As you sit around your corporate boardroom and and make decisions that impact growth either via acquisition or generating incremental sales, many don\’t give consideration to PRODUCTIVITY (in the back office).
Why is that?
Well, many assume, albeit incorrectly, that all the \”.\”s are dotted and \”T\’s\” are crossed. Many feel their company operates optimally and is \”the best it can be\”. Most assume, without actually checking, that there back office is as productive as it will ever be and it will support as many branches, warehouses and sales as you can generate and force thru the system. Essentially many think that the systems they have will last them a \”lifetime.\” Unfortunately that is the way that most distributors think. \”Sales first is the motto, we\’ll drag the back office up to speed with extra people. We\’ll teach them on the fly and if we run out of room, we\’ll move some inventory over and put some desks and phones out there. After all \’we\’ are electrical distributors and we know how to wire for lighting and phones.\”
If you think like this you could be in for a surprise! At some time productivity capacity and the desire for sales growth will run into each other.
If you bought your ERP
If your company bought an ERP software system 5-10-15-25+ years ago and set it up like most did, you may have built in limitations because the national average for ERP productivity usage is about 40%. This means that you may only use 40% of its capability. Additionally, your company may have bought add-on modules that you felt would make your company more productive, but they never got installed completely.
If you built your ERP
If you built your own ERP system (and this varies by the company) you may have a system that is custom to your company when it was built. Your company may struggle to keep up with the introduction of newer technology that frees up back office personnel to be used in profit making ventures. From what I have seen, most custom built ERP\’s have some deficiencies that center around how to replenish inventory, carry or use multiply price matrices and setting up and collecting SPAs. Some struggle with EDI while others are so deficient in order entry that managers have a next to impossible task of seeing what\’s on hold, their sales history, or their cut wire leftovers. Your company may have taken a defiant stance to build the system and that attitude might keep you from being as productive (and profitable) as your competitors.
Over the last 5 years or so there have been some absolutely sterling examples of companies that have left on the trip of generating more sales while having to slow down because the back office could not keep up. In some cases this is a major understatement!
Some of the signs that these companies exhibit include:
- Sales increase of 25%+ or greater and profit drops in half
- You start hiring people that eventually have a hard time tripping over each other
- Inventory grows unchecked to the point where the bank starts to get anxious
- SPA\’s go uncollected because there is no good manual process or it is not setup in the ERP.
- Receivables (commonly referred to as DSO\’s) grow at an alarming rate and the days to collection approach 200 days.
- Non-stocks balloon to the point where you really don\’t know what you have hidden away in warehouses
- Stacks of invoices/receivers/PO paper start to fall off desks waiting to be matched up so someone can write a check.
The good news is there are ways to check your productiveness. But first you need to be motivated to understand.
The next time you are on a flight to somewhere, watch the Captain and First Officer. They go through a check list and check instruments while they are at the gate. They are checking the productiveness of that airplane. They have an airworthiness certificate, but they still check the plane before it leaves the ground.
And then think, do I check my business before I head out to grow my business. How productive is my back office? Can it handle more business without adding more people? And if so, do I have the right processes and technology to enable growth?
Follow me at @ARAProductivity