Posted on January 20, 2012
Years ago, small businesses would source products locally. Even though they may be able to purchase a product at a lower cost overseas, the cost of shipping and importing these products was very expensive. This meant that disruptions in getting products to market were relatively predictable. The suppliers, the sellers and buyers for the products were all local so there were subjected to the same economic and environmental conditions.
In a global economy, the cost of importing goods has decreased dramatically and businesses now source products from many parts of the world. With this freedom to source from many areas of the world comes a new set of issues to the business owner. Volatile currency exchange rates along with disruptions in the supply chain from earthquakes, fires, flooding and political instability in Asia or Europe can potentially destroy a local business overnight. Most companies do not plan for these issues until it is too late. Desperately working to find new suppliers for goods that you have already received orders for can start a negative business spiral that increases expenses, reduces margins and creates bad customer relations.
Successful companies now realize that they must reduce this risk to their business by developing contingency plans before a crisis occurs. To develop these plans they use a process called Scenario Planning. Scenario planning allows a business to investigate and create alternative plans to ensure their business is secured against disruptions from external forces outside of their control.
In this article we will review the steps to effective scenario planning.
Step 1 in scenario planning is to define the objective.
In our business example we are going to look in detail at our theoretical companies supply chain. Our business has 20% of the product line representing 80% of the bottom line profit. We find that 90% of the profitable product line comes from Asia and Europe. Typically our lead times from these suppliers are 4 weeks. We keep a small inventory for emergencies in Canada. So we have identified that we rely heavily on the supply chain to keep inventory low and to meet customer service levels.
Based on this information we decide that our objective is to review possible scenarios that adversely affect our supply chain. In each scenario we will review how the business metrics of cash flow, inventory, cost of sales and lead times are affected. We decide to select team members involved with the supply chain, including purchasing, inventory, manufacturing (if there is any component done here) and shipping. Read More...
Posted on January 18, 2012
Everyone in business wants to make as much profit as they can. Since profit is merely what is left over from gross revenue after all expenses have been added up and subtracted from the total, there are two main ways of increasing profits. Bringing in more revenue is one, and the other is cutting expenses. In today's economy, or any economic conditions for that matter, bringing in more revenue is almost always going to be more difficult than cutting expenses. In most cases, there are only so many ways of bringing in more revenue, and doing so requires other people to take action by hiring or contracting with a firm. In contrast, there are usually many different ways of cutting expenses, and all of them are under the control of the business owner. One of the best places to start looking for savings is business insurance.
Of course, the cost of business insurance coverage is going to be all over the map, depending on the size of the firm, the location, the nature of the business, etc. The general principle holds true, though, across the board - most business owners or managers could save money on their insurance if they put their mind to it. Most simply pay their insurance bill automatically, without ever stopping to think if there might be ways to save money on their coverage. Well, there are, and doing so doesn't have to be complicated. Let's look at the four main ways a firm can cut their insurance expenses.
The first way involves enhancing security, as much of the cost of insurance for many firms goes to cover the risks of burglary or theft, whether by workers or customers. A company that doesn't have a closed circuit TV system should install one right away, and every company should make sure they have excellent locks and alarms. Second, it should next bring in a professional safety inspector to assess safety risks and hazards, and use their final report to identify problems, and then eliminate or ameliorate the hazards. Once these security and safety changes have been made, it's time to contact the insurance agent, inform them of the changes that have been made, and request a lower premium. If they balk, then it's time to move to the third technique, which is shopping around for a lower rate. The internet makes this easy to do. The fourth and final step is for the business owner to agree to assume a higher deductible; this alone can make a significant difference. And that's all there is to it. A business owner or manage who follows just one of these four steps can save money on insurance; a person who follows all four of them can see tremendous savings.
Posted on January 16, 2012
Business Pace
When my daughter ran distance races, she trained her body to build endurance by putting in the necessary miles daily. She also exercised her mind to learn course management.
She discovered in her first races that adrenaline would push her out hard and fast from the start and carry her for a while. If she kept up that pace, she often led, but when she approached the finish, she had no energy left and fell way back. The only result that counts is when you cross the finish line.
She discovered how to pace herself, starting strong, settling into a comfortable, economical pace, with enough reserve for a powerful finish kick. Such a pace allowed her to compete and succeed.
Your business has a pace. Adjusting your intensity to reflect it is a key to Work Positive success. You run sprints one way. Maybe that's your 4Q. You run 5K's an entirely different way. That might be your 1Q.
You gotta believe that your business has a pace and rhythm all its own. Adjust your intensity accordingly and train for it.
Balance People and Tasks
You can focus your business efforts on people-employees, vendors, and customers-but when you do, you lose sight of your company goals.
You can focus your energy on accomplishing tasks-your goals and action plan-but when you do, you forget that its people who accomplish those tasks.
My grandmother gave me a chocolate bunny every spring for Easter. Some years, I bit into it to find only air inside. Other years, it was marshmallow. My favorite years were those when I discovered chocolate through and through.
Balancing people and tasks means you lead your business consistently-through and through. You lead people to accomplish tasks and focus on tasks for people to achieve.
You gotta believe that your business succeeds when you balance people and tasks.
Beyond the Obvious
You're staring at your P&L and balance sheets for 2011 about now. What do you believe happened in 2011 in your business?
A pair of sisters enjoyed shopping in a Goodwill shop in Virginia. One of them saw a pearl necklace, found it attractive, and since it was only $.69, bought it, believing that it was just costume jewelry.
Wearing it back home in Arizona, a friend commented on how beautiful it was and encouraged her to get it appraised. She did and discovered that it was worth a little more than the $.69 purchase price.