Your sales can be up, your plant can be busy, and your company can still be underperforming. Even when every department is doing its job, the company can still be in a deficit relative to achieving its overall goals. There are three key areas involved and they are all trying to excel at what they do best. Sales is trying to grow revenue, operations is trying to keep equipment busy and be efficient, and finance is keeping score and working hard to protect margins. Individually, all of these makes sense. But unless they’re aligned, it’ll be difficult to reach company optimization. So, can two things be true at the same time?
Why is it that a company can be busy, growing, hitting it sales goal, and still under performing financially? It may not be the performance of these key critical areas, as opposed to the gap that exists between them.
In my experience, I see company owners focus on a wide range of numbers when they view success. From top line revenue, value added, gross margin, contribution margin, or the bottom-line profitability of a job. Some owners focus on the individual jobs that go through the shop, while others are focused on the overall mix of the work in any given month. I can make the argument that you can have a shop full of profitable work, but if you don’t have enough of it, you won’t reach your company goals. There’s another view that the work mix is a portfolio, and if you have enough to exceed your value-added breakeven number, you will be profitable for the period.
In the perfect scenario, your operation will be filled with all profitable work and that you have enough of it to exceed your value breakeven.
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