Understanding your Business by the Numbers

When running a business, a lot of managers or CEO’s are looking for net profits as the measure of the health of their business. This is not entirely wrong, but it does often lead to wrong decisions based on the notion that you can drive profits strictly from your financial statements. Let me suggest that if companies understood that they are in the business of selling promises and if they regularly fulfilled those promises that profits will follow. The only tricky part is making sure that you consistently deliver on your promises and that the promises take into account the customer’s self-interest (i.e. your offer is something that has value in the markets you serve). Use the tools available from your ERP system or develop spreadsheets as needed to track the key measures of success.

It’s not hard to figure out what customers want: faster product lead times, higher value per unit cost and 100% on-time delivery. This is a pretty universal set of customer “wants” and the road to high profitability is to deliver on this promise regularly.

LEAD TIMES

Think broadly here. Customers have a lot of “lead times” they use to grade how easy it is to do business with you:

• How long does it take you to respond to a request for quote?
• How many times does the phone ring before a pick up ?
• How quickly can they get the current status of their order?
• How long does it take them to get technical support?
•  . . . and so on.

The objective of any lead-time measure is first to say what you will deliver (tech support 24/7, all orders acknowledged within 24 hours, for example). Then deliver on that promise. As you get better at this, then you can shorten the lead times for these things if it adds value. Ultimately you will build a natural sense of urgency to solve customer issues. This is a good thing and customers will be attracted to your responsiveness. Keep in mind that any one of these actions can, poorly executed, crash your customer service rating, or, done right, make it shine. And almost all of them are trackable either through your ERP or your phone system.

HIGHER VALUE PER UNIT COST

Very simple improvements in the product installation or use can have a big impact on usability. Learn from your customers. Arrange a call with them to go through installation and find out what steps are confusing. For a physical product, something as simple as captured screws may keep the installer from having to hunt for the correct screws during installation. Labeling the functions on a color-coded cable can save a lot of time. Even an 800 number for help lets them know you are available to help (assuming the 800 number is “live”). These all create a high perceived value and improve the value/cost ratio. Get inventive.

ON TIME DELIVERY

This is consistently in the top three for ranking supplier performance. For that reason alone, this requires constant attention. Any time that a shipment is late it is the responsibility of the CEO or GM to understand what series of events resulted in the delay and make sure the root cause is understood and fixed. It is important that this is not about finding someone to blame, but finding out which process steps were missed. If you know in advance that a shipment will be late, call the customer with a certain date that you know you can promise, offer a partial shipment if you can and if it helps the customer. Delivery is a make-or-break proposition so transparency is key. Post your OTD charts around your plant so that everyone is in on the game and knows what the goal is.

THE WHOLE PACKAGE

Years of customer surveys have shown that responsiveness (the lead time part), high value per unit cost, and on-time delivery consistently executed are a proven path to consistent profitability. If you can get these numbers right, then you’re still welcome to look at your financials, but what they will tell you is what you already know.