THE ABCM OF INVENTORY…For God’s Sake, It’s NOT an Asset!

Waste…is the most extravagant and costly of all expenses.

  Theophrastus in the 3^rd century, B.C.

Two thousand years later, our mantra of lean business practices support this Greek philosophers words.  Eliminating waste throughout the workplace, whether it is too much paper, too many processes, too many layers of management, too many locations or too much inventory, results in immediate bottom-line savings.

I worked with a small business hair supply distributor, tire retailer, and secondary school.  The one similarity within each of these industries was excessive inventory and the incurred associated costs.  Small businesses, from kiosks to office and warehouse or retail stores, are in the same dire need to reduce their inventory levels with process improvement as are large corporations.

What Do We Do Now

By its very nature, inventory as an asset is a contradiction with JIT/lean manufacturing philosophies that demands we order only what we need, when we need it.  Moving “inventory” to the liability side of the balance sheet encourages its reduction and/or elimination.  Until this happens, corporations and small businesses will continue to focus on layoffs (people) rather than addressing dramatic process changes and inventory ordering efficiencies that must be resolved (organization).

Prove it to Yourself

ABCM allows us to quantify our costs.  I’ve designed a worksheet to help you validate this point.

actual product cost (from supplier) + transportation (from the supplier to you) + insurance (while moving) + unloading / unpacking + storage costs + warehouse costs      insurance      maintenance + transportation (from you to customer) + security expense	$ ___________________ $ ___________________ $ ___________________ $ ___________________ $ ___________________ $ ___________________ $ ___________________ $ ___________________
Add to the above, the overall costs of
+ physical inventories (and all the errors       that come from this activity) + the annual state, local, or federal taxes     paid on inventory values + administrative paperwork throughout      the entire process + human resource allocation	$ ___________________ $ ___________________ $ ___________________ $ ___________________
REAL inventory dollar outlay	$ ___________________

What Needs to be Done?

The savings of monies on inventory waste can better be invested on capital equipment needs, resource requirements and salary compensation.  Evaluating these expenses and developing diagnostic data for each will highlight the priority of work to be done.  Excel software (for those in global locations that may not have MRP systems) will take your data and translate it into graphs that will point you in the right direction.  This will help in defining action for solutions.

Both the hair salon distributor and the tire retailer gained capacity for current and needed inventory space by throwing out old and obsolete products (some as old as 5 years on products with a 6 month shelf life!) that were taking up space.  Rather than spending money for additional warehouse / shelf space and incurring capital costs, both were able to put more money into buying products they needed and, in one case, to provide raises (albeit small) to their (extremely appreciative) employees.

Once wasted costs are addressed and corrective actions are in place, the move (and the mindset) of inventory from asset to liability will be one that begins to change the business to an efficient, value added growth position.  In the global, and local, competitive marketplace that we live in today, that can only mean success.

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The ABCM OF EMPLOYEE RETENTION - The company’s performance appraisal

Factoid:  Employee turnover is the largest hidden cost in organizations.

“A penny saved is a penny earned.”

Activity Base Cost Management (ABCM) allows us to quantify the wasted dollar$ of yesteryear’s casual “hit the door” policy.  I’ve designed a worksheet to help measure how well your organization is doing. 

Once completed, you can begin to problem solve.  (i.e. Should we change our interview process?  Have we identified problem departments?)

Ê  Just fill in the blanks.  Add or delete to customize. 

DIRECT CO$T$ Recruiting                             Training (Basic)                   Relocation/Moving	$ ________________ $______ __________ $ ________________
+	+
INDIRECT CO$T$ Lower Productivity Levels    Lower Employee Morale    = Lower Revenues	$ ________________ $ ________________ = $ ________________
+	+
HIDDEN CO$T$ Training costs, including management time      Paying full salary and benefits during training, before full productivity is reached  Lost sales and alienated customers during off-site training    Cost of mistakes made by new inexperienced employees       Loss of customers loyal to departing employees       Loss of knowledge and experience built by departing employees      Lost or damaged relationships with suppliers     Employee morale and customer perception of that morale	$ ________________ $ ________________ $ ________________ $ ________________ $ ________________ $ ________________ $ ________________ $ ________________
TOTAL TURNOVER CO$T$	$ __________________________

Versus

EDUCATION  INVE$TMENT

$ _________________

The moral of this exercise

Education is an investment.  It's a value added line item!

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FROM CIVIL RIGHTS TO THE BOARDROOM - Walk the Talk

The genesis of the civil rights movement in the ‘60s was based on the mantra Walk the Talk.  These three words were a thunderous voice from black, and many white, and female Americans.  Three simple words defined the drive for equality in America.

• If we are equal, our schools should be equal.
• If we are equal, I should be able to live in the same neighborhood.
• 
  

  If we are equal, my child should be able to play at the same arenas your child does.
• 
  
• If we are equal, I should be able to get the same job.
  
• If we are equal, I should be making the same amount of money.
• If we are equal, I should not have to pay more for insurance. 

If we are equal, treat us with dignity and respect.

The mantra has transitioned to the corporate world. Three simple words born from the same desire for self-worth.

§        If you value us, pay us a livable wage.

§        If you value us, give us time with our family.

§        If you value us, tell us the strategy so we can help.

§        If you value us, educate us.

§        If you value us, educate yourselves.

If you value us, treat us with dignity and respect.

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REINVENTING CUSTOMER LOYALTY

Because the customer

Because the customer has a need, we have a job to do.

Because the customer has a choice, we must be the better choice.

Because the customer has sensibilities, we must be considerate.

Because the customer has an urgency, we must be quick.

Because the customer is unique, we must be flexible.

Because the customer has high expectations, we must excel.

Because the customer has influence, we have the hope of more customers.

Because of the customer, we EXIST!

CUSTOMER SERVICE

"It's high time the ideal of success should be replaced by the ideal of service."  Einstein.

We laughed out loud at William Taylor, generation-xer, and cofounder of Fast Company, a magazine that covers real people with real solutions and gives people tools they need to succeed in today’s work world. His closing tip: how to increase your customer base, “the next time the phone rings in your company, how about having a real person answer it?”   As we sat about and discussed some of the tips Taylor had given the audience, the conversation about customer service seemed consistent from the international group - Americans, Europe, South Africa, South America, and Asia - there were tales we could tell about poor service and tales we could tell about good service in each of our respective countries.  Customer service crosses all industries.

The Customer is a person who buys our products, especially on a regular basis.  Customer retention is the ability to keep a customer and, hence, profits.  Happy customers extol our product virtues and contribute free marketing for your company.  It is, simply, our “raison d’être”, our reason for existing - to sell our products to customers who want to come back again and again and buy more of our products.  With global competition driving the need to exceed customers’ expectations, customers will not tolerate paying for someone else’s deficiencies.  Understanding the customer’s needs means asking the customer what the requirements or needs are, implementing solutions, and continuously following up with improvements.

Rapid Response - Eliminating the Communications Gap

When we have a problem, it is our expectation that we will get help from the supplier of the product.  We don’t want to hear excuses, we don’t care who is on vacation, nor for how long - Service should be seamless to the customer.  The longer we keep an unhappy customer on the line without solving the problem, the angrier the customer gets and the quicker that customer will go to a competitor.  Throughout my professional career, I have continuously upgraded a checklist I developed for businesses, small or large, to evaluate and reduce the communications gap that exist both internal and external to the business and impact our ability to exceed our global customer’s expectation in service.  Audit yourself and find out how well your business is doing in given the customer a rapid (correct) solution.  I've included a check list or audit to help you rate your organization. 

The “self-audit” challenge -

internal & external to the organization, the customers

üDo you deliver what you promise, at the time you promise?

üDo you deliver service and products quickly and efficiently?

üDo you give every customer involved personal attention?

üDo you return calls promptly?

üDo you evaluate your customer complaints?

üDo you treat customers with respect, courtesy, and professionalism at all times?

üDo you SOLVE the problem?

üDo you actively solicit an audit from your customers on your customer service to them?

üDo you remain aware and evaluate customer satisfaction regularly?

üDo you review and implement customer feedback and suggestions into current procedures?

üDo you treat customers just as you would want to be treated?

üDo your employees understand that a customer expects them to act with a sense of urgency to their dilemmas?

üDo your employees know to always say THANK YOU!?

üDo you maintain a clean and neat appearance, including the workplace, at all times?

üDo your employees understand the need for personal hygiene as they are the first introduction to the company customers see?

Loyal customers bring other customers who bring other customers who bring other customers, increasing revenues, and all for zerO marketing costs.  Customer service breeds loyalty, loyalty fosters customer retention.  The benchmark to customer retention, and increased sales, is customer service.  How well are you doing in reinventing your customers’ loyalty?

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BENCHMARKING YOUR PERFORMANCE - 360 degree Performance Appraisals

Some topics come to me automatically and some come about because of a trigger.  The topic for this column, employee performance appraisals, was triggered by a recent UPN comedy Cuts episode.  This Generation-X comedy is about two hair salon co-managers.  They are young and this is their first foray into business.  Her dad owns the salon franchise Cuts and he lets her be a co-manager along with the original young owner of the salon.  To say they “feel their positions of power” would be an understatement. 

This particular episode began when a package was hand-delivered to the salon co-managers from headquarters (dad).  Their first “power” thought:  it’s time for us bosses to rate you workers.  The co-managers’ high-fiving, snickering and laughing came to an abrupt stop when they pulled the papers out of the envelope to discover:  the appraisal forms were for the employees to give their opinion of the co-managers.  The form asked about “all things management”.  It covered questions and asked for opinions about the manager’s work performance and how well they felt the mangers were dealing with them.  As soon as the two realized the “power was in the workers hands” their attitude and behavior changed.  It’s amazing how the “respect for the Individual” and “people are our greatest assets” vision statements really kicks in to a manager’s behavior attitude as soon as it is determined the workers would rate them on their performance as a boss.

Performance appraisals involve observing workers’ behavior and measuring that behavior in accordance with certain standards.  It is central to the staffing function.  It provides feedback needed to evaluate the effectiveness of recruitment and selection.  Lastly, it identifies individuals who are trainable and those who already have the skills to meet current and future job requirements.

Performance appraisal goals should be constructive and motivating.  They should inform employees of the performance rating for review period.  It sets targets for improvements, recognizes accomplishments, and informs employee of what is expected in the future.

An innovative approach at one of my clients was to establish a 3-D model of competency identification.  In seeking to identify the competencies required in a particular role or throughout the organization, the following 3 questions identified the process.

(1)  What activities or functions must the employee perform?

(2)  What strengths, attributes, and qualities does the effective performer

       display?    

(3)  What capabilities are important to develop?

Translating this 3-D model to a simple form and process, my client, an automotive company, uses a process asking all staff members to focus their efforts and feedback in three areas:

(1)  4 to 6 most important responsibilities and demands of the employee’s

      role

(2)  6 organizational competencies that make or break performance and

      enable focused feedback

(3)  specific actions and timing for job and professional growth.

This straightforward outline provides candid information about what is important to discuss, track and assess together (managers and employees)

As the company moves towards a best-in-practice environment (team based management and coaching), multi-source feedback, named 360 degree feedback, is a critical link in the performance management process as employees engage more and more in team, cross-functional and process-based activities, making their work largely invisible to any single source.  Three hundred sixty (360) degree performance provides a balanced, holistic view of contributions and competencies, while reducing the “my view, your view” tension often present when only team leaders and employee perspectives are involved. 

Feedback from everyone you work with provides the optimal tool for enhancing leadership and management capabilities, particularly when a company is trying to develop a more open, communicative culture.  When people receive honest, specific feedback from their bosses, colleagues, and associates, they often come to understand how their behaviors affect others – the need for change in some of those behaviors.

Organizations are taking varied approaches to transform the performance management process from an administrative burden to a business interaction that is inseparable from the work being done.  There is no magic formula for success in performance management.  The key is to harness the energy around what is important to the organization and apply it toward establishing an effective process deserving a top rating – one that “meets or exceeds expectations.”

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Would You Marry Someone If You Only Knew Them Thirty Minutes?

SUPPLY CHAINS BEGIN WITH EDUCATED RESOURCES

As we move into the techno-millennium, what is the portfolio of skills required from multi-functional human resources in both life and leadership skills that the industry (the customer) will be searching for?  How do we feed back into academia (the supplier) the types of curriculum that are needed today to insure the continued growth of any organisation, large or small, with well-educated future employees?  What are the (trans)portable skills that our own associates will need to continue a career path that keeps them focused on continuous improvement in the workplace for the benefit of global competition?

Would You Marry Someone If You Only Knew Them Thirty Minutes?

Most of us would say “no” and yet that is exactly what we do with the most critical part of our success.  When asked the average interview time for associates, the response, “an average of 30 minutes.”  When asked if the team that the person would be working with had the opportunity to interview the potential candidate, the response was “No.  Supervisors interview and hire the candidate and the rest of us have to live with their (the candidate) incompetence for the rest of our working lives.”  World class dictates stopping errors at the beginning of the chain to prevent waste through the balance of the process chain.  Hiring multi-functional human resources means defining the people skills required insuring that quality employees are hired at the outset.  Preparation of the job definition is the critical key to success in hiring multi-tasked resources ready to compete in the global marketplace.

§       Plan for the interview by reviewing applications thoroughly, review job specifications and descriptions and make notes of those areas to be discussed or write specific questions to be answered

§       Create a good climate for the interview.  Space should be comfortable and private.  Try to establish a good rapport with the interviewee unless there are specific reasons to do otherwise

§       Allow sufficient time.  Arrange not to be disturbed by telephone calls or visits.  Set aside an adequate block of time

§       Conduct an objective oriented interview.  Look for the information needed to assist in the employment decision

§       Seek answers to all questions and check for inconsistencies

§       Create position profiles that detail the skills and qualities needed on the job.  This gets down on paper the specific, most important characteristics of the person you should hire.  If you advertise the position, use some of those words from your profile in the ad

§       List six to nine “make or break” talents needed for the job.  Use an interview guide form for each job so candidates are compared on the same factor.  Have one person interview candidates and a second take notes

§       Determining that the candidate has the skills needed to perform the job, but failing to explore whether the person is motivated to do the job is one mistake often made when hiring employees.  Hiring personnel must ask probing questions, which will shed insight into the person’s attitude toward work as well as their level of initiative

§       Gain information about the applicant’s ability to interact with others and how they handle conflict.  Without the desire to be a contributor to the goals of the organisation, technical skills will not be much use.  Be sure to spend time asking situational questions in order to determine how that person will react in real situations

§       Do skills testing.  If the position calls for written communication skills, give the candidate a scenario to respond to in writing.  To test management abilities, give work and people situations to respond to: How would you pass on this information to your employees?  Your vendor didn’t meet a commitment and you’re late providing the end product.  How would you deal with it?  Use the scores of successful employees as a benchmark

§       Develop a skills inventory.  As each interview takes place, check mark the candidates’ strength and weaknesses so that you don’t forget later.  Businesses are looking for the following characteristics in their new hires:

Drive                                Quick learners  

Independent thinkers       Work well as part of a group

Enthusiastic                     Multiculturally aware

Open minded                   Have strong organisational skills

Innovative                        Respectful of other cultures

Know their way around a computer 

§       Structure interview questions to discover characteristics that cannot be bought or taught, such as certain set of ethics and values, or a level of energy and commitment.  

This management-by-prevention process will net well-educated, multi-functional human resources focused on the continuous improvement skills needed in your workplace for the benefit of global competition.


This is an excerpt from You Will Never Get To World Class Without ‘Edjeecated’ Folks I gave at a South African Conference.

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Human Relations...A Micro-mini Course

The six most important words:   " I admit I made a mistake."


The five most important words:  "You did a good job."


The four most important words:  "What is your opinion?"


The three most important words:  "If you please."


The two most important words:  "Thank you."


The one most important word:  "We."


The least important word:  "I"


Et voilà.

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