Businesses now have 2 challenges in the coming months and years after Covid-19.
Clawing back market share
Generating Cash flow to maintain operations
In order to create a platform that will enable you to tackle the challenges, you will need to analyse your business to establish your current reality.
There could be any number of reasons why a company loses market share, so for the sake of this discussion, let’s assume that all our products are profitable and well within their life cycles.
The fact that you have been unable to produce because of lock down restrictions or lack of materials or components if you are an essential service, means that the sooner you get back into stock the better. Getting stock back on the shelves ahead of your competition means that you could gain market share at their expense, or if you are late to react, you could lose market share.
The second challenge, Cash Flow means that you need to generate sales and reduce costs in order to get back on your feet. This is where the conundrum starts, how do you save money and at the same time expedite purchase orders or works orders to get your products back on shelf to generate sales and bring cash back into the organization. To compound this, your most popular products will have sold out in store, and the medium to slow movers will still be available for sale. These won’t generate sales fast enough to give you the cash flow needed to pay the bills, so the impulse is to cut more costs out of the business, possibly retrenchments which in the short term will deplete the cash reserves even more. You can rationalise your production and focus on fast movers if you have materials. Again, this solution will only last for a short time until you deplete the remaining stock on hand. Most businesses have this dilemma and every solution we look at brings us back to the same point, highlighting the fact that you can’t save yourself out of trouble.
What else is there? If you follow the Japanese philosophy you would be using this time to look at different ways to run your business so that you can identify opportunities that will provide cash flow in the shortest time frame and at the same time gain back market share. Moreover, the solution must be sustainable and be able to elevate your business above the competition giving you the best chance of growth in post-Covid society that is starting to open up around us.
Change or continuous improvement, is normally carried out at departmental level and focuses on improvements without validating the impact on the greater business. It is assumed that any improvement is good improvement. Unfortunately, this isn’t the case. The only improvement that adds value to an organization is that carried out at the constraint so that the business can take a positive step forward. The systems thinking approach takes a holistic view of the organization, where you can identify problems that impact on business profitability.
Take lost sales as an example, there are a number of possible causes. Not all of these causes are actually the root cause, most are symptoms and need to be eliminated before you start, otherwise you may end up going down a rabbit hole.
The most popular way to look at lost sales is a percentage of total sales. When looking at it in this light, the results are skewed to the conservative because all SKUs are considered to be equal. This is hardly the case, because the first SKUs to run out of stock are always the fast movers so you need to factor your stock turns into the equation in order to understand your real loss. Now that you understand the real loss and have been released from ICU after your heart attack, you can set yourself a goal and start creating the solution to reduce these numbers. This type of solution offers the opportunity of a profound change to the company’s Net profit and ultimately ROI and can be implemented by changing the manner in which you manage and support the bottleneck.
When deciding on the improvement program, it is very important to ensure that what you do is sustainable and simplifies processes so that staff can spend less time fighting fires and more time adding value to the bottom line.
Should you have any questions or comments, please raise them in the comments section or email to email@example.com. You can also call me on +27 82 777 0922.
About the author
Dave Hudson is a supply chain and operations specialist and executive coach with over 30 years’ experience, and currently 1 of 5 endorsed Demand Driven instructors on the African continent.