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When Just-In-Time is Just-Not-Right

THE CLIENT:

The Client is a Tier 1 Supplier in the Material Handling Industry. The plant works four, ten-hour shifts each week. Additionally, the plant must maintain a 98% on-time delivery rate to the OEM’s (Original Equipment Manufacturer) who only allow a three-week lead time on their orders. The plant does not have either finished goods (the manufactured products available for purchase) or significant raw materials inventory.

Additionally, the plant was designed for one specific customer to purchase one particular product. Therefore, all manufactured products are made-to-order with a specific configuration. Finally, the plant was set up with a Just-In-Time (JIT) system for its vendors, which allowed vendors two weeks to ship raw materials.

THE SITUATION:

The plant has many customers in the same industry, but with different configurations. There is no Min-Max inventory control system, and small hardware parts are stocked at the assembly line. Unfortunately, a side effect of these hardware parts stocked at the assembly line is a finished product that has missing parts when delivered to the customer. There is also a constant shortage of critical parts which cause assembly line downtime.

Overtime is often required of the employees, to maintain the on-time delivery rate, which adds to the plant’s labor inefficiencies. Moreover, the need for overtime is not discovered until the day before it is required.

Orders for customer requirements, which were requested three weeks in advance, were compiled on Friday night. The MRP (Material Requirements Planning) system ran over the weekend to supply the buyers with their products. On Monday, the buyers reviewed the MRP results and drafted a Purchase Order (PO) to the supply chain for the exact number of items requested in the MRP run. This process means that the vendors received their POs on Monday evening and created their production schedules on Tuesday. In effect, the vendors had a total of seven working days to produce and ship the necessary parts on time. A majority of the made-to-order supply chain was within the one-day shipping time. The sole exception was the equipment parts, such as bearings and castings, that came in bulk order to a supplier warehouse from China.

All these conditions resulted in labor inefficiencies, higher-than-budgeted inbound freight costs, and missed customer shipments. The company’s supply chain experienced the same issues because they were continually juggling their schedules to accommodate vendor requirements.

The morale of the labor workforce was low due to working unscheduled overtime, which cut into one of the plant’s best fringe benefits, which was a three-day weekend.

The financial impact of these conditions was an average EBITDA (Earnings Before Interest, Tax, Depreciation, and Amortization) of 2.0 percent.

THE SOLUTIONS:

The first step towards resolution was to identify the manufactured parts that were always in short supply. Once the parts were identified, we had to determine if they were common to all customer products or unique to specialty items. The common elements are then assigned a Min/Max inventory level based on both their one-month usage and the POs issued to vendors.

Secondly, all the hardware and small parts were moved away from the assembly line to ensure inventory integrity. These items were then classified as “Common Parts.”

Next, a process was established for the kitting, or the gathering together, of all “Common Parts.” At the outset, the parts were kitted in bags and placed in small totes using a version of the Bill of Materials needed to manufacture a product. This system of kitting proved to be a slow procedure and mistakes were still made in the kitting process.

The fix for the problematic kitting process came from an element of the TPS (Toyota Production System). A placemat was created using pictures to represent the different manufactured parts visually. Moreover, identifying numbers were written underneath each picture for each kit type. Lastly, each kit was matched to a PIN (Product Identification Number) that represented a unique finished part. This identification process enabled the warehouse parts picker to identify an element more efficiently to reduce errors. Finally, this also means that, just like your childhood model car kit, if you have parts leftover, or the kit is short of parts, it is a signal that someone, either the parts picker or the assembler, has made a mistake.

Finally, we had to address the issue of the parts imported from China. A review of the usage and the shipping lead times revealed that the optimum solution was to keep a one-month supply on order in the factory, a one-month supply in transit, and a one-month supply in the local vendor warehouse. However, the company had to commit to paying for the inventory, even if the product mix changed. The customers were also informed that they had to give a three-month notice of any product changes.

THE RESULTS:

The assembly line efficiency improved almost immediately. The on-time delivery percentage was consistently at 98 percent or above. The number of rejects from test and final inspection was cut by 75 percent. The assembly line went back to a scheduled four-day work week with limited additional overtime.

On the supply chain side, the vendors could reduce the amount of inventory they were carrying, which allowed them to concoct a more efficient production plan. This planning process also encouraged cost reductions on the inbound freight, which was included in the vendor pricing. As a result, the company was either able to negotiate better terms or a decrease in pricing.

The customers were delighted at the improved on-time delivery percentage and the reductions of line-in rejects. The number of expedited freight occurrences to the customers was also significantly reduced.

In the final analysis, this project was a significant element of the company achieving an EBITDA of 12 percent, along with an increase in business and new projects from the considerable industry OEM’s.

Just-In-Time works when you have a defined product mix with an optimal lead time. If you have a variable product mix with a lead time that is too compact, you must use some variant of a Just-In-Time system.

At Cogent Analytics, we never stop looking for ways to improve your business and neither should you. So, check out some of our other posts for helpful business information:

How Company Values Improve Your Bottom Line

Internationally recognized business leader and award-winning speaker, Diane Helbig speaks with President of Cogent Analytics, Rob Braiman. While strategies and business principles are important, it’s also critical to build a company culture based upon integrity and extend these core values to clients and their businesses. Businesses thrive on transparency and trust. Together, Helbig and Braiman share how core values will help your business become more successful, and how you can make an impact on the business world at large.

At Cogent Analytics, we never stop looking for ways to improve your business and neither should you. So, check out some of our other posts for helpful business information:

Breakfast Leadership Podcast

Michael Levitt, CEO of Breakfast Leadership Inc. and Host of the Breakfast Leadership podcast speaks with President and CEO of Cogent Analytics, Rob Braiman.

Listen here as Levitt and Braiman have an in depth discussion about the process of an entrepreneur, the daily struggles of being a small business owner, and finding the right advisers to help your business the right way.

Breakfast Leadership Podcast: Cogent Analytics

At Cogent Analytics, we never stop looking for ways to improve your business and neither should you. So, check out some of our other posts for helpful business information:

How to Achieve Long Term Profitability

Dr. Jürgen Strauss, marketing strategist, chief innovator, and host of InnovaBuzz speaks to President of Cogent Analytics, Rob Braiman. Listen here as Strauss and Braiman speak in depth about entrepreneurship, the Cogent Analytics Profit Platform, and the overall culture of Cogent Analytics.

Innovabuzz Podcast Hosts Rob Braiman About Long Term Profitability in Business

Read Dr. Strauss Key points and take-aways from this episode here.

At Cogent Analytics, we never stop looking for ways to improve your business and neither should you. So, check out some of our other posts for helpful business information:

Strategic Planning Leads to Increases in Sales

THE CLIENT:

This client is a custom woodworking company whose primary business was serving retail shoe companies making display racks for shoes in their stores. They had three main customers in a self-imposed 350-mile radius. While the customers had locations outside that radius, for ease of control, the client stayed within that geographical area.

Because of geographical saturation, the three main customers were not opening new stores at the same rate as they had been previously, and the wood working company was required to rely on remodeled stores which had much lower sales values and lower margins.

THE SITUATION:

Upon arrival, profit was negative and there were four major issues causing a drain on the profit:

Declining sales – The business was experiencing sales that were half of what they had been in their best years, and the combined expenses were causing the owner to continually transfer money from another business into this one to keep it afloat.

High levels of raw inventory – To take advantage of truck load quantity discounts, the customer had bought standard wood stock in excess of the current demand. A significant amount of cash was tied up in this raw stock and, of course, they still had to purchase other materials as the inventory they had was not always the material they needed.

Underutilized high dollar equipment. – They had recently purchased a very high dollar computerized CNC machine capable of extremely intricate work that could significantly reduce scrap, but the machine was only being used part of the day. The main work was being done on saws and other less technical equipment.

No working capital – Additionally, the business had no working capital as the cash reserves were nonexistent and they were working check to check for everything including payroll, taxes, paying suppliers etc. It was a daily issue to determine who got paid and how much, and they had maxed out their line of credit.

THE SOLUTIONS:

The only way to save this business was to strategically plan and look at it holistically to make significant improvements in multiple areas simultaneously in the three main areas of Sales (Get Business), Operations (Do Business) and Finance (Account for the Business)

1) SALES

Instilling Business Innovation

More revenue was desperately needed, but when the head of sales was asked how they obtained new sales, he replied, “that is really hard.” Since ideas and innovation can come from anywhere in an organization, we introduced a formal weekly meeting of the key managers that included, the President, Directors of Operations, Sales, and Finance. This was not a meeting to solve the myriad of daily issues, it was a once a week opportunity for the managers to act as business leaders. They had 39 other hours in the week to solve daily issues, but for one hour a week, they became the Board of Directors and elevated the discussion to those topics that would help the business grow, flourish and become profitable.

Paradigm Shift

At one of these sessions it became obvious that a paradigm had to change. To that point, everyone in the company thought of the business as one who made displays for shoe retailers. Over the course of a few weeks they came to realize that they were highly sophisticated designers and builders of custom wood products who happened to have been making displays. When they realized the market for that specific commodity was in decline, they started looking at additional ways to sell their capabilities.

Not long after this paradigm shift, they went after, and received, a large order for cabinetry for doctors’ offices. They also received an order for a very high-level bank requiring some high-end furniture. Soon after, different types of custom wood working were being sold to new customers with higher margins.

2) OPERATIONS

Implementing Measurement

In the operations area nothing was being measured and the shop was an absolute mess with little housekeeping going on. On our very first day, I took the Director of Operations out and we determined that there was a physical point in the shop such that when an item reached this point, it was considered ‘Complete’. That day we began to collect data of every item that passed that designated point of debarkation to, at least, start the discipline of measuring activities, and we declared that the shop would start being cleaned up at the end of the day.

Assigning Cost / Applying Labor Effectiveness

After a few days, the Director of Operations found a way to place a dollar value to the work being completed on a daily basis. Now we had, at least, a barometer of how much value was being produced. That matriculated into being able, on a very rough scale, to measure labor effectiveness (efficiency). We found that daily tracking was too granular to use for any decision making, but in a few weeks, trends started yielding some very valuable and actionable information leading to being able to determine how much labor was going to be required in subsequent weeks. Prior to this, every employee came to work every week and they were paid for forty hours, even though they were not needed and did not add value for their effort.

3) FINANCE

Organizing Chart of Accounts

While Operations measures were being developed and refined, a thorough review of the financial statements uncovered something very interesting. The company’s accounting charts of accounts were not conducive for ease of review and to make decisions from. The charts of accounts were reorganized to have true costs fall where they should. For example, initially all salaries were categorized under ‘Indirect expenses.’ These were realigned whereby shop ‘Direct labor’ went to ‘Cost of Goods Sold’ or COGS. Sales salaries and commissions went into a new accounting bucket for ‘Sales Expenses’ along with other sales activities such as travel, entertainment, marketing etc. Finally, Indirect expenses were properly coded.

Once complete the Income Statements accurately reflected revenues, COGS, sales expenses and G&A. The business could now see where the money was coming from and where it was going and how much was being spent on different activities.

Detailed Financial Tracking

Once the Chart of accounts was reorganized, we took reporting one step further and started tracking financial activity by customer. Not surprisingly, one of the “best” customers was causing a loss. The new data allowed sales to approach the customer and get a significant price increase. Had they not, the decision was made to stop doing business with that customer.

Detailed Budget Targets

With the financial statements being resolved a detailed budget for the next year was developed. A rough budget was developed line by line, and the different managers came in and worked on their part of the budget. The result was that, for the first time in the company’s existence, they had targets to shoot for on a monthly basis to ensure the company would be profitable. Throughout the year, the budget was compared to actual performance on a monthly basis.

Cash Management / Forecast

Last, a Cash Management model was introduced that expanded out over twelve weeks. This tool was updated each Monday and provided them with the visibility to see when issues were going to arise, allowing them to plan for and act well ahead of the issue. It is Cash, not Receivables, that allow a business to run on a daily basis.

THE RESULTS:

In less than six months, the company became cash positive and the following year their sales grew exceedingly from their previous highs. Because they had metrics in place to review labor and other expenses, profitability doubled as a percent of revenue and the company was more successful than ever before.

Also, at the beginning of this process, the President, who was the father of the Director of Operations, had a very strained relationship; however, by the end of the process, their relationship became strong once again.

Many of the activities seem obvious, but businesses can grow fast and in non-linear ways, to a point at which its systems and processes become ad hoc. Eventually, they are forced to start dealing with the issues in front of them.

The effort to undertake the changes above took a significant amount of time and effort. In many cases, small business owners are not equipped with the skills and knowledge to know how to put similar practices in place.

Also, the psychological impact in many cases is as difficult as the physical changes. Developing and reviewing metrics and holding people accountable is difficult for some, and especially tough for family members. The key is to not become aggressive or defensive about a metric, but to look at it as a data point to help you find and improve an issue.

It is the business and the livelihoods of several families that are at stake and focusing energies on improving the business becomes a much easier task. It is far more fun to work in a successful enterprise than one that it is in trouble.

At Cogent Analytics, we never stop looking for ways to improve your business and neither should you. So, check out some of our other posts for helpful business information:

Targeting the Problem Leads to Million Dollar Profit

THE CLIENT:

The company was a septic tank installer in the Carolinas. It was run by two brothers who had bought it from their dad. The majority of their business involved installations in new homes and in new developments that were being constructed around town. They had two crews of four people each. However, they were having trouble keeping the crews at full strength and needed to hire some new people immediately.

One of the brothers oversaw the installation business, while the other brother supervised a concrete septic tank crew that built tanks for installation and for wholesaling to others.

The company also had two pumping trucks that could be hired to clean out a blocked, or full, existing septic tank.

The brothers operated under a verbal agreement that if one objected to a plan or idea, then it would not take place. They had to be in complete agreement with one another while operating their company.

THE SITUATION:

Just prior to our arrival at the company, the brothers had hired a part-time girl to focus on collections. There was over $200,000 in outstanding and overdue amounts. She had started calling the week before and was already getting some results.

In the beginning, the company only had one truck driver to deliver the trenching and digging equipment to the job sites. Sometimes this would present a problem because the equipment had not arrived by the time the crew was ready to start digging. Every morning the crews would arrive at their assigned jobs. They were relying on both the equipment’s preparation and that one of the brother’s had already visited the site. This was important because this visit laid out the job according to the plan outlining where the system was to go, including the depth and slope of the trenches. This consumed a great deal of the brother’s time. This in turn meant that he did not spend as much of his time invoicing for the jobs that were completed. Therefore, invoicing was behind, and in some cases, customers were billed inaccurately.

Two areas of immediate concern included the fact that more than one person was creating invoices, and this made it hard to hold anyone accountable for errors. Secondly, there was no policies in place for who got credit for doing a particular job. Moreover, how did we handle after hours work where we needed to collect for our services?

The jobs usually took about four hours to dig and put everything in place. At this time the crew was ready to move on, but the equipment needed to be moved and there was only one driver. So, we were not very efficient.

The office was staffed with only one other person to answer the phones and schedule the pump-outs in or any other work that needed to be done. She attempted to stay in contact with the pump drivers and advise them of any new jobs that needed to be done.

There was also a one-man repair crew that did small repairs and inspections required by the state. He maintained a separate schedule that required better coordination with the office. He was perpetually behind schedule, and he was often interrupted when an “emergency” repair needed to take place. In addition, we found that the emergency calls were not being screened enough to determine if it could easily be fixed or if we needed to schedule a repairman.

In reality, neither brother really understood what it cost them, in terms of labor dollars, to do the work. Their pricing model was based on how their dad’s company was priced. It was not based on the reality of their specific situation. For example, they were making concrete septic tanks but had no idea how much labor time was needed to construct these tanks. They had several different designs available, but the pricing was based on what the competition was charging, not what it actually cost to make them

They had no idea what it meant to recover their overhead and how to apply this to their pricing.

Since there was no budget or projection of business to determine the balance of the year, there were no sales goals either.

The Chart of Accounts was not in good shape. There was only one category for revenue, and the Fixed Costs were mixed with the Cost of Goods so there was no accurate way to determine the Overhead or Overhead Recovery Rate.

THE SOLUTIONS:

The implementation of the solutions was broken down into two broad categories: organizational and financial.

Organizational:

The first step was to create a Collection Procedure and encourage the part-time office person to continue calling the overdue accounts. The Collection Procedure helped her do her work in a very pleasant manner while obtaining good results.

The $200,000 overdue was a burden for this young company. The collections had been jump started by the part-timer and got off to a great start.

It was obvious that the brothers were wearing too many hats and had failed to do any delegation. Thus, bringing in the part-timer for collections became the first step.

The next was to review the policies and procedures in the office and in the field. We felt that too many people were getting invoiced for the repair, inspections, and pumping work that we were doing. To reduce this, and collect our money sooner, we equipped all of the employees who dealt with the public with a “Square Device” so that we could accept credit cards in the field. This also allowed us to have clients pre-pay over the phone with the Office Manager. Now we could take cash, checks, or credit cards and we did not have to create a bill and wait to get paid.

To address some of the missing invoicing, we created a Daily Log for the Installation Crews to complete at the end of the day. The crew were responsible for stating where they had worked and what had been completed. This was intended to be a double-check to ensure that whatever we were working on that day was billed and did not fall through the cracks.

We then implemented a process whereby the Pump Truck driver was expected to call the office when he was finished and about to leave for the next assignment. We needed to know his schedule, so that we can handle any emergencies as well as answering customers when they called the office and asked when he will be at their location. Presently we had no idea when he would arrive and could not answer intelligently. We managed to include this on his phone’s google calendar which improved communications immensely, and customer service meant a great deal as well. This was also done with the Service Technician which helped with those emergency calls.

In order to address our “help” shortage we had some banners made and placed them on the main highway passing the office and storage yard. The response was very good with over a half-dozen applying for positions. From this we were able to hire another heavy-duty truck driver. This addition allowed us to move equipment more frequently and get it to the right locations in the afternoon for the next morning’s start.

Financial:

On the financial side, we also made a recommendation to free up some of the Pump driver’s time by allowing him to be removed from the responsibility of the “de-watering” process. This should free up several hours of his time and allow us to service 2-3 more customers a day. The Pump Truck charges $235 to pump a tank. The driver estimates that he would be able to pump anywhere from two to four additional customers a day. If we assume the lowest increase of two extra customers on an average day, then he would generate $2350 EXTRA PER WEEK. Or, an extra amount of $122,200 for the year.

Next, we priced the concrete tanks that we produced. We met with the brother in charge to discuss any additional tanks that were considered important and priced them as well. Prices of the delivery costs were reviewed, and it was decided that we would price that component separately from the tanks themselves. We needed the pricing on the tanks because we wanted to sell to competitors, and we currently price the tanks with delivery included. Attempting to do this seriously erodes our margins in areas where we are making a profit. I believed that our low prices would only help our competitors bid against us. It is clear that the most popular tanks should really have a price increase, and we should consider delivery as a separate price which would enable us to gradually add fuel surcharges if needed.

We devised a package of incentives to be used for the crews and drivers. If a crew leader was capable of going to the site and laying out the tank installation and piping without the assistance of the brother, then they would receive an extra $250 dollars for laying out that job. This became a goal of the crew leaders, and they improved their skill sets while also receiving between $500-$600 extra on each paycheck.

THE RESULTS:

This Project ran for a total of six weeks. In May, when this Project started, we were having collection problems and communication problems in the office and between the office field personnel. These issues improved immensely as we started to send messages to everyone’s phones and were able to keep better track of where everyone was working. Our collections improved immensely, and we were finally able to collect all but a very small part of the $200,000 in A/R. The second half of the year went very smoothly with the Company logging a one-million-dollar profit in the six months leading up to the end of the year.

At Cogent Analytics, we never stop looking for ways to improve your business and neither should you. So, check out some of our other posts for helpful business information:

Instituting Budget and Sales Goals for Increased Revenue

THE CLIENT:

The client was a sandblasting and painting company. The Company specialized in painting both the inside and outside of private and municipal water tanks. It was owned by a single individual who had a degree in engineering. The Company had three traveling crews that were each run by a Foreman. There was a one-person Office Manager who also maintained the accounting system for the Company. Finally, the Company had one estimator and an operations person to supervise the crews.

THE SITUATION:

Firstly, the Chart of Accounts was set-up relatively well, but they needed to make some adjustments. The system was not reliably set-up for managerial accounting to assist them in the running of the Company.

The Company’s understanding of Overhead and how to recover it was limited, and they did not know how it could affect their pricing.

This was a fairly well-run Company. For example, the owner maintained “labor burden” spreadsheets concerning an employee’s benefits from the Company. However, the question then became: were they accurate?

An examination of the Company’s completed jobs revealed that several had exceeded their estimates by substantial margins. For a majority of cases, labor exceeded the estimates. On frequent occasions, this was not immediately known nor was it addressed in a timely fashion. Why did the Company wait so long after-the-fact? Was it the estimating, or was it the poor use of labor?

The owner attempted to review every job with each Foreman at the end of the year as part of an evaluation process. Unfortunately, this evaluation did not always work. In fact, too much time had passed between cases, which meant that the reasoning behind why things went wrong was not always remembered. However, the owner recognized that all Foremen were not good “managers” and that some did a better job of managing personnel and inspectors than others.

Another factor included the Company’s “shop rate” for travel in which they often had to pay the prevailing wage when on the job site. Was the higher rate incorrectly applied by the Foremen to the majority of the labor when it came to travel?

We had a backlog of work to do, and we had neither a budget nor any sales goals for the year other than what we had already booked. Finally, there was never any determination of vehicle or equipment needs for the future.

THE SOLUTIONS:

The implementation of our solutions was divided into two categories: organizational and financial.

Organizational

As part of our organizational work, we developed extensive job descriptions for key personnel. For example, we created one for the ‘Apprentices’ so that they better understood what was expected of them and the requirements needed to progress into a new position and obtain a pay raise. We created boxes for the Foremen to sign off on when each Apprentice had mastered the skill required to advance to the next level. The Foremen were tasked with the evaluation of the overall performance of the Apprentice. We then expected the Apprentice to move to a different crew where they would be evaluated by a different Foremen. If the evaluations were both within a certain range, then the training Foreman was rewarded with a nice bonus. This boosted interest in training people and helped with morale as well.

Additionally, we decided that the Foremen would be required to fax in a report every night. This report indicated the total amount of labor hours for the day, a project’s percentage of completion, and any foreseeable problems. Our intention was to get a head start on the jobs that might have the potential for trouble, either from labor overruns or productivity issues, that would cause further problems in the future. This would also allow us to verify who was working on a particular job so that we could monitor the pay rate and ensure that it was correct.

We also developed a ‘travel log’ for each of the drivers to fill out when using company vehicles to travel to job sites. We felt that those ‘shop’ hours were not being tracked accurately. Thus, full wages may have been claimed when they were only entitled to shop rates. Furthermore, we needed to gain better control of the gas expenses. By obtaining the information detailing who was driving and collecting the gas receipts, we should be able to control this problem.

Lastly, to help with crew productivity, we implemented a policy that stated each Foreman needed to conduct a “stand-up” 10-minute meeting each morning. This would enable the crew to both set production goals for the morning and any expectations for the balance of the day. The Foremen were asked to assign tasks to each crew member in the meeting so that they know what was expected to be accomplished for the morning. Finally, we let every crew member know that, “if you finish early, move on to this.”

Financial

We began by adjusting the Chart of Accounts so that we could decide the actual amount of Overhead and how to recover it. We found that, per diem, fuel and travel expenses needed to be re-allocated to the COG from the fixed expenses. After making these adjustments, we calculated the Overhead Rate that needed to be used. We found that it was at 30% once we included those direct costs into the bid process.

We next reviewed the accuracy of the owner’s Labor Burden worksheet. We found it to be well done except for two glaring mistakes: The Company’s share of the payroll taxes was omitted, and the “shop hours” (i.e., clean-up) were included in the total amount of hours a person worked, thus bringing down the burden rate. Once we made those adjustments, we found that the rate for the Foremen in the bids was too low but that most others were covered.

We then developed an operating cost for the vehicles that the crews used to travel to and from job sites. Some of the records were not very complete, but fuel was reasonably well-tracked from the credit cards. Next, in conjunction with the owner, we established a reasonable estimate of the costs for moving the trucks to the job sites. We discovered that this information was not being correctly estimated in the bids because the vans were costing $3.00/mile and the regular pick-ups were at $.60/mile. This, of course, did not include the cost of the personnel in the vehicles. Subsequently, we sought to adjust our bids to reflect the actual cost of doing business.

We developed an Excel-based spreadsheet for estimating, which included all the burdened labor, a separate sheet for prevailing wage rates, the vehicle travel costs, the amount of materials per diem, sandblasting, and disposal. These costs were combined into a final page where Overhead was applied to the COG. From there, a reasonable profit percentage was added. Moreover, profit was calculated when we divided the COG by the reciprocal of the desired profit. In other words, a 10% profit was reached once we divided by .90 for a true 10% profit. This spreadsheet helped ensure that all aspects we needed to account for were included in the bid, and that the estimator did not forget, or leave out, an important aspect of the bid.

A Budget was developed using expected expenditures for vehicles and equipment plus any increases in the fixed expenses. This enabled us to determine a sales goal for the year. Therefore, we could cover all the expenses and clear a profit. In turn, this gave us an estimated target to meet.

THE RESULTS:

This Project ran for five weeks during the winter months which were not considered the busiest time of the year. The prior year’s profits were modest, constituting only 4% of total Revenue. After instituting the organizational changes, setting up a Budget, and creating sales goals, the revenue increased by $1.5 million and the profits rose by $375,000. Ultimately, this was a reasonably nice increase for the remaining nine months of work.

At Cogent Analytics, we never stop looking for ways to improve your business and neither should you. So, check out some of our other posts for helpful business information:

Improvements in Management, Analysis, and Performance

THE CLIENT:

This particular business, the local site of a sub-assembly manufacturer, was a bit of hustle and bustle in a sleepy village. The gravel roads fooled most, but if you looked past them, then you uncovered an impressive four-building manufacturing facility. Many of their manufacturing assemblies required clean rooms with reverse air pressure to reach the required quality-level of their final products. There is not a person alive who does not depend on the quality and consistency of these parts.

Quiet frustration had set in at nearly every level of the management team and within the hands-on workforce. Some had resigned themselves to it and others held tight to their belief that it was just a passing phase. All they knew for certain was that it was impacting everything. The business they had built that once filled them with joy and anticipation as they walked in the door and enjoyed their coffee, was now shrouded in bitterness. The coffee hadn’t changed in the last 12 years, but something had, and they were tired of it.

THE SITUATION:

Upon arrival, there were several challenges standing in the way of overall productivity:

Additional 30% in sales was not translating into improved performance in throughput and profit: The sales team worked hard to secure more larger than normal accounts. These expected profits were celebrated when they won the contracts, but the profit never seemed to turn up when they looked for it at the end of the year.

Recent change in leadership: There was a new GM and production manager that they promoted from within to ensure that they had the business knowledge to be successful in their new roles. They hadn’t changed much since they stepped into their new roles, but they were noticing several issues pop up.

40% scrap rate: One problem that wasn’t new was their scrap rate. It has been steadily inclining over the past 6 years. They were able to buy raw materials at a discount to make try and make it up, but scrap was still climbing.

Warehouse full of undesired finished product: The warehouse was piled up with old stuff that would never be sold. No one was really in charge of it, and it was starting to spill into the travel areas and slowing things down.

Support functions not aligned with production goals: There were pieces of the production process shared by different departments like the large ovens, sand blaster, or anodizer. These elements each had individual managers who gave priority based on personal relationship rather than production requirements.

Leadership managing too low: The management team cared deeply about their departments but allowed those feelings to chain themselves too closely to their former roles. They micromanaged the operators and neglectedthe key measurable trends in their areas. The management team did not embrace their roles & responsibilities to manage their processes and positively confront when needed.

Program management and planning departments’ schedules not meeting customer requirement: The scheduler was laying out plans based upon past run rates and procurement schedules. They did not make the customer delivery date their priority. They presumed that they had been operating as efficiently as possible and scheduling to pass throughput.

THE SOLUTIONS:

In order to overcome these challenges, it was crucial to consider different areas in which the company required improvement, such as management and oversight, analysis, and performance review. The following solutions were implemented to address these issues:

Create a Culture of Short Interval Follow-Up: Condensed the amount of time mangers took to follow-up on assignments. Instilling follow-up at regular times gave the workforce confidence that their leaders were there to support them.

Management Workshops: Conducted enriching training sessions with the management team on critical management concepts. The subjects were tailored to their specific need to include Positive Confrontation, Managing by the Numbers, and Roles & Responsibilities. These concepts were then put into action in their day to day operation and reinforced by upper management.

Root Cause Analysis: Taught root cause analysis techniques to the management team as part of their enrichment. The team then applied theses new skills to their rising scrap issues, identifying errors in the build plans & lack of oven procedure as the two sources of the problem.

Build Control System: Most areas of the facility would assign their team to build parts without orders for them if there was no clear plan for the day or materials for the daily plan were missing. Constantly building, in contrast to the orders on hand, led to them drowning in unsalable goods. A front to back Build Control System was created and deployed to ensure all areas worked on the correct product. This included the staging of materials from the previous day as well as a new procedure for work stoppages. Instead of building the wrong assemblies, a crew now could shift back to the area that is holding them up to help them move material along the process.

Support Unification: As there were three managers each overseeing their support function, there was no one in the business with the perspective required to ensure the maximization of the support areas to meet their build/shipping schedules. We consolidated the support areas under a Shared Services Manager. One position owning all three support areas created a vantage point that provided strategic insight on how to schedule the area for increased output and improved quality.

Twice Daily Management Tours: The management team who previously spent nearly all of their time locked away in their offices, now walked the production floor twice a day. They stopped at each ‘Visual Communication Board’ where the area managers gave a brief account on the progress and challenges of the day. This was instrumental in addressing issues before the end of the day to salvage time and efforts that would have been lost. These bi-daily walks were a conduit for cross-department collaboration. The promoted positive confrontation helped usher in a culture of meaningful collaboration within the management team.

Visual Communication Boards: Every day the managers and team-leads of each production area would review their performance for the previous day as well as ensure they had everything required to execute the plan of the day. The managers would display their performance from the previous week/day graphically on a board in their production area. They would use this board as a visual aid while they spoke to their teams each morning, investigating what went right to positively influence their performance as well as what impeded them. They developed corrective action plans and intentionally spread best practices to improve productivity and quality.

THE RESULTS:

Ultimately, when you consider the impact of the implemented solutions, such as the importance of aligning individual programs from front to back around true customer need, reducing scrap or excess inventory, and achieving 121% of savings goal, then you start to observe dramatic improvement in overall performance and satisfaction.

There was a diverse management team unified around the mutual goal of improving the health of the business and developing a joyful work environment. With guidance, they put in the work and their efforts bore fruit in abundance.

Some positive results came quickly in the first two weeks. Their quality scores increased from 60% to 78% through short interval follow-up and critical analysis for root causes. This scrap reduction saved them $216K annually and it was only the beginning. It was a real turning point for management team as they all accepted the 40% scrap was inherent in their business. Once they broke through that paradigm, they searched for others to overcome reducing the impact, or eliminating completely, problems they once viewed as insurmountable.

It was the 5-week mark where they realized the gains from their next operational enhancement. Utilization among the newly combined Shared Services was up 21% as compared to previous run rates. With the long run times and poor scheduling in the individually managed support areas, the equipment often stood idle. Now under one unified authority they were able to make better use of them. This significant increase in utilization, paired with the Build Control System ensuring all areas produced the correct products against the schedule, had a substantial impact on their on-time delivery.

Where they at one time were making weekly calls apologizing to their customers for missed shipments or asking for extensions, they were now calling customers to ask to ship their orders early and ask for more business! Their productivity improvement was modest at 6%, but that is all they needed with a proper build schedule and operating procedures to improve their on-time delivery from 56% to 87% over 13 weeks.

Each of the managers were in-tune with the successes and challenges of not only their area, but all the key areas through the tours and the communication boards. They knew the metrics and the plans of action to improve. They knew the newly identified best practices and the benefits of adopting the updated method. But do you know what they would lead with when you asked them about the experience? They’d tell you they were happy again.

The improvements in culture throughout the facility was what each manager mentions first when they talk about the 13-week project. There is a restored sense of pride in their work from the hands-on employees on up to the business owner. They all marvel at the joy they feel, some for the first time, pouring that morning cup of coffee in the office. Their jobs are still challenging, but they are now equipped with the tools to successfully meet those challenges head on.

At Cogent Analytics, we never stop looking for ways to improve your business and neither should you. So, check out some of our other posts for helpful business information:

Making Financial Changes for Increased Earnings

THE CLIENT:

The company was located in a mid-sized college town. It had four separate divisions: two were interconnected, and the other two were related but stood alone. The first was a rental division that managed and leased apartments and homes from their owners to college students. The second was a maintenance division that provided minor repairs to those apartments and homes. The third was a division that did mostly home re-models or additions: it was referred to as the “construction division.” The fourth was a relatively new venture that provided management to the Home Owners Associations for both condominiums and single-family associations. As part of their services, they maintained the minutes, kept the books, and advised the HOA on routine matters. The father was both the owner and founder of these organizations, and he desired to have his son buy the enterprises from him so that he could retire.

The son had been recently overseeing and directing the maintenance crews, adding the HOA business to his responsibilities. He was not aware of any of the company financials, which meant he had no idea what the profit levels were. The father and the accountants had continually moved revenue from one company to the other to keep their taxes at the lowest possible rate.

THE SITUATION:

Upon arrival, we discovered that QuickBooks was being used for the repair and maintenance side of the business, but the Chart of Accounts was not set-up correctly. In addition, the books were not being submitted on a timely basis. For example, an entry may not be completed for months at a time. The reasoning behind this negligence being, “that no one ever looked at them.” Moreover, nobody asked to view the P&L, so there was no urgency to enter the information.

The property management and construction sides of the business were being handled in a separate set of books using a system called Property Boss. Their fiscal year-end was also different in comparison to the repair and maintenance. Moreover, the date was set at the end of February instead of December.

The company was often cited for poor customer service in online reviews. The main reason being that the company was often unclear on both the tenant’s responsibilities and those of the management company, especially when it came to returning deposits. Additionally, the response times for repairs were not as quick as they could have been. On frequent occasions, work orders were often misplaced, and there was a lack of follow-up to ensure that repairs were completed.

The repair and maintenance employees were almost always working less than 40 hours a week. We were assured that there was enough work available to keep them busy, but they invariably took extra time off. This left us with almost $80,000 in unbilled revenue due to the underutilization of those employees.

Within the office, there were contrasting policies concerning whether or not a student qualified to rent a property. The property managers each required different levels of income. Furthermore, there was no established policy explaining when the property managers were expected to show a property themselves or if they could just give the keys to someone, so that potential customers could view it themselves.

With that being said, communication within the company was not good. There was little coordination between property managers and the repair team.

Moreover, few properties were actually listed, and there were no activities, like paying the rent, that could be done online. The number of properties listed under management had dropped from 580 to 534, and very little was being done to find new properties to replace them.

The construction side of the business was found to be way behind in its billing process; in some cases, the dates went as far back as six months. Thus, not only did this lead to confusion and create disputes as to what was really being done on the job, but also it affected cash flow. The construction side of the company was also found to have bid work that was well below what was necessary to maintain our Overhead Recovery rate and labor burden.

THE SOLUTIONS:

The implementation of our solutions was divided into two categories: organizational and financial:

Organizational

One of the first things that we insisted on was a weekly staff meeting. We needed to have an agenda, and we needed to address the issues that were holding the company back. Therefore, we formed committees that would tackle a particular issue: move-in simplification, improve the company image, and introducing online services. Employees volunteered to work on the committees under the impression that they would be in charge of implementing the solutions if they had something to say about the planning. The committees were given deadlines to develop the reports they would discuss during the weekly staff meeting.

As part of our committee findings, we discovered that Property Boss could be set-up to take rent online, and the website already had a map feature for finding apartment locations, but no one knew how to access it. This was then taught to everyone.

It was also discovered that Property Boss had a free module that allowed us to email using the service. This would help both invoice customers and send emails to HOA members.

We brought in trainers from Property Boss to show the company how to utilize the service better. We found that many of the service’s features were not being used. Yet, these features could be used to facilitate improvements in customer services.

We set up one computer with the ability to email directly to the owners from Property Boss.

We then agreed to use Property Boss’s online portal to create automatic deductions from the tenant’s checking accounts. This led to the installation of a program that enabled tenants to pay their rent online as well.

We also determined that Property Boss provided a service that enabled us to direct deposit our client’s proceeds from their rentals into their accounts, thereby bypassing the need and expense in writing checks and mailing them to the clients.

As part of the organizational work, we developed extensive job descriptions for key personnel. This helps prevent two people from doing the same job or prevents someone from having two bosses.

We also asked that the maintenance people call the office once they completed tasks. This allowed the company to know which repairs had been addressed and enabled them to re-schedule anything that had become an “emergency.” Additionally, we had tags printed for the employees to fill out and leave at the apartment, so that tenants knew both when someone had been there and whether or not the item had been repaired. Both solutions helped improve customer service a great deal.

Financial

Since the divisions shared several personnel and office space, we needed to review how these expenses were allocated amongst the divisions. In some cases, maintenance was getting charged with expenses that were out of proportion to its size. Both the father and the son needed to come to an agreement concerning the proper allocation. This had to be accomplished before the Overhead could be calculated.

Moreover, we had to tweak the Chart of Accounts in QuickBooks so that we could determine the actual amount of Overhead and how to recover it. After making these adjustments, we calculated the Overhead Rate and found that it was 70% once we included the proper allocations. This was valuable for the bid process as well.

We then did the Labor Burden for the repair and maintenance employees followed by the construction side.

We found that, between the Overhead Recovery and the Burdened Labor Rates, we needed to implement some pricing changes for our services. We found that we needed to be in the $45-$65 range for the billing process. The son agreed, but he also wanted to phase them in gradually so that his customers would not have “sticker shock.”

We developed a simplified Excel-based spreadsheet for estimating the maintenance and construction.

Finally, a Budget was developed for the repair and maintenance side of the business, using the expected expenditures for vehicles and equipment and any increases using the fixed expenses. This enabled the company to set a sales goal for the year and ensure that all the expenses were covered so that they could clear a profit.

THE RESULTS:

This project ran for six weeks during the winter months. However, this is not the busiest time of the year. The company continued to enforce its committees and weekly staff meetings. Most of the changes dictated in Property Boss were implemented, and customer service seemed to improve slowly. When the next “move-in” period came, the organization was better prepared to handle the influx of students in comparison to previous years.

The Property Managers were still weak in getting new listings.

Since the owner and the accountants frequently moved revenue around, we needed to wait for their final say on the profits for all divisions. We are quite confident that the financial changes implemented will result in increased earnings in both maintenance and construction.

At Cogent Analytics, we never stop looking for ways to improve your business and neither should you. So, check out some of our other posts for helpful business information:

Using Forward-Looking Metrics to Run the Business

THE CLIENT:

The company is in the business of buying and distributing various fasteners, nuts, bolts, and specialty fasteners for a variety of industries. A couple of examples would be on large oil platforms where there is a need to secure large equipment to the deck of a floating platform. This application requires extremely large nuts and bolts to be very high in tension and specific torque standards. Another application is how towers need to be fastened to the foundation ring. Again, these would be very large specialty nuts and bolts to hold significantly high and dynamic loads. Additionally, there are sometimes special applications requiring a specially made fastener as part of another assembly.

To fulfill the needs of the various customers, the business buys a wide variety of fasteners in bulk quantities. These are then stored and, as orders come in, they are picked, repackaged into smaller quantities, and shipped to various customers. This particular business also has a small machine shop with saws and lathes to cut and form specialty threaded items.

THE SITUATION:

When we arrived, the business had recently lost a customer of a significant size, and this was coupled with a large downturn in the oil and gas industries, one of their primary customer markets. The remaining customers announced they were going to extend themselves sixty-day payment terms. Simultaneously, vendors were shrinking their payment terms and beginning to put a hold on any new deliveries until the company had caught up to the new accelerated payment schedule.

Accounts Payable exceeded Accounts Receivable and they had exhausted their available lines of credit and the bank was threatening to call their loans. The company’s Liabilities also exceeded Assets. Therefore, by definition, this was a business that was insolvent.

Furthermore, they had a Director of Sales who apparently self-proclaimed the title, but who was totally ineffectual in the position, and NOBODY (including himself) could explain what he did to bring value to the company.

Nothing in the business was being measured with the exception of the end of month financials, which is historical and too late to make any adjustments.

THE SOLUTIONS:

Cash Flow: The first action was to find cash and find it quickly. We discovered some aged receivables (customers who owed the company money in excess of sixty and, in some cases, ninety days). An aggressive collections campaign was started, and this helped cash start dribbling in.

Key Personnel Review: Next, we did a thorough review of the Sales Director’s activities and results. It was concluded that he was not doing the job the business needed him to do, and he did not have the capacity for the job. He was terminated, and an existing Sales Manager rolled into the position while maintaining his book of business. The elimination of this position reduced payroll by close to $7,500 monthly.

KPI’s / Management Team Meeting: We developed and instituted some Key Performance Indicators (KPIs) to measure the critical aspects of the business. This was broken down into three major areas; Finance, Sales, and Operations (which included some machine shop and picking/shipping metrics). These KPIs were presented weekly at a newly established senior management meeting we instituted. As in most small businesses, managers and owners perform many jobs, so the weekly meeting, lasting one to one and a half hours, allowed the management team to step away from the daily grind and focus on the business at a higher more strategic level. The meetings also provided a means to communicate across mutually supporting functions in a clear and unemotional way.

Inventory: The next thing to tackle was the inventory. They had close to $1 million in inventory, with a significant amount that was not moving. The nonmoving items were still viable, they just needed to find a willing customer. The business needed to liquidate the inventory as a way to generate cash. Each week the Operations/Warehouse Manager would develop a list of ten items and the sales team was offered a significant bonus to move these items. Even with the extra incentives paid, the inventory sold was worth much more than if it were sold as scrap metal. This generated additional, and much needed, cash on inventory that was considered “dead”.

Payables / Receivables: The next course of action was to regain control over the spending and paying of vendors. This required a two-pronged approach. For those suppliers where we had allowed our payables to exceed sixty and sometime ninety days, the business owner called the key suppliers to explain the situation and develop a predictable payment plan for the past due amount. Then, there was an agreement to keep any new purchases current. This worked for about 65% of the suppliers and provided the business with working materials to take and fulfill orders. The second course of action regarding payables was to pay bills once weekly and only after a rigorous review of who was owed what amount and the consequences of not paying a vendor that week. Prior to this, the Controller was showing the owner what was to be paid, then went ahead and paid whatever she thought was appropriate in many cases. This brought down the small planned cash reserve to zero and actually over-extended the business a couple of times. Sales activity under the new sales manager increased, which provided for additional receivables, but unfortunately not for sixty days. However, additional revenue was needed and was greatly appreciated when it did finally come in.

Roles and Responsibilities: Roles and Responsibilities were developed and written for each of the key employees. Once these were vetted, each manager sat with their direct reports and reviewed the roles and responsibilities that clearly outlined the expectations and metrics they would be compared to. This added the much-needed element of accountability at all levels of the business.

Volume Discounts / Cross Docking: Lastly, we developed a cross docking process for those customers who ordered full containers of materials. To incentivize customers, a discount was offered for taking a full container of material. In many cases, we found the customers were happy to increase their order a bit to achieve these discounts. When the items were ordered from the suppliers, notations were made on the purchasing and shipping documentation indicating these items were to be cross docked. When the items were delivered to the warehouse, they were received to a special location to be shipped to a customer without any additional handling (storing, picking, packing, and restoring).

THE RESULTS:

In the short term, due to a lack of working capital, the business struggled while new receivables started coming in and the stringent payment plans were adopted. But after about four difficult weeks, the company started to get some air under its wings. There were some very positive trends developing in increased sales revenues and in new sales with higher margins.

As employees started to get used to the measures and the expectations we had for them, they worked into a very good rhythm. Productivity increased in the warehouse where they were shipping 21% more orders for the same labor.

In January, typically the worst month of the year, they had record sales in quantities and revenue which finally turned a very modest profit. This was the first profit the business had seen in several months. February continued to have robust sales and they achieved even greater profits in comparison to January. The business is not completely out of the woods just yet, but there are metrics in place indicating a significantly improved situation and the start of a successful turn-around.

Moral: There is seldom just one thing that needs to be improved. In this case, multiple activities had to occur simultaneously.

It is important to find critical, forward-looking metrics to run the business. A small business MUST keep its eye on the money coming in as well as the money going out. Just a small change in either can create a perilous situation.

KPIs must be developed for all aspects of any business, and Managers must force themselves to spend some part of the week in a higher-level and more strategic view of the business.

At Cogent Analytics, we never stop looking for ways to improve your business and neither should you. So, check out some of our other posts for helpful business information:

Focus on Equipment Utilization To Maximize Profits

THE CLIENT:

The client is a provider of transportation services. They have an extensive fleet of vehicles (approximately 100), and the sub-fleet ranges from Black Sedans, SUVs, Vans, and Motor Coaches. Approximately 35% of their business is on-demand shuttle service, and the balance of their business is from advance reservation.

The focus was directed at improving the profitability of the company. The company has two major expenses: Labor and Equipment. For example, maintaining the fleet is the second largest cost to the company after direct payroll. The fleet comprises 95% of their annual capital expenditures.

Controlling the costs of both areas would improve profitability; however, not being able to serve the customer due to lack of drivers or equipment would hurt the company’s reputation and, ultimately, their revenue. This analysis will focus on equipment utilization, so that the company can maximize profits while maintaining good customer service.

THE SITUATION:

Currently, the company does not have a formal plan for fleet size. They will add to the fleet only when they feel there is need for a vehicle according to the demand of that model. They also ‘try’ new vehicle type(s) to determine if there is any demand in their market place. The company does not just go out on a whim to add vehicles, but it is more of a gut feeling as opposed to an analytical decision. In fact, they do have a plan in place for replacement of vehicles, and this plan is based off the expected life of the vehicle, mileage and repair costs. The owners currently feel they may have one too many motor coaches in their fleet, but at the same time they are afraid they won’t have enough coaches during peak demand.

Analysis of the utilization of vehicle by type:

Fortunately, the company had good records of their ‘trips’ and this data can be utilized to determine the usage. We were also able to determine if a vehicle was out of service due to repairs or determine routine maintenance from the maintenance logs.

Because the data was based on daily sales, some assumptions were made:

If a vehicle is used for only one trip during the day, then that vehicle was considered utilized for the day.
If a vehicle was out of service for routine maintenance, it was considered 50% available for that day. Most of the time the routine maintenance does not take a full day, and the maintenance department works three shifts throughout the day. The most popular time for vehicle usage was on the first shift.
An SUV could replace a Sedan if required, and a larger van or motor coach could be utilized if the smaller vehicle sun fleet was fully utilized.

Data from the daily sales report was entered into a spreadsheet for the year-to-date usage, and for the previous two years. The data was arranged so that we could look at the utilization daily for each month and look at the utilization of the equipment daily for an entire year. This data is being entered daily for the current year and will continue to be entered for further analysis. This analysis will be reviewed monthly in the future.

Profit Arrow — By entering current sales reports, you can analyze the net profit you have made

Conclusions from analyzing the data:

There were a few surprises concerning the utilization of equipment to the owners:

The utilization of the coaches on Sunday was less than they had thought. Initially, the owners believed Sunday was one of their busier days.
There was never a single day throughout the entire year that all the Motor Coaches were utilized, and there were only five days in which almost every coach was utilized.
Growth in usage of their sole Luxury Mini Coach was less than they initially thought, but it is trending upwards.
Corporate demand for Sedan service slowed down sooner in the month of December than they had initially thought. Other holiday period slowdowns were about what the owners had expected.

After the data was analyzed and placed into graphs, it was decided that additional fields would be required moving forward to deduct better conclusions from the analysis. The fields to be added include tracking when other equipment is substituted to meet customer demand.

THE SOLUTIONS:

The changes to their current business practices fall into two areas: Capital Expenditures and driving sales during less than peak times.

Upon review of the data from equipment utilization analysis and internal discussions, the owners made changes to their equipment purchases for the next 15 months.

They will sell the oldest Motor Coach in the fleet and will not purchase a replacement coach. This will reduce the fleet size by one Motor Coach and save approximately $550,000.00 in capital expenditure for the year. The company will cut some of their overhead expenses by having one less Motor Coach in the fleet. The capital gain on the sale of a motor coach is minimal.
They will delay the purchase of an additional Luxury Mini Coach until they can gather more data on the actual utilization. It is felt, and could not be quantified, that the utilization is not as good as the data shows because it is frequently substituted for other pieces of equipment. They also have a gut feeling that they need to have two of these Luxury Coaches for customer demand.
Moving forward, the company will purchase more SUVs and reduce the number of Sedans purchased by the same number of units. This will not affect the capital expenditures since the vehicles are about the same cost. There appears to be a trend regarding the amount of people wanting an SUV over a Sedan, but they will not know this for sure until there is enough data collected on how often a SUV is substituted for a Sedan. This was agreed upon before General Motors announced that they were no longer going to produce the Cadillac they use. Currently the owners are considering waiting a year to reduce the number of Sedans in the fleet due to GM’s decision to stop producing that model of Cadillac. Data will be collected for six more months on the substitution rate before a final decision will be made. Currently, the fleet of Sedans will be reduced by two vehicles based upon the analysis of the maximum number of vehicles required to meet demand. This will save approximately $90,000.00 in capital expenditures.
The fleet replacement of shuttle vans will be reduced by three units for the seven passenger sub-fleet. No change will occur for the 14 passenger sub-fleet. They will keep the three lowest mileage seven passenger vans. This sub-fleet utilization was harder to predict than the other vehicles, due to the fact that most of the business is not from an advanced reservation. Therefore, ownership scaled back on the replacement plan but kept the fleet the same size. If required during the next 15 months, changes can be quickly made to this sub-fleet.

Another way to improve the fleet utilization is to improve usage during off-peak times.

With the company operating above break-even, any additional revenue generated would have a big impact on the bottom line since all the overhead expenses have been paid for from the current revenue. However, any discounting must not erode the current pricing structure or alienate their corporate customers.

With Monday utilization of the Motor Coaches being less than 50% annually, it was decided to offer a discount on any trip booked for a Monday to drive sales. A marketing plan was developed to expose Monday sales to a segment that management felt would use the service without any dependence upon a specific day. Most Motor Coach trips were for a specific event and, therefore, were not flexible.

A discount coupon was developed for the period between December 15^th to January 8^th for Sedan/SUV service to the airport from a residential address. This was targeted to people who may choose to go away for the holidays. We also looked at offering a discount for Saturday trips because this is the slowest day for this fleet. Currently there is not enough drivers to cover more on Saturday because of driver duty regulations.

At Cogent Analytics, we never stop looking for ways to improve your business and neither should you. So, check out some of our other posts for helpful business information:

It’s Time for a Business Health Check

_{Published by Construction Executive}

Roy Mendez writes about how any business would benefit greatly from a “business health check.” There are eight areas to check in a business that are essential to the life and health of a business:

vision and planning
commitment to quality
leadership
decision making
finance
marketing
communication
technology

Read the full article here on Construction Executive.

At Cogent Analytics, we never stop looking for ways to improve your business and neither should you. So, check out some of our other posts for helpful business information:

WTR Entrepreneur Interview: Rob Braiman

Kevin Dumont, Host of the Wealth Tactic Rebels Entrepreneur Interview Podcast interviews, Rob Braiman, the President of Cogent Analytics. Learn more as Kevin and Rob speak in depth about the early stages of an entrepreneur, what it takes to succeed as an entrepreneur, and what key factors you need to start your business.

WTR Entrepreneur Interview Hosts Rob Braiman of Cogent Analytics speaking about Entrepreneurial Spirit

At Cogent Analytics, we never stop looking for ways to improve your business and neither should you. So, check out some of our other posts for helpful business information:

Rob Braiman Discusses The Profit Platform®

Rob Braiman joins Jeff Davis on 12 Mavens to discuss his Profit Platform® for businesses and how to implement reporting systems within small business. They also discuss the differences between managing tasks versus managing systems and an overall deep dive into what the profit platform can do for business owners. Watch the full broadcast here.

Enjoyed this broadcast? Watch Rob on other broadcasts discussing other issues affecting today’s small business owner:

Standard Operating Procedures and KPIs

Michael Yorba of the CEO Money podcast interviews Vince Botto, Project Director at Cogent Analytics, about establishing business procedures that improve profit.

Cogent Analytics helps business owners learn how to establish key performance indicators and standard operating procedures everyday.

Catch Vince’s previous interview with Michael Yorba on Vision and Growth in Small Businesses.

Find Out How:

Seven Steps to a Successful Exit by Ed Gillooley

Published by Construction Executive

Read Ed Gillooley‘s article about how business owners can successfully exit their business and retire in just seven steps!

“Anywhere from 66 percent to 75 percent of the businesses transferred will not survive to the next generation. A successful exit requires time and a plan.”

A good plan starts here! Read Full Article Now

At Cogent Analytics, we never stop looking for ways to improve your business and neither should you. So, check out some of our other posts for helpful business information:

Reducing the ‘Drama’ of Business Transfers

_{Published by Contracting Business}

Larry Scarborough writes about how business owners can successfully exit their business and retire. Learn about what type of exit owner you are and how to exit based on your exit style.

“The first step is to identify what type of ‘exit owner’ you are. Typically, there are three types of owners and their exit strategy:

• “I’m out”— the owner who feels he has done his part in growing the business, wants to take the money and enjoy his or her life and live off the fruits of their labor. Typically, they want a lump sum of cash and complete divorce from the organization.
• “It’s my baby”— this owner has a difficult time ‘letting go’ and believes no one else is capable of growing and running the operation of the business. Often times, family members are encouraging him/her to leave, whether due to age, health, etc.
• “XX number of years to ensure it’s good, and I am done”—this owner is somewhere in the middle of the ones listed above.”

Read the full article here.

At Cogent Analytics, we never stop looking for ways to improve your business and neither should you. So, check out some of our other posts for helpful business information:

Rob Braiman Featured on LegacyCast

Rob Braiman discusses the philosophies behind a successful business with James Daniel Snow of LegacyCast.

Liked this podcast? Watch Rob on the Chris Voss Show.

At Cogent Analytics, we never stop looking for ways to improve your business and neither should you. So, check out some of our other posts for helpful business information:

The Importance of Cash Flow for Business Health

Michael Yorba of the CEO Money podcast interviews Rob Braiman, Principle at Cogent Analytics, about the importance of cash flow for business health.

Read Michael’s notes on the interview here.

Cogent Analytics helps business owners learn to calculate their business’s cash flow and increase their profitability everyday.

Find Out How:

The Importance of Key Metrics in Business

Michael Yorba of the CEO Money podcast interviews Vince Botto, Project Director at Cogent Analytics, about the key metrics that can indicate trouble ahead in a business.

Read Michael’s notes on the interview here.

At Cogent Analytics, we never stop looking for ways to improve your business and neither should you. So, check out some of our other posts for helpful business information:

Rob Braiman Featured on the Chris Voss Show

Chris Voss of the Chris Voss Show interviews Rob Braiman about how Cogent Analytics uses his own values of honor, courage, wisdom, faith, perseverance, and loyalty to serve the independent American business owner everyday.

At Cogent Analytics, we never stop looking for ways to improve your business and neither should you. So, check out some of our other posts for helpful business information:

Business Growth For Small Business

Michael Yorba of the CEO Money podcast interviews Vince Botto, Project Director at Cogent Analytics, about how small business owners can retain their vision, grow, and out perform larger competitors.

Read Michael’s notes on the interview here.

Catch Vince other interviews with Michael Yorba on Standard Operating Procedures and Key Performance Indicators.

Part II of a two part series. Rob and Robin Braiman interview with Kathy Ireland from WorldWide Business and highlight the many benefits business owners have experienced when they partner with Cogent to work on their business.

At Cogent Analytics, we never stop striving for better ways to improve your business and neither should you. Take look at some other resources you may find helpful:

Part I of a two pa rt series. Rob and Robin Braiman interview with Kathy Ireland and explain how Cogent Analytics has broken the mold of traditional business consulting to deliver a different kind of support for small business.

At Cogent Analytics, we never stop striving for better ways to improve your business and neither should you. Take look at some other resources you may find helpful:

Vet2BizLife Podcast with Rob Braiman

Dan Dwyer of Vet2BizLife Podcast interviews Rob Braiman, the President of Cogent Analytics, about successfully implementing military principles as an entrepreneur.

Click here to read Dan’s article about the interview.

Liked this podcast? Listen to Rob on LegacyCast discuss business principles.

At Cogent Analytics, we never stop looking for ways to improve your business and neither should you. So, check out some of our other posts for helpful business information:

Principals of Leadership

Dr. Richard Nongard of “Leadership That Makes You Money” podcast speaks with Rob Braiman about leadership and the importance of having great vision and a defined mission. They discuss the core pillars of business that contribute to success and how Cogent Analytics supports and guides clients to long term growth and profitability.

Liked this podcast? Listen to Rob on Vet2BizLife Podcast.

At Cogent Analytics, we never stop looking for ways to improve your business and neither should you. So, check out some of our other posts for helpful business information:

Improve Business Performance and Profits

Michael Yorba of the CEO Money podcast has a follow up interview with Rob Braiman about how business owners should look at profit if they want to improve their business.

Read Michael’s notes on the interview here.

Liked this interview? Check out Rob on How Cogent Helps Entrepreneurs.

At Cogent Analytics, we never stop looking for ways to improve your business and neither should you. So, check out some of our other posts for helpful business information:

Tech Implementation: The Devil Is in the Details

_{Published by Construction Executive}

Read Gerald Vogl’s article about using technology in your construction business.

“At this point, the project was two weeks behind, and the original $35,000 budget for this stage was significantly exceeded.”

Learn about the pitfalls of technology implementation and how you can avoid this scenario and read the full article.

Right People in the Right Seats

Sergiu Simmel of Operationally Speaking interviews Rob Braiman, the President of Cogent Analytics, about success that can be had by putting the right people in the right seats.

Click here to read Sergiu’s article about the interview.

At Cogent Analytics, we never stop looking for ways to improve your business and neither should you. So, check out some of our other posts for helpful business information:

Cogent Analytics Helping Entrepreneurs

Michael Yorba of the CEO Money podcast interviews Rob Braiman, the CEO of Cogent Analytics, about how Cogent Analytics helps entrepreneurs strengthen their businesses, overcome challenges, and engineer profit.

Read Michael’s notes on the interview here.

Michael Yorba of CEO Money speaks with Vince Botto of Cogent Analytics about Standard Operating Procedures and KPIs in Business

Like this interview? See how Rob Braiman Looks at Profit Differently to Improve Business Performance.

At Cogent Analytics, we never stop looking for ways to improve your business and neither should you. So, check out some of our other posts for helpful business information:

Putting Systems into Place

Joe Crane of the Veterans on the Move podcast interviews Rob Braiman, the President of Cogent Analytics, about success that can be had by putting systems into plaice in your company.

At Cogent Analytics, we never stop looking for ways to improve your business and neither should you. So, check out some of our other posts for helpful business information:

The Importance of Company Vision

Jennifer Longworth of The Thoughtful Entrepreneur podcast interviews Rob Braiman, the Owner and Founder of Cogent Analytics, about importance of having a vision for your business.

This podcast, The Thoughtful Entrepreneur, is dedicated to help aspiring entrepreneurs make their dream come true. Listen here to learn why it is critical to have a strong vision for your business.

Liked this podcast? Listen to Rob on Veterans on the Move Podcast.

At Cogent Analytics, we never stop looking for ways to improve your business and neither should you. So, check out some of our other posts for helpful business information:

Too Many Mouths to Feed in Family Business

_{Published by Contractor Magazine}

Read Tim Christ’s article about too many mouths to feed in second generation family businesses and find out how you can make your 2nd generation family business successful.

“That which provided a perfectly comfortable (or even extraordinary) lifestyle for a single family cannot do the same for four grown children with families.”

Read the full article.

Overhead – Related to Estimating and Pricing

Do you know the difference between Cost of Goods (Variable Costs, Direct Costs) and Overhead (Fixed

Costs)? Assuming that you do, is your Chart of Accounts set up to clearly delineate between these two cate-
gories? AND why is this important?

The importance of knowing what constitutes Overhead and Cost of Goods is critical to accurately calculate

your pricing or estimating to consistently be profitable. Overhead is an operational expense not directly bill-
able to the job. So how do you “charge” for the Overhead? Failing to recover the full costs of your Overhead

in your estimating or pricing, will more than likely make your business, product or job unprofitable, when the
final numbers are applied.
As this discussion continues, you will find that to determine and apply Overhead, you will also need to have
an understanding of other intertwined items; Chart of Accounts, Labor Burden, and Break-even. This paper
will tackle each of these as they affect the application of Overhead. But first, define the difference between
Cost of Good and Overhead, to gain a clear understanding of each.

Click the link to view / download this white paper: Overhead – Related to Estimating and Pricing

Summer Series: Too Many Hats by Bret Tubergen

Read Bret Tubergen’s summer series “Too Many Hats” about the many traps small business owners sometimes fall into, and how to get themselves back out!

“In most instances, we find that small business owners really enjoy the technical aspects of their job. They are passionate about “Doing the Work” – getting their hands dirty. Many also like the thrill of the hunt – “Getting the Work.” Consequently, these are the areas where most small business owners tend to focus their time and energy. A majority of small business owners I encounter dislike tracking the work – the financial management part of the operation. In fact, I would venture a guess that if you were to talk to ten entrepreneurs, eight (if not nine) out of the ten would tell you office work is the part of the business they enjoy least. As a result, many tend to avoid doing it. We find this typically trips them up and stifles their growth.”

Read the full series of articles

When Coaching ‘CALLS’ During a Client Engagement

Read Bruce Cantazarite’s article in Consulting Magazine about “When Coaching ‘CALLS’ During a Client Engagement”

“Management consulting and coaching are often paired in a consulting engagement, along with mentoring. Many consultants say they are coaching the client, when in fact they are mentoring him”

Read more about the distinction, and how to develop good coaching skills here.

The Role of Ethical Messaging

_{Published by Consulting Magazine}

Read Sarah Skidmore’s article in Consulting Magazine about “The Role of Ethical Messaging when Marketing to 21st Century Consultants”

“The consulting profession has evolved quite a bit over the past 40 to 50 years. And with the 21st century, comes the unearthing of ethical contexts and situations not relevant in the 1970’s and 1980’s. Though the basic principles have been around-integrity, intent to represent the client, and interactions with people of varying background-these principles look different in 2017 than they did in 1973”

Read the full article

A Fresh Approach to Managing Change

_{Published by IndustryWeek}

Read Theodore Haelein’s article in Industry Week about “A Fresh Approach to Managing Change“

“People don’t fear change – they fear being changed.” How about a different approach to remembering that accomplishing change is about understanding people!”

Read the full article on managing change

At Cogent Analytics, we never stop looking for ways to improve your business and neither should you. So, check out some of our other posts for helpful business information:

Analytic Smarts by Theodore Haenlein

Read Theodore Haelein’s article in Manufacturing Today about “Analytic Smarts”

“Too often we resort to densely populated spreadsheets to tell us what we really need to know about our business. This is especially critical for small businesses since misreading the signals from data for even one day can be a fatal failure. So how do we really understand what our data is telling us?”

Read the full article

Calculating the Overhead Recovery Rate by Stuart Groo

_{Published by Construction Executive}

Read Stuart Groo’s article in Construction Executive about how “Calculating the Overhead Recovery Rate Can Make or Break a Business”

“When pricing or bidding a job, it is necessary to figure that for every dollar spent on the cost of goods sold, an additional percentage must be added to recover the overhead or fixed operating expenses that cannot be included in the bid.”

Read the full article

At Cogent Analytics, we never stop looking for ways to improve your business and neither should you. So, check out some of our other posts for helpful business information:

How Do You Create High-Performance Employees

Gene Hammett of the Leaders in the Trenches podcast interviews Rob Braiman, the Managing Member of Cogent Analytics, about creating teams that are aligned and able to produce results no matter what.

Download this Podcast

At Cogent Analytics, we never stop looking for ways to improve your business and neither should you. So, check out some of our other posts for helpful business information:

Cogent on Worldwide Business with kathy ireland ®

Cogent Analytics featured on Worldwide Business with Kathy Ireland® on Fox Business to discuss the next generation of strategic business consulting. Learn more about how Cogent Analytics delivers powerful solutions to the small business owner and bring the better tools of management, organization and profitability through integrity and transparency. Small Businesses make up for 99.7% of the United States. Braiman focuses everyday on how to inspire the small business owner to achieve greater goals and focus on higher margins of revenue.

World Wide Business with Kathy Ireland features Cogent Analytics

At Cogent Analytics, we never stop looking for ways to improve your business and neither should you. So, check out some of our other posts for helpful business information:

Overtime Heresy

The one thing many small business owners hate more than taxes is paying overtime – paying extra when they are not charging extra

Cutting/reducing overtime is at the top of many owners to do list. They get reports weekly and bemoan higher payrolls. They feel that their employees are taking advantage of them, taking money out of their pockets, and they do not like it.

What if they are wrong? What if overtime is not the villain stealing profit that it is thought to be? This is said
with certainty, that is the case. A well-run, profitable business should almost always have overtime and pay it
gladly because that is what makes it well-run and profitable.

Click the link to view / download this white paper: Overtime Heresy

Method Sheets

Work instructions are developed for several reasons. They can be used to capture design specifications of
the item to be built, to impart knowledge to the assembly team on the steps to build an item, and to possibly
serve as a guide for quality inspections. The question arises; what form should work instructions take?

Click the link to view / download this white paper: Method Sheets

Linearity

Productivity metrics have always been collected and used to measure manufacturing efficiencies. They are
customarily comprised of indices comparing unit(s) used for inputs in the nominator to units of output in the
denominator.

The goal of any productivity measure is to determine if a business is effectively using its resources of materials, labor, capital, and time to produce products. Most productivity metrics collect data and look at things such as..

Click the link to view / download this white paper: Linearity

Succession Planning

These changes are why succession planning for business owners is so important. It helps you specify, in writing, what will happen to the business when you step down. Will it be liquidated, kept in the family, passed on to a key employee, or sold to an outside party? By creating a succession plan today, you can make the decisions now about what will happen to your company in the future.

Succession planning is a multifaceted and complex subject. It is not a one-time event, but instead a continuous process that starts with your goals, and builds and improves over time.

A succession plan is also a roadmap for you, your family and your employees to help ensure that, in the event, you are no longer able to run the company, any “knee jerked” decisions are kept to a minimum.

Click the link to view / download this white paper: Succession Planning

Structuring the Chart of Accounts

Companies need to have Operating Financial Statements to manage both their direct and indirect costs to produce a Gross Margin. Other financial formats may be useful for other purposes such as tax return preparation, auditing, or bank presentations. Most computerized accounting software packages including QuickBooks, Foundation, Timberline, Great Plains, Sage have the capability of generating many Financial Statements at different levels of detail providing the Chart of Accounts accumulates the financial data in sufficiently.

The Chart of Accounts is the repository for the financial ramifications of every transaction that occurs in the course of your business. Designing a well thought out Chart of Accounts not only gives you the most efficient transaction flow, but it also gives you the information you need to monitor your business on a near real-time basis. This paper gives you suggestions on how to design your chart, how to implement it, and how to maintain it once it has been installed.

The purpose of formatting financial data on an operational basis is to increase use of Financial Statements
and other financial reports, in the management review, analysis, and decision-making process.

Click the link to view / download this white paper: Structuring the Chart of Accounts

Quality Management Orientation

Why worry about Quality?
Consider the W. Edwards Deming Chain. His methods have consistently proven that implementing a proper
Quality Management System will:

Improve Quality
Decrease Costs
Improve Productivity
Decrease Price
Increase Market Share
Sustain the Business’ Longevity
Provide More Jobs
Secure a Good Return on Investment

These are certainly worthwhile goals.

Click the link to view / download this white paper: Quality Management Orientation

The Balanced Wheel of Expertise

Experience & research1 has shown that there are 12 Essential Disciplines that businesses must master in order
to break through to the level of sophistication that creates sustained Profitability, Competitive Strength, and
Brand Success.

Click the link to view / download this white paper: The Balanced Wheel of Expertise

Overhead Cost Analysis Case Study

The term overhead, from a managerial accounting standpoint, is the cost of doing business, other than direct
materials and labor required to make a given product or provide a given service.
Think of today’s small business owner sitting at his desk contemplating the costs related to being in business.
The non-accounting definition of the adjective overhead is described as hanging over one’s head. In this
case, the overhead items are always hanging over one’s head because they are not going away unless the
business does.

Click the link to view / download this white paper: Overhead Cost Analysis Case Study

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