Margins are the most critical part of the operation - what do you retain after all the bills are paid from a sale. A safe target is set 60% as the goal, anything below 40% will probably become unprofitable. Margins are the difference between what you can sell it for and subtracting all the costs associated with making, delivering, and servicing the product or service. It is the basis for all profitability.
Given the shows on Lowest-Cost Producer, create a plan to bring costs down and hold margins while managing your products & service portfolio to increase the value of your offer.
EPISODE 105: Summary
If this was easy, everybody would be doing it - and that is your competitive advantage. Everything we have covered this season in operations is all about just 3 factors: build it better, faster, and at lower cost. This is a process that works in any economy, but during a contraction it is life or death.
Our goal is for you to "Strengthen Your Core" so the economic contraction will force you to build a better operation. Then when the economy begins an expansion - you'll be ready and in better shape than the competition.
EPISODE 106: Price Increases Long-Term Destroy Demand
During the early stages of a contraction it will be easy to pass on the impact of inflation on to customers. However, that time span is short. Once the customer either feels its full effect or is paying attention and can see the immediate future, price increases will destroy demand.
The long-term answer is manage operations - all processes to build it better and faster at lower cost.
EPISODE 107: Reduce Low Margin SKU's (Products & Services) Except 1
There are two places to look. First is your portfolio of products & services to reduce the number of items you sell focusing on the most profitable items - except 1. You need to maintain at least 1 price leader that will keep the customers buying for as long as possible. It also will provide needed revenue.
The second place is to look at all the costs external to the company. Inflation will affect your suppliers differently and relationships that made sense before won't now. The same can be said for supplier relationships that made no sense during an economic expansion could now be a better fit.
EPISODE 108: Focus on Customer Customization
The last part is a preemptive approach to hold your best accounts. We discuss this at considerable length on Customer Wednesday. Here are a couple of the concepts we have discussed with an operations prism.
Next Show/Chapter 26: Focus on Channel Costs
How to apply today's show to your business:
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