Usually, I inform myself about the platforms of the candidates for major office, and then fake my way through the clerks, judges, referendums and constitutional amendments.  Embarrassingly, I vote for or against the latter questions based on seeing only the wording on the ballot for the first time in the voting booth.

Make Georgia More Economically Competitive?

Thanks to a timely white paper by my friend Ward Council, who runs a law practice in Atlanta, I realize that the wording on the ballot may have little resemblance to the complete wording of the proposed change.  His treatment is of Georgia House Resolution No. 178, Ga. L 2010, p. 1260.  From the ballot, “Allow competitive contracts to be enforced in Georgia courts:  Shall the Constitution of  Georgia be amended to make Georgia more economically competitive by authorizing legislation to uphold reasonable competitive agreements?’

Sounds pretty reasonable, right?  Who would not be in favor of making Georgia more competitive by enforcing reasonable competitive agreements?  But according to Ward, this is aimed at employment contracts.  Most people who’ve paid attention to this topic believe that it’s very difficult for an employer to enforce a non-compete or a non-solicitation of customers agreement with a former employee in Georgia.  Apparently, if this amendment is adopted, that will  no longer be the case.  It’s also interesting to wonder how the author determined that enacting this legislation would make Georgia more economically competitive.

How to vote?  As an employer, I would favor the amendment.  As an employee, I would likely oppose it.  Evidently, I need to think on this some more.  What are you going to do? 

Inventory Tax to Go Away?

Now that Mr. Council has inspired me to brush up on my choices, I pored over the other ballot questions.  Another that caught my eye is House Bill No. 482, Act No. 132, Ga. L 2010, p 674.  “Provides for inventory of businesses to be exempt from state property tax:  Shall the Act be approved which grants an exemption from state ad valorem taxation for inventory of a business?”

Again, make your own choice.  But if you are responsible for the profit and loss of a business, or a business owner, isn’t this one proposal enough to cause you to go to the polls?  It’s even easier than that.  For several years now, Georgia has permitted anyone to vote with an absentee ballot, without providing a reason.  There is still time to get one delivered to you in the mail. 

Georgia Absentee Ballot Application

Just download the very simple application here,

absentee_ballot_app

then print it out, and mail or FAX it to the address provided.

While you are researching these topics, if you figure out whether Roy Barnes “created 245,000 jobs”" or lost the most jobs in Georgia history” last time around, please let the rest of us know by commenting on this blog.  And any hints on how to choose among the 6 candidates for Judge of the Court of Appeals of Georgia (to succeed Edward H. Johnson) would also be appreciated!

LSS Project Selection and Goal Setting

There are usually two main reasons for a company to maintain a website:  1)  credibility, and 2)  causing potential customers to find you when they need you.   The “COMPANY X” website does a fine job on the former;  it is not doing much in regards to the latter.  A cursory review of search engines, including Google, Bing, and Yahoo using search terms likely to be used by potential customers, revealed that “COMPANY X” is usually not found within the first 5 pages of search results.  It is typically acknowledged that most potential customers will not venture beyond page 1 of results.  There are a number of strategies that can be used together which may move a company up in the rankings over time:

Search Engine Optimization (SEO) – in the case of “COMPANY X”, this would involve minor changes to the website to make it easier for search engines to identify content within the website that would be of interest to potential customers.  A number of approaches are indicated based on a review of the website.

Dynamic Content – both for search engines as well as potential customers, it is important to present new content on a regular basis.  This may include white papers, blogs, news releases, etc.  Blogs in particular, can be beneficial in multiple ways:  provide a channel for distributing new content, draw visitors looking for “how-to” information, establish two-way interaction with potential customers, and establish a basis for follow-on speaking engagements.

Social Media – intelligent use of social networking sites such as Twitter, Facebook, LinkedIn, and other forums can drive potential clients to the “COMPANY X” website.  Techniques can include publicizing new content appearing on the company website, providing complementary or reinforcing information in conjunction with the website, collecting email addresses for permission-based marketing initiatives, etc.  These can also give you alternate ways to communicate with your potential customers other than email, which is much less effective in the last few years.

Speaking Engagements – it is important for the principals of the company to be recognized as helpful experts on “Topic Y” in their community.  This will keep “COMPANY X” at top-of-mind when potential clients decide to embark on a project.

Email Newsletters – this is a very inexpensive way to “push” content to those that have provided their permission to receive such information.   Content may be more timely and newsworthy than blogs.  There are a number of services that facilitate this form of email marketing, in compliance with federal anti-spam laws.

If, as with many companies today, you struggle to build revenue, let us convince you to move away from expensive direct mail, trade shows, and advertising, and toward Twitter, Facebook, Blogs, and other new channels, where the cost is usually limited to the time and salary of your personnel involved in content creation, distribution, and followup with customers.

Please post your comments here as to why, for example, “Twitter can not possibly work in my business!”  We would enjoy that discussion and debate.  Alternately, if you have enjoyed success with some of the approaches mentioned here, please tell us about them as well by posting your comments here.  And if you find these articles interesting, please sign up for an RSS feed or email notification of new comments and new articles.  The buttons are conveniently located in the right column near the top of the Home Page herein.  If you don’t know what RSS means, drop what you are doing and call us NOW!!

What Is ISO?

ISO is taken from a Greek word meaning “equal”.  It was chosen as a name (not an acronym) by the International Organization for Standardization, based in Switzerland.   Any acronym would differ from country to country, based on language, so a name was chosen instead.

Although there are thousands of specific ISO standards, only a few are generic, and applicable to virtually all businesses.  This discussion is focused on ISO9001:2008.  It’s concern is Quality Management.

In brief, certification to ISO9001:2008 connotes that a company conducts its business operations to a set of procedures, documents that it does so, and further has processes in place to correct defects caused both through following the procedure (bad process) and through not following the procedure (bad control).  It does not address the worthiness of those procedures as to impact on the “goodness” or effectiveness of the end product or service.  This has been a common excuse for companies not to opt for the certification.

 Significant Pieces

The major components of an ISO9001-compliant Quality Management System (QMS) are:

• Management Commitment and Responsibility for the QMS
• Resource Management, including people, facilities, and equipment
• Product Realization, covering how new products and services are developed and verified before being offered for sale
• Measurement, analysis, and improvement (of processes and their outputs)

 Benefits For  Customer Relations and Sales

• Increasingly, American suppliers are obtaining ISO9001 certification.  If your company is not compliant, new customers usually have plenty of other new vendors to choose from.  Why raise the question?
• Some customer organizations recognize an up-to-date ISO9001 certification as sufficient evidence of a robust Quality Assurance system, and may forego the time and expense, to you and them, of a formal vendor qualification process, including audits.
• If you have multiple locations, serving multi-location customers, they can be assured that the product or service provided by your company is consistently supplied to the same procedures for all their facilities.

Benefits For Operations and Cost Improvement

• Working to standard procedures reduces dependence on individual employees who may hold key work approaches “close to the vest”.  This increases flexibility in assigning personnel to jobs.
• Preparing procedures also provides a convenient set of training materials, necessary for cross-training existing employees, and bringing new employees up to speed.
• You will collect statistically significant data on quality issues, guiding you to focus improvement on consistent problem areas, rather than those that may be due to random variation, or to the “squeaky wheel syndrome”.
• A Quality Management System requires you to dedicate time to evaluate and train your employees in their work tasks.
• A QMS requires you to assess the condition of your facility and equipment, and take steps to make sure that they are always in good condition to provide the services required of them.
• If you have, or plan to embrace a Process Improvement Methodology, such as Lean Manufacturing, Six Sigma, or Theory of Constraints, you first must have the standardized procedures and stable processes that will result from a properly implemented QMS.

 A case can be made, and even supported by the governing body for ISO, for the benefits of ISO9001 implementation even without certification.  Paying an independent company to audit, certify, and register your company as ISO9001-certified can prove to be expensive.  But after going through the effort of improving operations to the point where they can be certified, and not doing so, leaves out the great marketing value that such certification can provide.

To further discuss the benefits of ISO9001 certification, learn more about how to apply a QMS to your operation, or discuss other aspects of Process Improvement, call StratXL at 678 910-4690, or email us at dave.boss@stratxl.com.

When business is slow, however, as has been common to many companies during the current recession, strong consideration should be given to a lower pricing tactic, on a case-by-case basis.  If you have excess capacity, including floor space, machines and equipment, and personnel, for which you are paying, the revenue lost for each day that goes by where they are idle can never be recovered.

It can make sense to price the work as low as even $1 above your marginal cost of production in order to bring the work in house.  Your marginal cost is the sum of the materials you must purchase or take from inventory, and the cost of directly applied productive manhours of your hourly employees, plus any other subcontracted services necessary specifically for this order.  It does not include supervisory personnel, overhead, burden, liquidation accounts, or any other “sunk” cost that you will pay whether or not the capacity is utilized.

A common accounting approach is to “liquidate” overhead costs in a manufacturing facility or industrial services business by taking the total projected overhead costs (or burden) for the accounting period (month or year), and dividing it equally among each projected direct labor hour for that same period.  Overages or underages in the estimates are trued up on a periodic basis, resulting in higher or lower hourly liquidation costs going forward.

As long as you are not diverting resources from more profitable jobs, any opportunity that will cover ANY of your overhead liquidation is preferable to having your resources sit idle when you are paying for them anyway.  You are not really losing any money until the price charged is less than the combined cost of material, subcontracts, and direct labor.

Of course, in order to pay for the remaining overhead in the accounting period, the burden rate for future jobs must go up, or more jobs to generate more manhours must be obtained.  In many businesses like these, however, not only does the overhead (indirect costs) not go up with increasing volume, it can actually go down in several categories.  Examples of costs that can go down as volume goes up include:

- training:  employees have less need for classroom or completely non-billable training if they can be assigned as helpers on billable jobs, under the direct mentoring of an experienced employee.

- layoff:  in businesses that pay their employees a partial or even full wage when layed off, this cost is eliminated if they are charging their time to billable jobs.

- shop cleanup, preventive maintenance, and similar accounts:  it’s amazing at the lack of difference in cleanliness or machine condition in facilities that are busy and those that are slow, even though the latter often seem to charge much more time to these non-productive accounts.

Another benefit is to the apparent profitability of other billable jobs in the facility.  Several symptoms can occur among an hourly workforce:  a)  workpace slows down as the employees see less work upcoming, hoping to “milk” the remaining jobs to which they are assigned, or b) if management emphasizes a minimization of charging to non-billable accounts, such as “clean-up”, many more hours than are justified end up being charged to billable jobs.

Contact us at StratXL for an assessment of your company’s current pricing strategies, and to learn specifically how this and other alternate approaches can improve your revenue, earnings, and cash flow.

Lean does not have to be implemented as an “all or nothing” program.  Adopt what is helpful;   discount what does not apply.  It makes no sense, for example, to use a Kanban (pull through) parts ordering system that results in an automatic reorder of parts that may not be needed again for 6 years.  Many of the principles of Lean, however, can drive reduced cycle time, better quality, reduced costs, and better cash flow, among other benefits.

A common repair scope in an electrical equipment repair facility is the rebuild of a medium voltage circuit breaker.  The project value may be $15,000, and may require a 2 week stay in the shop, under normal circumstances.  Typically, the breaker is placed at a work station, and assigned to one technician for the duration of the project.  As parts are removed for cleaning, testing, repair, and painting, they travel around the shop, but ultimately are reunited on the work station as subservient processes are completed on them, usually by the same technician.  Conventional wisdom cites benefits of single point accountability for the repair, maintaining productivity by not wasting time on communicating job nuances, tracking of parts, etc.

Were Lean to be implemented for this same repair, one might establish a series of closely located work stations, comprising a work cell.  These might include:

-          Incoming testing and inspection

-          Disassembly

-          Solvent parts cleaning

-          Abrasive parts cleaning

-          Component test and inspection

-          Welding

-          Coating and painting

-          Reassembly

-          Final test and inspection

Click “Before”, below, to see a typical “flow” in a job shop environment, prior to implementing Lean Manufacturing principles.  Note that the arrows are inserted for only 1 of the 4 workers.  See how far the equipment (and the worker), travels around the facility during the course of the project:

Before

Click “After”, below, for the flow of the same repair, post-Lean implementation.  Note that the work stations within the cell have been grouped together.  The volume in this situation is such that new projects are not begun each day.  The work has been balanced, resulting in one operator handling more than one station.  If throughput needs to increase, more operators can be used, to handle smaller numbers of stations.  The black box outlines indicate the responsibility area for each technician.

After

Every circuit breaker will not need each of these activities, and more than likely, there will be different versions of the procedures based on the make and model of each breaker.   But if and when the activity is performed, it will be performed by the designated employee, at the designated work station, in the designated work cell.  Note:   in the spirit of “all or nothing”, mentioned above, when it comes time for shop rearrangement to implement this approach, you work within reasonable budgets, and physical limitations.  For example, it may not be worth $200,000 to move a tank which extends 10 feet into the building foundation, in order to save a few hours of cycle time on each project.  You just do the best you can to maximize the available benefits.  Just a few of the benefits that will be realized with this conversion:

Built-in Quality Assurance Checks

Rather than viewing each hand-off of the work between employees as an opportunity for miscommunication, it can be developed into an opportunity for a QA check.  Doesn’t it make sense that Tom will be unlikely to accept the output of the previous step from Becky, if it does not meet quality requirements, knowing that he is accepting the responsibility for completing his own tasks in a quality manner.  Each move between work stations in a cell provides another opportunity for such a QA step.    Note:  another Lean principle, that of Balancing the Line, may result in one employee working 2 or more of the work stations in a cell, if the cycle times of each station are to be balanced.  See any good book on Lean Manufacturing regarding takt time for further explanation.  Obviously, each employee working multiple station reduces the inter-project independent QA opportunities, but a balanced line offers additional benefits.

Visibility of Job Progress

No longer will it be necessary to interview the technician to guess how much longer the project will take, or how far ahead of, or more likely behind schedule it is.   A breaker sitting in the welding station, when the schedule says it should be in reassembly, is visually evident to all who need to know.  If your operation does not presently have a good work scheduling system, this may force an implementation of one.

Standard Work Implementation

In order to prevent monotony for the employees working in an “assembly line”, instead of as previously as an “artist” with single point responsibility for the project, it is good practice to rotate employees between work stations on a regular basis.  To assure compliance with a quality system, and that each worker performs the same steps in the same manner, standard work approaches, documented in written procedures, become necessary if not already in place.

Improves Employee Assignment Flexibility

This approach provides fantastic opportunities to cross-train employees.  If Sue is out of the shop on a road job, for example, one of her co-workers can now easily step into her place in the work cell, and the project no longer has to wait until she returns.  Of course, not everyone has the talents to be trained as a welder, or a high voltage tester, but it does open the possibility to increase the skillsets of many of your employees.  When this happens, a painter who previously had nothing to do when there was no painting, becomes more productive, and less cost goes against “shop cleanup” or other unproductive accounts.

This brief treatment of the topic does not even begin to cover the other changes necessary or the benefits to an implementation of Lean Manufacturing in a job shop.  For further discussion, call StratXL to learn how applicable the approach might be for your operation, and check back here often for new articles on other opportunities to improve operations.

Background Assumptions

Let’s say that your business generates $10,000,000 annually in Sales.   Payment terms are mostly Net 30 days.  If Receivables management has not been a priority, it would not be uncommon to see an average “Days to Pay” (DTP) of 50 days.  What does this cost?  We’ll assume that your cost of money is 5% annually, and if you are offering standard terms of net 30 days, you are accepting as an annual cost, the almost $42,000 in interest or lost interest if all your customers pay exactly on time.  Actually, your interest costs can be a lot more, since this clock doesn’t start until you issue an invoice, which can be after you have expended most or all of your costs on the project, using your own or borrowed money.

Delayed Payments Cost Your Company

If you let your DTP creep up to 50, your interest cost rises by about $30,000 a year.  If this number doesn’t get your attention, consider these additional reasons for getting the DTP down to a lower level:

1. Often times, customers may withhold payment due to problems.  These may be invoicing problems, or may be quality or other issues on the deliverables.  Proactively addressing invoicing issues can help you uncover these items early, leading to improved customer satisfaction.
2. At some point, the cost of money will go back up.  Better to fix your billing and collection processes now, not when money costs 10-15% or more, and we are looking at really large dollars.
3. The quicker you collect, the less likely the chance for default.

Simple Tactics to Speed Up Payments

Get billing out the door right away – Establish a policy of issuing the invoice within 24 hours of your contractual ability to do so.  Work with your team to identify and eliminate any obstacle to this happening.  See below regarding job folders and receipts for a few common hurdles and how to overcome them.

Standardize job folders – Even if someone is out of the office, it will be easy for a substitute to find the documentation necessary to issue the invoicing.  Mandate that the supporting documentation, such as vendor invoices, employee timesheets, travel expenses, shipping invoices, etc are routinely and quickly put into the folder, in the appropriate section.

Negotiate away from receipts requirements – even on “time and materials” jobs, see if you can get the client to accept fixed charges for items that would normally require receipts (per diems for living expenses, for example, or published rates for shipments with UPS or FEDEX).  Receipt requirements offer too many reasons for payment to slip.  It delays getting the bill out the door in the first place, waiting on vendors to provide their own invoices, or employees to turn in their travel receipts.

Hire stay at home relationship managers – Not only can using your sales people for bill collection harm your customer relationship, it takes them away from the sales effort.  And customers really don’t want to hear from collection agents or agencies.  A better idea is to set up 1 or more “Customer Payables Relationship Representatives.”  Find new mothers, perhaps, wanting to stay at home with their children, who are looking for something to do.  Preferably, ones with good business experience, in sales or financial roles.  Task them with developing and maintaining relationships with the key Payables personnel in customer organizations.  They will make regular contact, whether or not the customer has overdue receivables to your company.  They can proactively check on the status of invoices that are coming up to a due date.  Is all the documentation in order?  Have the proper personnel inside the customer organization signed off?  Is the quality acceptable?  These representatives will need internet access to your company receivables system, as well as access to some of your staff, to help them resolve invoicing issues.  Let them work as few hours a week as they wish, and pay them on an hourly basis.  For the ability to set their own hours and work from home, this is often doable for $20-25 per hour.

Negotiate shorter terms of payment – Who says that you must offer 30 days to pay?  Why not start including standard proposal language requiring payments of net 15 days?  How likely is it that your proposal will be thrown out just based on this change, if your price, delivery, and quality are competitive or even superior to the competition?  Some customers will accept the terms, others will call to object, and you can then decide whether to concede.  Very few will disqualify you.

Ask for progress payments – this can include cash up front, especially if its obvious that your company will be making large expenditures for purchased material or subcontracts to incorporate in your product.  In this regard, tie the payments to specific dates, rather than job milestones, which can often be a point of contention (what does 55% complete really mean?)

Offer low discounts for quick pay – even if you keep your standard payment terms at 30 days, offer a small discount for payment in 7 days.  Many organizations have a policy of taking the discount regardless of the amount, so keep it to a very small number – the higher it is, the more money you lose, and gain little advantage in the customer’s decision to act on it.   When interest rates are low, like at present, financially, it’s not worth it to you to offer the discount.  But it may train customers to pay more quickly, minimize the chance of default, and offer other intangible benefits to get your cash more quickly.

What other approaches have worked to get your overdue receivables balance down, or to decrease the number of days that your customers take to pay?