost of each transaction which goes directly to profit.  As we all know $1 of reduced cost translates directly to $1 of increased profit.  However, usually reduced cost means pain but by creating a lean optimized process, you can have reduced cost without pain.

3.  Reducing the number of employees is part of the reduction in cost.  It also helps to improve accuracy because we all know that the less hands in the soup the better it is. 

4.  Improving the accuracy of the information produced is one of the most critical aspects of Financial Supply Chain optimization.  It is the equivalent of reducing errors and waste in the Operations Supply chain.  Poor quality of information leads to embarrassing restatement of financial results, poor management decisions, loss of revenue, and increased cost from late charges, and inaccurate payments.

5. More timely information for  decision making is probably the most significant benefit.  In the days when business moved at a slower pace it was ok to use information that was aged for decision making.  But information is not like a fine wine that gets better with age, it rots. Today information has a very short shelf life and to manage a successful business information is needed when it is happening not 30 days after the fact.

As we have discussed on some of these posts creating lean or optimized business process requires a combination of process change enabled by information technology and services from financial supply chain partners such as banks.  It also requires team members that have knowledge of finance, change management, and information technology.  Optimizing your Financial Supply Chain may be challenging and time-consuming but also extremely profitable.  Contact us at 818-227-5025 to discuss how an Optimized Financial Supply Chain can improve your profitability.

Thoughts on new information technologies

Filed under: Information Technology, business process, lean accounting — Lynda Roth at 4:14 pm on Tuesday, February 9, 2010

In the last couple of days 2 non-related experiences have emphasized to me the importance of looking at business differently.

Sunday after the Super Bowl (fabulous game) I watched the new reality show ‘Undercover Boss’.  In the episode last night Larry O’Donnell the president & COO of Waste Management went undercover to see how his company functioned at the operations level.  He found that several of the cost cutting, productivity enhancing policies he had enacted had unintended consequences.  These unintended consequences for the most part created hardship on operational employees primarily because they were designed and implemented by employees that had never worked in operations.

Yesterday morning I had coffee my friend Bob McCormack.

http://www.linkedin.com/in/robertmccormack

 I worked with Bob for several years when he was CIO of a major company. Bob is now a member of Pasadena Angels and has invested in several new technology companies.  Today we discussed how things have changed in the technology world in just a few short years and the impact that those changes may or may not have on traditional corporate thinking about how to use technology in business. 

Bob gave the analogy that traditional corporate IT departments operate with blinders on and stay on their ‘railroad track’ strategies.  By that we mean they stick to the tried and true processes that a company has a big ERP and CRM systems, top tier1, because those are the best.  These ERP systems are hosted at the company offices and supported by big IT staffs. Then the company has big accounting staffs that enter and manipulate all the data.  Over the last 30+ years the software vendors have stuck to that paradigm and they just continue to make the monolith bigger and a little easier to use.  It moved from mainframe connected terminals to client/server technology to web-based user interfaces.  However, in the end the process is still the same as the original manual processes that were replaced by computer systems to begin with.

However, in the last few years the advancement in wireless technologies, communications, internet, document management systems, smart phones and other devices have made it possible for the game to change dramatically.  The capability now exists that is relatively inexpensive to have data entered into an electronic medium at the source of the business event and never be touched by a human again.  The less human activity in a business transaction the cheaper that transaction is and the more productivity can be increased. 

Many of these types of transactions are topics we have discussed before in discussions on lean business processes. Some game changing ideas are

  • Using smart phones to enter and receive Purchase Orders for companies with significant field operations.
  • Creating expense reports on smart phones or web-based applications that are integrated with credit card websites and other applications to automatically download expense transactions and the projects to which they are to be charged.
  • Creating and sending receivable invoices electronically to customers immediately upon fulfillment of the sales transaction.
  • Utilizing electronic banking applications integrated with ERP for vendor payments, bank reconciliation, cash application, etc.
  • Receiving and posting payments electronically from the bank so that customers never have to create and mail a check.
  • Receiving key performance indicators regarding your area of business via a smart phone application. 
  • Using document management systems to transfer paper into electronic images and provide electronic workflow integrated with smart phone or email applications
  • Hosting applications with a separate hosting company and utilizing outsourced IT personnel on an as needed basis to reduce the expense of highly specialized IT personnel

These are just some of the game-changing technology and processes that are available. They are not just for large companies, in fact many of the new technology companies have business models that make these new technologies very cost effective. 

 However, these are not magic bullets and the implementations will not look the same in every business.  To implement these ideas and reap the benefits of reduced cost, improved productivity, happier customers and employees and increased profitability, requires you to leave the ‘railroad track’ mentality behind, and look at how the operations of the business function, what problems exist in the operations and seek out new solutions for those challenges. It requires that operations personnel be involved in the design of new solutions with or without technology to ensure that the new solutions support the operations of the business as well as the desires of management and stockholders. 

Contact LJR Consulting Services at 818-227-5025 for information on how to utilize new technologies and process in your company.

 

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