Margin is the result of a complex equation. What are the factors you need to take into account in this world where costs have a tendency to grow faster than revenue, inefficiencies in the business can quickly erode margins and financing investment for growth is challenging?
You have to improve revenue generation and control costs. Sure, cutting costs indiscriminately can have a positive impact on margin, but even in the short term the overall effect will be negative as the cost reduction damages revenue generation. So, where should you focus your efforts in growing revenue?
1. Improve quality
Yes, it is vital that the quality of your goods and services is extremely high and you need to make sure that everything you do is of a similar level of quality. The principles used in manufacturing for years to improve quality – driving out inefficiencies and waste – can be applied to all business processes. The quality of your information is also critical to understanding your business and your customers, speeding up decision-making across the board.
2. Increase customer insight
What do you know about your customers? Indeed, what do you understand about their markets, their competitors and their needs? Who is buying what? What more can you sell to whom? All of this requires the collection of data that can be converted to insight that drives revenue growth. Inevitably, this requires some investment in information gathering!
3. Accelerate process speed
The quality and robustness of your business processes can be improved by analysing how you go about your business and identifying areas of waste, inconsistency and duplication of effort. You can then develop better ways of processing in your business that eliminate those elements and optimise the flow through the business (ERP Process Mapping and Modelling).
You can now start to accelerate the flow by automating steps in the process and creating workflows that ensure the next step in the process is carried out immediately. Role-based dashboards and action lists also allow people to be notified of everything that is required of them and give them the ability to quickly and easily carry out those actions.
4. Accelerate customer response time
By improving the quality of your processes and developing a better insight into your customers’ needs, you’ll arrive at the point where you can improve response times and anticipate customer requirements. Being easy to do business with is a key criterion – you need to be able to respond to our customers, wherever you are and whatever you’re doing.
Now you need a system that collects all this information and can then present it to the right people at the right time. Role-based dashboards and workflow are critical here, with the added complication that you need them to work on any device and anywhere!
…and how should you go about controlling costs?
1. Control purchasing costs
You don’t want to reduce the quality of what you purchase. However, you do want to only purchase what you need, for the optimum price, from proven suppliers and only when you need it.
Again, this requires the collection of data from across the business to understand what it is you buy and what you need to buy. What is the reason for the requirement and where are you spending all your money?
Depending on the type of organisation, this can range in complexity from basic inventory control to full blown MRP with supply and demand forecasting. For many businesses, controlling purchasing will also involve the processing of purchase requisitions for non-inventory spend such as maintenance. This requires workflow for purchase approvals, which again needs to be available on any device.
2. Control inventory
Reducing the cost of inventory has been at the forefront of business improvement initiatives for decades – and it still is!
Business structures have become more complex and the extended value chain means you now need to control inventory across multiple sites, whether it currently belongs to you or not. Consignment inventory, whether it is customer or supplier-related, needs to be managed. The use of Third Party Logistics companies brings a higher level of necessary control.
Your entire business environment should be reflected in your business systems to enable visibility and control of inventory across the extended organisation. A company-wide ERP solution can provide this visibility, enabling you to reduce costs by balancing your inventory across all sites/locations and throughout the value chain.
3. Control production
Directly linked to the money tied up in inventory is the money tied up in WIP, and the potential of increasing inventory costs by making things that you don’t really want.