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In his Are You Selecting Your Customers…Or Are They Selecting You?  presentation at CSIA 2010, Dean Streck, CEO of V I Engineering, encourages the use of Activity-Based Costing (ABC) to identify, describe, assign costs to, and report on operational performance. A more accurate cost management system than traditional cost accounting; ABC identifies opportunities to improve business process effectiveness and efficiency by determining the “true” cost of a product or service. ABC principles are used:

  1. To focus management attention on the total cost to produce a product or service, and
  2. As the basis for full and accurate cost recovery.

Support services are particularly suitable for activity-based resourcing because they produce identifiable and measurable units of output.

4 Steps to Knowing Your ABCs

Dean goes on to recommend some basic steps to implementing your Activity-based Costing system.

Identify activities—perform an in-depth analysis of the operating processes of each responsibility segment. Each process may consist of one or more activities required by outputs.

Assign resource costs to activities—this is sometimes called “tracing.” Traceability refers to tracing costs to cost objects to determine why costs were incurred.

Identify outputs—identify all of the outputs for which an activity segment performs activities and consumes resources. Outputs can be products, services, or customers.

Assign activity costs to outputs—assign activity costs to outputs using activity drivers. Activity drivers assign activity costs to outputs based on individual outputs’ consumption or demand for activities. For example, a driver may be the number of times an activity is performed (transaction driver) or the length of time an activity is performed (duration driver).

As also discussed in my project cost accounting post, this is a vital step in an integrator’s ability to maximize the profitability. It becomes impossible to run the business from macro-level – simply tracking overall receivables and payables versus the total labor cost. You must be able to account for your finances on a project-by-project basis.

Customer Lifetime Value

By performing Activity-Based Accounting, you can ultimately assign a customer lifetime value(CLV) for your accounts. The CLV is the present value of the future cash flows attributed to the customer relationship. Use of customer lifetime value as a marketing metric tends to place greater emphasis on customer service and long-term customer satisfaction, rather than on maximizing short-term sales.




Originally posted by Jack Barber at http://buildingstrongerpartners.wordpress.com/2010/06/22/customer-selection-3-of -4-activity-based-costing/
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In his Are You Selecting Your Customers…Or Are They Selecting You?  presentation at CSIA 2010, Dean Streck, CEO of V I Engineering, Dean starts with recommendation to ‘Know Thyself.’  You must first figure out who you are as a company today and the company that you want to be. Then, you can be proactive about selecting the customers that will help you achieve your goals.  In part 2, he then describes methods to ‘Know Thy Customer.”

The 80/20 Rule

The role 80-20 rule, also known as the Pareto principle applies. Business management thinker Joseph M. Juran suggested the principle and named it after Italian economist Vilfredo Pareto, who observed in 1906 that 80% of the land in Italy was owned by 20% of the population. It is a common rule of thumb in business: 80% of your sales come from 20% of your clients.

Whale of a Tale

Dean goes further to show that your top 20% of your business actually generates 180% of the profits. The middle 60% of your business is basically breakeven. And bottom 20% of your business loses the 80% of potential profits.

So What Then Must We Do

The revelation that 20% of your customers generate the bulk of your profit and the ‘other’ 20 percent cost you most of that profit, then raises the question. What should I do about it? Should I just focus on the top 20%? Should I fire the rest? What about everyone in between. In the next couple of posts, we will look at techniques to deal with these issues.




Originally posted by Jack Barber at http://buildingstrongerpartners.wordpress.com/2010/06/15/customer-selection-part -2-of-4-know-thy-customer/
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Continuing with my series of my favorite CSIA presentations from 2010, I very much enjoyed the Are You Selecting Your Customers…Or Are They Selecting You? by Dean Streck, CEO of V I Engineering who is an NI Select Alliance Partner.  In his presentation, he astutely illustrates that customer selection defines everything about your company from how you quote and the prices you can charge, to your process model and how you work, to the people you hire and the skills they need, and ultimately to your profitability and your ability to control the destiny of your company. Dean offers a fresh perspective on your customers and offers advice on your selection process, so you can truly understand your customer contributions to your business.

Know Thyself

Dean starts with the premise that it is hard to pick your customers if you don’t first clearly understand who you are. He recommends several tools that can guide you in this self-evaluation including some methods already mentioned in this blog.

Porters’s Five Forces – a look at the most common factors that affect your business.: Your buyers Your suppliers, Your Rivals, Substitutes, and Barriers .

Where You Play – what is your competitive position and how are you choosing a unique point on the Productivity Frontier.

OAS Statement – What are you Objectives (ends), Advantages (means), and Scope (domain). The OAS statement is basically your business strategy. Check out these tips for your annual planning process.

Strategy Map – is a visual representation of the strategy of an organization. It illustrates how your organization plans to achieve its mission and vision by means of a linked chain of continuous improvements.

Balanced scorecard (BSC) – is a strategic performance management tool – a semi-standard structured report supported by proven design methods and automation tools that you can use to keep track of the execution of activities by your staff within their control and monitor the consequences arising from these actions.

Your Customer Selection Process – who in your organization is responsible for your customer selection. That starts with the CEO who develops and communicates the customer selection criteria. It then falls to marketing and sales to identify the accounts and create the opportunities that fit the criterion. Then, the rest of the operations on both the technical and business side must work to meet the needs of those clients.

http://buildingstrongerpartners.files.wordpress.com/2010/06/selection-process2.j pg

Looking Into the Mirror

As you can see, customer selection is as much about you as it is the customer. You must first figure out who you are as a company today and the company that you want to be. Then, you can be proactive about selecting the customers that will help you achieve your goals.




Originally posted by Jack Barber at http://buildingstrongerpartners.wordpress.com/2010/06/08/customer-selection-part -1-of-3/
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In Jeff Miller’s CSIA 2010 presentation, he proposed using the same lean manufacturing principles to their own processes as a system integration company. The last method that he described was the 5S Principle.

So, what are the 5S?

’5S’ is the name of a workplace organization methodology that uses a list of five Japanese words which are Seiri, Seiton, Seiso, Seiketsu and Shitsuke. Translated into English, start with the letter S. The list describes how items are stored and how the new order is maintained. The decision making process usually comes from a dialogue about standardization which builds a clear understanding among employees of how work should be done. It also instills ownership of the process in each employee.

  • Sorting: Eliminate all unnecessary tools, parts, instructions. Go through all tools, materials, etc., in the plant and work area. Keep only essential items. Everything else is stored or discarded.
  • Setting in Order: There should be a place for everything and everything should be in its place. The place for each item should be clearly labeled and arranged in a manner that promotes efficient work flow with each tool kept close to where it will be used.
  • Shine: Keep the workplace tidy and organized. At the end of each shift, clean the work area and be sure everything is restored to its place. Maintaining cleanliness should be part of the daily work – not an occasional activity initiated when things get too messy.
  • Standardizing: Work practices should be consistent and standardized. Everyone should know exactly what his or her responsibilities are for adhering to the first 3 S’s.
  • Sustaining: Maintain and review standards. Once the previous 4 S’s have been established, they become the new way to operate. Do not allow a gradual decline back to the old ways. While thinking about the new way, also be thinking about yet better ways..
  • Safety (Sometimes added): It is reasonable to assume that a properly planned and executed 5S program will inherently improve workplace safety, but some argue that explicitly including this sixth S ensures that workplace safety is given primary consideration.

Applying the 5S Principle

Obviously, your shop area may work best, but you can apply them to any shared work area. The big key is everything has a place and it is in its place (e.g. tool shadow boards to demark areas for things to set so you can always find them. Also include one point lessons at the work area to show how to do the job in simple terms. And, design the entire work areas for flow with the only needed tools in the area.

The end result is not only less wasted and cluttered space. But improve work flow and efficiency. Things always have a place and you immediately notice when they are missing. In addition, you can identify unnecessary items,  red tag for removal, and get rid of it in a couple weeks if a need is not identified.




Originally posted by Jack Barber at http://buildingstrongerpartners.wordpress.com/2010/06/01/applying-lean-principle s-%e2%80%93-5s/