Friday, 27 April 2012

What is a Work Order?

Work orders from OfficeBooks
If you've been in business a long time, you can take some of the lingo for granted.  I can remember the moment during my first few weeks in a manufacturing environment when I realized "everything is an order".  We got purchase orders from our customers, so we created sales orders in our system, and the operations people created work orders to get the products built.  The supply chain group would issue their own purchase orders to our suppliers to get materials for the newly created work orders.  I'm guessing it's some vestige of post-war management.  In the military, if you want something done, you issue an order.

So - what are work orders?  There are several types, but they all generally fall into two categories: manufacturing work orders and service work orders.

Manufacturing work orders are used to get products built by your manufacturing group.   Generally speaking, it's a document that shows the employee the product to be built, the quantity to build, and the due date for completion.  The work order usually includes (or is accompanied by) a BOM (bill of materials) for the product.  The manufacturing staff can use the BOM to gather the required components from your inventory (a process called picking).

From a systems standpoint, work orders are a means of converting the inventories of components into inventories of finished goods (the product).  So when a work order is completed, the system removes the appropriate quantities of the components from inventory and adds the completed quantity of product to your inventory.

Service work orders are quite similar, but they tend to have no bill of materials (or a very simple bill of materials).  Service work orders are common for plumbing, electrical, or maintenance and repair operations. For example, the dispatcher at a plumbing company gets a call from a customer with no hot water.  She would issue a work order to one of the plumbers to go to check it out.

Service work orders are intended primarily to track your labor and link it to the associated invoice.  The plumber in the example would complete his hot water tank repair and get the customer to sign the work order document.  He'd then hand the work order back to the dispatcher when he returned to the office.

Systems like OfficeBooks can be used to issue both service work orders and manufacturing work orders.

I've created this sample work order using OfficeBooks.  You can also click here to download a sample work order in PDF format.
Sample Work Order from OfficeBooks

Thursday, 26 April 2012

Why Inventory Control Matters

It takes a while to learn some lessons in business.  Eventually I learned that inventory control is really important.  Inventory control is not sexy.  But inventory control can make or break your enterprise.  Here are my top 10 reasons why inventory control matters...

1.   Inventory = cash

Inventory is not a business expense, it is an investment.  When you are buying inventory, you are trading wealth in the form of cash for wealth in the form of stuff.  Inventory is not tax deductible.  To the tax man these two pictures look the same.

2.   Warning: Volume Discounts!

If we buy twice as many we get get a lower price.  But if we buy twice as many then we will have less cash in the bank, less cash to pay salaries, less cash to invest in new equipment and less cash for research & development and advertising.  What is the cost of this cash?  Think 30% per year.  If you can save 30% and use up the inventory within a year, then it might be a good idea.

3.   Bring inventory in too soon and your cash is all tied up

Timing is everything, you want the inventory to arrive just in time.  Items should be scheduled to arrive when they will be needed, not before, not after.  This minimizes the space used for inventory, this minimizes the cash tied up in inventory.  Often blanket orders can be placed with a supplier that enable you to get a volume price based on your annual requirement but with deliveries that can be scheduled though out the year.  Tie this together with 60 day payment terms and things are starting to look good. 

4.   Bring inventory in too late and you lose customers

A store with low inventory is not a good store.  A manufacturing operation without raw material is an operation that is running at a very low level of efficiency.  Ultimately customers will go elsewhere to find the products they need.  Because customers always want products RIGHT NOW!

5.   The tax man thinks inventory and profits are the same thing

Inventory is not an expense, it is an investment.  Your profit for the year, in the simplest terms possible, are as follows;
Profit = Sales - Purchases + Change in Inventory

The taxman and auditors take your change in inventory for the year very seriously.  This is why they want you to do a physical count at the end of every year.  If you use your inventory control system for all of your inventory transaction and your sales and purchasing then you will be in a great position at the end of the year to quickly verify your inventory (perhaps counting only the top 80% of the value, which often equals only 20% of the items).

6.   Don't increase inventory to cover up for a bad inventory control system

A poor inventory control system will eventually lead to angry customers waiting for products and this will lead to angry bosses. Fortunately, there is a handy quick fix, order piles of inventory so everything is always on hand.  Unfortunately this just burns up cash and wastes money.  A far better solution is to invest in a sensible inventory control program that keeps track of all your inventory, sales and purchases and lets you know when it is time to order something.  (OfficeBooks is a good choice for that).

7.   Turns, Turns, Turns

There is more than one way to measure inventory.  The first is value, what is the total value of all my inventory?  Simple.  This is a good number to know but it doesn't capture how well you are managing your inventory.  A more interesting number is turns.  Inventory turns are the number of times (usually per year) that your inventory is replaced.  Surprisingly it can be calculated by;
Inventory turns = cost of good sold / average inventory

So if the cost of everything I sold this year was $1M and my average inventory is $500,000 then my inventory turns are 2.  Our goal is to maximize this number.   If we can increase inventory turns to 2.5 then our average inventory has dropped $400,000 and we just put $100,000 into our bank account.  If your inventory turns are less than 1 then stuff is hanging around for over a year. 

8.   More ways to waste money; Holding Costs

There are hidden, insidious costs to inventory.  These are called holding costs.  These include; counting inventory, protecting inventory from theft and damage, insuring the inventory, storing inventory, moving inventory.   Inventory takes up expensive floor space, it must be counted by people, it must be protected from damage and very frequently it must be handled and moved to make room for more inventory.  Inventory in your facility can be damaged, dropped, scratched and stolen.  So you need to buy insurance for your inventory.


9.   Use computers to monitor inventory 

Computers are great at monitoring things, and inventory levels are easy for computers to monitor provided all of the sales orders, purchasing and work orders are done on the same computer system.  Setting inventory minimums (mins) and  economic order quantities (EOQs), allows computers to make good recommendations on what actions should be taken to keep the inventory at your target levels.  

10. Use people to think and take Action

I like to have a person in the inventory control loop.  People make good decisions if they have good data.  9 times out of 10 computers could correctly issue purchase orders and work orders without any human intervention but that 1 time out of 10 can really hurt.   Maybe there is bad data or information that the computer is unaware of.  That's why we designed OfficeBooks to be semi-automatic. The system 'flags' the user to buy things or make things.  The user is really just doing a sanity check before clicking the buy button.  Does this make sense?  Does this price seem sensible?  Do we really need this inventory?  Is the minimum set properly?  Can I put this on a blanket order?  People are creative and thoughtful.  Computers are fast.  Best to combine their talents.

Good Luck with your Inventory Control!

The Surprising Science of Motivation

Part of the magic of being an entrepreneur in this day and age is that you have access to a tremendous wealth of information and insight from people who know what they're doing.  The TED series of talks are a great resource  - and we think Daniel Pink's talk on motivation is excellent and worth your time.

Thursday, 19 April 2012

OfficeBooks Update

Welcome back to OfficeBooks.

The new UI for purchasing is now live!  Beyond the new look and feel, you will be excited to learn that we have integrated POs to QuickBooks online.   We will be adding Budget controls and PO approval chains shortly.  There is a pricing change for the purchasing package (now $49/month) to reflect the increased functionality. 

We will be extending the new UI to the Distribution package next.  We expect that to be released in early August.  Finally - the new UI should be released to cover the complete application by mid-September.

For frequent updates on OfficeBooks including new features and service updates, on Twitter.

Thursday, 12 April 2012

Why ISO Implementations Fail

I'd venture to say most first attempts at ISO implementation fail.  I could be wrong - but that's been my experience.  In today's post, I'll review my thoughts on why these initial attempts tend to fail.

ISO is a framework for your quality management system (QMS).  There are other frameworks, but the world seems to have settled on ISO as the true standard.   Getting your business processes in line with the ISO standard helps ensure that you will execute against your business objectives and (equally important) be able to work smoothly with other ISO compliant companies (both customers and suppliers).  In other words - ISO is a good thing.  Unfortunately, poorly planned implementations tend to leave a bad impression on people.

So why do ISO implementations fail?  

#1 The single biggest reason is over documentation.  

You don't need procedures for every last thing you do.  Trying to document every single thing you do is a giant waste of time.  You will probably never get it done and you will unnecessarily disrupt working undocumented processes.    The standard has a prescribed minimum level of documentation which is very manageable.  ISO9001:2008 requires documented procedures for:
  • Control of documents
  • Control of records
  • Internal audit
  • Control of nonconforming product
  • Corrective action
  • Preventive action
You also need 3 governing documents:
  • Your Quality Manual
  • Your Quality Policy
  • Your Quality Objectives

Here's the cool thing - you can combine some of these procedures and documents.  Corrective and Preventative actions are often combined into a single procedure.    The three governing documents can all be lumped together into the Quality Manual.  So (from a documentation perspective) you can comply with the ISO standard with only six documents.

#2 Waiting too long

Newer small businesses are in the best position to implement ISO.  They have a relatively small number of employees, there are few existing procedures to adjust or tweak into compliance.  Their lack of process is a hurdle they need to overcome.

Big established businesses on the other hand face a range of challenges.  A large workforce is sure to have some stubborn members who will resist ISO implementation.  There will be a range of uncontrolled procedures already in place.  The task of communicating the plan throughout the organization is complicated by the organization's size and layers of middle management.  There are strategies to facilitate implementation for large organizations - but there's no escaping the "big job" ahead of you.

#3 Putting ISO ahead of your business

Your QMS should support your business, not hinder it.  Taking an existing (undocumented) procedure and disrupting it by creating a completely new documented procedure is just wrong.  If the existing procedure works - just document it.  Sometimes working undocumented procedures don't meet the requirements of the standard.  If that's the case, look for ways to bring the process in-line without tossing the baby out with the bathwater.

#4 Insular systems (failing to actually implement your work on the QMS)

Your Quality Management System and your Business Management System need to be one in the same.   In other words, you need to actually use your procedures.  Don't write them up and ignore them.   Remember, your goal is to improve your business.  Be earnest about it.

The ISO people have a very resource rich website.  I'd suggest you start by reading these documentation requirements for the 9001:2008 standard.

There are probably a few dozen other common reasons that ISO implementations go awry.  These reflect my own experience.  Want to share yours?  Leave a comment.

Tuesday, 10 April 2012

CRM redefined - it's way more than software

Customer Relationship Management.  That's what CRM stands for.  There are several approaches to CRM.  Most CRM is driven by software that ties together records of all your interactions with customers.  With records all in one place, your team is able to deliver a consistent message and experience to your customers.

It's a good concept - and to be fair to the business people of yesteryear - it isn't a new idea.  Keeping track of your customers and their own particular needs has always been a basic requirement for business people.  Software has allowed businesses to adopt a more formal, systematic approach to tracking customer data and using it to optimize the revenue potential from each customer.

These days there are countless software solutions on the market for CRM.  In a bid to stand out, several of the CRM providers are introducing features to "leverage the social web".  At first glance, these features make sense.  If you have customers talking about you (good or bad) on Twitter or Facebook - you want to know about it and be able to respond if appropriate.  

But it gets creepy.  Several CRM packages now take your customer data and actively fetch their data from social networks for you.  The idea is that you can better connect with a customer if you know that they are fans of a certain sports team, or that they are politically active, or whatever.  The thing is, people are very perceptive and they respect authenticity.  You shouldn't fake a connection or a common interest.  Be genuine.

Building genuine relationships is intuitive for some people - not so much for others.  Here are a few basic tips :

  • Connections have two ends.  You need to identify a MUTUAL interest.  Asking a Canadian about their favourite NHL hockey team (they'll have one) is pointless if you don't follow the sport.  This is why most initial connections are superficial, but real.  We all care about the weather.  So talk about the weather.  It's a good start.
  • The more specific the connection, the more valuable it is.  Weather is super general, so it simply won't do the trick.  But chasing storms is a weird thrill hobby.  If you both chase storms - that's a strong connection.
  • Don't ask questions.  Volunteer information.  Let your contact make the connection.  There's a natural 3-step structure to most in-person or phone business conversations (it's different by email).  Typically you start with the basic greetings, then you have some casual conversation, then you deal with the meat of the issue, and you're done.  It's the casual conversation step that presents your opportunity to volunteer information.  Say something about what you did with your kids over the weekend.  Give them a tour of your facility and show them some stuff you're working on.  You're planting connection seeds.  
  • Be honest with yourself about your objectives.  You can pick and choose people with whom to connect.  It's okay to keep some people at the "talk about the weather" stage.

The cool thing is, genuine connections gain you influence in any relationship.  So approaching CRM strictly as "Customer Relationship Management" is narrow-minded.  Why restrict the approach to customers?   Imagine CRM as Contact Relationship Management - or ditch the C altogether.  Let's just approach the process as Relationship Management.  Having true, genuine, connections with staff and suppliers is at least as important as the connections you build with customers.  

What do you think?  Post a comment to let me know.