Plug the Leaks, Improve Profitability, Grow Your Business
Beware of Little Expenses; A Small Leak Will Sink a Great Ship.
Are you struggling to grow & scale your business? Are your profit margins lesser than your expectations? Are your facing difficulty maintaining a healthy cash flow? Then, it is certainly time to introspect. It is time to go looking for areas where your business could be losing money knowingly or unknowingly. “Plug the Leaks, Improve profitability, Grow Your Business” article is written with a specific objective to help manufacturing companies to uncover hidden problem areas in your business that could be impacting your profitability and hindering your growth.
What are Leakages/ Leaks in Business?
Leakage is defined as “the accidental admission or escape of liquid or gas through a hole or crack”. Sometimes, these holes or cracks are so minute, that they are not visible early on and we come to know when the cracks are wide open and it is too late to fix them.
Similarly, leakages in manufacturing companies’ business are issues or problem areas that creep into your business processes knowingly or unknowingly. These could result in less than optimum use or wastage of employees’ time, machinery, materials, resources, and/or time. A particular line of activity may be costing more money than required, there could be an idle time of resources which could increase the costs, etc.
If you can see it, you can fix it. But sometimes it is so subtle that you do not realize it. We aim to help manufacturing companies to avoid getting into this situation and help check the signs & symptoms early on to Plug the Leaks in business.
Why Find & Plug Leakages in Business?
Robust & Multifold Growth cannot be possible without plugging the leaks in your business. Your business may grow and flourish, but your profits may not be according to your expectations. You may be operating at lower margins. That’s precisely why you should be extremely vigilant about all areas of your business and plug the leaks as early as possible. Let us now look at some common examples of leakages in business
Examples of Leakage in Business
1. Revenue Leakages
Cash flow is the lifeline of any business. So, one of the most significant leakages that you should look for is revenue leaks. Revenue Leaks can occur, if
- A credit control policy is not well defined
- Payment terms are flexible or not clear
- Invoices are not sent timely
- Incorrect value of invoices
- Data entry errors
- Paying penalties for late payments to vendors
If your receivables are delayed your company will possibly face a cash crunch and it will affect the operations & profitability of the company.
2. Inventory Management
Have you ever faced situations of stock-outs? OR Do you see a lot of inventory lying idle in your shop floor or warehouse? In either of the situations, you will incur costs that are likely to impact your working capital and ultimately affect your profitability. You must improve your inventory planning practices to get over this situation.
3. Process Challenges
Do you have standard operating procedures? Do you have clearly defined procedures to perform tasks and well-defined roles & responsibilities? If not, your company will not be able to ensure consistent quality work and hence will struggle to improve efficiency & productivity for the growth of the business.
4. Lack of Single Source of Information
Do you have a single source of accurate information in your organization? Does everyone have complete visibility of their processes? When employees and management do not have complete visibility of the business, they cannot make timely & informed decisions, which may result in confusion, delays, and possibly financial losses as well.
5. An employee performing Non-Value Adding Activities
Are your employees performing routine mundane activities or are they performing value addition activities? If they are not able to perform value-adding activities such as identifying areas of cost reduction, building supplier relations, improving customer satisfaction? You will not be able to increase the profitability of the business or grow your business.
6. Not measuring Performance
Have you defined the KPIs for every business process? Do you measure the performance over a specific period? If not, then problem areas in business will go un-noticed and become visible only when the damage is done. Ensure proper KPIs & review mechanisms to overcome this situation and identify problem areas early on.
7. Not Focusing on Cost optimization
Are you continuously looking out for opportunities for cost optimization? E.g. identifying alternate cost-effective materials, increasing supplier base to improve negotiation or aggregating demands to perform bulk procurement, etc If, not, you are likely to face the risk of increasing operating cost which will impact profitability considerably.
8. Not Focusing on Customer Delight
Are you providing maximum value to your customers? Are your customers happy? Will they provide you with repeat orders? Companies that do not measure how satisfied their customers are or who do not make an effort to find new and innovative ways to delight their customers face a risk of not getting repeat orders or even losing existing customers.
How ERP helps to Plug the Leaks Improve Profitability?
ERP software integrates all important processes of an organization such as planning, production, purchasing, inventory, sales, marketing, finance, human resources and gathers real-time data into a centralized system from various departments, locations, business verticals.
Companies can leverage ERP software to define and implement business flow, to describe rules & guidelines as well as implement validations and checklists for almost every activity in the organization.
Let us now see how ERP is a great mechanism to define and roll-out strategies for implementing standard operation procedures, implementing financial discipline, implementing business discipline, and more to plug leaks, improve profitability, grow your business.
1. ERP Helps Implement Standard Operating Procedures
With ERP software, you can define and implement standard operating procedures. Describe precise step by step workflow, define rules and guidelines. You can prepare detailed checklists and validations for each & every activity of every function. ERP generates SOP related documents or formats and provides relevant reports to concerned managers to verify whether best practices are being followed or not.
Standard operating procedures ensure consistency & standardization in the company, reduce or eliminate errors, improve communication & coordination among departments & teams, improve efficiency & productivity. This reduces idle time, minimizes wastages thereby reducing costs & improving profitability.
2. ERP Helps to implement Financial Discipline in an organization
ERP software helps to implement financial discipline by defining a set of rules, policies relating to every financial aspect of the organization, and ensuring that these rules are followed by everyone in the company.
With ERP you can set up specific budgets for each department, unit, cost centers, based on your business objectives. You can set up the “Dunning Process” an easy and effective way to manage the accounts receivable effectively. You can define the credit control policy. ERP automatically sends reminders, notifications, and alerts to ensure payments are received on time.
Thus, you can exercise stringent control on spending, avoid unnecessary or unplanned expenses, ensure positive cash flow, and Healthy working capital.
3. ERP helps implement Business Discipline
You need good business discipline in every function of your business and at every stage if you want to scale & grow.
With ERP Software, companies can set up business discipline by defining clear guidelines, processes, and standards for Production, Inventory, Sales, Procurement, Finance, Quality. Read more specific examples of how to implement Business Discipline for each function.
Business Discipline enables optimum utilization of resources, eliminates wastes, avoids delays & bottlenecks, strict quality control, assured product quality. This helps to speed up production, ensure faster time to market, save costs and improve profitability
4. ERP helps achieve Cost Reduction
Cost Reduction is the process to identify and remove unnecessary expenses from businesses to increase profits without impacting product quality. Companies should identify the Biggest Costs and mark cost-cutting areas for continuous improvement. With ERP Software, companies can achieve cost reduction in areas such as Procurement, Inventory, and more.
Procurement Cost: Implement a companywide procurement policy, aggregate demands, perform bulk procurement, with staggered deliveries, increase supplier base, improve negotiations, to achieve optimum procurement costs
Inventory Costs: ERP software ensures accurate demand planning and provides real-time accurate visibility of inventory. ERP helps implement inventory classification, inventory valuation & inventory control methods. ERP helps to specify Lead Time, Reorder Points, Safety Stock of inventory. Thus companies can set up alerts & notifications for just in time purchase of inventory. This ensures funds are not locked up in inventory and also saves on inventory holding costs.
Measure & Monitor Costs: ERP provides Specific KPI based reports & insights for measuring & monitoring various costs in the business. This helps to keep a close eye on the manufacturing cost per unit. Based on the reports and insights companies can take corrective measures to reduce manufacturing, administrative, operational costs across the organization.
5. ERP helps define KPIs & monitor Performance
Every organization should focus on the KPIs to achieve operational efficiency, improve profitability, and grow and scale business. ERP Software enables defining appropriate KPIs to monitor, control, analyze, and optimize the processes. You can ensure optimum utilization of the resources and consistent quality to customers. You must monitor and review KPIs weekly, monthly, or quarterly as agreed upon.
Read more about how to define, measure KPIs for Plant & Machinery, Inventory, Procurement, Sales, Quality, Customers, Employees here.
6. ERP helps improve Employee Productivity
ERP Software is a great mechanism to improve employee productivity. ERP software reduces paperwork & manual work by digitizing & automating routine tasks. It eliminates employee efforts in gathering & reconciling data across locations. Improves Employee communication & coordination with Alerts, Notifications, Reminders, e-Approvals. ERP software makes reporting easy & fast, at the click of a button. This saves a significant amount of time and employees can make data-backed, timely, decisions.
Employees will then be able to focus on value-added activities such as designing better business strategies for bringing speed in business, acquiring more customers, and superior organizational performance.
7. ERP helps become a customer-centric organization
Always put yourself in the customers’ shoes and see what they need. If you can become a customer-centric organization and provide maximum value to customers, you will surely gain “Happy Customers” who spread the good word about your company and it will become easier to acquire new customers.
Salespeople can use insights from ERP CRM Module to provide valuable advice, personalized recommendations as per customers’ needs, this helps build trust, credibility, and establish long term relations. ERP provides a close watch on the supply chain and ensures the timely delivery of products to customers.
ERP enables us to inform customers about order confirmation, share details about dispatch, email invoices. ERP tracks their service request, complaints, and enables companies to provide prompt service and action to ensure customer satisfaction. Based on customer feedback, companies can provide innovative products to meet their requirements better. This helps to achieve, customer retention & addition, which is most crucial to improve your profit margins and grow your business.
If you are looking to grow your business & increase the profitability of your business, be extremely vigilant about every area of your business. Define KPIs and monitor your performance religiously. Keep a close eye on any signs, symptoms, indicators that can help you Plug the Leaks. As they say, A Stitch in Time, Saves Nine.
You can consider leveraging ERP Software & technology to digitize & automate your business to achieve the above-mentioned objectives.