Pathway to Profit - June 2022

Are You Ready For Explosive Growth?

You will have seen in the financial press articles on the newest sharemarket darling - Bubs Australia. Recently their share price jumped 50% with the news they had secured a new contract in the US to help them fill the void after Abbott Laboratories closed its Michigan plant. Four babies fell ill and two died?after consuming their product.

Bubs are now operating at full capacity and operating 24/7 to produce the product required to service both the current Australian market share they have and this additional demand. This type of growth places significant strain on:

• Production capacity?- both from a piece of machinery and experienced human resource perspective. You will be working your machinery harder. You will have to man the additional operational hours with suitably qualified and experienced people. These people do not magically appear when you need them. You have to take the time to train and test their capability to ensure you have the right people making the right decisions in order to ensure the quality of your product being produced is meeting the right standards. Many companies struggle with this type of expansion as they do not have the supporting policies, procedures or technology in place to ensure this happens without too much disruption.
• Cash Flow?- As production has to increase so too does the demand for your raw materials. This puts significant strain on your sales forecasting ability, your procurement people, your supply chain more generally, your warehouse people and the space they have to work within. All areas of operations and supply chain are placed under significantly increased pressure. Often your ERP system is woefully inadequate to handle the change in pace and demands for information. There are many, many times when existing business systems place significant constraints on a business and in some cases completely prevent the business from taking advantage of the opportunities placed before them. Many businesses run out of cash as their raw material inventory and WIP (work in progress) skyrockets.
• Data analytics?- as I mentioned earlier, ERP and business intelligence systems are often woefully inadequate and cannot provide the data or information executives need.
• Executive's?time?- So many more topics appear in an executive’s meeting schedule and daily task list. Topics over and above the daily operational decisions and matters that have to be dealt with. New decisions have to be made - decisions like:?where do we get the additional raw material from;?can our existing supplier supply what we need;?will we buy from this new untested supplier and if so how much;?how should we incorporate a new supplier into our current mix? Should we buy new plant, buy or lease new premises?

All sorts of new discussions and decisions come on an executive’s horizon due to this additional growth. Many businesses are not ready for this change. And because ERP and supply chain are connected at the hip, should any element of the solution map in either field not be adequate, then you have a risk for a catastrophic outcome as you “step on the gas”?to embrace this new growth. I have witnessed many a business find themselves potentially trading insolvent due to growth. They essentially grow themselves into bankruptcy.

The time to undertake these system improvements is before you are under this pressure.

I was speaking with a client on this topic only the other day. He said, “I wish we had started this ERP replacement project much earlier”. They are experiencing tremendous growth and their people are under pressure to operate the business on a day-to-day basis. Now because we are implementing a new ERP system, the time and effort demand on their people is significantly increased. Remember the quickest and cheapest way to implement a new ERP is to have the very best people you have fully committed full-time to the ERP project.

He is currently experiencing what I try and advise prospects to avoid. But unfortunately, when I speak about commencing these ERP replacement projects earlier before the pain gets too bad, SOME prospects I speak with think it’s me just trying to get a sale.

The reality is if you are showing any signs of growth you need to start thinking about what your supporting systems need to be at least two years before you will need them. So if this is on your radar you need to be thinking about this NOW.

One client of mine who got the timing right resulted in the business growing by seven times -?700% growth in revenue.?While I would love to take all the credit for that growth the reality is that credit goes to their sales and operational teams. They did the work. What I did for them was to provide advice and assistance for them to find and implement a system that allowed the business to fulfil and meet the promises the salespeople were making to customers. They became the most reliable supplier in their industry and the growth followed.

The very best time to have started an ERP replacement project was six months ago. The next best time to start is now. If you are experiencing growth, please?reach out to me for a confidential discussion about what is possible for your business.

When Big Things Go Wrong

I was watching a Netflix show recently called, “When Big Things Go Wrong”. It is essentially a documentary about engineering failures like bridges or building collapses. They investigate a number of different catastrophes and build the story around identifying what went wrong and outlining any lessons learnt. It is similar to the aircraft investigations program that fundamentally is designed to make everyone feel safer flying because, as an industry, aviation has learnt so much after each crash. I based?my first book?on a similar principle, that many digital transformations in business are not dissimilar. There are similar common issues and lessons learnt. The key contributing factors outlined in the Netflix series are:

• Flawed design
• Missed signals
• Cutting costs

In the digital transformation space and ERP more specifically, those contributing factors relate to the following.

Flawed design?can occur when:

• You have people working on your project in your design phase that will not be involved in the implementation. Their level of concern can be less than stellar?and they have no vested interest in getting it right as it will be someone else’s problem when the implementation comes along.
• You have inexperienced consultants from your software vendor who have poor knowledge of the software and are limited in their delivery experience. They will often provide you with the design or configuration advice based solely on how they configured the software last time they worked on a project, rather than?advising on what will make the best use of the system’s capability for your business. They can often be different. Just because one particular configuration worked in one business does not necessarily equate to it working in yours.
• You have inexperienced people from your organisation working with the software vendor’s consultants. If you don’t have those who know the business the best they may not be presenting the full picture to the software vendor’s consultants.

Missed signals?can occur when:

• Delivery dates start to slip on a more regular basis. Often the relationship status amongst project team members is such that the level of accountability required is not called upon until it is too late. That is often because executives use the wrong management tool or technique on these projects. They rarely make the distinction between a project team and a committee for example. A key mistake.?Watch my video on this topic below.?
• The quality of work is not up to the standard expected.
• The level of attention is not at a level required to ensure success.
• There are lots of small issues that never get resolved. ERP and digital transformation projects fail because they suffer the “death by a thousand cuts” as outlined above and not one big failure. Miss the signals and overlook corrections and then big things can fail.

Cutting Costs?are impactful when:

• They are cut by purely accounting or finance-driven decisions. A business incurs a cost for a reason and before you indiscriminately cut that cost, one needs to understand what the unexpected consequences of removing that cost will have.

Take an airline, for example, they buy components for jet engines. A number of those components are manufactured and sold by numerous companies.?They are not necessarily tied to the manufacturer of the engine for parts like fan blades. Just as you and I are not committed to the dealer we buy our car from. We have the choice to get it serviced and purchase parts for it from anywhere we choose and on whatever maintenance schedule we choose.

Many of those purchasing decisions are purely cost driven. The TV program?Air Crash Investigations?has highlighted many times where maintenance schedules have been pushed to or past their limits. Where inferior quality parts are used only to fail at critical moments. Our ERP and digital transformation projects are no different.

Many executives make cost-cutting decisions in good faith expecting the result not to be impacted very much. In the ERP space, for example, costs are seemingly cut by not committing a project team full-time to undertake the work. They feel that by having people committed part-time they avoid the additional cost of backfilling those roles with others. The reality is, the quickest and most cost effective way to undertake an ERP implementation is to have a fully committed project team. (Bearing?in mind my comment above on teams vs committees).

I have clients who have made the decision to utilise a part-time team only to find:

• The project work is always subrogated to business as usual demands, meaning it doesn’t get completed in time for the schedule or in as good a quality as it needs to be completed.
• The people involved get burned out having to operate two demanding schedules of work.
• It is a proven neurological fact that task switching is both demanding on one’s brain and slows productivity. Those involved on a part-time basis are task switching all the time.
• The quality of thought applied to a situation, whether that be the solution design, the quality and thoroughness of testing and other project tasks, is not as good as if they were fully committed.

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If you're an executive or owner of a mid-sized or large company and want to discuss ideas on how you can use supply chain tools, business systems and technology to dramatically improve efficiency, decrease costs, increase profits and enhance scalability, give me a call.?

Until next month...

Sincerely,

David

??David Ogilvie

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