Streamlining Distribution

By Ted Margison

As the economy slowly heads forward, most companies need to get more done with the same resources.

Streamlining operations means eliminating activities that don’t add value and putting in place controls to make sure transactions get processed quickly and effectively.

Eliminate Non-Productive Activities

Everyone is really busy – they’re already overloaded, or are they?

“Why does it take so long to turn around orders?” asked the CEO, “Everyone says they’re working as hard as they can but how can it take so many days?”

“Your company is doing credit checks when orders are received and again when they are about to ship. Since your customers are Fortune 500 companies, do you really need these credit checks? If you skipped these checks you could save 2-3 days” the consultant replied.

“Of course we don’t need to do credit checks on our customers. Why on earth are we doing them?

“Apparently, several years ago you sold to smaller companies that had credit issues. To ensure credit checks got done the controller had all orders credit-checked.”

“We could probably handle 25% more business by eliminating these delays. We can stop that practice immediately.”

A lot of companies think they have a good grasp on how they operate but reality is different. Several years ago I began asking consultants ‘Have you ever asked someone how their company operates and found out later that what you were told does not match what really happens’. Without exception, the answer was ‘yes’ for every project they ever worked on.

A critical part of streamlining is making sure you understand exactly how you really operate, and eliminating all the activities that don’t add value. Usually, there are several opportunities to immediately free up resources. The following example is one that occurs in many companies:

“How are things coming with the new system?” asked the VP.

“I was really struggling with one thing but I finally figured out how to do the Flash report on the new system” the consultant said.

“What Flash report?”

The one Adam does. He spends about eight hours a week pulling together data from different sources to create the Sales Flash report.”

“Oh, that one. We stopped using that months ago.”

Well, now Adam has time to work on other efforts.

Make Sure Things Stay On Track

As you get busier and busier it is easier and easier for things to ‘fall through the cracks’.

♦ Did the customer sign-off on requirements?
♦ Did the job get re-scheduled?
♦ When are the parts going to arrive?
♦ Did the change-order get approved?

Some demands might come from new customers or be for new types of products and services, resulting in considerable variation in the demand requirements. As such, not only do your personnel have to handle more transactions, they have to handle a lot of different processing requirements. This is where proper controls for managing transaction processing are invaluable. ‘Transactions’ are quotes, sales orders, purchase orders, service orders and so on.

“We get about 2,500 quote requests per month. Of these, we auto quote about 800 a month” the Customer Service person indicated. “The rest go to Engineering, so they are really swamped and turnaround takes a long time. Unfortunately, it is taking so long we get a lot of customer complaints and lose a lot of business – we only close 15% to 20% of our quotes.”

In a subsequent meeting with Engineering, “We work on major quotes – about 25 a month”.

Wait, what happened to 1,675 quotes? It turned out that these were going to some clerical personnel in another department that had no formal processes or tracking for these quotes. Two-thirds of all quotes were falling through the cracks.

Even worse, the people processing these quotes were only looking at how long it had been since the product was last sold and then trying to guestimate a cost and price based on a more recent sale of similar products. They didn’t take into consideration if the job was a government job or a commercial job, nor if there was one delivery or multiple deliveries. When a job was run for a government quote the cost overrun was extremely large, causing serious repercussions with the government agencies. Also, no one was tracking costs for preparing the quotes, which ended up being a problem for the government agencies.

In setting up new processes we addressed the issue of ‘transaction management’ – how do we manage the workflow to ensure things are done in a timely manner and cost-effective manner. In this situation, ‘cost-effective’ covers ensuring processing costs are properly recorded and cost risks for the transaction (e.g. potential for penalties, lost revenue, lost profit) are properly covered.

In this situation, the most expedient solution was to use a shared spreadsheet document to track the processing of quotes. A separate worksheet was used for each type of job – government versus commercial. Within each worksheet, columns were set up for each department to record the date and time they received the quote and initials for when they completed their portion. Managers could quickly see what should be coming to their department and what was sitting too long in one department.

Certain conditions could result in extensive analysis which would require special handling and delay turnaround of the quote. For example, if the requested item was no longer available but the ‘replacement’ item might need to be certified, the quote was ‘red flagged’. This allowed the managers to zero in on problem quotes.

In summary, the basic steps for ‘transaction management’ are:

♦ Identify transaction characteristics that change how a transaction is processed and the steps required to process the transaction.
♦ Identify the role for each department (or person), involved in processing a transaction.
♦ For each department role, identify the following:
♦ What is needed to manage the schedule for processing the transaction:

─ Identify key ‘milestone steps’ for processing a transaction (based on its characteristics) and the desired timeframe for reaching that milestone
─ Identify critical steps and potential red flag conditions

♦ Identify what is needed to manage costs:

─ How to ensure costs are properly recorded
─ How to avoid excess costs (e.g. expediting costs, penalties)
─ Identify critical steps and potential red flag conditions.

“We should be able to book an extra $4 million this month.”

“How’s that?”

“We have some jobs that weren’t quite ready at the end of last month but should be good to go now.”

“Are those the ones we were waiting for sign-off from the customer?”

“Yes.”

“Did any one follow up with the customer to get the sign-off?”

A few minutes later … “Oops.”

Final Thoughts

According to Dana Borowka, CEO of Lighthouse Consulting Services, LLC and author of the books, “Cracking the Personality Code” and “Cracking the Business Code”, hiring the right people is key to future growth. If you would like additional information on hiring, please click here to see an article on this subject.

Permission is needed from Lighthouse Consulting Services, LLC to reproduce any portion provided in this article. © 2014 

Ted Margison is a Senior LCS Consultant and has over 30 years experience in operations management and process improvement. Ted worked for Ernst & Young in their manufacturing & distribution practice and then headed up one of PriceWaterhouse’s manufacturing & distribution practices on the west coast. You can contact Ted at [email protected].

If you would like additional information on this topic or others, please contact your Human Resources department or Lighthouse Consulting Services LLC, 3130 Wilshire Blvd., Suite 550, Santa Monica, CA 90403, (310) 453-6556, [email protected] & our website: www.lighthouseconsulting.com.

Lighthouse Consulting Services, LLC provides a variety of services, including in-depth work style assessments for new hires & staff development, team building, interpersonal & communication training, career guidance & transition, conflict management, 360s, workshops, and executive & employee coaching. Other areas of expertise: Executive on boarding for success, leadership training for the 21st century, exploring global options for expanding your business, sales and customer service training and operational productivity improvement.

To order the books, “Cracking the Personality Code” and “Cracking the Business Code” please go to www.lighthouseconsulting.com.