Let it be any business
Yagna Promise is chaos to success
Focus and eliminate the excess
Grow the business with Yagna process
We will introduce Yagna Entrepreneur Success Services and then move to Part 1 of the series.
Why does Yagna Entrepreneur Success Services exist? (Yagna for short)
- Yagna believes it possible to significantly improve the productivity of any business.
What does Yagna do?
- Yagna mission is to make SME entrepreneurs successful and by that facilitate the faster transition of the Indian economy from under-developed to developed
How does Yagna plan to accomplish its mission?
- Yagna has created results based innovative platform to attract talented resultant entrepreneurs.
In this series, we will share the method and experience of moving SME businesses from Chaos to Success in a short period of time.
The typical profile of the company considered in this series is a manufacturing company in business for at least 10 years with a proven product.
In Part 1, we will introduce a simple framework to understand any business and related terminology. In subsequent parts, we will cover different aspects of Chaos to Success journey viz.
- Identify core cause leading to Chaos
- Get control over Chaos by addressing the core causes
- Capitalize once Control is in place.
Most of the concepts in this series will be drawn from the body of knowledge (BoK) developed by Dr. Eliyahu Goldratt. This BoK is popularly known as the Theory of Constraints (TOC).
Let us start with the basics.
The first question is what is success? What is the goal of any organization? (For-profit organization)
Is it Sales, Market share, Customer Satisfaction, Employee Satisfaction, Gross Merchandize Value, EyeballsJ?
It is important to agree on the goal else we will end up shooting in different directions.
Yagna considers goal of any organization to be Making More Money Now and in the future.
Isn’t this a very ‘capitalistic’ inward looking view? What about customers, employees, suppliers, society?
Isn’t the purpose more important than profit? Doesn’t making money create conflicts for managers?
In order to make money on an ongoing basis it is necessary to have satisfied customers, suppliers, employees and society at large (stakeholders). Our belief is that if one of the stakeholder is dissatisfied the goal is jeopardized. Hence satisfied customers, employees, suppliers are necessary conditions for making money. (One can put either of them as goal and making money becomes a necessary condition)
Next question is how do we measure goal of making money?
Money is generally measured in terms of Net Profit, ROI and Cash Flow.
TOC proposes 3 simple measures – Throughput (T), Investment (I), and Operating Expenses (OE). These serve as bridge between financial measures and decision making in different functions.
Throughput (T) is calculated as Sales less Truly Variable Cost (TVC). All costs other than TVC are considered as Operating Expenses (OE).
In order to make T, company needs Fixed and Current Assets. This is Investment (I).
Do you think T, I, OE connect to Net Profit, ROI and Cash Flow? If so, how? Think about it, we will discuss in Part 2.
The goal of any company is to make more money now and in future, measured through increasing absolute T and Productivity ratios of T/OE and T/I.
Yagna believes it is possible for any company to acquire the knowledge and skills to make this happen.
Next question is where does a company focus in order to make money? Sales, TVC, OE, Inventory?
It is clear that if the company has to grow it cannot focus is on reducing cost. Growth has to come by increasing sales volume and sales quality.
In order to increase sales it is necessary to satisfy a significant need of the customer in a way that competitors cannot easily copy.
What is the significant need of the customer? Is it Quality Product, Lowest Price, After Sales service, Delivery or something else?
Our experience suggests that in most industries customers have an unmet need of fast and on-time delivery.
In case a company can build capability to deliver significantly faster and on time it can become a competitive edge. The word ‘significant’ is important, a small improvement will not work. Typically lead time needs to be least 30% lower than competitors with 95%+ on time Delivery.
How can a company develop speed and reliability?
We will address this question in Part 2. For now let us just get introduced to the term FLOW.
We look at any business as a mixture of interconnected FLOWS. The word Flow brings to mind movement, preferably with speed.
There are typically 4 Flows in any manufacturing organization.
- Material Flow – Order Fulfilment – all the activities from the time order is received till it is dispatched / installed (if relevant)
- Order Flow – all the activities from the time an opportunity is spotted till it is converted into an order
- Money Flow – all the activities around collecting and paying money
- New Products and Ideas Flow – all the activities from the time an idea is triggered till the product is launched and minimum Throughput secured / or an improvement project implemented
See you in Part 2 ….