Enhance your Planning Window for Sustainable Growth

Most of the small, emerging organizations are working on the current month or week or day and may not have much clarity about the immediate medium term. This practice results in the scenario "always busy" or "firefighting" mode to serve the customers all the time. But as a business, it will lose the long sight vision or growth potential.

One of the ways to come out of firefighting mode is to enhance the planning window.

Planning Window :

Instead of planning for the current month, extend the planning horizon for the next 3 months so that the business head and the organization will have visibility about the sales potential, working capital requirement to buy Raw material, capacity availability vs. requirement. Also, this enhanced planning will give more time to RESPOND to uncertainty.

Tool for enhancing the planning window:

The simple, yet powerful tool is 1+3 planning format. This could be used for sales projection or forecasting, working capital planning, or even for profitability projection.

For example, let us take the case of sales projection into a 1+3 format.

In a 1+3 sales format, you need to fill the data with sales projection for 1+3 months timeframe.

1 - a month is the current month, mostly firm / confirmed order

3 months can be for the next 3 months projection with firm/ confirmed order and then tentative  orders

Advantages of extending planning horizon :

1. When you see your sales projection data down the line 3 months from now, you will come to know the order position vs. target gap. That will give you response time to reach out to existing customers for more orders or pitch-in new customers for new orders
2. Since any new order requires time for approaching the right customer- processing inquiry - price finalization- proto proving- getting bulk order, this 3 months time horizon will give the flexibility and sufficient response time

3. If you know the projection for the next 3 months with some level of accuracy, that will help you to utilize your capacity well, manage the cash flow proactively.


The thought process of the business head must be proactive and beyond the current day or month for sustainable growth. This 1+3 projection will help to stimulate your thought process!

Customer is not interested in your inventory

In one of the client organizations, the team has kept two months' inventory worth of say 20 Lakhs to service the customer as directed. The client organization is supplying to one of the reputed, large scale engineering organization. The monthly avg billing is around 10 Lakhs, and the customer insisted the client keep a minimum of 2 months FG stock at any point in time. The customer made it as one of the key performance metrics for the client organization and advised to keep the customer updated on the FG inventory status periodically.

As I diagnosed with the organization, their overall average delivery schedule actualization to the all the customers around 60 % only, and the manufacturing plan is usually based on the urgency or followup by the customers daily.

We worked with the organization and identified the constraints in the casting process, and their OEE was also low as 25 %. Eventually, within nine months, their OEE started rising to 60 %, and the business head is also working on machine maintenance improvements, technology up-gradation, daily planning based on capacity rather than urgency, and so on. 

The above said customer 's order was being fulfilled at a 100 % rate every month, and the organization's business head felt that there was no need for keeping two months FG stock as the production capacity increased to deliver the order commitment every month. So, they reduced the inventory to the safety level of 15 days, and the customers' also getting the KPI dashboard periodically as usual. 

Things were moving smoothly. During one of the conversations between the customer's representative and the business head, the customer said that they were not particularly interested in insisting on minimum FG stock. Since their history of delivery commitment was not so good, for safer side, they asked on maintaining minimum stock. They were ok with the reduction in inventory norm as long as delivering on time.

The moral of the incident :

The customer is not interested or does not want to penalize the supplier for insisting on keeping a minimum level of inventory in the name of vendor managed inventory or warehouse stock etc. as long as the supplier has the capability and flexibility to serve them. Keeping inventory is only to protect the variation in demand or supply, not to penalize the supplier.

It is up to the small organization to be smart in the manufacturing process, capacity, and planning to avoid or reduce the inventory and prevent the customer from imposing any rule on keeping inventory!

Pricing process and typical mistakes in pricing decision in small business

Below some of the pricing mistakes most of the business heads do in the small, emerging organizations as I came across in my client's business.

What is meant by " Pricing"?

Pricing is a process to determine the selling price for your product or service.

Pricing is not just a mathematical calculation of adding all your costs, then add your desirables profit and arriving some numeric value as a selling price.

Pricing process even though it looks straight forward, in reality, pricing decision is more of strategic to each customer or product or services. Pricing is a combination of science and art.

If you fix a higher price and your product is commodity nature, then you will lose it to your competition.

If you fix a lower price, then you may be losing your profitability. In the long run, your business may not be sustainable to run as the cost keeps going up.

Typical mistakes in pricing process :

1. Going by thumb rule, which was fixed a long time back. Thumb rule may not be relevant today.

For example, I had seen some people fix their process cost as 10 % of their material cost. In contrast, in reality, as per the latest P&L analysis, even the average variable price is more than 10 %. The point is the lack of relying on the newest cost details, and going by the thumb rule puts the organization in making the mistake of wrong pricing.

The organization can develop the process of checking the P&L value chain every month and can have an average value of each value chain once in a quarter. That will give the business heads or cost estimation team the realistic cost structure of the organization.

2. Not standardizing the costing process :

except for few organizations, most of the organizations, the process of pricing is being done by the business head based on his / her way of estimating the cost and finally arriving the price. One way, he/she mentally prepares the estimation based on the experience and the judgment about the product and customer. Still, when the organization is growing, a standardized process of evaluation is required. The estimation process may be customized with the template and having the process checklist like lot size, changeover time, cycle time, the weight of the component, rejection %, and typical other costs like inventory, freight cost, etc. Once the organization standardize the process, and it can be delegated to engineers to make the first level costing, and the business head can have a final decision on the pricing

3. Expecting the same profitability across product lines and customers:

as mentioned, some business head has a thumb rule of maintaining some profitability across all product lines and customers. Pricing is always strategic, and the decision will vary from customer to customer or product lines. The Business head must think about the short term and long term implications of the pricing decisions. For example, if the organization already achieved its breakeven point, it can consider any further volume or customer with less profitability than the usual profitability margin. This additional volume or new customer will bring down the cost of operation further down, and this is beneficial only for the organization.

The pricing is the combination of science and art. The decision must be taken by the business head, considering the short term and long term implications of the pricing sensitivity to the customer.

Why business head should differentiate performer and non performer?

In most of the small, emerging organizations, one of the patterns I observe is that the consistent performer is not getting recognized and rewarded suitably.

When I am saying rewarded means, it could be either monetary benefits or openly recognize his / her work and appreciation or giving more preference for providing exposure to training programs or learning opportunities in the workplace itself.

In some organizations, the business head determines the incentive or salary hike based on the loyalty measures, that who is staying in the organization for longer years.

when the business head does not differentiate the performer and non-performer through different means, it  creates the following impact on the organization

1. The performer is not getting the motivation to give his/ her best as human beings; everyone craves for recognition and appreciation. When his / her extraordinary contribution goes unnoticed, either he/ she loses interest in the work or leave for a better opportunity outside the organization.

2. when all the people are treated equally irrespective of the performance by the business head, it sends the message to all that mediocre performance is acceptable in the organization. Eventually, the organization becomes an average performance organization.

Differentiating the performer and non-performer boosts the morale of the organization and also helps to promote performance culture inside the organization. 

The practice of recognizing and rewarding the performer must be ensured and demonstrated by the business head whenever he/she spots the performance and performer for retaining the talent and to build a performance-oriented organization.!

Loyalty vs Intolerance to low performance

A dilemma most of the family-owned business head has is how to deal with a mediocre performer who is coincidentally the relative or loyalist to the family.

This is a real concern for the business head as today's mediocre performer might have been with the organization from early-stage and might have contributed to the growth of the organization even at tough periods. In today's scenario, the person may not be able to cope with business challenges and modern business practices. Sometimes the behavior and performance of the person affect the decision making capability in the organization and may impact the morale of the people who strive for delivering performance.

What should be the way out for the business head to deal with those people?

1 First, the business head must realize the fact that the purpose of the business to maximize all the stakeholder's interests. The organization exists to serve all, and the organization will exist only when it is competitive.No individual is vital than the bigger purpose of the organization. This realization is a must for the organization's head.

2. Second, the business head spends quality time with the mediocre person by giving the perspective about the change in the way an organization works in early times and the now in the competitive environment. The person's challenges to cope with the current business challenges need to be understood, and the necessary exposure can be given by training, coaching, and mentoring.

3. Also, the person must be given some time to perform well as per expectation mutually set. This time duration can be a year or a couple of years, depending upon the role the person plays in the organization.

4. If the person copes up with the modern business practices and delivering the expected results, that is a piece of good news for all, and the person can be groomed for further development.

Incase even after meticulous training, coaching, and development efforts, if the person is not willing to unlearn and learn, not intending to deliver the result as expected, the business head must speak up to the person and be prepared to separate the relationship and business.

If the business head prolongs the decision to separate the business and relationship, it will inevitably affect the overall business performance, which is not suitable for anyone. The survival itself will be challenging for the business head and the entire stakeholders of the organization.

The key is balanced, quick decision making from the business head is vital for the meeting the larger purpose of the organization.

Factors for Next Level Growth

Each organization is striving for next-level growth from its present status. The next level of growth could be

1. An exponential increase in Turnover
2. Getting into new market/customer
3. Getting into new  product line/services


Factors for next-level growth


Potential + Strategy + Leadership mindset + Practices = Next Level Growth

Potential:

the potential is a measure of the market size for the product or service, the unique value proposition of the product or service to the customer and the evergoing demand for the product or service not only in the existing customer or in exiting demography, but scalable to new customers and demographics

In my opinion, all the business is highly potential, given the worldwide customer base unless the product/service is made obsolete through technology.

Strategy:

A strategy is nothing but clarity on the resources, competency requirement, and action plan to get into next level growth. It is more about internal organizational capability development to cater to higher level growth. The action plan must answer the typical questions as below.

1. Resources required in terms of the fund, equipment, infrastructure, and people
2. Plan to reach out to new customers/ developing new product or services
3. Personal and organizational competency required to manage the challenges in the growth phase


Leadership Mindset:

This aspect is one of the prerequisites for any organization that looks for next-level growth. Mainly, the business head or CEO's mindset is essential. When I refer to mentality, it is more about the aspiration and belief of the business head is vital. For example, in one of the client operations, the service they offer is scalable to the global level due to their quality and price point. However, the founder is not interested in going for international reach as he believed that his organization is capable of serving only the local market. Even though he is very passionate about his product and service,  his contentedness and beliefs never allowed him to grow exponentially.

Practices and Action:

Even though the organization is highly potential, aspiration, and strategy, if the methods and actions are not in line with the plan, the organization will never get into next level growth. While aspiring for next-level growth, the organization should learn to give up some of the legacy practices and to learn new practices.

To sum up,

when the leader is aspirational, believed in the potential of the product or service given the global market, if the organization draws the master plan and adapts itself to change to new practices and action, NEXT LEVEL growth is always possible one.

Three primary responsibilities of Business Head

As a business head or CEO of your organization, literally, you are responsible for all activities and outcomes in your organization. However, when the organization is growing, you may delegate some of the activities and responsibilities to others and you may overview of those responsibilities.

some of the responsibilities you can not delegate fully to others and you must be the primary responsible person.

In my views, three primary responsibilities of the business head of  any small, emerging organization are

1. Creating Performance-Oriented Culture

2. Maximizing the Profitability and make the organization future-fit or growth-oriented

3. Meeting all the Stakeholder's Expectation on time