Do you fully understand the impact the financial crisis has on your company, your division, your teams…your people? How do you make a conscious effort to sustain your company through the crisis?How often do you lead by financial measures other than budget? The reality of the situation is this – if you are a leader in any capacity, you should be thinking about how the global financial crisis is affecting your domain and what you are going to do to contribute to your own sustainability.
The responsibility to keep the organization (and your livelihood) afloat is not for the CEO and CFO alone. While they are the structural and functional center in the midst of the contracting economic environment, every single leader has an important role to play. From Customer Service to the Board of Directors, everyone should be actively contributing to the future of the company – in good times and bad. We typically don’t think that way, however, it is critical to understand how the efforts of each and every function must align and coordinate in such a way that the entire fleet is headed in one direction. If we are to emerge from this crisis better, faster, and stronger…we had better begin to navigate our way more effectively in these turbulent economic seas.
This week, let’s consider a few high level thoughts for keeping your Operations afloat in rough seas:
1) Command Your Crew. People are essentially the engine of production in service and manufacturing and the principle of managing for cash flow remains at the forefront of what you, as the Captain, need to command. People are the key to your success, and one critical aspect pertains to how you are leveraging your resources. Obviously an idle staff is an unproductive staff – constantly re-evaluate and staff operations in line with the operational needs. In addition, remember that your crew is made up of humans and times are tough – ensure your people feel they are treated equitably while also ensuring rewards and recognition are available for those who go above and beyond – they don’t have to be cash related…
2) Lower your cash breakeven point ahead of falling revenues – fast. How will you consolidate production and how will your choices affect cash flow and other priorities? Will a software investment make your system more responsive and efficient? Is subcontracting a part of the process an option to better managing costs? Whatever you decide, know and understand that any decision you make may have far reaching consequences on the entire system – make sure you consider the full impact of any changes and get input from all affected parties.
3) Rethink your capital investments. As you continue your quest for cash, it may seem obvious to postpone or cancel capital expenditures. This should be evaluated carefully…remember that depreciation alone will allow you some expenditures without any real cost. While it may be tempting to abandon ship on spending, always keep in mind that what you delay today, may cost you more tomorrow…stringently evaluate every expenditure, carefully weighing both benefits and costs equally. Projects with high strategic value shouldn’t be delayed. Most competitors choose cost savings over strategic investments when they come upon turbulent waters – if you choose investments wisely, the winds will be with you as we emerge from the storm of economic crisis. Knowing where to spend and where to cut is a skill that will test your aptitude for navigation, not only as the Captain of your ship, but also in regards to your capacity to rule the seas in an ocean full of pirates – once the seas have calmed.
4) Manage your product lines. Be merciless in evaluating which product lines with their multitude of versions and extensions should walk the plank. The unnecessary complexity of multiple, complex product lines could sink your ship – weighing it down with additional cash expenditures that will not allow your vessel to stay afloat. Remember the 5:50 rule: 5% of your inventory will derive 50% of your revenue.
5) Consider Outsourcing – and Insourcing. Lighten your load wherever possible – you will be more flexible to navigate in rough seas. Carefully review operations, focusing on what differentiates you from the competition – that is your bottom-line value. Everything else should be considered fair-game for outsourcing – especially those aspects of the business that may create economies of scale that are not possible in-house. A viable alternative may be insourcing – keeping redundant employees onboard to reduce or eliminate the current cost of outsourcing. It may be advantageous to drop anchor on outside contractors and let your existing crew take up the load. Weigh your options carefully, and evaluate the impact on your overall cash flow to see where you come out ahead…
6) Manage Inventory. It is critically important that you are aware of the financial implications that inventory brings – both raw materials and finished products are cash traps. Tie yourself tightly to sales and marketing to ensure that cash remains the focus at all times and base your manufacturing processes on just-in-time, produce-on-demand, or some variance of these practices to ensure that all aspects of inventory at maintained at minimal levels.
Whether you are in a manufacturing, retail, or a service environment the above points will apply – what will change is the lens from which you are viewing them. Just the same, they should all be considered and evaluated as to how they can be applied on your ship – otherwise, you may find yourself thrown overboard in stormy, shark infested seas, treading water and hoping for a rescue that may not arrive in time.