Background

Gordon manufactured two styles of fiberglass boats: one for water-skiing and pleasure, the other designed specifically for bass fishing. Both boats were manufactured on the same production line, switching between the two models as orders and demand shifted.

Problem

Business was booming. Obviously, that’s the goal of any business so long as you can fill orders promptly. They were selling boats as fast as they could make them, about two boats per eight-hour shift. So they added a second shift running from 4:00 pm until midnight. At first, this second shift was unable to finish two boats per shift but caught up after several weeks. Nonetheless, production was still not meeting demand.

The Solution

Eventually, the night shift needed a new foreman. Gordon hired a rough-hewn character who came with high praise from his last boss. After getting acquainted with the process, he asked his night crew to think of ways to do the job easier – not faster. The men volunteered several ideas for doing the job with less hassle.

About this time I was retained to assist with the production lag time. Using The Profit Process, we met with the two shift foremen and explained the need for a simple means of communicating productivity to the workers. The next day, the new night foreman spread a large length of butcher paper across the wall in the factory. When the night shift came on duty he asked the day foreman how many boats they had made that day. The answer was “2.” Without a word to his night crew, he scrawled a large ‘2’ on the butcher paper. That night his shift completed two boats and he marked that ‘2’ opposite the first one. The following day he again asked the day-shift foreman for their production total and noted another ‘2.’

Sidebar:

Gradually, over just a couple years, production grew from two boats per shift to six boats – all duly noted on the wall chart!

After several days of logging in 2’s for each shift, the night shift workers announced that thought they could complete three boats that evening. They did just that and a large ‘3’ was marked on the wall. The day shift then logged another two-boat day, but the night shift topped it with another three-boat evening. But after a week of being outdone by the new shift, the day workers began producing three-boats as well.

The men developed more ideas for improving both the manufacturing process and the products. Gradually, over just a couple years, production grew from two boats per shift to six boats – all duly noted on the wall chart!

The Result

Due to the continual increase in both product quality and productivity, the business thrived. Eventually the business built a larger factory and added another line of boats. Finally, the business was sold to a national firm to fill in a geographic gap in its coverage and Gordon retired. In two short years, increasing his productivity had increased the valuation of his business beyond his expectations.

Commentary

Having a visible and simple metric for product and process improvement is a powerful stimulus. Given an opportunity, line workers and foremen working together know best how to improve the product and the process. Constant and never-ending improvement is the key to prosperity in all businesses and the ultimate key to customer satisfaction and financial rewards.

Don Morrison’s 12-Event Profit Process makes businesses more profitable—and therefore more valuable. He can be reached at www.theprofitprocess.com.

Background

Harry was in the ready-mix concrete business. With lots of construction and developments underway, concrete was a good business. Like his competitors, Harry ran a busy yard lined with trucks loading sand, gravel and cement for construction sites.

The Problem

To customers, unfortunately, concrete was concrete — an undifferentiated product called a commodity. Harry noticed the first thing contractors asked on the phone was “What’s your price on a yard of concrete today?” Then they called three or four other ready-mix places to find the lowest price that day.

It was easy to be caught in a “race to the bottom”: low prices, skimping on the mix of materials, paying the lowest wages, using poorly maintained equipment, giving poor service — and ultimately getting little or no profit.

The Solution

Harry decided he didn’t want to race to the bottom. He had to do something to rise above the pack. After we analyzed the problem, I worked with Harry to develop a script. He began by asking contractors questions that showed his expertise about the applications of concrete.

First he asked, “Before I tell you my price, tell me what you’re going to use it for?” If it was for footings or for sidewalks, curb and gutter or for wellhead seals, his next questions was, “What municipality are you pouring in?” Because he knew the zoning differences, Harry would remind them that the city and county had different requirements.” Harry even offering bidding advice, telling contractors, “When you get quotes from the other guys, remember to ask for 6 sacks of cement per yard as opposed to 5 sacks, or you’ll wind up jack hammering it up and redoing it.” Then he’d remind them about additives for surface texture or hardening speed. He even alerted contractors that some suppliers of concrete had a “standby charge” if the trucks had to wait to unload–which he did not.

Immediately, contractors were listening closely to Harry’s questions.

By the use of scripts and questions that demonstrated his knowledge of construction requirements, he was able to differentiate his offering. He was not just in the concrete business; he was also in the concrete applications and the “I’ll keep you out of trouble” business.

The Result

Harry became a valuable supplier because the last thing that contractors want is trouble from architects and building inspectors. They learned that Harry had the practical knowledge to keep them out of trouble. And, he consistently got a higher price for his product. The other suppliers fought the commodity price war. Over 15 years, Harry made a good living from good contractors who understood that price is not everything. Finally, having secured his retirement, Harry sold the business.

What happened then is very telling. The person who bought the business had a long history in the other end of the concrete business–concrete as a commodity.” His answer to the question, “What’s your price on concrete today?” was “What’s your best price and I’ll beat it.” In four years, the business was bankrupt.

Commentary

Every business has four components: product, knowledge, service … and then price. In my consulting with small businesses, I have found most of them focus on price, maybe some aspect of product and service, but forget totally about their knowledge – their valuable “extra”. Why? Because it is an intangible. But to customers, it is very important and they are willing to pay for it. It can be the essential difference that set you apart and makes you offering unique.

If you’ve been in business more than 10 years, you’ve forgotten how much you know – the stuff you learned the hard way. Most of your customers don’t have this knowledge. By presenting your knowledge in a systematic way, you differentiate yourself, provide added value to your customers and justify a premium for your offering. Knowledge has value, too.

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Don Morrison, Stanford MBA, CPA, CMA is a Sacramento based specialist at making businesses more profitable-and therefore more valuable. He is the developer of the Morrison Profit Process™, a 12-event sequence designed to enhance the profits and therefore the value of a business. He can be reached at morrison@theprofitprocess.com or at 800-392-5656.

By Don Morrison

Background

Charlie ran an engineering and construction company that specialized in road and tunnel work. They worked over a broad geographic area with most of their contracts coming from state and county governments. Because road building requires good weather, most of their work was designed and bid during the winter, with actual construction taking place in late spring, summer and early fall.

The Problem

One year his firm won a state contract to improve, widen and repave 25 miles of state highway over two years – two building seasons. Charlie and his staff thought they had bid it carefully. But soon after work commenced Charlie discovered they had significantly underestimated the costs of working in certain terrains. The contract was heading for a loss of several hundred thousand dollars and would severely impact profits in not one, but two years. And it looked like a long two years.

The Solution

Charlie and I carefully reviewed the contract and the subcontracts. We contacted all the subcontractors and asked their help to speed up the work and get the job finished in one season rather than two. Charlie explained the financial bind and asked their forbearance in holding costs to the original bid even though it would be more costly to do the work faster. Most agreed and the rest were compensated for additional costs. The state agreed to the speed-up and the job was pushed into high gear.

The Result

The work was completed in one building season. There was still a loss, but it was less than anticipated because the sense of urgency to finish in one season resulted in many innovations, efficiencies and cost savings. The subcontractors all made money by speeding-up their projects. They also earned the gratitude of Charlie and his team.

What was equally significant is that the team faced the problem and put it behind them rather than spending two years in frustration. They had to explain only one year of bad results to the bank rather than two. What’s more, the team freed up that second year for more profitable work. At the end of the job, Charlie hosted a dinner party at a local restaurant to thank the team and subcontractors for their extraordinary effort.

Commentary

“Throughput” is measured by the time it takes from “order” to “money in the bank.” Shortening throughput is a measure of efficiency and waste reduction. Charlie and his team used this crisis to energize a major improvement in throughput.

However you don’t need a crisis to implement a program of “constant and never ending improvement,” with a constant reduction in throughput. But a crisis can be the catalyst for such an initiative. As Charlie and his team found, when a major problem is confronted and made an object of attention, interesting things happen. People perform extraordinary feats under pressure. A sense of urgency causes everyone to work smarter as well as harder. Waste is eliminated. And the immediate future is cleared to pursue new challenges rather than spent cleaning up the mistakes of the past. When there’s a crisis, and bad medicine to take, gulp it down quickly. It can be the impetus for major long-term improvement.

Don Morrison, Stanford MBA, CPA, CMA is a Sacramento based specialist at making businesses more profitable—and therefore more valuable. He is the developer of the Morrison Profit Process™, a 12-event sequence designed to enhance the profits and therefore the value of a business. He can be reached at morrison@theprofitprocess.com or at 800-392-5656.