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The Power of Keystone Habits

The Power of Habit bookHabits are powerful.  They save time, create efficiency and allow our brains to focus on more complex tasks.  They can emerge without our consciousness, or be deliberately designed.

Some habits have the power to start a chain reaction, changing other habits as they move through the organization.  These are called keystone habits and they are important because they help other habits flourish by creating small wins.  Keystone habits start a process that, over time, transforms everything.

Charles Duhigg introduced this idea in his book, The Power of HabitThe book provides this example of a keystone habit…

“Typically, people who exercise, start eating better and becoming more productive at work. They smoke less and show more patience with colleagues and family. They use their credit cards less frequently and say they feel less stressed. Exercise is a keystone habit that triggers widespread change.”

Examples of Keystone Habits

Many organizations grow profits by focusing on a keystone habit. If a financial leader, be it the CFO, entrepreneur, controller, or CEO can understand and promote his or her organization’s keystone habit, profits will follow.  Here are a few examples of companies that saw dramatic bottom-line improvements by focusing on their keystone habits.

Alcoa

alcoa logo

Company: Alcoa

Keystone Habit: Safety

Result: 5x increase in net income and $27 billion increase in market cap

When Paul O’Neill took over the helm of Alcoa in 1987, he made a statement that sent investors running for the doors to dump their stock.  His statement…  “I want to talk to you about worker safety”.  But what O’Neill realized is that focusing on the company’s new keystone habit of safety would cause a trickle-down effect to the bottom line.  If employees work more safely, there are fewer injuries and production slowdowns resulting in improved productivity.

In addition to becoming one of the safest companies in the world, Alcoa’s focus on its keystone habit of safety enabled it to increase profits and market capitalization.  Someone who invested a million dollars in Alcoa on the day O’Neill was hired would have earned another million dollars in dividends while he headed the company, and the value of their stock would be five times bigger when he left.

Read the full story here.

Marco’s Pizza

Marco's_Pizza

Company: Marco’s Pizza

Keystone Habit: Accountability

Result: Increase Unit Level Profitability by 1.8 Points of EBITDA

Ken Switzer, CFO of Marco’s Pizza, has seen the privately-held chain of pizza restaurants grow from 30 stores to over 600 during his 27-year tenure with the company.  What does he credit with the company’s success?  Their focus on the keystone habits of accountability and profitability.

Marco’s has found that one of the biggest keys to fostering employee accountability is their incentive compensation plan.  Every single employee at the national support center in Toledo has a significant bonus opportunity based on achieving franchisee profitability goals. That is the sole factor in about 40% of the bonus opportunity for employees.  Tying a significant portion of employee compensation to achieving goals has fostered a sense of “we’re all in this together” that results in more employee engagement.  When you’re in that team environment, people just talk more and work well together.

Read the full story here.

Frito-Lay

frito-lay-logo

Company: Frito-Lay

Keystone Habit: Logistics

Result: 6% Compound Annual Growth Rate on Core Operating Profit

How does Frito Lay keep its spot at the top of the snack food chain?  By focusing on its keystone habit of productivity.  According to president Tom Greco, “we believe the productivity opportunity is significant.  Our productivity agenda pursues cost-reduction and capability-building initiatives to deliver results.”

In 2012, the company rolled out a geographic enterprise system (GES) developed to reduce the amount of manual handling throughout the supply chain and drive productivity.  According to Greco, “GES is both a productivity generator and a growth enabler. Productivity allows us to invest in our growth”.

Read the full story here.

Google

google log

Company: Google

Keystone Habit: People

Result: People that can pick up the slack when executive plans fall short

It can be said that Google is picky about the people it hires.  They focus on choosing, developing and empowering “smart creatives”—professionals with the technical skills to solve problems as well as the imagination to dream up new ideas.  They argue that the people are what create value, not the execs with a “plan” so they invest in their people.

In order to succeed in the business of solving problems, Google needs to constantly be creating new value.  They need good people to invent these new products and processes.  Focusing on their keystone habit of people has allowed Google to maintain its edge in a competitive industry.

Read more here.

Domino’s Pizza

dominos pizza logo

Company: Domino’s

Keystone Habit: Taste

Result: Increased profits 16% in Q3 2014

Had a Domino’s pizza lately?  In case you’ve missed their self-deprecating commercials, Domino’s has recently undergone a taste renaissance.  Spurred on by negative consumer comments about their pizza, the chain has revamped their recipes in an attempt to make their food taste better.  Check out this video detailing how focusing on the keystone habit of taste has allowed them to rebuild their reputation and gain market share.

Click here to read more about Dominos and check out their turnaround story.

Conclusion

Keystone habits say that success doesn’t depend on getting every little thing right, but instead focus on identifying a few key priorities and developing them into powerful levers.  Where to start in identifying your company’s keystone habit?  Look at those habits that, when they start to shift, dislodge and remake other patterns.

I’ll leave you with this quote from Charles Duhigg in The Power of Habit:

“Destructive organizational habits can be found within hundreds of industries and at thousands of firms. And almost always, they are the products of thoughtlessness, of leaders who avoid thinking about the culture and so let it develop without guidance. There are no organizations without institutional habits. There are only places where they are deliberately designed, and places where they are created without forethought, so they often grow from rivalries or fear.”

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Supply Chain and Logistics

Supply Chain and Logistics Definition

A supply chain is a network of businesses and activities that takes a product from raw material suppliers to end consumers. By definition, logistics refers to the processes of acquiring, transporting, and storing resources along the supply chain and logistics. A supply chain, which relies heavily on information technology, logistics and transportation, may involve numerous different businesses that comprise the various links along the supply chain, or a single company may oversee the majority of the supply chain and logistics for its products.

For example, a supply chain for coffee may begin with Central American farmers. The product (coffee) would then move along the supply chain from the farmers to the facilities that process. Then, they package the coffee beans. Then, they would move to distributors that transport the product to wholesalers. These wholesalers might then deliver the product to retailers and neighborhood coffee shops for sale to end customers.

In this example, the supply chain and logistics would be the entire network of businesses that carry the product from its source – the coffee farmers in Central America – to where the finished product is consumed by customers at the neighborhood coffee shop.

Supply Chain and Logistics Activities

Consider supply chain business processes vertical systems. A typical supply chain consists of manufacturers, wholesalers, distributors, and retailers. A supply chain can be seen as a system connecting the value chains of the companies within that system. Consider the activities closest to the source of raw materials upstream activities. Then consider the activities closest to the finished product and the end consumer downstream activities. A company is considered upstream or downstream in relation to other companies in the supply chain depending on its relative position in the supply chain network.

Supply Chain Links

A company will typically participate in a supply chain business process at the point where it can employ its particular functional area of expertise. For example, a trucking company will focus on the transport link of a supply chain, while a mining company will focus on finding and extracting raw natural resources, and retailers will focus on selling the end product to consumers.

Because you can specialize each supply chain link in its own functional area, they may not know about the links directly upstream and downstream from them. That’s why supply chain communication and supply chain coordination, both of which require reliable information technology systems across different businesses, are vitally important to the functioning of a supply chain.

If, however, one link in the supply chain process feels it can expand its responsibilities in the network, either because it can complete a process more efficiently or at a lower cost, then that company can become vertically integrated, by forward integrating or backward integrating. A company that takes over a downstream activity from a customer is forward integrating. In comparison, a company that takes over an upstream activity from a supplier is backward integrating. A company that oversees several consecutive links in the supply chain of its product is vertically integrated.

Supply Chain Management

Supply chain management refers to the process of overseeing and optimizing the overall supply chain network from raw material suppliers to finished product retailers. The goal of supply chain management is to make the supply chain process as efficient as possible by enhancing product and information flows among participating businesses.

Improving your supply chain can involve supply chain communication, or enhance the flow of information among businesses along the supply chain. Furthermore, the logistics and transportation systems will run optimally. But this only happens if all members of the chain have access to all relevant market data and operations information. All other members of the chain provide this information.

Supply chain improvement can also involve supply chain coordination, or optimizing the logistics and transportation activities for maximum efficiency. This may include the following:

  • Improving information flows and inter-business communication
  • Optimizing manufacturing processes
  • Implementing just in time (JIT) production systems
  • Optimizing vehicle distribution routes
  • Eliminating bottlenecks in the process
  • Allocating resources to maximize efficiency

An efficient and optimized supply chain can benefit all the businesses in the supply chain. Therefore, it adds value to the end consumer.

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supply chain and logistics, Supply Chain Management

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See Also:
Supply and Demand Elasticity
How to Manage Inventory
Perpetual Inventory System
Days Inventory Outstanding Analysis
Inventory Turnover Ratio Analysis

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Product Life Cycle

Product Life Cycle Definition

A product life cycle, defined is the period from when a product goes through its initial specifications and research to the withdrawal of that product from the market. There are five product life cycle stages.

Product Life Cycle Meaning

The product cycle stages are as follows:

Research and Development

This is the phase where market research as well as the design plans for a product are initiated. Patents are established for the product during this phase to protect the product from competition. Production facilities might also be developed during this stage so that mass production can take place. The company might also establish its logistics for raw material suppliers and retailer customers.

Introduction and Growth

Here the company starts its advertising campaign as the product is sent out into the market. The pricing and promotion of this product are essential during this phase to ensure the product’s success.

Maturity

In this product life cycle the company will increase its production and logistics network according to demand. A company will also broaden the audience that it is promoting to as the product becomes more popular during this product cycle.

Decline

As the product loses popularity a company has generally three options. The first choice is for the company to offer the product at a reduced price. The second is for a company to add new features or revamp the style of the product. The decline stage is the last option. Eventually, this stage will move into the elimination of the product or the abandonment stage.

Abandonment

Here the entire product line is discontinued. A company liquidates all of the remaining inventory. If the product contained special facilities, then the company will liquidate those as well. Then, realize the salvage value for all equipment. This stage represents the complete end of that product and everything associated.


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Product Life Cycle

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See Also:
Business Cycle
Cash Cycle
Company Life Cycle
Operating Cycle Analysis
Accounting Cycle

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Benchmarking

See Also:
Are You Collecting Business Data?
Business Intelligence and Finance
Marking-to-Market
Company Life Cycle
Market Positioning
Budgeting 101: Creating Successful Budgets
Navigating Black Swan Events
Problems When Experiencing Business Growth

Benchmarking Analysis

What is benchmarking analysis? Benchmarking is the process of comparing a company’s performance to the performance of other companies. Management can do this by comparing business groups within a company, by comparing companies within an industry, or by comparing companies in different industries. Conduct benchmark tests in terms of:

For example, a company could benchmark its own characteristics against the characteristics of other companies. Characteristics that can be compared in benchmarking include financial performance measures such as net revenues and net income, operational performance measures such as cycle-time and percent of on-time product deliveries, organizational features such as compensation rates at certain hierarchical levels, and product features such a quality and manufacturing costs of particular products.

Benchmarking Best Practices

The idea behind benchmarking best practices is to identify the company’s strengths and weaknesses, to make comparisons of functional activities and areas between the company and the companies considered to be the best in those activities or areas. Then determine ways to emphasize the strengths and improve upon the weaknesses of the company based on the findings of the analysis.

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A company can improve its efficiency, productivity, and profitability by examining best practices. Then try to improve its own performance by upgrading its processes or by imitating or implementing the best practices or benchmarking standards that were identified in the benchmarking analysis.

Benchmarking Techniques

There are two types of benchmarking techniques: benchmark results and benchmark process. Results benchmarking includes analyzing products or services offered by competitors or similar companies. For example, a battery maker may perform results benchmarking by comparing the features, performance, and characteristics of its own batteries against the batteries of another battery maker. Most likely, they would compare using the best battery maker in the industry.

Process benchmarking refers to when you benchmark an operational process. For example, a company that distributes computers might analyze the distribution process of a retailer known for efficient logistics and distribution. Process benchmarking aims to improve operational efficiency in a certain process. You also do not need to conduct the comparison within a given industry. Because it can involve companies that perform similar operational functions in different industries.

Benchmarking is a great way to identify if there any weaknesses that need to be resolved or strengths that need to be enhanced. Click here to download the Internal Analysis whitepaper to take a deeper look at how each strength and weakness is impacting your business. Take care of your business.

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