thinking/critical

The biggest danger to a business owner is lack of originality – generally demonstrated by virtue of getting trapped in his or her industry’s trends. Industry trend following simply turns your business into a commodity business. Avoid the trap, and maintain your margins.

I invite you to ponder two thoughts over the weekend. I’d like you to think about the effects of fear, and the benefits of action.

Supply Chain Management represents the best opportunity to maintain your footing in a difficult economy. Buyers have particular responsibility related to high volume/high profit potential products. If any product is responsible for a significant percentage of the firm or division’s profitability, it is not enough to make sure the product or its components arrive on time and are of acceptable quality. It is also important to understand the manufacturing process related to that product, the market conditions affecting the components of that product, and the vendor’s ability to manage those manufacturing and market conditions.

Beyond those obvious high-focus products, where is the next best place for a buyer to focus their attention? On products where the labor cost is a high percentage of total cost. Why is this so important? Because your opportunities to work on productivity improvements with vendors are very high on these products.

Though cost-based accounting methods can be credited with advancing organizational ability to dissect operating processes and analyze where change might be most beneficial, cost accounting also has a downside. The very process of apportioning costs applies component-based to thinking to system-wide problems. Does this mean that cost allocations are bad and should not be done? Definitely not! (though I have discovered that this topic has a strange knack for bringing out the argumentative extremist in far too many businessmen). The solution is to recognize that component-based thinking creates a certain type of bias, and that bias can be offset by approaching the same problem (or, ideally, set of problems) with system-based thinking. Here’s an example of an actual problem