The Operational Turnaround – what they don’t Teach you in Business School: Part 1

As my 15 year reunion looms, I decided to share my thoughts on operational turnarounds at manufacturing / assembly / distribution companies.  I learned a lot at business school, but I can’t say what I learned really helped with my first operational turnaround.  Don’t get me wrong, I picked up some great concepts at b-school, became more adept (like everyone else) at analyzing large amounts of data, and learned how to identify core issues to resolve.  And while those skills came in handy, they were not what brought the ultimate success at my first or latter turnarounds.  By no means am I disparaging business school or the valuable education experience one gets.  Is there more business schools can do in this area?  Maybe.  At business school, we tended to focus on broad strategic issues, which most of us want to go on to face someday.  I also took several operational strategy courses, but once again those focused on broad strategic issues.  There was no class on how do I deal with a $50 million manufacturing division that is A. not delivering product on-time, B. that has a host of angry customers, and C. is not collecting cash from customers in a timely basis and in fact has over $1 million of receivables older than 6 months.   How do I deal with a division where everything that can be broken is broken?  Fortunately, at business school I was forced to work harder than I ever did before and that skill came in handy with my first and latter turnarounds.

One of the keys areas that I have found that often gets overlooked with small to medium sized companies is on-time delivery (OTD). In several cases I have found that companies don’t even measure OTD.   From my perspective OTD is one of the most important keys to customer satisfaction, which is the key to revenue growth.  If you don’t deliver on-time, your customers will find someone else who will.  Some customers are loyal and will point out to you that you are not delivering on-time, but they eventually will leave if you don’t get it together.  Typically in this scenario you may also find a significant numbers of past due orders, which obviously translates into sales that haven’t been completed and thus cash that has not been collected.  So what do you do in this situation?  I have seen many companies initially focus on reducing past due orders.  My experience is that is the worst thing you can do.  By focusing on past dues you take your eye off of current orders, which will in turn go past due if you don’t have a mechanism for keeping orders from becoming delinquent.  This point was driven home to me with my first turnaround.  I had 3-5 material expediters chasing past due orders.  In a chance conversation with them, I asked: “if you guys are chasing past dues, who is focusing on keeping orders current?”  Their collective response was: “the system” aka MRP / ERP.  That is when the proverbial light went off in my head and we made major changes to our operational group.  If you find that your company is not delivering on-time, I suggest the ideas that follow.  Make sure you have a DAILY production meeting.  At that meeting make sure you have members from production, scheduling, purchasing and customer service.  If you don’t already have a daily production meeting be prepared for a lot of griping from team members.  Don’t be swayed.  Require them to meet every morning to discuss current and upcoming orders.  Require them to look at orders that are due to ship in the next 5-10 days.  Require people to discuss any material or production issues with the orders.  If there are issues, press them on their recovery plan.  Make sure you drive home the fact that there is an organizational wide focus on OTD and that they have to do their part in making sure orders ship on-time.  There is no magic to this, just plain old fashioned hard work.  If you are having issues with orders not shipping on-time, this is probably the most important step you can take to improving OTD and thus customer satisfaction.  In upcoming posts, I will describe other critical steps that one should consider in an operational turnaround.

Regards,

Rindge Leaphart

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