Operations & the Big Lever
Every product company faces the dilemma of balancing growth and profitability irrespective of where the company and its products are in their lifecycles.
For small and mid-size companies the problem is especially acute given limited resources. However, larger companies are not immune from these problems either. The big challenge -
- How to balance growth with the needs of overall Operations and Product profitability?
Sales & Marketing lead the field in executing on the growth path (supported by Operations & Engineering). But who takes the lead with this Balancing Act?
At Zyom, we have found that with the right leadership, Operations is in the best position to lead the balancing act. Why? Since Operations has to constantly balance supply with demand and answer the question –
- How much to invest in additional capacity, materials, other resources? How to do all that while keeping unit cost of products low?
Fortunately, whatever the lifecycle stage of a company’s products, or its market strategy – ‘high growth’ or ‘high profitability’ or a mix of the two - the big lever at the disposal of management to measure Operations is – Inventory … or, Is it such a good lever?
Our work has demonstrated that Inventory most often is the symptom and the root cause may lie somewhere else. With outsourced manufacturing managing inventory has become even trickier.
Companies are hamstrung with this single lever approach to managing Operations. This is similar to driving a car which has an accelerator and a brake only, with very limited ability to make turns. The car rides well on a flat, straight path, but when it has to navigate twists and turns the car comes to a virtual stop, or it can loose traction and skid off the road.
There has to be a better way to manage a Company’s Operations. This is what we have been working on since the very beginning (in 2003).
A Better Way - Manage Profitability across Lifecycles
Our work across different companies and industries has shown us that there is a better way – something we call ‘Lifecycle Profitability’. With this approach, the single lever approach to managing Operations is forsaken.
Instead, this allows Operations to make decisions and plans that are based on where the company’s products are in their lifecycles, and then execute on their plan with a new set of measurements. The goal is to maximize lifecycle profitability – profit across the lifecycles of products.
How to manage Lifecycle profitability?
The good news is that managing profitability across lifecycles is possible. All Operations improvement initiatives to date – Constraint-based management, Lean, Six-sigma, Postponement, ABC – contribute in a positive way to Lifecycle profitability. However, this is not enough.
Lifecycle profitability requires a new thinking, new processes and new systems or tools that can draw data and even analytical results from existing systems. This will enable Operations navigate the twists and turns on the road at fairly high speeds without falling off the road.
And yes, this is not prohibitively expensive to implement.
Lifecycle Profitability - The Key Elements
The two key elements of Lifecycle profitability are –
A) Demand responsive Operations – Operations that can understand and identify profitable demand and respond swiftly to the demand needs.
B) Cost competitive operations – Operations that can service profitable demand in the most cost efficient manner.
An Operations team that can strike the right blend of these two can build the foundation for profitable growth and maturity across lifecycle, execute systematically and create a strong competitive position. This is where Zyom and its solutions comes in.
about this best kept industry secret.