Most businesses find a gap between the profit margins they price off and the profit margins they actually achieve. Worse still, rather than achieving economies of scale and seeing margins improve with growth, the reverse often happens, with margins tightening as turnover increases.
Much of this is to do with how effectively information flows through the business. Each time a piece of information is lost, then one way or another, this eventually leads to a reduction in margin. From marketing, to sales, to purchasing and production, delivery and after sales, the problems caused through miscommunication cause delays or errors which are costly to put right.
This isn’t surprising. The cascade of what happens from the first Customer enquiry through to delivery (and on to after-service, and repeat business) is amazingly complex. And even if you perfected it a while ago, your products evolve, your Customers change and you open new channels to market and within a few months it has changed just enough for problems to creep back in to the system!
Process and Communication Flow
It’s a difficult job, but if you want to achieve the margins you think you should, then mapping out the entire process is essential. You have to know what path information takes when things go perfectly to plan, and you need to know what happens when things go wrong and when someone is faced with a new situation.
You need to know whether procurement will pick up the phone to sales to question an odd looking request and you need to know if Goods Out will just wait until tomorrow if they miss the last outward delivery of the day despite the fact that it says urgent on the system somewhere.
Mapping out the process flow with every department gives everyone a chance to air their frustrations and to state clearly what they need in order to do their job properly. It gives you a chance to assess training needs and to understand who reacts well in a crisis and who just shrugs their shoulders, happy to blame another department if they don’t have what they need.
There’s no shortcut to this. Lots of different coloured post-it notes, a massive blank wall, everyone contributing and a surprising amount of time are the only way to manage this. It’s necessarily not fun, but you’ll see the reason for doing it on your bottom line!
Click on this link to consider how to improve the “Culture” of your organisation