The following list represents the Key Service Objectives (KSO) for the Appleton Greene Business Optimization service.
Profits and the required revenue to create these profits are two key measurements that indicate the health of any business. The challenge of any business is to achieve maximum profits from the revenue it generates. Profits are maximized when business capacity is fully utilized. In order for capacity to be fully utilized it must be balanced, meaning that the capacities of the sales, operations and finance functions are the same. Once these are in balance and capacity is fully utilized, incremental capacity increases can be made in each area to support profitable business growth. One of the most costly situations to any business is idle capacity. Excess capacity costs money, wastes resources and often creates workplace discontent. Most companies have excess capacity somewhere within the business and most companies have limited or constraining capacity somewhere within the business. The key to any profit improvement effort is to improve the processes that lead to the best, sustainable profit growth within a short period of time without creating a lot of disruption to current business requirements. The approach needs to grow the profits by making the whole business able to effectively reduce costs by making the processes within the business more efficient and to increase the capacity of the business to be able to handle higher revenue levels. Increasing revenue may increase the top line of a business but does not necessarily translate to increasing profits. In fact, focusing on just increasing revenue can create the opposite effect if profit improvement is not the driver behind the efforts to increase revenue. Improving profits through cost reductions alone can produce short term improvements but are limited when it comes to longer term business health. Again, the goal must be longer term sustainable profit improvement, and this has to come from a focused effort to improve both operating efficiencies and revenue.
One way to increase profits in a company is obviously to make that business more efficient so it produces higher levels of revenue at lower costs. This sounds very simplistic and intuitively apparent. However, before a business can operate efficiently the individual processes and systems within the business must be in sync and operating efficiently. In order to ensure that all processes and systems are in sync and operating efficiently, it is critical that each process and system operate effectively. Without first ensuring that a process or system is effective before making it efficient, the improvement effort will result in ineffective processes or systems simply becoming more ineffective. As processes and systems become more ineffective the business as a whole becomes more inefficient and costs go up and profits go down. The Business Optimization method forces people to look at the inner workings of a business. Looking at the inner workings of a business help people identify which processes or systems are missing and which are ineffective. After these are identified this method helps people develop and incrementally add missing processes and systems. It further directs efforts to first make ineffective processes effective and then make them more efficient. As more and more processes and systems are added or enhanced, the efficiencies of individual processes within a company improve. As these efficiencies improve so does the overall efficiency of the business. As the overall business operates more efficiently profits improve.
Another way to increase profits is to grow revenues. In order to grow revenues the business must have the capacity to produce the work required to achieve these revenues. Often times business owners or executives think that all they need to do is to produce more sales and profits will increase. This is not necessarily true, and in fact, the exact opposite often happens. In our model, a company is pictured as a series of connected sections of varying diameter pipe. The smallest diameter section is the bottleneck within the company. In order for a business to function properly, the amount of business that flows through the company must flow smoothly through the narrowest section. When flow is forced through a section that is too narrow, costs and operating disruptions go up. Waste, quality and delivery time issues, missed commitments, employee discontent, and the number of unsatisfied customers all increase. Therefore, in order to increase revenue properly and effectively, processes and systems within the business must be installed, enhanced or significantly changed in a way that gives a company the capacity needed to, not only effectively generate incremental revenue, but to generate this revenue in a way that produces incremental profits and business growth. To use the illustration of the above sections of pipe, each section must be close to the same diameter. If a section is too large, there is extra capacity in that part of the business and it needs to be better utilized by increasing the diameters in the other sections. If a section is too narrow, it is throttling back the entire business and its diameter needs to be increased. This is a continuous improvement process where the cost to increase capacity in one section is continually measured against the cost to maintain idle capacity in another and the impact the limiting section has on the overall business. Increasing revenues almost always is associated with increasing capacity somewhere within the business regardless of where the narrowest pipe section is located.
The heart and soul of any business is its people. Their skills in conjunction with the operating processes and systems are what create sales, produce and deliver products and services, and manage financial resources. The way employees are able to utilize their skills are seen in the way a business operates and the type of quality and service a company produces. When employees are restricted from properly using their skills, or they experience repetitive obstacles they become frustrated, anxious or angry. As frustration, anxiety or anger increase management time increases and focus is diverted away from the business of the business. Business performance suffers and customer satisfaction wanes due to quality and delivery issues. Almost always employee issues are caused by processes or systems that are missing, ineffective or inefficient. Employees are usually the best at seeing these issues because they experience them every day. Employees are a powerful resource and when involved can be made part of the solution creating a positive effect throughout the organization. The Business Optimization method involves employees at all levels throughout an organization. This develops shared visions and goals and creates teamwork and singleness of purpose with everyone involved. It is impossible to effectively manage people. Managers can only be effective at managing processes and systems. People are then managed by how they perform within established and defined processes and systems. Therefore it is critical that employees not only understand their role and where it fits within the business but that they become involved in the business optimization process. This way they become part of the solution as a team rather than part of the problem as individuals. When this happens, employee discontent significantly diminishes and business operations become smoother, more productive and easier to manage.
Leaders are essential throughout any organization. Effective leaders at the top of an organization create a positive vision, culture and direction that everyone within the organization can rally behind. Effective leaders in middle management positions create confidence and loyalty in the people within their department. Effective leaders within the rank and file of an organization create strong teams that effectively identify and solve problems. The Business Optimization method steers an organization through the process of setting visions, goals and strategies, and then identifying and solving constraints within a business so that goals are accomplished. As visions, goals and strategies are set, and as constraints are identified and solutions developed, people with leadership tendencies emerge throughout the organization. A focus of the Business Optimization method is to mentor and train these people so that they become effective at leading groups of people. Owner(s) or top executive(s), middle managers and supervisors, and rank and file employees all require a different level of leadership skills. Leadership is different than management. Leadership is making sure the ladder is against the right wall and management is making sure the ladder is against the wall right. Whether a person is guiding a whole organization or a process improvement team, good leadership is needed. Therefore, one of the longer term and sustainable benefits companies receive from the Business Optimization method is the identification and develop of leaders throughout the organization.
The construction industry, as a whole is strong. There are geographical areas that are less strong and there are some that are extremely strong. Regardless, there are good opportunities for those companies that can price competitively, adhere to project schedules, and provide quality workmanship, while making high enough margins to maintain required levels of working capital. The construction industry can be broken into three main categories: Civil Engineering and Heavy Construction which include companies that work on large infra structure projects such as roads, highways, bridges, etc.; General Construction which include companies that build residential and commercial buildings; and Specialty Construction which include companies that have a special trade such as carpentry, electrical, plumbing and HVAC.
According to the Dodge Outlook Report and Robert Murray, Chief Economist with Dodge Data and Analytics, businesses are expanding and this is helping fuel the construction industry. Murray predicts “a rise in construction starts for commercial and institutional building accompanied by moderate improvements for housing and a stabilizing public works sector.” He further says that residential construction will be robust through 2019 and suggests that construction companies may want to take advantage of this situation now and into early 2017 because “it could be the time to go ahead with projects”. Unemployment in the construction industry is the lowest it has been since 2007. This is putting pressure on firms who are trying to hire. It is also putting upward pressure on salaries and wages. Though any size company can be impacted by these issues, the smaller firms are more vulnerable. Smaller companies have to compete against larger firms for employees. Their vulnerability comes in large part because they feel more and more pressure to provide health care benefits. These benefits are becoming more expensive and can add significant costs to an already cost sensitive and competitive situation. The smaller companies also face the challenges of understanding and being able to control miscellaneous expenses while maintaining adequate cash flow and working capital.
As the world recovers from the recent recession, the use of external consults is growing. As market demand increases in existing and emerging markets those companies that provide the highest value product and services will thrive. Those that do not will remain mediocre and slowly decline until they eventually go out of business. Many business owners and executives recognize this but struggle with how to effectively make the changes and improvements necessary to insure that their company is one of the ones that thrive. Most companies do not nor should they have a pool of available employees with the right expertise, time or ability to focus their efforts in areas other than their current responsibilities. Providing this expertise and focus is the major reason companies use external consultants.
Consultancies that are the most in demand are those that can help companies enhance business systems, improve efficiencies and reduce costs. These improvements allow companies to increase revenue, profits and market share as markets improve and as competition grows. Successful companies are those that provide higher value to the consumers of their products or services. This means having the right business systems, balanced capacities that are in sync with market demands, a thorough understanding of the market in which they compete, faster cycle times, better customer support, and higher product or service value than their competitors. The most cost effective way to accomplish the above is usually through the use of outside expertise or consultants. The right consultant can quickly help owner(s) and top executive(s) improve their business because they have an expertise and skill set that is usually missing in a company, they can relieve people within the organization from the need to focus on issues outside of their normal daily business requirements, and they can be engaged as long as necessary without the expense of hiring or firing. The right consultant not only produces “hard”, quantifiable results such as higher revenues, larger profits, and stronger cash flow but they also produce “soft” results such as improving the ease of operations and reducing stress of management and employee issues.
The Consumer Packaged Goods industry has had strong growth over the past 25 years due to new products and technologies. This has led to increasing margins and a high return to shareholders which has averaged 10% per year, outperforming the S&P 500. This is because companies have invested in innovation, supply chain efficiencies and cost reductions, R&D, Sales and Marketing, Procurement, Manufacturing, and Distribution. These investments have led to a 50% increase in the number of sku’s in just the past seven years. Past successes, however, do not guarantee future successes. Global demand, emerging markets, local production, and the impact from the Internet will reshape the way products are sold, produced and distributed. Companies that want to enter this market, increase their market share, or just maintain their position in the market will most likely need a different approach to their business other than what has worked in the past.
Over the next ten years the industry will see a billion new consumers in emerging markets, an increase in the number of consumers that purchase online, a growing number of consumers that are more interested in balancing price with quality and benefits, an aging population, and more volatility in the cost of raw materials. Companies that are able to increase their competitive advantage over where they are today will have the greatest ability to impact the industry. In order to do this, they will need to have the business capacity and systems that give them the ability to anticipate new opportunities and then take advantage of those opportunities as soon as they appear. Optimizing the way a business operates from understanding the market, to product and service development and positioning, sales, operations, and financial management will become even more critical than in the past. Those companies that do the best at balancing capacities, shortening cycle times, improving quality and perceived value, and having exemplary customer support will be those that impact the industry the greatest and will thrive from new opportunities.
Food & Beverage
The Food and Beverage industry is large and diverse. The focus of this article is therefore limited to the private label food processing companies since the needs of these types of companies align more closely with the Unique Service Proposition of this consultant. The demand for private labeled products has grown significantly over the past ten years and according to Con Agra, America is nowhere close to reaching a ceiling on this demand. Feedback from executives in this section of the industry suggest that leading companies are developing the mindset of being “first-to-market” and moving away from the traditional “fast-follower” game plan. This demand is due in large part to the increasing quality of private labeled products in conjunction with producers being able to price their products significantly below national brands. Grocers receive an average margin of 35% from private labeled store brands compared to an average margin of 25.9% from national brands. Studies from the Food Marketing Institute conclude that retailers are very interested and would “love to see continued growth in private label as the economy gets back on track”.
Many private label companies are small to mid-sized family owned businesses. The lack of capital and the many resources available to the larger national brand companies is a disadvantage to these smaller companies. However, being smaller gives the advantage of being able to shift gears more quickly than the larger companies. Larger companies tend to be more set in their ways and adhere more closely to their historical operating philosophies than smaller, more flexible companies. This flexibility will allow the smaller companies to take greater advantage of changes in the market place. The growing demand for private labeled products provides more sustainable future opportunities than did the boom-bust cycle of the past 30 years. Smaller food processors with excess capacity will have the ability to react quickly when they see an opportunity. Larger companies are looking to have greater capacity and flexibility through the use of smaller companies. This presents opportunities for smaller companies to produce both private labeled products as well as contract manufacturing for national brands.
The manufacturing sector continues to focus on productivity and efficiencies. This trend will continue as manufactures increase their automation to reduce labor, look for more ways to outsource as a way to increase capacity and shorten cycle times without spending capital or committing to higher overhead costs, and form strategic alliances to optimize core competencies. Another trend that is developing is “reshoring” US manufacturing. Reshoring is when US manufacturers bring jobs that had been outsourced to other countries back to the US. The reason this is happening is because some US companies are experiencing higher than anticipated costs from foreign producers and logistical difficulties due to longer delivery times and communication issues. Understanding the nuances of the market place, customer needs, and operating requirements is critical to any company that wants to remain competitive. The most successful companies are going to be those that are able to align their business systems and product offerings with market requirements. Increasing automation to reduce costs, shorten cycle times, and improve consistency of quality and on time deliveries will remain top priorities.
A growing part of larger companies’ strategies is outsourcing through contract manufacturers or forming strategic alliances with smaller manufacturers for private labelling. Smaller companies that have a history of innovation, productivity, responsiveness, and success in meeting customer requirements are the companies with whom larger companies will want to align. Since businesses can only operate within their own system constraints, another important trend is the increase in companies using system analysis to understand more fully the areas that are creating cost, waste or capacity constraints. System analysis provides a deeper understanding of what makes a business function and what causes areas to underperform. The understanding that comes from systems analysis helps companies better predict output requirements, lower cost of goods and inventory levels, and improve product quality, technology transfer and regulatory compliance. Another benefit from system analysis is a better understanding of the whole supply chain which allows a company to work around issues that can develop from a natural disaster, thus minimizing the risk of business interruptions. Automation will bring a higher level of technical sophistication. Manufacturers will require more highly skilled technical service support to deal with increased complexity. This means that companies will have an increasing need for support services such as training, maintenance, and operational processes and services.
Monthly cost: USD $1,500.00
Time limit: 5 hours per month
Contract period: 12 months
Bronze service includes:
01. Email support
02. Telephone support
03. Questions & answers
04. Professional advice
05. Communication management
The Bronze Client Service (BCS) for Business Optimization provides clients with an entry level option and enables client contacts to become personally acquainted with Mr. Erickson over a sustainable period of time. We suggest that clients allocate up to a maximum of 5 Key Employees for this service. Your Key Employees can then contact the consultant via email, whenever they feel that they need specific advice or support in relation to the consultant’s specialist subject. The consultant will also be proactive about opening and maintaining communications with your Key Employees. Your Key Employees can list and number any questions that they would like to ask and they will then receive specific answers to each and every query that they may have. Your Key Employees can then retain these communications on file for future reference. General support inquiries will usually receive replies within 48 hours, but please allow a period of up to 10 business days during busy periods. The Bronze Client Service (BCS) enables your Key Employees to get to know their designated Appleton Greene consultant and to benefit from the consultant’s specialist skills, knowledge and experience.
Monthly cost: USD $3,000.00
Time limit: 10 hours per month
Contract period: 12 months
Bronze service plus
01. Research analysis
02. Management analysis
03. Performance analysis
04. Business process analysis
05. Training analysis
The Silver Client Service (SCS) for Business Optimization provides more time for research and development. If you require Mr. Erickson to undertake research on your behalf, or on behalf of your Key Employees, then this would understandably require more time and the Silver Client Service (SCS) accommodates this. For example, you may want your consultant to undertake some research into your management, performance, business, or training processes, with a view towards providing an independent analysis and recommendations for improvement. If any research and development, or business analysis is required, then the Silver Client Service (SCS) is for you.
Monthly cost: USD $4,500.00
Time limit: 15 hours per month
Contract period: 12 months
Bronze/Silver service plus
01. Management interviews
02. Evaluation and assessment
03. Performance improvement
04. Business process improvement
05. Management training
The Gold Client Service (GCS) for Business Optimization is intended for more detailed evaluation and assessment, that may require your Key Employees to have monthly meetings or interviews with Mr. Erickson. These meetings and interviews can be conducted over the telephone, Skype, or by video conference if required. The consultant can also attend your business premises, an Appleton Greene office, or another mutually beneficial location, but please note that clients are responsible for the costs of any disbursements separately, including travel and accommodation. This service enables you to integrate the specific skills, knowledge and experience of your designated consultant into your Key Employee management team. The Gold Client Service (GCS) can also incorporate training workshops, business presentations and external meetings with customers, suppliers, associations, or any other business-related stakeholders.