The Bee Hive

Operational excellence is no longer a competitive advantage. Globalization, access to technology, sophisticated communications and highly demanding and knowledgeable customers make it a competitive necessity. If your company is not world class now or becoming world class, chances are it won't be any class in the not too distant future. The good news is that world class business tools and techniques are available and affordable for virtually any company. The brutal truth, however, is that operational excellence has as much to do with the will, drive and focus of the company's leaders as it does with scientific management. Here are a few of those key characteristics that go hand in hand with operational excellence, along with some tips on how to make them work for you.

Something insidious seems to have happened as I have got older. The world as seen through the prism of popular culture continues to be dumbed down. Stupid seems to have become mainstream. This appears to have occurred both in general and business society. Now, it may well be that I am just becoming one of the grumpy old men from The Muppet Show. I offer the following for you to judge.

Today, many firms are trying to concentrate on the "core competences." They want to outsource minor tasks and activities when it is cost effective to do so.For a distributor, an example of one of these tasks is the replenishment of less-expensive products. For a manufacturer, it may be the procurement of MRO (maintenance, repairs, and operations) inventory. A popular way to outsource these procurement activities is a vendor-managed inventory (VMI) agreement. Under a VMI agreement, a supplier takes full responsibility for maintaining stock of its products at a customer's facility. VMI agreements differ from traditional consignment agreements in that the customer is billed for material when it is delivered, not when it is consumed or issued. When establishing a VMI agreement, the supplier and customer must agree on:

Most distributors spend a lot of time developing sales projections and budgets for expenses. Each month these forecasts are compared to actual sales and expenses. If sales are lower, or expenses higher than what was projected, management will usually take corrective action to ensure that the company remains profitable.

Budgets are good management tools. Unfortunately, few distributors maintain budgets and projections for what is probably their largest asset, inventory. It is critical to the success of your inventory management system, and your business in general, to develop a budget for the value of stocked inventory maintained in each warehouse. This budget is referred to as the "target inventory investment."

Many employees don't realize the value of your stock inventory and may "borrow" products or take samples for their personal use. Unfortunately, there is another reason why material disappears: theft. Many distributors find it hard to believe that their employees or customers would steal. But unfortunately stealing, especially petty theft, is a very common reason for "inventory shrinkage." And a distributor who doesn't admit that theft is a problem, or a potential problem, is just burying his or her head in the sand.

I just remembered an occassion some time back when I was helping a food distributor deal with their inventory management challenges. The company has begun a program to achieve effective inventory management. As part of the program, they are cycle counting products and entering inventory adjustments when they find discrepancies between the quantity of a product in their warehouse and the perpetual inventory maintained by their computer system. Though the company has implemented a system that corrects current inaccurate inventory balances, it still needs to adopt a system that will improve future inventory accuracy. That is, they need to improve their methods of handling stock to prevent additional stock discrepancies. How will they do this?