How To Articulate The Bottom-Line Financial Benefits Of Lean To Your CEO
Have you ever noticed that the two most common career backgrounds for CEOs are in either finance or sales? During economic growth, CEOs will typically have a background in sales. On the other hand, CEOs who are brought into a company during a recession will tend to have a background in finance. Regardless of a booming or struggling economy, we as lean supply chain leaders must be able to effectively articulate the benefits of implementing lean to the CEO in a language that is easy for him or her to understand.
We’ve all been in meetings and said something that we thought would cause the CEO to do back flips. Accomplishments such as: ”Great news, we were on time 98% last month!” Unfortunately, the reply instead was a shrug of the shoulders and a look of “so what?” Now what do you think would happen if you told the CEO that if the company were able to improve sales by only 0.25% while reducing expenses, assets, and accounts receivables by just 1%, the net effect would be a 23.6% improvement in return on assets? Do you think he or she would listen and want to learn more? I think the answer would be: “Yes, please tell me more!”
As lean supply chain leaders, we need to get into the habit of correlating the impacts of our jobs to the bottom-line performance for the company. This can be accomplished by beginning to analyze two financial documents; the income statement and the balance sheet. Below is a visual representation for the above mentioned exampl e:
Explaining to your CEO how to reduce expenses and assets can be a straightforward conversation. Below are some points to cover:
1. Emphasize that implementing an inventory strategy focused on customer consumption greatly reduces the amount of overproduction waste.
Waste associated with overproduction lends itself to higher asset values and expenses. By having the right inventory strategy, we can reduce the amount of inventory on hand (assets) as well as the high inventory carrying costs (expenses) associated with the excess inventory.
2. Articulate the contributions of lean towards increasing revenue.
Explain to the CEO that by continuously improving our order fill rates and perfect order execution levels, we are sending the message of how valuable our customers are to the organization and how this will ultimately lead to increased sales revenue.
3. Explain that we can positively impact the balance sheet by reducing overall lead times and eliminating non value added waste within the fulfillment stream.
Clarify that by increasing the velocity of the order cycle, the company will reduce accounts receivable. This increased velocity will ultimately reduce the number of days in the cash conversion cycle, thereby increasing cash flows.
Always remember, business is about revenue, expenses, and profit. We must be able speak the language of the CEO in order to be successful in our lean journey.
Written by Brent Rogers, Lean Deployment Executive at LeanCor
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Posted by LeanCor Supply Chain Group
LeanCor Supply Chain Group is a trusted supply chain partner that specializes in lean principles to deliver operational improvement. LeanCor’s three integrated divisions – LeanCor Training and Education, LeanCor Consulting, and LeanCor Logistics – help organizations eliminate waste, drive down costs, and build a culture of continuous improvement.Facebook LinkedIn Twitter Google+