The “MAKES SENSE” test.
As most of my readers know I spend my days in and out of a variety of company operations. In the consulting business, you need to be good at four things.
- Building relationships (trust)
- Selling the need to improve.
- Identifying issues
- Fixing those problems
Numerous books have been written on relationships and selling. The real challenge is on identifying the issues and determining the root cause. Often when I speak with owners and presidents they are concerned about how ‘X’ is going. Most of the time this issue is a symptom. Here is a very easy technique that works for all businesses yet is not used often enough. It is what I call the “MAKE SENSE” test.
So what is this test and how can you use it? Walk into any area of your operation and watch the work occurring from a slight distance so as not to be noticed. Look for the flow and rhythm to the area. When you begin to notice irregularities and you will, “go and see what the issue or challenge is.” Repeat this process for a couple more days; include end of the month or other ‘a’ typical events. Remember to compare it along with other known data about the performance of the area you observed. After reviewing this data, ask “does this MAKE SENSE”? Remember to trust your eyes and compare what you see with what the numbers say.
Here are some examples.
Business liquidity problem-
…company is very good at purchasing material at a good price; observation shows that the material in process (WIP) is high. Additionally, it is not clear to the casual observer what the flow of the process is. Accounts payable has grown significantly as a percentage of AR. Does this MAKE SENSE? No, there is clearly a problem. Now further investigation into purchasing methods and information is needed to review that process. Inventory is the easiest thing to increase and the hardest to decrease.
…prices for products are managed on an annual basis. Company states that they used to be more profitable but lately have struggled. Observations:
- Sales team states that they price based on previous year or long-term contract (automotive).
- Manufacturing states quality issues and production challenges since spec revision.
- Sales are up profit down.
Clearly there is a disconnect. Does not MAKE SENSE!
For pricing model work check out Huron Business.
I encourage everyone to take the time to observe their operations whether its answering the phone, machining a product, assembling a package or cutting hair. You will be surprised at the opportunities you discover.
MOST IMPORTANTLY- when observing you will catch your people doing great things. Be sure to take the time to acknowledge those actions and let them know its noticed.