Working capital, cash flow and operating profits are primary measures of senior leadership performance. Companies audit their financials every year to validate compliance and performance, but typically don’t have an audit plan for critical business processes that impact these performance measures.
There are 7 critical business processes that every company must excel at and are material to a company’s regulatory, financial and performance health:
- Design and develop products and services
- Acquire and support employees
- Market, sell, service
- Acquire and disseminate information
- Deliver Services
- Produce and deliver
- Manage the supply chain
Each of these processes are horizontal. Their performance is impacted by every functional organization and as a result, they are difficult to effectively manage. For example, “Acquire and support employees” is typically considered the responsibility of the HR function. But, as we all know supporting employees is the job of every manager throughout the organization. Doing this well has a significant impact on performance. Too obvious? Let’s talk about “Manage the supply chain”. It is the largest consumer of working capital and has a huge impact on profitability and cash flow. The supply chain is impacted by the forecast (Sales), design requirements (Engineering), skill levels (HR and Management), supplier performance (Purchasing), supplier quality (QC), scheduling (Manufacturing), inventory control (Manufacturing), etc. Ask yourself if your company has set performance targets for cash flow, working capital and profitability for every organization that impacts the supply chain. Most don’t do that and as a result struggle to optimize the supply chain.
O.K., One more example….
“Design and develop products and services” is perhaps (and should be) the largest consumer of working capital and cash flow, while the success or failure of new products and services will define profitability for years to come. Company’s need to fully understand the impact of design decisions made by every organization and the impact they have on these three measures. They need to clearly define how the product fits with the company’s long term strategies and need to challenge themselves with how to continue to generate revenues with add-on products and services after the initial sale. They need to understand how new products and services will be affected by inventory policies, costs in manufacturing, impact on skill requirements, costs of new technologies, risk, etc.
Every one of these 7 critical business processes has a unique set of questions that need to be explored by the management team to truly understand how they impact the three critical measures and how to address them for the unique needs of the company, its market and its strategies.
Three important questions to consider:
- u Can you definitively say that each of these processes is the best it can be within your company?
- u Are these critical processes adaptive, cost effective, reliable, scalable and sustainable?u
- u Does each leader in your business have an adequate plan for reducing working capital, improving cash flow and significantly increasing the contribution to operating profit for the business processes they own?
If the answers to these questions indicate a need to refocus or significantly improve these processes and you want to know what world class companies are doing, then it is likely that an assessment should be done. It is a high ROI way to take a different look at how well these processes work and to create an improvement roadmap for each of them: A roadmap that is focused on the right metrics.
Group50 Business Management Consulting Firm’s Company Physical® has an assessment for each of these critical business processes and additional assessments for other important business processes which you can read about here.
About the author: Jim Gitney is the CEO of Group50® Consulting and specializes in the development and implementation of manufacturing and supply chain strategies. Jim and the Group50 team are all former executives with well-known manufacturing and distribution companies who understand what it takes to put together and manage the implementation of a successful strategic plan. Group50 has designed a series of strategic assessments, workshops and strategic execution tools that refocus companies and their critical business processes on cash flow, working capital and profitability. You can reach us at (909) 949-9083 or send a note to firstname.lastname@example.org.
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