In some ways this tip is similar to the tip about taking all shortages seriously, but I think that this is broader. If you dip into your Quickbooks or whatever software you use for your accounting, you’ll discover that there are hundreds of reports that your system can generate for you from the top view P&L and Balance Sheet to the nitty gritty item detail by customer.
Understanding your company’s KPIs – or Key Performance Indicators – is a great place to start when seeking the trends that matter to you. However, thinking generally about other numbers in your business, and regularly monitoring them, is a very important exercise.
The beauty of this tip is that you can determine how to run the necessary report you need and then have someone in the accounting department run and provide these reports daily, weekly or monthly, depending on the relevance, scope and immediacy of them. Chart the differences over the period of time in question, and you’ll notice a variety of fascinating things.
Let me tell you why at a high-end, couture dress manufacturer in New York, they should have been watching their scrap and the cost per dress of manufacturing.
In the world of couture, the profit per piece is generally quite high, especially at this particular dress manufacturer. What started to happen, though, as we later discovered, was that the production manager was taking the overrun of these $5,000 dresses and selling them to discount operations. As this started to work well, he would buy more materials and then write them off as scrap; to make them into dresses and sell them to discount retailers, though, he still had to run the plant which obviously costs money, too.
Had the CEO been receiving regular reports on the, for instance, scrap rate, then he would have noticed something out of whack much earlier and asked the plant manager to reevaluate his processes. Similarly, tracking manufacturing costs could have uncovered this fraudulent activity. As labor and material costs rose while revenue remained steady the CEO should have thought more carefully about the impact on his profit and why it was happening.
If you are making a widget day in and out and you know that the material is x and the labor is y, you need to watch the trends to make sure that the numbers are staying consistent (or inconsistent in your favor).
This applies to all relevant numbers in your business. Regularly monitor and review monetary trends.
Which trends do you monitor? How frequently?