Achieving Lean And Flow In Your Product Development Project Keep Business Operations and Logistics Simple, Streamlined and Agile

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Keep Business Operations and Logistics Simple, Streamlined and Agile

Most of the entrepreneurs we interview in our consulting business have a rough idea of ​​what excites and frustrates investors. The dream of many novice inventors who want to fund their opportunity is to build a solid infrastructure. Their business plan identifies the need for factory space, equipment, personnel and many other fixed costs.

Investors want to look for a plan that offers maximum return on investment. High fixed costs are the enemy of high profits. When a business declines, and it always does at some point, the fixed cost asset becomes a liability and must continue to be paid even as income declines.

Always present decision makers with the most streamlined operations plan possible. Don’t confuse lavish staff and equipment with real needs. In today’s business environment, almost every possible service can be rented, leased, farmed or contracted. A 25,000 square foot factory that is not operating at 100% capacity is an under-performing fixed cost asset, especially if the private label manufacturer will provide the service at a competitive price. Facility rental, electricity, insurance maintenance and personnel costs are ongoing and will reduce the bottom line.

Investors want to see a lean operation with no fat or excess. They are always open to adding costs when growth and sales begin to increase. At the outset, the entrepreneur must demonstrate that he or she will be a prudent steward of the investment required to start the enterprise. Here are some areas where fixed costs can be avoided and potential investors are greatly impressed.

facilities

An opportunity instrument is a request for funds that includes money to purchase a facility, office, or plant. No startup can accurately predict the rate of growth (or failure) of a brand new business. Investors will want to see a plan that reflects realistic goals and space requirements. This means renting the facility until the facility is purchased as needed.

product

There are almost no good reasons for a startup to create their own product. Possibly, if a valuable trade secret is involved, but often not. All contract formations should include a non-disclosure agreement (NDA) as part of the negotiation. Contract manufacturing is available and used in almost every industry today. Estee Lauder makes almost none of the many cosmetic or fragrance products they market. Liz Claiborne and Calvin Klein don’t make any of their clothes. Ikea only sells furniture made in third world facilities.

All these companies and many others realized long ago that it is better to produce in factories where labor, raw materials and government regulations are not compromised. These companies focus their assets on research and development, design, sales and marketing. So every entrepreneur should be successful in getting investment.

sale

Every entrepreneur should be able to aggressively market and sell their product. However, no single individual or small partnership may be in front of every customer interested in purchasing the product on offer. An investor will want to know that there is a selling strategy that offers the best chance for success.

In the field of sales, there are industry specific sales representatives: manufacturer’s representatives and agencies available in their industry, on commission, to sell interesting, market-ready products. Commissions are generally standardized in every industry. The gift industry is 15%. Food products are 3% and above, production can be estimated according to the volume of the product. Industrial products are 2% to 5%. Historical profit margins determine commission rates.

When using sales agents, the entrepreneur should manage the sales force as if they were salaried employees. Weekly calls to review goals, promotions and upcoming meetings. Write letters and e-mails highlighting the successful performance of other agents. I have used commission sales agents for many years and recommend them to most of my clients.

I make as many key account sales calls as possible with my sales reps. If it’s my product, I want to control the big presentations, although I’ll pay a commission mainly on the sales I generate. I attend as many sales meetings as possible. The more I can meet, learn, and learn about the activities of my sales team, the better I can motivate, train, and energize them.

Commission sales agents are not paid when they do not sell the product. This definitely reduces fixed costs. However, you will want to pay as much commission as possible. A healthy commission check means a very healthy sales base.

As a young national sales manager for Vidal Sassoon hair care products, I faced a problem. Our sales had exploded. The growth of the Vidal Sassoon brand was so rapid and the market acceptance was so overwhelming that our commission payments grew so fast that my upper management resented the fact that the commissions exceeded their own salaries. “Those people don’t work for us, why do they earn more than the owners”, they asked?

I faced a difficult situation. I offered two options: reduce the commission or lay off the commission agents and hire a sales force in a company. I figured that if I could get sales coverage (salary, benefits, travel, etc.) for 8% of the cost of sales, it would make sense to transition. Lowering the commission rate would upset the agents and I didn’t want to risk losing the great momentum we had developed.

Very secretly and quietly I interviewed and hired a team of key regional sales managers and we quickly implemented a conversion plan that was signed off by top management. Vidal Sassoon was at a stage in the development of their business that a company owned direct sales force was necessary and justified. However, this was a concern as we were increasing our fixed overheads significantly.

Entrepreneurs should focus madly on sales growth. Sales is job #1 in every company, especially new ventures! Be very careful in creating sales coverage that will support the growth of your project and not block cash flow with too high sales costs.

Marketing

Hopefully the entrepreneur, or a member of the management team, has marketing experience. If not, the answer is often to hire a consultant. An experienced consultant will save time, money and mistakes. Make sure the consultant being considered has current industry specific experience, strong references and a transparent history of success.

fulfillment

I do not recommend a new venture to handle their own logistics (warehousing, pick and pack, shipping, billing, etc.). Dealing with shipping, handling, terms and conditions required to satisfy retailers is difficult. Big box stores like Kroger, Lowe’s, and Wal-Mart have very complicated inventory control systems. Special, very expensive software is required to communicate and expedite receipt of goods.

On average, I can warehouse, pack and ship my inventory for about 4% of my selling price (depending on volume). If business is seasonal or slow, I don’t have to pay high fixed costs, just one percent of the total invoice amount of the shipment. If business is booming, my contract fulfillment increases the warehouse rent. A good contract warehouse offers a full menu of services that I can pick and choose as needed. Their system will be sophisticated enough to handle the most demanding buyer of my product.

First-time readers of a business plan typically react strongly to the overall document, whether positive or negative. A negative effect usually occurs when the executive summary refers to high fixed costs. A positive decision is more likely when the entrepreneur indicates in every way that they are only interested in increasing profits and getting a return on investment, not creating a huge infrastructure that will dry up the enterprise if everything does not go perfectly and the assumptions are not met.

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