Theory of Constraints POOGI Part 63 Getting Jobs Through Engineering

We are continuing our series based on The Goal by Eliyahu M Goldratt and the Theory of Constraints. {This series was co-written with Brad Stillahn.}


Brad: It’s been three years since we joined NTMA as National Associate Members. Shortly after we joined, after seeing the benefits Theory of Constraints (TOC) could have for NTMA members, you developed the “Velocity Scheduling System.” It is for scheduling machine shops (and job shops) to help them improve lead times, due date performance, and to reduce the ensuing chaos that results from the 9 Challenges of Scheduling A Machine Shop* they contend with daily. You’ve had 35 small, medium, and very large shops attend—online—with a 100% success rate. Why create a program for engineering?
*You can download that free report here: www.VelocitySchedulingSystem.com/ebook

Dr. Lisa: Many machine shops also cope with problems in engineering. A job comes in, and it goes into the queue. It can be feast or famine. When it is feast, engineers are multi-tasking between hot and red hot jobs, and put the shop under real time pressure when they are late with their designs and prints. They need a good solution, too, so I developed the Project Velocity System, and there is a software package to support it.

Brad: Engineering is like graphic design in printing. When new orders start coming, it is easy to have them pile up, starving the shop. It can be a real bottleneck. And when it is slow, that’s an expensive resource to have idled. Very few other people know how to do their job, and engineers don’t seem to do other jobs well, either.

Dr. Lisa: Yes, that’s exactly what happens. Engineering or design starves manufacturing. And, many of the companies that participated in Velocity Scheduling System went on to create a Mafia Offer with our on-line Mafia Offer Boot Camp. This put even more pressure on engineering because with an outstanding market offer shops started bringing in more NEW business which means more load on engineering.

In addition, even without a Mafia Offer, you typically do not want engineering to be your constraint. Engineering needs the capacity to feed the shop, so the company can meet its sales goals, and maintain short, responsive lead-times with 100% due date performance all of the time.


... to be continued.  Part 64 will continue with Getting Jobs Through Engineering
 
What are the challenges YOU face getting jobs through engineering?  Tell me your 2 biggest challenges in the the comment box!
 
Here's to maximizing YOUR profits (and selling price of YOUR business)!


Dr Lisa

(c)Copyright 2010, Dr Lisa, Inc. All rights reserved.

Theory of Constraints POOGI Part 62 Exit Planning Questions

We are continuing our series based on The Goal by Eliyahu M Goldratt and the Theory of Constraints. {This series was co-written with Brad Stillahn.}

Brad: Next, we have a choice. Most business owners have a desire to transfer the business to one or more "insiders", but the business may be worth more and the business owner would make more money sooner if the business was sold to a third party. So, it's helpful to choose one or the other for exit planning. Choosing one initially doesn't mean that you can't change your mind later:

4. Do you know how to sell your business to a third party and potentially pay the least possible taxes?

5. Do you have any plans on how you will transfer your business to family members, co-owners or employees while paying the least possible taxes and enjoying maximum financial security?

Dr. Lisa: And why do you say that transferring to insiders yields less money or takes longer for the business owner when compared to a third party sale?

Brad: Most businesses are not saleable. They are too small, not profitable enough, or have some other issue(s). No business broker or investment banker will waste their time representing a business that buyers won't buy. If a business is valuable enough to be sold to a third party, the process takes time to execute and there are plenty of pitfalls, but business owners that can sell to a third parties usually do. The threshold is somewhere between $5 and $10 million in business value, depending on market conditions and the quality of the company. These business owners cash out, and with proper planning, can still take care of the insiders they want to.

But it is valid to transfer to insiders. The problem is that most family members, co-owners, and employees don't have any money! What is required in this case is an elegant exit plan, because it will be the current and future cash flow of the business that is needed to fund the business owner's exit from the business, in conjunction with the ownership transfer. I find it interesting that rather that selling for maximum value as in a third party sale, transferring for the lowest defensible value is the best way for the business owner to maximize after-tax cash in a transferring to insiders.

Dr. Lisa: Transferring to insiders sounds complicated.

Brad: It doesn't need to be. In either case, a sale to a third party or a transfer to insiders, the business owner needs professional help. But we aren't done with the questions that need answering. The next two are related:
6. Do you have a continuity plan for you business if the unexpected happens to you?

7. Does your family have financial contingency plans if the unexpected happens to you?

Dr. Lisa: In TOC, we say the first rule of management is to "be paranoid". So this has to do with business continuity and personal wealth and estate planning. Are most business owners prepared?

Brad: Some are but most aren't. And even if a business owner did a buy-sell agreement, or estate planning, chances are that was years ago and the documents are out-of-date. Exit Planning requires a team of advisors, coordinated by an exit planning professional. Creating an exit planning roadmap, implementing it over time, and keeping it up-to-date is crucial for the business owner that wants to meet his or her retirement objectives.
----------------------------------------------------------------
Want to have an Exit Plan? Go to http://www.scienceofbusiness.com/exitplan.aspx and take the first step.
----------------------------------------------------------------
Here's to maximizing YOUR profits (and selling price of YOUR business)!

Dr Lisa
(c)Copyright 2010, Dr Lisa, Inc. All rights reserved.

Theory of Constraints for Service Companies

SERVICE COMPANIES! I'm looking for 5 service companies to test our Project Velocity System starting sometime TBD in March. You know the 5 circles demonstration I do in my Maximizing Profitability workshop? -- this is the version for service companies!

It's a combination Goldratt's Theory of Constraints Drum Buffer Rope and Critical Chain Project Management aimed at service companies.

You will get $1000 off the $4995 price and a longer free trial of the software. The software is web based and allows you to coordinate geographically distant resources. If you do project based work, but not super complex (like building airplanes) then you may be a candidiate. Examples include: engineering firms, design firms, marketing companies, software, web design/SEO services, recruiting, internet marketing, and a whole bunch more. If you want to be considered, please reply to this email and tell me a little about your company and why I should choose YOU for this test! To get an idea of how the manufacturing one works, see http://www.velocityschedulingsystem.com/ and this one will be similiar but include software.

Theory of Constraints POOGI Part 61 Exit Planning Questions

We are continuing our series based on The Goal by Eliyahu M Goldratt and the Theory of Constraints. {This series was co-written with Brad Stillahn.}

Dr. Lisa: Let me start. We established in our last article that Exit Planning is consistent with Theory of Constraints, Lean and Six Sigma because business owners need processes that will increase profitability and business value. So now, let's help business owners check whether they are ready to exit, or what additional steps they would need to take to be ready.

Brad: First, a business owner needs to understand his or her objectives. Here's the question we need answered:

1. Do you know your exact retirement goals and what it should take in cash to reach them?

Dr. Lisa: Oh, I like it. That's the first step in Theory of Constraints (TOC) as well, understanding the objective. And then design a process to achieve the objective more and more. In a for-profit business, it's usually "make more money now and in the future". I know my answer for question number one.

Brad: Good. Now we need to know where we are in relation to the goal. So next we need to know:

2. Do you know how much your business is worth today, in cash?

Dr. Lisa: That's a much tougher question for me - business worth.  How do you find out?


Brad: It depends. If the business owner is close to exiting, a valuation by a Certified Valuation Analyst is recommended. But if you are just starting the exit planning process, a range of value can be calculated by a qualified CPA, and should be updated annually. Industry "rules of thumb" aren't good enough, and may be misleading. Pay a few bucks and get it done. Next, we need to know:


3.  Do you know the best ways to maximize the income stream generated by your ownership interest?

Dr. Lisa: I know the answer, it's TOC!!! There is no better way to leverage existing resources to maximize profitability now and in the future. Use the Velocity Scheduling System to do more with existing resources, and create an unrefusable offer-a Mafia Offer-to sell the capacity that's revealed.

Brad: Was that a commercial? Not that there's anything wrong with that...

Dr. Lisa: Yes, of course! Theory of Constraints is so powerful and I feel inclined to remind people of that fact. We helped 30 highly custom job shops improve last year -- substancially! A 100% success rate! What else could you have had these shops do with that amount of success?

And, we've had over 70 companies go through our Mafia Offer Boot Camp -- all creating great offers that they can use to sell more and increase the value of their business.

But I digressed. Let's get back to exit planning.

Brad: The answer to question three is where most business owners get stuck both in operating their business and with exit planning. If there is a gap between what you need (question #1) and where you are (questions #2), then you need to know how to close the gap (question #3).

.... to be continued (and completed) next week in POOGI #62

----------------------------------------------------------------

Want to have an Exit Plan? Go to http://www.scienceofbusiness.com/exitplan.aspx and take the first step.

----------------------------------------------------------------

Here's to maximizing YOUR profits (and selling price of YOUR business)!

Dr Lisa

(c)Copyright 2010, Dr Lisa, Inc. All rights reserved.

The Goal Video and other Theory of Constraints Videos ON SALE

Get on-line access to ALL Goldratt Theory of Constraints Videos for the entire month of February for only $499. To take full advantage of this offer ACT NOW! You will have access for the entire month of February 2010.

If you have ever wanted to learn Theory of Constraints or hear more from Goldratt, now is the time. You get access for the entire month of February to the whole video library brought to you with one of the best technologies available for internet streaming and OnDemand learning.

Here's what you will have access to:

Topics:
Finance and Measurements
Operations / Production
Project Management
Distribution
Supply Chain
Marketing
Sales and Buy-In
Managing People
Strategy and Tactics
Thinking Processes
Change Management
Buy-In
Health Care
Personal development

Videos:
The Goal movie
Necessary & Sufficient Series
Goldratt Explains
ALL the TOCICO Conferences
Goldratt Satellite Program
Realization Project Flow
Goldratt Webcast Series