What would you do with $1,000,000

With $1 million you:

o Pay the debt?

o Buy new equipment?

o Invest/save for the future?

o Give yourself a bonus?

$1,000,000 Waiting in the wings

What do you and your business need that you’ve been putting off because you don’t have the money today? $1,000,000 would certainly cover those needs. But where do you find $1,000,000 lying around in your business right now? Well, you probably have $250,000 in each of the four areas of your day-to-day business and don’t even realize it.

Money in Business Procedures

So let’s look at four places in your business where we’ll find $250,000 each and see how we can help you find it:

Part 1: Inventory – $250,000.00

Part 2: Accounts Receivable – $250,000.00

Part 3: Sales – $250,000.00

Part 4: Accounts Payable – $250,000.00

Part 5: Procedures – $1,000,000.00

Turn cash into time with a new company policy

But what exactly is this source of cash? Is the time. If you’re looking at $250,000, then it’s costing you $4,808 every week you’re late. So what you do with your time literally equals the costs of delay or can lead to savings when you take action and control your time. To correct this delay cost, an increase in speed must follow, which will make the difference between ‘good’ and ‘excellent’. The consequences of this change in system speed increase discipline and competition: the ability to maintain top speed and the ability to make adjustments to achieve ‘big’. So how do you tell the difference?

Eliminate inventory and increase cash

Let’s start with the biggest and most obvious source: your balance sheet, specifically inventory. If you are a manufacturer with inventory of $300,000 or more (raw materials, work-in-process, or finished goods), STOP! We found it. Why? Because inventory is a non-earning asset. Inventory is money, and having it lying around in your factory is not where your money belongs. So if we reduce inventory to just-in-time (JIT) levels, we can eliminate 85% or more of your inventory, which translates to $250,000 in cash. But that is not all. You’ll also save another $50,000 or more in annual inventory carrying costs. With less inventory, there are lower inventory carrying costs. Let’s see an example of what we are talking about.

Manufacturing Business Procedures Case Study

A manufacturing organization with 2 million in average inventory balance needed assistance. We examine your inventory consisting of raw materials, work-in-process, and finished goods to understand and quantify workflow issues, workload, and demand forecasting. We then design and implement a process to improve your inventory cycle and link it more closely to your actual sales.

The metrics we developed reduced their inventories by 85% and increased their manufacturing cycle efficiency from 60% to 90% within 120 days of implementing the new procedures. With these new processes and reports, the company now tracks manufacturing cycle efficiency and lead time variance, rather than just units produced, as a measure of its manufacturing effectiveness. The result: additional capital plus a 50% increase in process capability (capacity).

Methods for designing the new process

By becoming more efficient in the process, we can use time not as a detriment but as a significant benefit to our business. Step by step, let’s take a deeper look at how time and efficiency play an important role in your business.

Increase the accuracy of demand forecasting. We just need enough inventory to meet demand, and that’s where part of the problem exists. If demand cannot be forecast accurately, then we end up offsetting this unknown with inventory.

Increase the efficiency of the manufacturing cycle. How well manufacturing resources are used to produce a product determines the efficiency of the cycle. Defective product, product rework, and long delays between manufacturing cells cause inefficiency, which can be easily calculated. Raw materials must be converted into finished products as quickly as possible. The rate at which this occurs defines the efficiency of your manufacturing cycle.

Increase supply chain returns. Increasing the number of times purchases are made can increase acquisition costs and unit costs due to smaller order quantities. But you will benefit by increasing your cash flow and eliminating the cost of carrying inventory (warehousing, material handling, taxes, insurance, depreciation, interest, and obsolescence totaling 25% to 35%).

Eliminate safety stock. Safety stock is really just a buffer to forecast supplier variance and lead time. While many levels are arbitrarily set in automated MRP systems, it will be necessary to reduce safety stock levels due to improvements in demand forecasting accuracy, manufacturing cycle efficiency, and changes in the supply chain. .

Reduce purchase errors. This can reduce excess stock and, more importantly, minimize out-of-stocks that result in costly rush purchases. Sell ​​surplus and obsolete inventory or return it to your supplier.

Eliminate delivery variance. Do not allow suppliers to deliver before or after and make sure that the delivered quantity does not vary from the order quantity. After all, delivery errors cause the need to carry more inventory. Instead, provide vendors with forecasts of future needs.

Personal shopping train. Provide your purchasing and materials management staff with formal training. This will arm them with better negotiating skills that will result in better prices and terms.

Procedures provide time savings

So, as we have seen, we must use each element of the process to extract the greatest benefit from our business. With time-saving procedures in place, you’ll let your efficiency work for you.

Time saving Provide cash in bank

With well-defined processes and procedures, you will increase efficiency by increasing inventory turnover. And of course, an increase in inventory turns means an increase in cash on hand. It’s there, all you have to do is grab it.

In the next part of this series, we’ll look at $250,000 in accounts receivable, another step as we move toward our goal of 1 million in savings. So, aim not only to reap the rewards of additional savings in your bottom line, but also to see more cash in the bank – $1,000,000 to be exact.