In this episode, we have our guest Ian Pratt, who discusses how to distinguish between the need for additional resources and operational bottlenecks that need to be optimized before investing further. We also had a chance to discuss the specific steps executives need to take to undertake process improvement initiatives. Finally, we touched on why tracking unit costs is vital for lean or continuous improvement efforts.
Chapter Markers
- [0:00] Intro
- [2:50] Personal journey and current focus
- [3:31] Perspective on growth
- [4:32] Importance of Quality of life
- [9:53] Difference between reactive and proactive planning
- [21:38] Process to work with a lean consultant
- [29:34] Closing thoughts
- [31:17] Outro
Key Takeaways
- Reactive planning, you’re constantly changing and dynamic. And, and people are getting frustrated because the information isn’t flowing around. And they’re not really sure what they’re supposed to be doing. In a planned approach, the information is flowing it starting at the beginning of the process and nice and evenly flowing through the entire process.
- Whether I’m working with an insurance company or manufacturing, what I find is quite often that the planning processes are the first foundation that’s wobbly. So if you can fix the planning processes, you can fix the rest.
- Assume that your quality could be 10% higher, your cost could be 10% lower, and your production could be 10% higher. If that’s your current problem, now go and solve it.
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About Ian
Ian is a hands-on business optimization practitioner who has 30 years of solid experience applying improvement methods across all elements of an organization, his experience is expansive covering a wide range of industry sectors and business functions.
Ian has been directly responsible for the development of continuous improvement cultures and understands the relationship between all of the elements of the value stream. His deep and broad understanding of business context combined with his systematic approach to root cause analysis enables him to optimize the value stream achieving inventory reduction, improved consistency, and reduced process waste.
Specifically, Ian’s strengths are demonstrated in his ability to re-engineer complex cross-functional processes to eliminate all forms of waste, automate process steps and develop people to have a broader understanding of the business environment and improved data for decision making. His ability to quickly engage stakeholders and adapt to new environments eliminates barriers to change.
Resources
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Full Transcript
Ian Pratt 0:00
I think four dispatch managers in 18 months and a lot of that was just driven from just this constant day-to-day crisis management and frustrated delivery drivers who were loading and unloading trucks because of communication Issues.
Intro 0:14
Growing a business requires a holistic approach that extends beyond sales and marketing. This approach needs alignment among people, processes, and technologies. So if you’re a business owner, operations, or finance leader looking to learn growth strategies from your peers and competitors, you’re tuned into the right podcast. Welcome to the WBS podcast, where scalable growth using business systems is our number one priority. Now, here is your host, Sam Gupta.
Sam Gupta 0:51
Hey everyone, welcome back to another episode of The WBS podcast. I’m Sam Gupta, your host and principal consultant at a digital transformation consulting firm, ElevatIQ.
Growing a business is challenging. You might acquire newer facilities, your employees might be overwhelmed and might ask for additional resources, the process of growth could feel overwhelming, especially with operational challenges. You might feel that you’re spinning your wheels and your efforts are not paying off.
In today’s episode, we have our guest, Ian Pratt, who discusses how to distinguish between the need for additional resources and operational bottlenecks that need to be optimized before investing further. We also had a chance to discuss the specific steps executives need to take to undertake process improvement initiatives. Finally, he touched on why tracking unit costs is vital for lean or continuous improvement efforts.
Let me introduce Ian to you.
Ian is a hands-on business optimization practitioner who has 30 years of florid experience applying improvement methods across all elements of an organization. His experience is expensive, covering a wide range of industry sectors and business functions. He has been directly responsible for the development of continuous improvement cultures and understands the relationship between all of the elements of the value stream is deep and broad.
With that, let’s get to the conversation.
Hey, welcome to the show, Ian.
Ian Pratt 2:48
Hey, Sam, thanks for having me here today.
Sam Gupta 2:50
Of course, my pleasure. Just to kick things off, do you want to start with your personal story and what you are focusing on these days.
Ian Pratt 2:56
My passion is helping organizations to release the untapped potential within the organization. I’ve worked with them recently with a window manufacturer whose inventory was overflowing their warehouse finished goods inventory. And I helped them untangle the problems in their planning processes so that they ended up with a lower, far lower level, about 15% of their original inventory. So that’s the sort of thing I do, but I tend to like to work with the leaders and coach them so that they have a sustainable business model after I’m finished working with them.
Sam Gupta 3:31
Okay, so obviously, I want to dig deeper into this story. That’s very interesting. And we are always looking to see how we can improve our processes, how we can improve our results. But before we get there, one question that we ask every single guest, and that is going to be, what is your perspective on growth? And what does growth mean to you?
Ian Pratt 3:51
Growth means two things, it’s looking that way at making more sales, but it’s also looking this way at making the same volume of output at a lower cost, which is growing the profit. And there’s probably a third angle for looking at growth.
And that is, what is the quality of life of my employees. So they come to work and have a positive experience. And going home with that positive mindset, or they come into work and having a negative experience and going home and taking that negativity into their social life. So there are three areas to look at growth.
Sam Gupta 4:22
Okay, bottom line, bottom line, and quality of life is what you meant mentioned, right?
Ian Pratt 4:26
Yes, definitely. Yeah, they’re all very important. And if you get the third one, right? The other two will happen for you.
Sam Gupta 4:32
Okay, so in your opinion, I guess the quality of life is likely more important is that the first driver that you consider when you get into any engagement? Is that always the first thing that you have in your mind?
Ian Pratt 4:43
It is the end game that I have in my mind. So always thinking, what’s the culture like here? Are people frustrated? And is there a good relationship and negative relationship between the manager and the employees and the employees engaged? Are they just going through the motions, but then I look at what are the systems that support and find that and how are they contributing to the current state.
So at the window manufacturer, there was a lot of tension in the warehousing dispatch areas. And the challenge there was to find the source of that tension solve that problem so that they could work in a more planned approach. And in that organization, the planning was incredibly reactive that someone would say this builder need to Windows tomorrow, can you make them now as of tomorrow, surely we knew about this five days ago.
So looking at how information flowed in the organization, how the employees were working, and making some changes to the way the information was flowing, so that there wasn’t the crisis management on a day to day basis so that the employees could have a plan and execute the plan, their quality of life improved, but inventory in the warehouse came down dramatically as well.
Sam Gupta 5:44
Interesting. So can you describe the tension a bit more? So I guess, you know, one thing that I’m hearing is there was the planning was reactive. I think you’ve mentioned that but expand on that a bit more.
Ian Pratt 5:56
Okay, well, when I went to the factory and talked to the people in the dispatch area, they would be venting frustration and anger. This is what we were meant to do today. But now, these two jobs would come in at the last minute, and we’ve got to sort this out. And then we’ve got to move all this inventory because we’ve got to get the stuff that’s behind there. And there’s just constant crisis management by the employees to try and meet a dynamic plan from the front office.
So there was they had high turnover, they had, I think, four dispatch managers in 18 months and a lot of that was just driven from just this constant day to day crisis management, frustrated delivery drivers who would load a truck, then they’d have to unload the truck and put a different product on the truck.
And then they’d go out and start their day. So they’d lose two hours in the morning, which would mean they’d have to work two hours overtime to finish their deliveries for the night. And then, you know, if they had soccer training that night, they’d be missing it because somebody somewhere the information wasn’t flowing in the right sequence to allow them to come in and execute their job from the start of the day.
Sam Gupta 6:56
So how did this all start? Was it growth was it employees in what was the real trigger for this tension?
Ian Pratt 7:03
The building industry in the region of the world that I live in, in Adelaide, Australia. The building industry is very seasonal. In winter, it slows down a bit, and then coming out of winter, it ramps up a lot. So you have that seasonality as a coming out of winter. You got the high demand coming in.
Quite often, people would order a house in January to be built in November because they know they had that slow period where you know when it rains, nobody’s working on site. So it was more this seasonality that was impacting them, they had grown, and the building was in a growth phase in this region. So their demand was going up.
But their systems weren’t able to cope with the increased volume throughput, plus the seasonal uplift in volume. That’s typical as well. They probably could have gone on as they were. They just would have kept turning over a lot of employees and spending a lot of time on money on overtime and rework within their deliveries, and they would have had to build a new warehouse for their excess inventory. But before they invest that money, that’s why they brought me in to have a look.
Sam Gupta 8:05
Okay, so the new warehouse was the reason, and there was the employee churn that you already mentioned. But if they have been in the market for some time, even if they have seasonality, most of the businesses have figured out, even if they are running on paper, how to accommodate for the seasonality.
So again, do you have any more background in terms of how this all started? Was it because of the loss of a key employee? Maybe an employee was there who was really good, he or she was really good at managing everything. And then they lost him or her, and all of a sudden, the hell broke loose. So what was the trigger? Do you have any more background on their vengeance?
Ian Pratt 8:46
Look, I’ve been in plenty of organizations that have been relatively dysfunctional on the inside for a large period of time. And at some point, the penny drops with the owner, or they get a new owner. In this particular case, the inventory had been climbing for a number of years and had reached a point where it exceeded the capacity of the current warehouse.
Okay, so then they’re like, Well, before we build a warehouse, we should look at why we are ending up with so much finished goods inventory. So they had to invest capital. They were at the point where they needed capital to continue functioning.
Sam Gupta 9:21
Right. So I guess, you know, let’s say if I am a business owner, and I’m looking to see what are going to be my symptoms when I should be probably reviewing my operations or the business performance, one of the symptoms could be that if I require excess inventory, that could be a good thing if I’m getting a lot more sales and revenue, but that may not be an as good thing, if I’m not getting sales, but I am maintaining excess inventory and having to build a warehouse. Would you agree with that?
Ian Pratt 9:45
Yes, definitely. I would look at that. At any point, if your plan is changing on the day you’re executing, it is a problem.
Sam Gupta 9:53
Okay. So describe to me more reactive planning. So what is the difference between reactive planning and proactive planning, and how would you change that.
Ian Pratt 10:02
Okay, so what happens in an organization is information doesn’t flow as nicely as you would logically think. So a customer places an order, then there’s a delay to you commence the manufacture, then you deliver it. And in the building industry, which is a little dynamic, because houses get delayed, the delay of the house requiring windows, that information wasn’t feeding through into the planning processes.
So for a reactive plan is one where you create a plan, but then you’re constantly changing it, which creates rework for everybody in your system. And you suddenly have an urgent order that needs to be done today. You get the people that start to quickly rush through one door, so you can get it out into dispatch, people have to wait around for that order, and then you get it loaded, and then take out this one door that was missed, or something urgently required. In a balanced planning process, all the information is flowing at the time that it is most critically needed.
Ian Pratt 10:53
So the change that I implemented to reduce the warehousing, which is at the end of the process, was to provide the person at the front of the process with a way of checking that the order wasn’t delayed before they started manufacture—so identifying what hasn’t has been delayed up from the first person in the manufacturing process actually controlled the level of inventory that you held at the end of the process.
So what that did is meant that almost never did you come along and say, Hey, we need to change today’s plan, or we’ve got an urgent order, because all the urgent orders have been sorted out at the beginning of the process, they flowed through in a normal fashion, and they just look like any other order.
You know, reactive planning, you’re constantly changing and dynamic. And, and people are getting frustrated because the information isn’t flowing around. And they’re not really sure what they’re supposed to be doing. In a planned approach, the information is flying it starting at the beginning of the process and nice and evenly flowing through the entire process.
Sam Gupta 11:51
Okay, so give me a little bit more about the size of the organization. So you didn’t mention that they had like four dispatch managers. But how large was the organization overall from the size perspective?
Ian Pratt 12:02
The organization employed about 70 people are manufacturing and dispatching windows for pretty well all of South Australia and part of Victoria. Yep. But the office I dealt with, which was the Adelaide Independent Business Unit, working with the general manager, they I think they employed about 70. And they made about 80% of domestic windows in our region.
Sam Gupta 12:25
Okay, so walk me through their systems, what they were using, what they were completely manual, what they weren’t any specific systems?
Ian Pratt 12:32
They had no ERP system in place, but they were pulling the data to commence manufacturing eight days before manufacturing before the delivery date. So then their manufacturing window was five days, but they were pulling the orders per day, eight days early. But what I did was analyze the data that builders tend to change the order, and 80% or 90% of builders change their order on day seven.
So I just shifted their preplanning from day eight, today’s six and provided a format that the frontline employees could look at and go right. Yeah, I can see where these orders all that. So they could then pick which one to start manufacturing—so empowering them to make choices on which order to manufacture based on the color code system that the orders had against them, those printed out.
Ian Pratt 13:21
So all the information was in their systems. It just wasn’t presented in a way that the employees could then use to make choices about what work they did. And what they had done was build contingency into each stage of the process. The person who produced all the work orders and got all the manufacturing diagrams together only needed one day to do it, but they gave them three.
If they were running late, they could still get it done on time. And they had all this contingency built into their processes. But that contingency meant that we were missing. They’ve pulled the manufacturing work orders to manufacturing, and then the system was updated after they pulled it. So the two pieces of information were not in sync any longer.
Yeah. So what a change has got the information to be in sync. And what they were working off of was a printed production order with a due date written on it. I had that due date removed and gave a separate list of due dates that could be updated, intraday, you know, can be updated to three times a day if you want to do to the first person in the manufacturing process. So they could go down and just pick which order to do next, based on the current system data.
Sam Gupta 14:23
So this seems to be an example of, let’s say, hand assembly. Their production floor must be very hand-assembled. It’s probably a job shop. So do you typically work with just the job shops and hand assembly shops? Or do you experience but do you have experience working with any other machine-oriented production floors as well?
Ian Pratt 14:40
I have in my early days. Yeah, definitely. More recently, though, in our region, we don’t have a lot of high-volume manufacturing. Okay, the automotive industry has pulled out of our region, okay. And now, a much more service orientated we mining services, farming, agriculture, those sorts of things and more dominate.
Then in the region, so yeah, I’m working at the moment with them a mining company, which has a high volume manufacturing, they actually produce the in a product, they don’t just dig it out of the ground that goes all the way through the process. So it’s more of a continuous production operation, probably similar to a lot of like plastics manufacturing these days. So yeah, I’m working with one of them at the moment and looking at coaching, they’ve probably got about 100 supervisors, and I’m coaching them on how to identify waste and eliminate it from their business.
Sam Gupta 15:29
Okay, so tell me a little bit more about this one. So what was the waste in this particular process that you just mentioned? And what do you do to move back?
Ian Pratt 15:37
Again, whether I’m working with an insurance company or manufacturing, what I find is quite often that the planning processes are the first foundation that’s wobbly. So if you can fix the planning processes, you can fix the rest. Now, the Perth the area that I’m working with, at the moment in the mining, that they have the same problem that they go to mine and area, but they’ve got surveyors surveying on the same day as the miners are trying to mine it and somebody is trying to add a water extension in there as well.
So that getting the planning so that it runs nice and smoothly, yeah, is their largest area of waste. And ERP systems are fantastic for if when you get them right, to help align all of your resources so that things are happening sequentially or happening in a nice smooth flow, rather than multiple people trying to work on the same part of the equipment at the same time, the area I’m looking at there, probably 50% of their time, is unproductive due to poor planning.
So we’re working on identifying the failures within the planning systems. But what we’re trying to do is, instead of a holistic program is coached the frontline employees and supervisors to chip away every day fix one problem, and at the end of the year, fix 365 problems, and things are a lot better. So that’s the style lean we’re trying to implement there.
Sam Gupta 16:55
Okay, so 50% unproductive is a lot. So what are some of the reasons why the process is 50% unproductive? Is it just because there is a lot of bottlenecks in the process? What are the core reasons?
Ian Pratt 17:04
Again, this is across all industries that are looking at have the same problem is that when the plan or not enough effort is put into the plan, people plan their next task after they finished their first task during the day. So they come in, they pick a task, they go to do it, they can’t do it, because there’s either some material missing or something like that, right.
So they put that aside, and then they pick up a new task. And then they go and execute that new task. And I’ve seen this in financial services, businesses that employ only six people, and then 50% of their time picking up on putting down work rather than doing it.
Ian Pratt 18:00
So if you ask the employees, are you busy all day, they are busy all day. Yeah, but they’re picking up a task and putting it down and picking up another task or doing something on them putting it down. They do not see anything all the way through. So and the same in the mining company. It’s about getting them to have an executable plan at the start of the day. So the employees can go out and do their first job, the second job, the third job, and the fourth job, and then come back and all those jobs are done, rather than going out to do the first job having a problem coming back, sorting that out, and then going to the second job.
So when I say it’s waste, the employees would say they’re busy. Yeah, but they’re not adding value. Yeah. And the same. What I find is when I’m coaching leaders, and we look at in the Leader Standard Work is that quite often leaders are incredibly busy as well, you’re in meetings, addressing email, they are firefighting, and all those sorts of things, but they’re not actually adding any value. So what we need to do is get people to let go of some of the inefficiencies and get them to have an executable plan at the beginning of the day, then execute the plan and focus the plan on the things that add the most value within the business.
Sam Gupta 18:42
Okay, so when you design these processes and plans, and sometimes those could be slightly prescriptive, and I don’t know, you know, how people react to them if they want any changes and those processes, are you going to have enough room in these processes to accommodate those contingencies.
Ian Pratt 19:03
Okay, so I don’t design any processes, what I do is I coach people on how planning processes generally work, and then they work out how that would work in their environment. Okay, um, what I talk about is very much the plan do check act cycle is that you when they’re doing their planning upfront and designing their processes that I talked about, use the 80-20 rule 20% of the effort to get 80% of a solution and then continuously improve it from there.
So build in the entire continuous improvement cycle out for three, six months. So you can put something in the monitor it and use visual management to display how you’re tracking whether your KPIs are improving as a result of your planning, and then you make changes, you know, do some root cause analysis, and you need to involve people from frontline to middle managers in that process. The middle managers bring more the commercial view, and the frontline will or problem-solve so that it actually works for them.
Sam Gupta 19:55
Okay. So when you do these coachings, what will be the deliverable that you are going to have to the operations manager? Is it going to be just the coaching? And then they are going to design the processes? Or do you engage, let’s say, for three to six months? How does the engagement work? Can you tell me a little bit more about that?
Ian Pratt 20:14
Yes, definitely three to six months. I turned down work; if people want me to just come in and give them advice, okay. The problem is 90% of people don’t know how to implement, okay, so if you just give them advice and come back in two years’ time, they’ll still be where they were. So I haven’t added any value. To me, there needs to be an improvement in business performance, that’s, you know, preferably five to 10 times the cost of my engagement and annual improvement to make it worth doing.
So if you can make your country an incredibly well-run business, looking at us how I can help you a little, but you’re doing really well, you’re going to pay me a lot, but not get a lot of benefit from it. So in that environment, I’d take more of a just a mentoring rather than a heavy load engagement. Yeah. But in organizations where there’s a lot of chaos going on, and you look at the guy, I know, I can give you ten times the cost of employing me.
So then I’ll come in for three or six or 12 months, whatever is required. And sometimes that’s only two days a week or three days a week for that duration, to help them understand their problem, fully understand the problem, identify possible solutions, and then help them implement and then do some iterations of learning and measure the improvements in performance either cost down, volume up, quality up, service up, whichever there is the key KPI for them, and then I help them to actually get that benefit. So the business performance is actually improved by the time I leave.
Sam Gupta 21:38
So let’s say I’m the manufacturing executive, okay. And obviously, I know that I have a problem. That’s why I’m talking to you, right? So I’m inviting you to my facility. Now you have to tell me how many days you need to be there at my site.
So let’s see if I’m inviting you today to my site. What would you like me to do in order to make sure number one, you have all the resources that you need to be successful? And how is the day going to be structured? How many resources do you need to be able to make sure you are able to get the data, the KPIs, whatever you need to be successful to do whatever you are going to do?
Ian Pratt 22:15
Okay, so, what I normally start with, if somebody comes out and says, looking and we’ve got a problem, can you come out and help us fix it is normally? So let’s just agree on a ten-day engagement upfront, and they go analyze your business. And I’ll tell you what the problem is, what the solution is, and how long it would take to solve that problem.
So trying, I’ve had people come to me, again, I want to give you a six-month contract, can you come here and fix this problem? I’m like. Since I don’t know if I can fix it in six months, I need to come and see the problem. I need to feel that I need to understand what’s broken in the business that’s causing that problem. So I can tell you whether or not I can actually fix that in six months.
You know, if their problem is the ERP system is really poorly implemented, then yeah, it’s gonna take them two years to get over that amount of money. The problem is just simple information flow, and problems with simple planning process their nets differently, like between six weeks and three months to get them on the right track.
Sam Gupta 23:07
So how do you find these KPIs? I mean, do you typically require the financial statements from my side? So let’s say if I invite you, and you are going to be two days at my site, and you want to look at, you know, what the problems are.
So let’s say one of the problems could be, I have excess inventory as well. And my employees are saying that they probably need a new warehouse, they need a lot more employees, and they are already overworked. And they are threatening me that they are going to leave my organization. So that’s my problem right now. And I’m inviting you to help me. So let’s say if I invite you, do I need to show you my financial statements to be able to find the KPIs, or how would you find the KPIs? And the KPIs come from looking at the value stream?
Ian Pratt 23:34
So okay, well, in a manufacturing business, one of the KPIs is probably the cost of unit sales. If you don’t know that, there’s your first problem, so we need to, and I’ve had gone to a client or timber mill, where they’d had no idea what the cost of any of their particular products was. So we implemented it took maybe two days, a very crude activity-based costing system.
And that identified that problem approximate cost center. We’re able to identify which products were losing money and which ones were making huge returns. And unfortunately, for them, the products that were losing money, we’re the ones that they produced in the highest volume and did to work with their customers to make them a lot more profitable.
But no, I come in and have a look at, like, what’s the value chain? You know, just some basic measures like what’s the cost per unit sold? What should the cost per unit sold be? If it’s a manufacturing business, there’s a lot of standard things like what’s your inventory, record accuracy?
Ian Pratt 24:40
How many days of inventory stock do you have? What’s your lead time? What’s your manufacturing cycle time, those sorts of standard metrics that come from an ERP system. So you look at those standard metrics to see what’s going on. You need to immerse yourself in the business. The manager can tell you exactly what’s going on.
And I’ll give an example a client said, you know, looking, my staff are telling me I need to hire more people. Yep. Okay, so let’s just use a basic formula to work out whether that’s true or not. How many units of work do you do? And How long do they take? Yep. What else? Do people do that? How long does that take? Let’s calculate it out.
Ian Pratt 25:00
And I calculate it and says, well, based on this. You’ve got too many people, yo, where are you losing time and the manager sit there and go, I don’t know. So you have to find out where the time has been lost in their business. And that’s normally stopping and starting or not prioritizing the work property having a problem in their planning system, or people not really being clear what their job really is.
So those sorts of problems exist. So you need to immerse yourself in the business and go and have a look and see and feel and see where inventory is building, where the lines are running, where it’s not running, where employees are frustrated. And what they’re saying is causing their frustration, which isn’t necessarily the actual problem, but it gives you somewhere to sniff around and have a look.
So you need to sort of look and see and feel, and then you’ll know what KPIs would fix the problems that I see in this business. And it’s different for every business, but I never look at the financial statements. That’s not necessary. But I quite often work with finance people to work out the cost of sales? Because quite often, that’s the one that you want to get a 10% reduction in the cost of sales.
Sam Gupta 26:25
So yeah, yeah, so interesting point about the cost of goods sold and cost of the unit, right? I mean, that’s very important. And the kind of, you know, customers we typically engage with. Obviously, not everybody is going to have the cost of the unit. And obviously, that’s going to be very important he as he mentioned.
So from your perspective, let’s say if they are not packing it, sometimes what they do is they are going to track really at the financial statement level and operations, people don’t really have any understanding of their cost of the product. Because what they are going to do is they are simply going to have the total cost, and they are going to divide it by whatever measurement they have to determine the cost. So that’s what the actual costs are, in your opinion, the cost of the unit is really important, especially in the job shops, right? So in your experience is most important for all of the businesses or somebody says what will be your perspective on that.
Ian Pratt 27:15
The cost is super important to understand. So that you’re not, you’re not trying to grow a line of business, that’s losing money. But the problem is a lot of people overanalyze costs. So they say, look, it’s you know, I’m paying my staff, they $40 an hour, I’ve got to add some cost of employment, I’ve got to add a percentage for the warehousing, or they add a percentage for this percentage for that, and then they have suddenly gone.
Should I add $1.50 or $1.60? It doesn’t actually matter. Yep, just right, with the best Cost of Goods, you can do it in the next one hour. And just what you know, if you need to refine the numbers, if the cost and the sales price are that marginal, that you need to refine the numbers, this is not a good product, what you need to do is look at, if you use a crude system, you should be able to say, yeah, this is roughly the cost. And so you say, hey, we’ve got to get our cost down.
Ian Pratt 28:05
So they start trying to reduce the numbers that are in the equation. Okay, but that’s just changing your baseline as well. So what you really want to do is say, What if we’re going to use these numbers? Let’s stick with these numbers. And then let’s see a reduction in cost based on this measurement, rather than an absolutely hugely precise measurement that takes six months to try and work out what is what exactly the cost is?
So we’re going to just look at what are the key contributors to cost and how do we those build up? And then let’s track those key contributors and see that we’re seeing a reduction in some of those key contributors. Now, that won’t be the absolute cost of sales, but it’d be an indicative cost of sales, which is better than what they have right now.
Sam Gupta 28:47
Yeah. And that’s a pretty good description. So basically, what you’re saying is just have the major contributors of the cost, maybe four or five. You don’t have to count for every dollar. And as long as you have that, that should be good for you. Right?
Ian Pratt 29:01
Yes. And some costs are fixed. Whether you include them or don’t include them, it doesn’t matter. Like we’re not going to reduce the number of overheads. So we might, but it’s unlikely that’s not the target. So if you’re not reducing planning to reduce the number of overheads, factoring them into the cost for improvement purposes isn’t essential.
And you can factor them into, you know, your costs, but you’re really looking at looking for the key cost leavers that you’re going to try and seek to improve and having those included, and then you can refine the actual cost with the overheads and other things that you’re not going to change at a later date.
Sam Gupta 29:34
Okay, amazing. So that’s it for today. Do you have any last-minute closing thoughts here?
Ian Pratt 29:38
Now I would just encourage them every manufacturing and operations manager and a mentor of mine said this to me when I was about 21 years old, and it stuck with me for those years is have a look at your business and assume that your quality could be 10% higher, your cost could be 10%, lower and your production could be 10% higher. If that’s your current problem, now go and solve it. So that’s probably the best lesson I could offer any manufacturing manager or CFO go and tackle that problem and, and you’ll do well.
Sam Gupta 30:06
Alright, amazing. Thank you so much for your time and insight. Ian, I really appreciate it. And I cannot thank our guests enough for coming on the show and sharing their knowledge and journey. I always pick up learnings from our guests. And hopefully, you learned something new today. If you want to learn more about him, follow him on LinkedIn. His LinkedIn handle is IanPratt. Links and more information will also be available in the show notes.
If anything in this podcast resonated with you and your business, you might want to check other related episodes, including the interview with Ram Krishnamurthy, where he discusses why costing strategies matter for ERP implementation and how to make an ERP project successful. Also, the interview with Dave Griffith, where he discusses why manufacturers must look for low-hanging fruits when exploring the path of industry 4.0.
Also, don’t forget to subscribe and spread the word among folks with similar backgrounds. If you have any questions or comments about the show, please review and rate us on your favorite podcasting platform or DM me on any social channels. I’ll try my best to respond personally and make sure you get help.
Thank you, and I hope to get you on the next episode.
Outro 31:17
Thank you for listening to another episode of The WBS podcast. Be sure to subscribe on your favorite podcasting platform, so you never miss an episode. For more information on growth strategies for SMBs using ERP and digital transformation, check out our community at wbs.rocks. We’ll see you next time.
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