Tuesday, September 20, 2011

Process flow in a furniture manufacturing unit!

Sunday, September 18, 2011

How to delegate works successfully?

1. Know What You Want. If you don’t know what you want, you can’t expect anyone else to. No one can be a “mind reader.”
2. Express What You Want Clearly. It’s important to give people a clear vision of what you want. What are your goals? What do you need done? Providing instructions can be helpful too, but don’t overdo that aspect of it. The most important thing is that you express everything you want very clearly.
3. Set Expectations. It’s not enough that you’ve told someone what you want. Make sure expectations are laid on the table. “This will be successful if X, Y and Z happen.” And, “I need X, Y and Z finished by Friday.”
4. Trust. You need to trust those people you delegate to, otherwise you’ll worry too much, micro-manage and generally make a nuisance of yourself.
5. Let Them Do It Their Way. You do things your way, and everyone else has to do it exactly the same way or else. Right? Wrong. Let people do things their way (remember the trust?) More importantly, provide enough flexibility that they can add their own flavor to the mix. Let them create. Let them add unique touches to what they’re doing.
6. Communicate and Follow-Up. Delegating doesn’t mean abandoning someone to do something until it’s complete. You want to be communicating throughout the process (rinse and repeat steps 1-4) and following-up with people to make sure everything is going smoothly. This isn’t about over-managing, over-analyzing and standing over people’s shoulders staring at their computer screens. At the same time, we don’t want to manage with a Jell-O Fist. Communication is key, setting measurable mini-goals along the way, and carefully but not over-zealously monitoring progress.

Friday, September 16, 2011

How to plan bonuses?

Bonuses can be a great motivation tool, even for employees of the smallest business. They can also be a waste of money. How they are planned and administered makes the difference.
Properly administered bonuses can reinforce behavior that will lead your company to success by rewarding people for making a specific contribution to the organization. Bonuses dolled out improperly will lead to disgruntled employees who expect a bonus, but who may not be happy with what they receive.
Set Goals
To reap the most out of bonuses, tie them to clearly-set goals. A good time to set these goals is at the beginning of the year. These goals should be concrete, attainable, and critical to the growth of your business. The steps below will help you set good bonus goals:
  • Set goals with Employees
    Employees are often the best source for information about what job-specific goals will contribute to overall increased productivity, responsiveness, or other business goal. Involving employees in goal-setting will also do away with resentment that can come from the imposition of goals from senior management.
  • Reevaluate goals frequently
    Do this, at a minimum, halfway through the year to insure that goals still make sense and that employees are on track. Big companies tend to have concrete goals but smaller companies let this information slide.
  • Make goals specific and measurable
    Don't set goals such as "Do a better job," because a general goal does not instruct an employee in what steps to take. An example of a constructive goal is "Increase response time to customer calls by one-third" or "Cut customer complaints by 50%."
  • Set goals that tie employees into the success of your company
    Don't automatically assume that bonuses should be tied to increased sales or even profitability. For example, it may be most important in a given year for your business to cut costs or raise visibility. Tie bonuses into that critical goal rather than one that is traditional.
  • Make sure employee goals are attainable
    Most people tend to set goals that are too high and this leads to employee frustration and demotivation over time, which kills off the value of setting goals.
Other Reasons to Give Bonuses
If you didn't set goals with your employees last January, that doesn't mean that you can't pay bonuses this year. There are a number of reasons that you might want to consider paying year-end bonuses to your workers. According to Ted A. Hagg of Ableman Management Services, a New York City-based financial and management consulting service for individuals and small businesses, you can still make an educated decision at year-end by asking yourself the following questions:
  • Can I afford to give bonuses?
    It is legitimate not to be able to give bonuses every year. If you did not make a profit, for example, bonuses are inappropriate.
  • Do I want to retain the workers I have?
    Bonuses are a tool for attracting and keeping good employees. If you are concerned about losing someone to the competition you should factor that into your decision.
How Much to Pay
There are no hard and fast rules except that you should make bonuses equitable among peer groups and always have performance justification for bonuses. Employees will discuss bonuses, and paying inequitably will generate strife or potentially lawsuits.
When you deliver bonuses, be sure you explain the reasons for them. These reasons should be non-subjective, measurable, and performance-oriented. When you deliver bonuses, make it clear that a bonus is an extra that may not always be available. As nicely as possible, drive home the fact that you are rewarding them for this year's accomplishments and that bonuses are available based on the company's performance this year only.
Bonus Nuances
The end of year is not the only time bonuses can be given out. Some business owners believe that whether you give bonuses or not, you should also provide periodic rewards for jobs well done. Accountants often give them at the end of tax season, other entrepreneurs give them at the end of a large job or busy season to demonstrate appreciation for employees' devotion and hard work.
Even a bonus as small as ₨50 can mean a lot to someone because it demonstrates that you acknowledge their hard work. If you don't have a lot of extra money to spare, a small bonus or a bonus in the form of time-off can work.
Some people believe that giving all bonuses at the end of the year is not a good idea. According to David H. Bangs, Jr. author of "Smart Steps to Smart Choices" (Upstart Publishing Company), end-of-year bonuses can create a mine-is-bigger-than yours syndrome in your company. Bangs recommends providing bonuses for goals attained at the time of the achievement.
When you are doling out bonuses during the year or at the end of the year, don't forget the behind-the-scenes people who have made the big orders, the successful client presentations, and the travel, possible. Clerical staff is instrumental in making all other functions of the company operate smoothly. Reward them for it

Exclusive Tips to Prepare a Production Plan!

What is a production plan?
A production plan is that portion of your intermediate-range business plan that your manufacturing / operations department is responsible for developing. The plan states in general terms the total amount of output that the manufacturing department is responsible to produce for each period in the planning horizon.
The output is usually expressed in terms of pesos or other units of measurement (e.g. tons, liters, kgs.) or units of the aggregate product (this refers to the weighted average of all the products in your company). The production plan is the authorization of your manufacturing department to produce the items at a rate consistent with your company's overall corporate plan.
This production plan needs to be translated into a master production schedule so as to schedule the items for completion promptly, according to promised delivery dates; to avoid the overloading or under loading of the production facility; and so that production capacity is efficiently utilized and low production costs result.
Why is it important to have a carefully developed production plan?
Production planning is one of the planning functions that a firm needs to perform to meet the needs of its customers. It is a medium-range planning activity that follows long-range planning in P/OM such as process planning and strategic capacity planning. Firms need to have an aggregate planning or production planning strategy to ensure that there is sufficient capacity to meet the demand forecast and to determine the best plan to meet this demand.
A carefully developed production plan will allow your company to meet the following objectives:
•  Minimize costs / maximize profits
•  Maximize customer service
•  Minimize inventory investment
•  Minimize changes in production rates
•  Minimize changes in work-force levels
•  Maximize the utilization of plant and equipment

How is a production plan prepared?

Activity 1 Determination of Requirements
The 1 st activity in Production Planning is the determination of the requirements for the planning horizon. Demand forecasting plays an important role in the conduct of these three tasks. Managers thus need to be aware of the various factors that would affect the accuracy of the demand and sales forecast.
Activity 1 involves the conduct of the following tasks:

1Draw up the sales forecast for each product or service over the appropriate planning period
2Combine the individual product / service demands into one aggregate demand
3Transform the aggregate demand for each time period into staff, process, and other elements of productive capacity
There are company factors that could influence the level of demand for the firm's products. These internal factors include the company's marketing effort; the product design itself; the strategies to improve customer service; and the quality and price of the product.
There are also external factors or marketplace factors that significantly affect demand such as the level of competition or possible reaction by competitors to a firm's business strategy; the perception of consumers about the products and the consumer behavior as affected by their socio-demographic profile. Lastly, there are random factors that could affect the accuracy of demand forecasts such as the overall condition of the economy and the occurrence of business cycle.
Activity 2 How to Meet the Requirements
The next major activity involves the identification of the alternatives that the firm may employ to meet production forecasts as well as the constraints and costs involved. Specifically, this activity involves the following tasks:

1Develop alternative resource schemes to meet the cumulative capacity requirements
2Identify the most appropriate plan that meets aggregate demand at the lowest operating cost
Once the most appropriate plan has been selected, then the firm evaluates the plan and later on finalizes it for implementation. For more efficient and effective planning process, the formation of a production planning team composed of managers from manufacturing, marketing, purchasing and finance, is recommended.

What are the inputs to the production planning process?

To be able to perform the aggregate planning process, the following information should be available to this production planning team. These data include the following:
•  Materials / purchasing Information
•  Operations / manufacturing Information
•  Engineering / process Designs
•  Sales, marketing and distribution Information
•  Financial and accounting information
•  Human resources information
How do you address the demand fluctuations?
There are three basic production planning strategies that the company can choose from to address demand fluctuations. These are the (1) Chase Demand strategy, (2) Level Production strategy, and the (3) Mixed Strategy.
Demand Chase StrategyMatches the production rate to the order or demand rate through the hiring and firing of employees as the order rate varies
Level Production StrategyMaintains a stable workforce working at a constant production rate with the shortages and surpluses being absorbed by any of the following: •  Changing the inventory levels •  Allow order backlogs (commit to the customer that you will deliver the product (s) at a much later date) •  Employ marketing strategies (e.g. promotional activities)
Mixed StrategyThe strategies here could include combination of any of the following:   •  Having a stable workforce but employ variable work hours (e.g., increase no. of shifts, flexible work schedules or overtime) •  Subcontracting / outsourcing
•  Changing inventory levels
Source: Dilworth, James B. Production and Operations Management: Manufacturing and Services . Fifth Edition. McGraw-Hill, Inc. 1993
What are the important considerations in selecting the production planning strategy?

Demand Chase Strategy

Specific Methods
Hire additional workers as demand increases
Employment costs for advertising, travel, interviewing, training, and others
Shift premium costs if additional shift is added
Skilled workers may not be available when needed
Layoff workers as demand decreases
Cost of severance pay & increases in unemployment insurance costs
The company must have adequate capital investment in equipment for the peak work force level

Level Production Strategy

Specific Methods
Produce in earlier period and hold until product is needed
Cost of holding inventory
Service operations cannot hold service inventory
Offer to deliver the product or service later, when capacity is available
Delay in receipt of revenue, at minimum; company may lose customers
Manufacturing companies with perishable products often use this method
Exert special marketing efforts to shift the demand to slack period
Advertising costs, discounts, other promotional programs
Exemplifies the inter-relationship
among functions within an organization

Mixed Strategy

Specific Methods
Work additional work hours without changing the workforce size
Overtime premium pay
The time available for maintenance work without interrupting production is reduced
Staff for high production levels so that overtime is not necessary
Excess personnel wages during period of slack demand
Work force may be used for deferred maintenance during periods of low demand
Subcontract work to outside firms
Continuing company overhead; subcontractor's overhead and profits
The capacity of other firms can be utilized, but there is less control of schedules and quality levels
Revise make-or-buy decisions to purchase items when capacity is fully loaded
Waste of company skills, tooling and equipment unutilized in slack periods
These methods require capital investments sufficient for the peak production rate, that will be underutilized in slack periods

How can you monitor effectiveness of your production plans?
The important considerations in monitoring the effectiveness of your production plan are shown below:

Systems and Procedures

(if any)
•  Is there a current documentation of production planning and control systems and procedures? Has this been communicated to all concerned?
•  Does production planning and control have a formal monitoring system to maintain and update master scheduling records?
•  Is there a system of coordination between sales forecasts to be prepared in sufficient detail so that these maybe readily translated to specific production plans?

Production Planning

(if any)
•  Does production planning and control prepare a master production schedule with all the production assignments and time allocation?
•  Do the production schedules permit adequate planning of purchases and inventory levels?
•  Are there signs of significant lost time or low rate of worker productivity? Are the numbers of such orders appear to be significant?

Production Control

(if any)
•  Can the status of any order or work in progress be readily determined?
•  Do actual production levels deviate significantly in comparison with planned schedules?
•  Do actual shipments of orders almost always occur according to schedule?
•  Are essential production control records and reports maintained to cover current and future production loads?

Friday, September 9, 2011

How do you determine the sales targets for your business?

1. Most small and medium businesses do not have sales targets or plans.
2.But, it is important for all businesses to set targets and make a concerted effort to achieve them
3. However if a business wants to earn profits over a long period, it should carry out sales which exceeda a minimum level.
4. Do you know that your business should also have a minimum daily quantity of sales?
5. You should know this specific minimum quantity of sales pertaining to your business and conduct sales over that limit if you want to earn profits from your business
6. The below steps will show you how to find this minimum quantity of sales in your business.
7. First you should understand that there is a specific amount of expenses incurred monthly irrespective of the size and type of business.
8. These specific expenses do not change based on daily sales or operational interventions.
9. These specific expenses are named as fixed costs.
10. Think about your business and find out how much your fixed costs are.
11. As an example if you conduct your business in a rented building, the monthly rent is a fixed cost.
12. Assume that you have one employee. The basic salary or wage of this employee should be added to the fixed costs of the business.
13. If you analyze carefully, there is a fixed cost even in your telephone bill.
14. Thereby, every business has a set of fixed expenses depending upon the size of the business.
15. It is important for an entrepreneur to correctly calculate the fixed expenses in his business.
16. Knowledge on the total monthly fixed costs is essential to determine the minimum sales quantity.
17. Example: Followings are the components of the monthly fixed cost of a business.
Rent for building                                    Rs 4500/- 
Salaries                                                Rs 8,000/-
Telephone fixed rental                            Rs    350/-
Thus, the monthly fixed cost                Rs 12,850/-
18. Let’s us assume that the product of the above business is “X”. If the sale price of X is Rs 100 and it’s purchase price is Rs 90, the gross profit per unit is Rs 10/-
19. Therefore, the business should sell 1,285 units of X over a month to cover the monthly fixed cost of Rs 12850/- .
20. When 1,285 units are sold, it covers only the monthly fixed costs from the gross profit. At this point, the business has not secured any profit but not incurred any loss.
Under this scenario:
Monthly sales revenue                           Rs 128,500/-
Cost of purchasing                                 Rs 115,650/-
Gross profit                                           Rs    12850/-
It is obvious in this scenario that the monthly fixed cost equals to monthly gross profit. This position is called the BREAK-EVEN POINT (BEP) of the business provided that it sells only one product titled X.

Situation 01
Situation 02
Situation 03
Quantity of sales
Sales revenue
Cost of purchasing
Gross profit
Fixed cost
Net profit
-10                            This is a loss situation
21. Any sale below the Break Even Point (BEP level) or break-even quantity will result in a loss to the business.
22. Sales above the BEP level will result in profits.
23. Therefore, businesses should sell more than the relevant Break Even level to earn profits.
24. Hence, sales target should be prepared daily, weekly and monthly in order to make the business profitable.

10 Steps to Effective Collections

Adapted from content excerpted from the American Express® OPEN Small Business Network

An effective collections policy requires some kind of formal system that ensures overdue accounts get paid. Letting late payments languish can disrupt cash flow and harm your company's chances of success.
To keep receivables flowing smoothly, many businesses use a series of letters and phone calls to encourage customers to pay. These communications start out friendly and progressively become more serious and insistent as payments become overdue. How you structure your collections system is an individual matter - you may be more comfortable calling up clients than sending letters, for instance. The important thing is to have a system, and you can use the steps outlined below to create yours.
Step 1: Customer satisfaction phone call
Dissatisfied customers are more likely to pay late. These friendly calls let you inquire about your performance to ensure you met your customers' needs. End these calls by mentioning that a bill will be arriving shortly, and reinforce its due date.
Timing: three days after delivery of your product or service, but before payment is due.
Step 2: First overdue notice
This is a friendly reminder that the due date has passed. You are assuming that the client has forgotten, neglected, or lost the bill and will pay with a gentle prodding. One common method is to send a duplicate invoice with "past due" stamped on it.
Timing: ten days after the invoice due date.
Step 3: Second overdue notice
Another mild nudge reminds the customer that the account needs attention. This can be a short form letter with a duplicate invoice attached. Keep it friendly and non-threatening. For example:
[Name/address of debtor]
Re:Invoice # ____________
Amount due ____________
Date due      ____________
Dear ____________
We recently mailed you a statement showing that your account is past due. Perhaps it has been overlooked. Here is another copy. Please send payment today, so that we can keep your account current.
Thank you.
Timing: 10-15 days after first overdue notice was sent/20+ days after the invoice due date
Step 4: First collection phone call
Follow the overdue notices with a phone call to find out if there is a reason for non-payment. For example, the customer may be dissatisfied with your product or service, or may be experiencing cash flow problems. Be courteous, but also get a commitment to pay. Be prepared to handle excuses. For example, if the debtor says the check was sent, ask when it was mailed and where it was sent so you can determine the day it should arrive.
Timing: 7-10 days after second overdue notice is sent out/27 + days after the invoice due date
Step 5: First collection letter
Keep the tone of this letter consistent with the first phone call - courteous, but direct. Confirm in writing what was said in the call, and remind the debtor of his or her promise to pay. For example:
[Name/address of debtor]
Re:Invoice # ____________
Amount due ____________
Date due      ____________
Dear ____________
This confirms of our conversation on [Date]. As we discussed, you will send us your payment in full. Let us settle this matter now. Please mail in a check today.
Thank you.
Timing: immediately after the first collection phone call/28+ days after the invoice due date
Step 6: Second collection phone call
The account is now 30-40 days past due. Be polite yet firm, and ask for full immediate payment. Work to resolve payment problems. If the debtor cannot pay immediately, get him or her to commit to a payment date.
Timing: ten days after the first collection letter has been sent/38+ days after the invoice due date
Step 7: Second collection letter
Now is the time to communicate the seriousness of the delinquency. This letter should demand immediate payment, and discuss the short-term consequences of failure to pay. Send this letter - and any correspondence that follows - via certified mail or overnight mail to give you a record that it was received. For example:
[Name/address of debtor]
Re:Invoice # ____________
Amount due ____________
Date due      ____________
Dear: ____________
Your account is now seriously past due. If payment is not received within 7 days, we will be forced to suspend your credit privileges with our company. We value you as a customer. Help us continue to serve you by bringing your account up to date immediately. Please mail us a check today.
Thank you.
Timing: ten days after payment is expected from previous collection phone call/50+ days after the invoice due date
Step 8: Third collection phone call
While remaining polite and calm, stress the seriousness of the situation. Use this phone call to explain that this is the last opportunity for the customer to pay before you turn the matter over to a collection agency and possibly take further legal action. Be sure to communicate the benefits of resolving the issue - maintaining good relations or good credit. As with the previous phone call, get the debtor to promise to pay by a certain date.
Timing: 15 days after second collection letter is sent out/65+ days after the invoice due date
Step 9: Final collection letter
The tone is now stern and demanding. Use this letter to confirm what was agreed upon in the last call and demand payment. State that if payment is not received by the agreed-upon date, you will turn the account over to a collection agency. For example:
[Name/address of debtor]
Re:Invoice # ____________
Amount due ____________
Date due      ____________
Dear ____________
This letter confirms our conversation on [Date].
You must take immediate action to make your account current. If we do not receive payment within ten days, we will be forced to turn the matter over to a collection agency, which may adversely affect your credit rating.
Please mail a check to us immediately.
Timing: seven days after third collection phone call/72+ days after the invoice due date
Step 10: Turn over to collection agency
The account is now 90+ days in arrears and may require professional assistance. Receiving a letter from a collection agency often motivates a debtor to pay, but these services can be costly - agencies typically take from a quarter to a half of what they collect. Instead of immediately turning the account over to a collection agency, you might want to enlist your attorney to make a quick phone call to the debtor - this can often motivate payment.
Timing: If payment has not been received by 10-15 days after the final collection letter is sent/90+ days after the invoice due date