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Most managers issue their reports on a regular basis; weekly, monthly, bi-weekly. Some post charts once per month or maybe send an email to an interested group every week or two. Some send nothing and track very little and then claim to wonder how things go to hell so quickly.
Your employees easily become indifferent. Everyone who receives these notices watches the information, but because of the regularity sometimes become indifferent to the data. One thing that needs to be remembered is that events do not happen on a regular basis. Sales fall off fast. Production stalls and issues with vendors cause logjams.
Increase reporting frequency when things are awry. The one main thing you can do when these things begin to veer off the road is to immediately begin to publish your data more frequently. It will get everyone’s attention because the beginning of bad data warrants action and attention to detail. Someone needs to act and take responsibility. Here are some examples of this good business practice to attempt to thwart looming threats to the firm.
Data Trends Indicating Future Problems:
- Accident tracking: When recordable accidents are beginning to rise, publish the accident data more frequently by department, department head or maybe even by reason category. Expand your detail and analysis. Put the data on a chart and compare it to the past six months or last year if necessary. Why? An increase in recordable accidents may be an indicator of a major accident coming down the road, resulting in lost time or severe injury and higher medical costs. It does not necessarily mean this will happen, but when recordable, begin to increase; you must find the source for the increase risk in your company. You need to analyze what is causing these near-misses. If you post this accident chart once per month and incidences begin to increase, try to do it weekly or maybe even twice per week. If you currently do it weekly, try posting it twice a week or even every day until you get this potentially costly problem under control.
- Sales shipments tracking: Sales tracking is important, especially for those managers who are paid from net profit. Tell them they are behind in shipments and they respond positively. Give them financial feedback. For most businesses, the only way to increase that personal bonus is to get shipments out. If you post a sales tracking chart once per week and sales are behind, start posting it every day. Do not post it at the end of the day with data over a day old. Post this data first thing in the morning so it is there for everyone to see on the wall or waiting in their email as they enter the workplace. Let them know immediately that they are behind and need to analyze why, or, reward them by telling them the sales chart is up and their efforts paid off. Acknowledge the change, up or down. Make it pertinent and timely and a driver for getting back on track. Email this chart, data sheet or short email to a select group of responsible managers if necessary. Call those individuals to bring their attention to the fact your firm is running behind on shipments for the month. If they are earning monthly incentives, they will always appreciate it and if they do not, you have the wrong individuals in your organization chart. You might as well find out now what drives your staff so you can react.
- Sales order tracking: The most important thing a company can do is obtain future business (sales orders, customers’ purchase orders). Your sales department should be required to submit a forecast so incoming orders can be measured against a goal or forecast. When that trend is lower than goal, someone needs to be alerted as soon as possible, not at the end of the month when it is too late. If you post this chart once per week and incoming orders begin to lag behind forecast, post it beginning every day so the stark reality that the company is behind in getting new business is addressed early every morning. Maybe you post daily until you are ahead of forecast and then once per week once you are exceeding forecast. You determine the frequency but do not neglect trends that forecast problems ahead. Address them every day and do not run from them.
- Past due Accounts Receivable balances: If your firm extends net 30 day terms to customers, you probably watch all invoices that climb past 30 days. If this 5% on a regular basis and seems controllable, you may think everything is normal and under control. One day when you print the report and find 15% or 20% now are past due from many different customers, you not only need to pay attention to those past dues, but also find out what has happened that is causing collection problems. You may have a procedure problem where invoices are not going out on time, pricing is wrong, no purchase orders are noted, resulting in invoices being stopped or a myriad of other errors.
- Inventory balances: All businesses are different so maybe 180 days of inventory for your firm is normal. Maybe you choke on 60 days of inventory. Regardless of what it is, measure it regularly. For this measurement, watching the trend is more important than anything. An increase in inventory indicates your cash is being put into product in the warehouse, or your sales are falling, or you are building inventory types that do not sell well, or you may be your costs of product are rising. Once inventory is seen climbing, one needs to watch the details (raw, work in progress, finished goods, and consigned goods). If a rise in inventory is bad for your firm, measure and post it on the wall or email every day. Add further detail as to what is out of control by type, location and department or division head.
- Returned goods: You should expect product to be returned at some normal industry rate. When that returns ratio rises as a percentage of all shipments, you must find the reason. Are there problems with a machine line that is causing product problems? What has happened to inspection (QC) that product problems are not being caught either at the machine by the operator or at the shipping dock? Who passed the product? Are the goods being returned because too many were shipped by the shipping personnel? Were the wrong products shipped (shipping error)? Once you see a dollar and percentage trend chart over a period of time, you will catch increases and not just flukes. This is where the reporting and analysis of your quality control personnel is critical for understanding the problem your firm has in the marketplace.
- Annual Sales per head: This is a tricky ratio to calculate, but necessary to see if you are converting incremental sales efficiently. Annualize your monthly sales or annualize the last three months’ average and divide it by the number of fulltime heads (include all temps pro-rated on a 40 hour basis to get full time equivalents). You want to see that you are generating an increasing amount of sales for the personnel you have on your payroll. Are you getting the sales bang for your buck? Some companies add lots of people but end up with diluted higher sales (average sales drops which indicate it takes more people to get out incremental sales?). Watch for problems that are deceptive; more work farmed out, less labor intensive work received, more service fees charged with less required maintenance resulting, etc.
- Net profit dollars and percentage of revenue: Measure your net profit dollars and divide that into net sales to get your net profit percentage. As your sales increase, you naturally want net profit dollars to rise but more importantly, you do not necessarily want the net profit percentage to drop. Why increase sales for no additional net income? Why increase sales with no net income when the only thing you are raising is risk for the company; more shipments equal more risks in the market.
Capital expenditures per capital plan: Theoretically, your management group should plan a level of capital purchases to keep the company viable (i.e. newer faster equipment, more extensive software programs, new truck fleet for deliveries, additional stores, upgrades to displays, computer upgrades, faster network systems, etc.). When the company begins to slow these purchases, ultimately it will lose its competitive edge in the market. Track your purchases and project spending throughout the balance of the year. Track it against your original plan. Your new capital list should stem from the worst pinch-points discovered by your engineering personnel, roadblocks your sales people are hitting when asked for products or services your company cannot offer because it lacks the newer equipment.
