Most often when the entrepreneur thinks of his or her business it is in terms of controlling finances. Hence we have the double entry accounting system that provides the framework for key performance indicators taken from the three key financial documents. These are the Income statement, Balance sheet and Cash Flow Statement. An example of a KPI is Cost of Goods Sold (COGS) as apercentage of Sales. Finance is just one of four functions affected by growth. Often what gets neglected in growth planning is the efficiency of the Operations Framework. This can lead to overloading and stress on Operations personnel which can in turn cause breakdown and failure in productivity. The focus of this exercise is a single process within the operation of a small company.
There are two basic parts of any operations: Inputs and Outputs. Let’s explore what might happen and options that there are with the following fictional startup:
Stephan Moore recently left his job at Brunswick. Stephan has a plan, he's found a source in South America for clothing that’s willing to sell him quality uniforms and perform the embroidering at a very competitive rate. He has received samples of the clothing and is impressed with the workmanship. After surveying several prospects in his region Stephan has found that there is an underserved market for his proposed uniform rental service. He has decided to call his startup ACME Uniform Rentals.
Within a few weeks of opening his downtown office suite Stephan is in the final stages of choosing an industrial space for his operation. (There are plenty of open spaces in the post industrial city to choose from). He knows that he is going to need commercial washing machines and commercial dryers, since the machines will be operating all day long under heavy loads. The operation will require a loading dock, a delivery truck, carts, shelving for storage and other miscellaneous items.
A suitable building is found two weeks later, the environmental impact statement is complete and all permits are in order. City officials say occupancy is a go. Stephan is able to purchase an 18,000 square foot block building (metal roof, good plumbing etc), complete with two enclosed loading docks. Stephan installs two jumbo capacity washers and five dryers.
The Grand Opening will involve delivery of 4,500 uniforms which have been embroidered with the respective names of twelve accounts which the company will then service (exchange soiled for clean uniforms) on a weekly basis.
The orders for the laundering of uniforms is as follows:
4,500 units per week
900/Outputs and 900/Inputs over five days.
The two washers combined can wash three hundred uniforms per wash. Three loads are the productivity target, each requiring 1 hour 15 minutes in the dryers. Drying cannot begin until the first wash is completed (two full cycles which) requires 2 hours.
Janice Smith was hired as the laundry attendant. Janice begins her day loading the washer at 8 am. Her first load is removed from the dryer at 11am, and her last load of uniforms is hung and put away by 7:30 pm. Janice often does not have time to take a lunch.
Stephan is very happy with the success of his new venture. After only one month an existing client has referred a large account consisting of a thousand employees (each requiring five uniforms) Stephan has the opportunity to increase his output by twenty eight percent! An additional 5,000 uniforms each month is fantastic for ACME Uniform Rentals.
He has conducted a time study for delivery routes, purchased a second delivery vehicle with GPS tracking and hired a second driver.
I have a good idea how I would approach this situation. But would love to hear your ideas.
Examining the company’s Operational Framework, assuming there is sufficient capitalization Stephan’s objective is to minimize his inputs and maximizes outputs; he also has an investor whom he has a fiduciary responsibility to consider. How would you approach scaling up this company? What would you do first, second and third and why?
Here is a simple engineering formula often used for process control: Percent Efficiency = In + Out/In (100).
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