Improving your business
By Christopher Ram
Introduction Whatever it is, none of the above is mutually exclusive or alone explains why businesses in Guyana are faring badly, or certainly less well than they used to in the past. Business decline and failure is not unique to Guyana. The USA has had newsbreaking downsizing, restructuring and re-organisation. Japan seems to be recovering from its own financial crisis which saw some of their major banks going to the brink. And the Asian Tigers have astounded western observers by their incredible if not complete recovery. Indonesia, of all the countries in that region is perhaps the weakest, and it is feared that the combination and mutual effects of political and economic setbacks can lead to the break-up of the world's fourth largest nation. Western management thinkers and business writers have obviously been looking for clues and reasons for the recovery. Productivity gains yes, but these alone could have had serious effects on employment levels and social conditions. The Asian culture and work ethic cannot explain the situation in the United Kingdom, Germany or Canada, all of which are ending the decade with fairly robust economies.
Back to basics It is perhaps understanding conditions not only within one's business but in the international, regional and national economies. It is knowing who your customers are (and equally or perhaps more importantly who are not your customers), your suppliers, your competitors and the level of technology affecting your business. Having understood all of these things, however, the business person has to control his business with lean thinking, process excellence and marketing techniques that attract and retain profitable customers. It must identify the wants and needs of actual and potential customers and create or adapt its products or services to differentiate it from the competition. This calls for a deeper analysis and understanding of the business by its managers - a thorough and professional review of every activity undertaken by the company referred to as the value chain.
The value chain This requires that the firm must be broken down into its important elements, such as purchasing, manufacturing, distributing human resource management, etc. These elements must be scrutinised to ascertain how they shape the behaviour of the firm: not only the impact on organisation goals, efficiency/effectiveness and economical achievements; but also on the (identification of current and future) sources of differentiation in all these activities. When you think about it, employees love to feel that their workplace is different from the others, not only in their degree of authority but how much and how they are rewarded. Each of these activities is itself a value centre. Once value centres are identified, analysis is undertaken to enhance and capture their value transferring it into customer satisfaction and shareholder dividend. Centres or activities which do not create value are either changed so that value is created, or discontinued. The analysis may, however, suggest that given the firm's infrastructure, outsourcing may be the way to create value. The overall objective must be to create value such that it satisfies the customer's needs and that the distribution of that value exceeds the cost of its creation. The value chain within the firm The value chain is composed of linkages, each link represented by a value activity. There are three (3) types of value activity:-
- primary Primary activities impact directly on the physical creation of a product, and include: 1) inbound activities sometimes referred to as inbound logistics - the receiving, processing and storing of raw materials; 2) operations - the actual combination of raw materials and manufacture of product; 3) outbound logistics - the sorting, packaging and dispatch of finished goods to the consumer; 4) marketing & sales - the advertising and promotion of the product, together with the creating of brand awareness and loyalty; 5) service - the follow-up and maintenance of customer product/service satisfaction. Thus, the firm must endeavour to create and then enhance the value associated with each element. For example, the technique of just-in-time (JIT) has been used to cut down on lead or lag times by arranging for ordering or delivery of goods when they are required. This decreases storage costs, enhances space utilisation and adds value to customers and shareholders. Supporting activities impact on all the primary activities and may actually be used as a source of value-added. These include the following:- 1) firm infrastructure - this relates to the number of activities which collectively make up the planning, administration, finance, accounting and management functions; 2) human resource management - this relates to the function of recruiting, training and optimal optimisation of the human resources of the organisation; 3) technology - this refers to the use of computers through-out the organisation, from the PC used by the typist to the robot used on the factory floor; 4) procurement - this relates to the efficiency behind purchases, whereby all purchases should be made in a timely manner. These activities must support the primary activities. For example, there should be an adequate human resource management structure fully equipped with highly trained, motivated and skilled workers, and these workers should be dispersed throughout the organisation and be involved in inbound logistics, operations, outbound logistics, marketing & sales and service. Being part of a chain requires that each element is equally endowed so that bottlenecks are minimised and synergistic benefits realised across the value chain.
Quality assurance Direct quality assurance occurs in a very visible manner, such as during the pre-inspection of raw materials before being used in the plant. Defective input units are identified and discarded before being used in the entire production process. Defect rate in this system gravitates to zero and is part of what is referred to as manufacturing excellence. Indirect quality assurance usually revolves around the overall administration costs which are less easily identified and applicable to a stated product and thus tend to be lumped and aggregated into `overheads'. These obscure the true cost incurred in the actual quality assurance exercise and further blur the real contribution towards differentiation. Quality assurance should be a necessary part of the routine operations of the business and must therefore never be impaired. The benefits of the productivity of the primary and secondary activities are augmented and enhanced by quality assurance.
Conclusion
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