I received an e-mail recently from a reader asking a question that has affected his margin the last two years.
I received an e-mail recently from a reader asking a question that has affected his margin the last two years. His question surrounded a competitor discounting its product and flooding the market, forcing his greenhouse to follow suit on price reduction. This is a major issue not only for the greenhouse industry but also for manufacturing and sales in general.
So the question is … what can we do about it?
Large multinational companies sometimes solve it by buying up their competition, thereby reducing the external threat. I don’t think this is an option for the greenhouse industry.
The best answer is to look inside our own four glass walls – not through them into our competitor’s operation. Margin erosion is the problem. The symptom is all the threats that can be identified by doing an environmental scan.
Environmental scanning can be defined as “the study and interpretation of the political, economic, social and technological events and trends that influence a business, an industry or even a total market.” That scan will identify things such as:
- Competitor pricing.
- Weather conditions.
- Market demand.
- Sales opportunities.
- Operational costs.
- Ability to hire seasonal staff.
A scan is costly and time-consuming for small- to mid-size companies and requires an in-depth strategy to mitigate the scan outputs.
Not to fear; there is a simpler answer.
FOCUS ON WHAT YOU CAN CONTROL
■ The uncomplicated answer is to focus on what you have control over to reduce your costs. Marketing strategies of undercutting are short-term desperate measures that never create long-term business stability.
This may seem an oversimplification of the issue, but focusing on your margin and taking all necessary actions to maintain a healthy business model will allow you to weather the storm.
So what Lean tool(s) can you use to solve this issue?
Well, there are three that come together – Affinity Diagram, Interrelationship Diagram, and PACE Matrix.
The Affinity is a brainstorming tool, the Interrelationship is an alignment tool, and the PACE Matrix is a decision-making tool. The first step is to get a group of your staff together from all aspects of your operation. Next, ask the group the overarching question, “What is creating our margin erosion?”
The group then – in silence – writes a minimum of five answers on separate post-it notes. These notes are then placed randomly on the wall. Once the group has exhausted their note-writing, they can approach the wall and once again in silence categorize the notes into groups of similar notes.
IDENTIFY COMMON THEMES IN THE POSSIBLE REMEDIES
■ This quick brainstorming tool will allow the team to identify themes based on the original overarching question.
Once groups of post-it notes start to emerge, then the team can talk and discuss what they think each group represents. Using a different colour post-it note, write the category title above each grouping.
Now that these groupings are identified, transfer the notes to a white board or flip chart. The list creates a To Do list to solve the overarching question asked at the start of the exercise.
The next step is to prioritize the identified opportunities for your organization, especially which one(s) will have the biggest impact on increasing the margin.
There are two separate tools that could be used – Interrelationship Diagram or PACE Matrix.
The goal is to help you and your organization get a handle on where to deploy your finite resources for process improvement and get the largest returns for your company.
Looking inside for gains rather than letting your external environment drive your profit gives you back the control you need to be successful.
Until next time, keep improving.
Dale is president/CEO of LTS Consulting, a certified Lean Six Sigma Black Belt, an ISO Auditor and a Certified Human Resources Professional (CHRP).
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