Company owners are always looking for ways to increase revenue. Adding customers, bringing on new products, spending more on marketing and buying new equipment are some of the many ways that businesses look at to grow their top line. But there is no magic bullet. The obvious solution isn’t always the best one. Certainly, throwing money at the problem isn’t the safest or most predictable way of achieving success.
When a business owner is looking at growing the company, the focus rarely points at bottlenecks within operations. A search to provide new products that will bring in new customers may lead to a single train of thought that avoids considering all other options. Sometimes it is the simple solution that provides the end result – greater revenue – with little expense. Certainly, the drive to purchase new machinery as the only solution can lead you down the rabbit hole.
The owner was looking to retire in just 3 years. In a good planning move, he hired a consulting firm to help him increase the sale price of his business. They determined that if he could double company sales, the sale price would increase dramatically. Believing that the company’s production was limited by the size of their powder coating ovens, he insisted on buying new ovens to fill the gap. The consultants reached out to us for the analysis.
The company’s primary business was powder coating metal parts. The owner felt they were missing a significant piece of business – painting highway lighting poles – because their ovens were too small to fit the 18-foot-long poles. This single customer could propel them closer to their sales goal by bringing in $500,000 – $1,000,000 in business. The investment was $300,000 for the larger ovens and prep room.
Investigation showed that raw steel was moved into the prep room and ovens through the same narrow building that brought the painted steel to the dock. This combination building and prep room created a production bottleneck which limited the speed with which the ovens could be loaded and unloaded. And, since each piece needed to be coated twice during processing, the ovens stayed idle while the parts were prepped for the second firing cycle. As a result, the ovens sat idle 50% of the time, and production backlog extended to more than 10 days.
The company has a small accounting department where multiple responsibilities were handled by each individual. Because of the small staff, there was little segregation of responsibilities. The month-end financial package contained standard reports which provided little insight into changes in the background data. As a result, excess costs in various areas of the company were hard to pinpoint. Most production involved customer inventory, but who was responsible for product loss or insurance coverage was unclear. Cash flow was not an issue, and the company self-financed most capital expenditures.
In small companies, the owner often thinks that he has his arms around the operation of the business, and therefore decisions are made more by gut than by pragmatic analysis. Even though rules for accounting and finance are pretty standard across businesses, the ability to identify issues relating to operations is not easy. The coordination of space, manpower and product is not a simple matter to handle. Sometimes using a spaghetti diagram, where you trace the movement of each item with a pen on a map of the shop floor can help identify where product is really moving, and where the bottlenecks are.
Even though not every company has money to spare, it is not unusual for a business owner to just arbitrarily decide that new equipment, more employees, or more space will resolve a problem. A discussion with line employees, not just their supervisors, and a hands-on view of the way the production floor works may easily identify where the problem really lies. Buying an expensive piece of equipment may seem like the right answer, but if equipment and staff are standing idle, then the solution isn’t something that is newer, larger, faster or shinier. The answer might be standing right there, staring you in the face.
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