Tracking Trends featuring Dan Ferrise with Miller Manufacturing Company written August 2011 by John P. Palen for Minnesota Business Magazine

Posted By John P. Palen, CEO & Founder of Allied Executives

Someone once told me that all airplanes have instrument panels, but reading the dials doesn't mean that you know how to fly the plane.

Apply that to business. Most business owners don't know what to measure in the wealth of data generated from all of the departments. That's because there are infinite things to measure and ways to measure them. The most critical concern, however, is that a spreadsheet of data does not lead directly to action steps or the skills to communicate action steps to your people.

This was the dilemma for Dan Ferrise, CEO of Miller Manufacturing Company and Springer McGrath Company, owned by Frandsen Corporation. These companies manufacture products and provide wholesale distribution to the farm, ranch and pet industries.

In 2008, Ferrise was reviewing monthly reports but the data did not allow him to quickly understand if the company had a trend or an anomaly, or what the impact on longer term performance was.

"I am responsible to our companies' owner and to our management teams," Ferrise says. "We needed to closely monitor our performance on KPIs (key performance indicators) so we could identify negative trends early. When our dashboard KPIs don't meet trend expectations, we need to take action quickly."

Ferrise's solution was to develop a trailing 12-month trend line. Taking gross revenue, Ferrise calculated the current month plus the prior 11 months and divided it by 12 months to get a rolling average. Creating a chart for each month's rolling average eliminated seasonality or anomalies and helped Ferrise spot changes quickly. Applying a trend line to any measure of dollars, units or percentages gives Ferrise and his team a true picture of company performance.

"If the 12 month trend lines for margins are less than expected, then we recognize quickly that we have an issue to investigate," Ferrise says. "We then look to see if customers are buying the lower margin products, if program pricing is too aggressive, or costs in certain areas are creeping up. Our dashboards show us where we need to take action."

Ferrise's primary dashboard measures include dollars and percentages on gross sales, net sales, gross margin, net operating income, cash on gross margin and net operating income. Other items on the dashboard include lead time, transit time, backorder value, inventory turns, and bookings.

Ferrise and his team also came up with a one-page business plan model. They conduct annual strategic planning to evaluate the market, review prior year accomplishments, and identify key strategies and priorities for the upcoming year. Executive Team members are assigned different parts of the new plan. They then involve managers and supervisors in setting objectives and implementation schedules. Once complete, they announce and launch the plan to all employees. Performance reviews and compensation are then tied to these objectives.

"Each new employee gets a copy of the company's one page business plan with a hand-written welcome note from me (the CEO) with the mission, vision and company core values," Ferrise says.

To stay on track, Ferrise also conducts a 30-minute weekly management meeting. Management reviews what’s going on in the dashboard within each division. Notes, including action items are taken and made available for future reference, accountability and anyone absent.

On a quarterly basis, team leaders give a presentation to the management team related to their objectives and re-plan as necessary. There are support meetings between team leaders and their direct reports as well as with senior management to ensure one-on-one accountability.

"Once people understand why we need this information, what it tells us and how we use it, then they relate to it and embrace it," Ferrise adds. "We share our plan and progress with all employees so that they know we have a plan, how they contribute to accomplishing it, and that it truly means something."

What it has meant is double-digit growth and strong margins through the recession. The company has also stayed on pace to meet objectives for new internal product development and the company is poised for strategic acquisitions.

GETTING STARTED WITH DASHBOARDS

• Good dashboards and KPIs eliminate surprises. Too many KPIs muddy the water.
• Start by measuring one thing at a time to get practice.
• Use historic data for more accurate benchmarking.
• Once your data makes sense, then the sky’s the limit.

Build a Proactive Organization in Volatile Times featuring Tim Herold with Herold Precisions Metals written June 2011 by John P. Palen for the Minnesota Business Magazine

Posted by John P. Palen, CEO & Founder of Allied Executives

You don't know if you don't ask. Lately, I find myself telling leaders this very thing — the first risk required to find hidden opportunities in their businesses to cut expenses or add income.

The most successful businesses right now have restructured in order to flow with the still volatile expansion and contraction of their industries. They have also reinvented how they serve customers to improve their value.

One such company is Herold Precision Metals in White Bear Lake which had peaked at $22 million in revenue pre-recession. Through this tough period of going from gangbuster growth to a dismal bid-to-award ratio, three brothers have worked very hard to build a position of strength with their client base.

First, the owners went through their financial history to identify benchmarks and key performance indicators (KPIs). Reviewing their existing sales, they took steps to "right-size" their organization in light of fewer sales. Yes, this did mean a change in their labor force, with more reliance on temporary and contract-for-hire employees. In the long run, however, they have created more job security for key employees.

"By utilizing temp services, our main employees know that when we need to expand or contract that it's coming from our temp workforce and not the full-time ranks," says Tim Herold, partner.

In addition, this manufacturer conducted some aggressive price negotiation with their valued vendors and communicated higher expectations for service delivery.

"In some cases, it was a collaborative effort as we agreed to offset the discounts as business or the economy improves," Herold says. "We would return to previous pricing as we could. Every discount or price reduction added up collectively and we felt that our vendors were partners in that."

They also met with their best customers and investigated ways that their processes and service would make products more convenient and ultimately less costly. For example, with one customer they were able to add an additional step — a simple weld of one more component on the ordered part — that the customer had previously done in-house. Delivering that one step cheaper and easier resulted in improved margins for Herold Precision Metals and the customer. The company's depth of experience in design and engineering has become a competitive difference.

Another area that the company is exploring is a diversification of product lines through strategic alliance. By exploring up-and-coming businesses in the R&D stage that will need timely production of metal components, this company anticipates getting in on the ground floor of new business opportunities.

"You need to really understand the partners involved, the level of risk and investment potential, but we have been very aggressive about finding new business opportunities," Herold says.

Rather than accepting the ebb and flow of an inconsistent sales pipeline and worrying about paying the bills, these leaders are taking the action steps necessary to create a business that flows smoothly with its customer demand. While it might even mean turning down business that doesn't provide the necessary margin, the long-term goal is a recession-proof company that won't be fooled twice.

"We used to bid 10 jobs and get five of them. Now we bid 50 jobs and get five. The environment is much more competitive and commoditized, so we have to maintain our value proposition of producing parts faster and of higher quality than our competition," Herold says.

If you haven't asked for what you need or want from vendors, customers and your talent, it's time to take that leap. People don't know what you are capable of delivering or improving if you don't know yourself. Do some research and improve your thinking from dismal to dedicated. The new core competency for leaders is proactivity.