Friday, July 8, 2011
One of the effects of technology has resulted in the compression of time. For example, in Ernest Thayer’s poem, published in 1888, “Casey at the Bat,” he described, in nerve-racking detail, a fictional event which later became known as ‘the world’s most famous baseball poem.’
‘And now the leather-covered sphere came hurtling through the air, and Casey stood a-watching it in haughty grandeur there. Close by the sturdy batsman the ball unheeded sped-“That ain’t my style,” said Casey. “Strike one,” The umpire said.’
If we compress time, the entire story could have been reduced to simply, ‘Casey struck out’ and it would still be accurate, but if you go back and study the text in its entirety, it sheds light on just WHY Casey struck out, and that information was lost with the compression of time.
A compressed view of a business is like receiving the results of an equation without knowing how to we came by the results. If ‘4’ is the answer, is it the result of ‘0 + 4’, ‘1 +3’, ‘2 + 2’, ’3 + 1’ or ‘4 + 0’? It might even be ‘2.58745 + 1.41255’.
A simple explanation of micro-management is to have a method of filtering, selecting and scrutinizing each minute detail that affects a business cycle, in which case the end of a period, say one month, becomes just one more event in the cycle. I'm not suggesting you must personally spend your days studying every product purchase and sale that goes through your POS. That would be ridiculous. Please, don’t miss this point.
Whatever management exercises we perform, we must be able to refer back to the detail with great accuracy, so when problems do occur, we are able to determine why we lost a nickel on a particular tender instead of simply wondering why a general category is failing.
Three things are necessary for micro-management to be successful. First, you need access to the information; second, you have to have a way to organize, manage and examine that information; and third, the analysis of that data must be simple and straightforward.
It's of little help to simply collect the data and leave it lying around. You need some way of foraging through the information so you can get at what is relevant and you need to organize the data in some form that will be meaningful and interesting to the person who requires it. Businesses MUST learn how to get the information they need without waiting for computer programmers to decide what they think they need.
At the time we collect the detail to be used for analysis, we probably have no idea what information may be relevant later on. Knowledge gathered through experience creates new questions. Scientist use petri dishes, test tubes, refrigeration, heat and microscopes. Small businesses use computers, cash registers, pump controllers, scanners and people.
Organizing the data properly is no secret. There are but a few simple rules and techniques that our computer forefathers, James Martin, E. F. Codd, Clive Finklestein, Ed Yourdan and others, gave us three decades ago. The problem is, very few programmers today adhere to these rules.
Wednesday, July 6, 2011
Several years ago, I attended a seminar in Hawaii featuring an American businessman who was operating in Tokyo, Japan. One of his topics was of course, why Japanese-ran businesses appeared to be more efficient and profitable than their American counterparts.
He used a baseball game as an analogy when he said, "If we were to watch a baseball game between America and Japan, we would notice when the Japanese batters step up to the plate they would keep their eyes focused on the ball; while the American batters would be constantly looking over their shoulders at the scoreboard." His point: The current score is worthless information during the game.
I know many businesses are experiencing financial and other business difficulties at this very moment. Some of them are laying off employees, going broke, or already broke and running out of credit. Many of these companies could be saved if they would only focus on the details and forget about the score. Smart people have learned the best way to solve a problem is to drill down to the lowest common-denominator and build from there.
There's a software package that links a PC to your automobile’s computer, and as you drive down the highway your computer constantly monitors and records every stroke of the piston, the current oil pressure, the transmission temperature, the turbo-boost, exhaust temperature, even the tire pressure. A vehicle monitored in this fashion and maintained accordingly would last indefinitely. This is the epitome of micro-managing a situation.
Some believe the big opportunities are gone, i.e. there will never be another Walmart… I don't know. But I do know this. Using micro-management techniques properly, you can tell where the problems are, and if you address these problems and correct them, like the automobile in the previous paragraph, you could last indefinitely.
In Barbara V Anderson’s excellent book, “The Art and Science of Computer Assisted Ordering,” she writes: “Computer Assisted Ordering is one of the most misunderstood and underutilized strategic weapons available to retailers today.” She published that book fifteen years ago. You may have many problems, I’m aware of most of them, but there is none more dangerous than investing your hard-earned working capital in untimely purchases.
Every jobber knows, as the price of fuel is increasing you keep you tanks topped off, and when prices are falling you do just the opposite. It’s just ‘common sense’, and you don’t need a computer to figure it out. But, when it comes to their retail stores, managing non-fuel inventory becomes a hit and miss operation.
The margin on fuel pales in comparison to the margin on a Snickers bar or even on a single gallon of milk, yet the cost of convenience store merchandise is becoming more volatile as prices continue to rise, and these increases are often missed or completely ignored by management. With net profits in stores hovering around 2 percent, there is even less room for error.
While it’s a well understood fact that micro-managing fuel inventory is critical, why is doing the same with non-fuel inventory considered unnecessary? Operators need to sit down with their managers and get an answer to that question while there’s still time to do something about it.
Tuesday, July 5, 2011
Thirty years ago, bookkeepers used to list all business transactions in books called "ledgers." These transactions were accumulated in periods, usually quarterly, monthly and yearly; totaled, and used as yard sticks to measure a company's progress over a specified time period.
Occasionally, a "snapshot" of summaries derived from these transactions was taken, and it represented the condition of a business at any point in time. Bankers, vendors and other trading partners still rely on these "snapshots", commonly known as "Financial Statements" to determine if a company is profitable, solvent, in trouble, or mismanaging its funds.
Financial Statements are important, but for most small businesses today, financial statements are inadequate tools for running their day-to-day operations.
Accountants, vendors, bankers and high-level managers use financial statements to determine the overall financial health of a business. Jobbers still deal with bankers, vendors and accountants, but not many jobbers have professional accountants working inside their organizations. They usually rely on outside CPAs to point out problems that may be considered "red flags" by trading partners and of course, the much dreaded Internal Revenue Service.
This chapter is about how businesses use and misuse information. Keep in mind that although most jobbers see themselves as "small businesses", federal and state bookkeeping requirements force them into a class of business that is unlike the majority of those that most CPA firms and bankers are accustomed to dealing with. In order to survive in the 21st century, jobbers will need to learn how to seek out financial wizards who know how to handle and advise them in complicated business issues pertaining to their specific operations.
Recently a convenience store operator and client of mine was assessed nearly $60,000 in additional taxes, fines and penalties for understating his income on his tax return. His CPA never caught the fact that the IRS agent included the sales tax in my friend's income during her audit. The man just accepted his CPAs explanation that one of his employees must have made a mistake in posting the sales. A part-time computer operator caught the error a month later and saved this jobber a great deal of money and misery.
Things like this happen every day. Relying on only monthly and yearly financial statements can be dangerous.
I am not against financial statements mind you. They remain a necessary tool and need to be presented to the people that use them. But let's face it. The very nature of these reports limits their ability to help us manage day-to-day problems. A financial statement may give you an overall picture over a period in time, but the devil's in the details, and how you go about finding these little demons in by "micro-managing" your business.
The business of oil marketing is far too complicated to entrust your future to historical milestones. Imagine if a scientist, developing a vaccine for a deadly disease, only evaluated the outcome of his experiments once every month. Product businesses purchase on Monday is gone by Wednesday and it doesn't do much good to know how much you lost overall when you reach the end of the month. Today, business analysis requires a scrutiny that even Sherlock Holmes would consider ridiculous.
Relational technology is here to stay. Advanced analysis tools like Executive Information Systems (EIS) and Decision Support Tools (DST) are available now and they all require relational databases to function. Jobbers and C-Store operators, whose information resides in a properly designed, relational database, already have a strategic advantage over their competitors. Nowadays, if someone asks me, “How much Texaco oil did we sell last month,” I can come up with the answer in seconds.
If you revisit the previous paragraphs, I hope you can see the necessity for maintaining a strict program of analysis on your Accounts Receivables. I can’t think of a single case where great losses could have been avoided if jobbers had done so.
Our “Ruben Report” is just one small example of how our clients run a tighter ship without a great deal of trouble. People make mistakes… properly programmed accounting systems do not make mistakes as they generally perform redundant task over and over again.
But there IS a danger here. You have to watch out for anomalies. Back in 1986, I got a frantic call from a jobber that had produced statements to customers with charges in the billions of dollars. This could never have happened if the bookkeeper had been paying attention, but she had become so accustomed to letting the computer do her work, she never even noticed the discrepancy.
The situation was created when a pump maintenance employee replaced a computer chip at an automated fueling site that moved the decimal place of the price-per-gallon several place to the right. He neglected to inform the customer and was not even aware the customer’s computer system was collecting the data.
In another case, an in-house programmer had created a $1,000,000 check for an employee named “Mickey Mouse” and inadvertently left the test check in the check file. When the check appeared in a stack for the owner’s signature, he almost had a stroke.
If you are still running your own in-house system, have the person that makes the back-ups bring them to a third party for off-site storage and NOT in the company’s safe. If you have petroleum products stored in the same area where your office is located, you may experience a similar incident that occurred at one of my customer’s sites in November of 2005… before we moved them to ‘The Cloud.”
After twenty-one years of experiencing no problems, the operator had neglected to make back-ups for six months; but even if she had, the safe where she was storing the tapes melted in the oil fire. The only back-ups available were the previous year’s fiscal-year closeout, which thankfully was safe at the owner’s residence. It took six months to reconstruct the data from memory. There were actual cases where they had to call customers to find out what they owed them. It caused them to suffer through years of IRS and state tax audits before they were given a clean bill of health. On The Cloud, their back-ups are automated, occur several times a day and are safely stored in datacenters located in three states.
A strict regimen of backing up the data must be adhered to religiously. Before we put our customers on ‘The Cloud’, they were responsible for backing up their own data each day. You simply can’t rely on people to do it right every time. And when they screw up, they may be unintentionally exposing your company to great peril.
Sunday, July 3, 2011
This is the kind of material computers were made for: Redundant analysis of millions of pieces of valuable data on a continuing basis. All you need is access to your information and the proper analysis tools and you can accomplish wonders. Data you can’t get to is worthless.
Before analysis can be performed on information, we must acquire the information to perform the analysis on don’t we? If we are limited to feeding information into spreadsheets manually, we’re not much better off than if we are analyzing the data manually. No, we need some way to automate the process of retrieving the data so the analysis programs can be run against the data automatically and most important of all, in a timely fashion so we can act on the data that is pertinent to our objectives.
Spreadsheets are great tools, but they’re difficult to write and maintain. One time a customer asked me, “Which button do I push to find out how much Texaco oil we sold last month.” I darn near started a fist fight over that one. Six years into my career I realized it didn’t matter how many hours I stayed up writing computer code, some bozo was going to come over and ask for everything I didn’t have. After thirty-three years of computer programming, I’ll bet you a buffalo nickel someone will call me before the day is over and ask me for something only a seriously depraved Tasmanian devil could conjure up.
But, that’s the way it goes. It’s always been that way and always will be that way, and there’s no getting around it. The changing world seems to be changing faster every day, and just when we think we have a collar on something, the game changes and we have to start all over again.
If you don’t have your own programmers, you may be seriously handicapped. I learned a long time ago, learning is built upon information that creates even more questions, and just as soon as you come up with the answers, you realize you don’t really know anything at all. So if anyone tells you they’re an expert at something, their either fibbing, or like the philosopher Yogi Berra once said, “They don’t even know what they don’t know about that.”
How do you accomplish what you want? Other than searching through stacks of worthless printouts, an electronic "interface program" could be created that knows what information it needs and where to find it. These interface programs could be designed by a programmer. But, what happens when the requirements change? Where's the programmer? Eventually you become stuck with an obsolete interface that if it can be fixed at all, it might cost you a fortune to have it redesigned.
One method of getting at the information you need is to invest in an expensive "intelligent interface program" that works with a relational database. These programs can be "tweaked" by the user when requirements change without the need to locate the programmer that wrote the original interface. Of course, without a relational database, an "intelligent interface" will eventually become worthless.
There is an alternative. ‘Cloud Computing’ gives you access to a team of data processing professionals that charge a fraction of what it would cost you to maintain your own stable of programmers, and instead of paying them to sit around and mess up your office, you only call them up when you need something.
Many jobbers and c-store operators have found the hard way, the non-relational database computer systems they have purchased soon become high-tech paperweights while their need for advanced analysis tools becomes more crucial. And even if they are relational, who in your organization has access to them, and the more important question: “Who is denied access?”