In the New Normal the need to manage and generate cash efficiently will be paramount for businesses to prosper and be competitive. I believe this may be one of the biggest obstacles small businesses will have as the Government Support is used and now it is time for the owners to cash flow the business. Status Quo is not likely to generate timely cash to support the Payroll, Inventory Needs, Direct and Indirect costs of the business. There are a few levers that small businesses need to focus on to improve the velocity of sellable product or service. Most small businesses do not measure Leadtime (Days of Time To Convert Raw Material to Sellable Product) and do not understand the amount of cash that is not realized in the Order to Cash Cycle.
Lean Manufacturing promotes tools like Value Stream Mapping to understand the constraints in the process to allow product to flow faster through the process. Setup reduction is another key area of focus that will assist in a variety of ways. As example if a setup takes 12 hours and a typical lot size is 1 months supply (which is typical) the opportunity to reduce setup times from hours to minutes is significant in a variety of ways. Setup reduction is a very powerful aspect of cash generation. A setup of 30 minutes vs 12 hours allows a reduction in lot size, allows a reduction in Finished Goods Inventory, allows the business to schedule to the needs of the customer, creates free straight time capacity and allows a reduction in order to cash cycle.
Elimination of waste must be the focus to eliminate waste in the business. Radical Elimination Of Waste is needed. The typical 8 types of waste are:
- Delay – Wasted Time.
- Over-Production.
- Waste and Rework – Defective Product.
- Non-Value Added or Excess Processing.
- Excess Transportation.
- Excess Inventory.
- Excess Motion.
- Wasted Employee Creativity and Wisdom.
Most small business do not understand why excess inventory is waste. The answer is excess inventory is covering up the process inefficiencies (Constraints) and consumes cash. Most businesses accept this as insuring on time delivery to the customer. This is truly a mistake but not uncommon.
As businesses resume operations there will not be a better time to reinvent the business. I believe Strategic Planning linked with Specific Tactics (Lean Manufacturing Initiatives) will move businesses from a follower to a leader in their respective markets. It is also critical that metrics are identified and the process is measured to understand the gains in the business. Cannot express how important it is to measure the business.
