As you scale your manufacturing business beyond 30,40,70 employees it is essential that the role of the COO is identified. The key responsibility of the COO is to align all efforts towards a common cause. This is not just an Operations Director overseeing the shopfloor. This is not part of the CFO’s job. And whilst the CEO, CFO, CMO, Operations Director and CRO might be doing parts of this role, it is essential to separate out the key role of COO.
In the context of preparing a company for a potential exit or a potential IPO, it is important to look at your business through the lens of a buyer or investor. This is how you identify value leakage. There are issues that will disappoint buyers and lead to deals not happening. You can’t fix these items during due diligence. It’s too late then.
Of course the role of aligning everybody’s efforts is a very challenging one. Over the last 30 years our operators have executed several tricks/hacks to ensure this alignment is a regular feature of operations. Here are top 10 operational tricks to ensure the business is aligned and ready for prime time.
- Fixing the disconnected sales forecast. It is imperative that the production slot plan is aligned to the likely deals that will close in each quarter. When the production slot plan becomes disconnected from the sales pipeline, weak cash flow forecasting is the outcome
- Testing the credibility of sales forecasts is vital. The credibility of your overall profit & loss forecast hinges on accurate revenue predictions. Weighted probability needs to be applied on a consistent basis to every deal to ensure the aggregated weighted dollar amount of the forecast is reasonable. In addition when the quarter closes it is vital to conduct a post mortem, comparing the snapshots of the weighted sales forecast throughout the quarter with the final result. Do you have a consistently optimistic or pessimistic sales team?
- On a quarterly basis, test that department activity and achievements are aligned with annual audacious goals set for the company.
- In production planning, are we tracking promised ship dates made to the customer in the sales process with production slot plans that reflect reality on the ground?
- Drive a continual review of margin enhancements from sales prices through every element of cost.
- Does you your supply chain ERP system reflect the current delivery times for significant material and components. If the current lead times are not reflected in the ERP system, your production schedules can become wildly out.
- Is your finance team measuring the metrics that measure progress? Examples could include quarterly productivity ratios of Revenue, Gross Margin and EBITDA to headcount, book to bill ratios, customer support calls regarding quality tracked, ROI on trade shows comparing costs with sales closed, overhead recovery ratios over time etc
- Audit the quote to cash process for value leakage.
- All items related to compliance and risk should be measured for breaches and graphed to see trends. Specifically safety related incidents, trade compliance, AR and AP ratios, and liquidity ratios should be graphed to measure progress.
- Recruitment ratios and trends can be invaluable to measure the acquisition and retention of talent. Time from interviews to offer acceptance, turnover rates by department, engagement surveys, training days per employee.
In summary the CEO should be concerned with three top priorities:
- Strategy -Do we have a clear positioning and brand in the marketplace that can win?
- Cash – Do we have the right balance sheet to execute our strategy?
- People.- Do we have talent required to execute our strategy?
It’s the COO’s job to make sure everything related to the execution of the above is measured and gets done.
Our Operations For Exit checklists cover these type of items and many more to ensure that your business is ready for an exit.
Looking at your business through the lens of a buyer reveals value leakage and presents you with a priority value creation list that will transform the saleability and perceived value to buyers and investors of your business.
Ian is the CEO/founder of Boston based The Portfolio Partnership, a Value Creation Practice. We help owners “build businesses buyers love to buy” by deploying our successful playbooks. It starts with Positioning/Branding. We seamlessly join your team to work on the right stuff.
As always if you found these insights useful, please share.
