CategoriesManagement

80:20 Principle and its application

A business friend gave me a book “The 80:20 Manager“, I didn’t read it for 6 months thinking it is just another self-help book that is good to read but tends to be forgotten after a week. But this was something that was inline with my established beliefs and it was not hard to follow. It rather, gave me confidence to implement what I believed.

In essence, book is about Pareto Principle applied to management. 20% of selected inputs leads to 80% of outputs. For business, 20% of customers can give 80% business and profits.

Since starting 3 years back, business has been journeying in various ways. Here are a few ways in which we got back our focus in the last 3 months.

Other edible oils trading
With coconut oil getting dearer, consumers were shifting from coconut oil to other edible oils. So, our business within existing market was getting reduced. Demand was shifting from bigger SKU like 1 Litre pouch to say 500 ml pouch. So, we had started trading in other edible oils like Refined Palmolein Oil, Refined Sunflower Oil and Lamp Oil. With this, we could

  1. Provide our existing Coconut Oil customers i.e. Retailers with full range of edible oils, so that they could source more from a reliable vendor
  2. Get more income from same customer at same distribution expense and more sales turnover
  3. Use vehicle load fully, keep better tab of fluctuations in other edible oils

But with it,

    1. The focus started shifting away from our core business of manufacturing and marketing coconut oil.
    2. Adequate service could not be given to our customers because of supply disruptions from our vendors.
    3. Lot of works were to be done in transportation, unloading, loading, accounting, leakage processing, payment, selling in credit, managing working capital etc.

What seems like busy work and turnover was actually not contributing towards building Cocoguru brand or increasing bottom-line. So, we just stopped them altogether. That provided a lot of relief and we closed Sullia godown, released a rented vehicle and saved on a few resources.

Distribution
Wholesalers/Retailers were given supply of coconut oil through our Sales Van. For this we had to arm the vehicle with a driver and salesman. To account for those transactions an accountant was required, an officer was required to manage the delivery team. These are unrewarding work for a manufacturer, but had to be done initially to sell our products. The cost was very high, 40% of our company expenditure was going towards sales and distribution. We had 5 delivery vans to supply all over Dakshina Kannada district.

I always had a dream to stop doing line-sales ourselves and get distributors to do it for us. But distributors will take it up only when the brand is popular and they are confident of selling it. The margins should also be sufficient to sustain their business by only selling coconut oil.

The tough decision of increasing our selling price has made it possible and very soon. We left out less productive sales people, made enthusiastic sales people as distributors, gave away our existing vehicles to them at a reasonable price. With this we could leave out about 12 people from our payroll, stop renting 2 vehicles, sell 2 of our own vehicles, save the work of 2 accountants, Logistics officer and Top Management. Expenses are very less and under control, selling price is predictable. When the distributors have to sell to earn for their living their performance is even better and sales improved.

Leave Customers
With the eagerness to sell more and acquire as many customers as possible, we tend to serve any customer at any cost. But some customers are not worth our attention. Some need discounts, need credit, need pampering, are difficult to supply, need a different quality, put restrictions on us and still never get satisfied. Bolding leaving them out is a win-win situation for both the customer and us. We can cater to profitable customers better, others can get their desired service from a competitor. For every customer lost, there are a couple of them to be gained.

Piece Work/Contract Labour
If we believe in Theory X, labourers are lazy, they tend to take away maximum wages for minimum work. While employers looks to get maximum work for minimum wages. Mostly the labourers have their say. It is cumbersome for supervisors to get maximum work with quality from them always.
So, to align their work output with their income, we have made a piece work system, where they get paid only for the units of work done and not on attendance. This is system is fair for all workers, they are not paid on seniority, experience or any prejudice, only on output they produce.
In any annual appraisal discussion their only focus is on the revised salary, without any regard to their past performance or skills to be developed, responsibility to be assumed in future. For such people giving instant reward is the way to go.

After doing this their performance have increased multiple folds. Example, for a 5 member team segregating 6 tons of copra a day was very difficult, now 3 members are doing it very comfortably and with better quality.
For bulk quantity loading and unloading, in house labourers weren’t willing to do, so external labours had to be called. Now for 10 paise per kg, they are willing to do.
In packing section, where 9 people couldn’t finish all packing jobs, now after leaving 3 people, the 6 people are having enough time to go for other jobs.

Overall we could leave about 8 less performing people and better performing people are getting handsomely paid. Form 30 labourers we have brought down the count to about 20, work is getting done faster and better, existing labourers are fully engaged and satisfied.

With all these steps, the amount of administration work has come down drastically. Again couple of people who have become redundant were left out. With this lean an organization, it is possible to even double the business without having to add any headcount. Any decline in business can also be managed with minimum overheads. With operations focused and streamlined, way forward is to grow sales through advertising and appointing distributors to cover more area. From accumulating losses for 2 years and not knowing way forward this is a very pleasant situation to be in.

CategoriesManagement

A tribute to our best vendor


The Vendor I am talking about is Weigh Control Systems Pvt. Ltd., in particular Mr. Samarjit Biswas. Weighmatics based in Bangalore are manufacturers of Filling Machines, Weigh Bridges and other weight based control systems. Mr. Biswas is the director of the company.

On the first day after I started my life as a Coconut Oil businessman at Puttur, I went with my father to our coconut oil retail outlet. A customer visited the shop and asked for 2 litres of coconut oil. Father asked me to give it in loose by filling his long bottle. Oil was filled in a 50 litre steel drum. It had to be measured in measuring container and filled carefully into the bottle through a narrow mouth. As a first timer I struggled and spilled the oil all over the place mostly on the outer surface of the bottle. The customer and my father were both getting frustrated at what was happening, but they didn’t show any of it towards me. Now that partial quantity was poured, it was difficult to find out the balance portion to be filled. Then our helper came out and helped service the customer. Father said, “Don’t worry, it comes out of practice”. I thought, it was not my cup of tea to dispense oil like that.

I had seen every consumer product dispensed through a Vending Machine in Japan and there was absolutely no human being from the Vendor side. Item and Quantity are to be selected, cash to be inserted, exact change will be dispensed, bill automatically printed and items are rendered. How simple, fast and perfect. When they can dispense difficult to dispense items like Rice and Juice bottles, I thought dispensing a liquid like Coconut Oil should be easy. Though I was not looking for the machine to collect cash, dispense change and print bills, I was at least looking for a oil dispenser given the quantity.

I searched the internet for filling machines with various keywords. I got many results for bottle filling machine that one can use inside the factory for filling bottles in large scale. But couldn’t find one that can be used at a retail counter.

Finally I came across “Flowmatics” which is now rebranded as “Weighmatics”. They said they have already supplying to many edible oil brands in India and overseas. I requested for quote and got a quote in a beautifully written document. I asked for a few customizations, the Sales executive could only deliver lip service but couldn’t come back to me with revised offer and concrete actions. I called him up on his mobile, after a few calls he stopped picking them. I got desperate and called up the landline. This time it was a holiday and instead of receptionist picking up, somebody else picked up and said, “Hello Mr. Keshava Ram, I am Biswas, the director, how may I help you?”. I explained my requirements, he listened carefully and said what can be done and what cannot be done. He understood that I was a first timer and offered to educate me through a live demo at his factory in Bangalore. I promptly made a visit there and learnt about the systems. He took a lot of patience in educating a novice to the field. At that time i felt it was just a marketing pitch, but reflecting back I realise it was a genuine attempt at educating a prospect.

He also told me about his filling machines that I could use inside the factory for filling bottles, cans and tins. I discussed with my father and placed order for 3 machines – Oil Vending Machine, Bottle Filling Machine and Tin Filling Machine. Before coming for erection, they gave me a list of things to get done at site. I promised they will be done by a certain date and they will do their work from that date. Due to inconsistency from our Vendors for Plumbing, Electricals, Fabrication and Civil works, they couldn’t be done. Still, their Service Engineer came, completed his erection works in one day but had to wait for 6 days to do a trial run. Despite that their service fees didn’t increase.

We were happily using their machines to get our work done. After about 4 months, Vending Machine stopped working. We immediately called them for service and next day their Engineer was here. He immediately found that the cables were cut and how? by rats running around. Even if it was our problem, he didn’t charge any service fees as it was within the warranty period.

I started working on setting up the new company and factory. I managed by hiring a fresh graduate as Accounts Executive, after some time the extent of compliance required mounted high and we were not in good position to deal with them ourselves and with the local auditor. I tried through various references and on internet, the options I got were either not good enough or were too expensive. I rang up Mr. Biswas and requested for help, he said, “Don’t worry, I will request my company’s auditor and see if he can help you.” These auditors are always short of time and don’t want to take up any new accounts. The auditor sort of agreed and setup a meeting with me and Biswas. Auditor said, “Normally we don’t take any new accounts, even if they are multinational software companies, we only took yours because you have come through Biswas’s reference”. And the Auditor is serving us well over the last 2.5 years.

For filtering systems, we need to pump oil at a pressure and flow has to be adjusted based on filtering speed that varies with the cycle. One solution is to have by-pass valves that releases excess flow. Better solution is to have a Variable Frequency Drive (VFD) when speed of motor can be adjusted at run-time. When I tried looking for vendors, they quotes were very high and many times higher than the cost of pump itself. Again, Biswas gave me a reference of a Vendor in Chennai who offered at a reasonable rate. In between, I had asked for several other references also. But many of them didn’t work too. For Pouch Packing Machine, Air Heater and Centrifugal Blower, Screw Conveyor and Fabrication services. He even shared references of couple of distributors who may be interested in selling our coconut oil. He has also shared with me many industry insights that helped me know more about the industry that I operate in.

We have later purchased Volumetric Bottle Filling Machine, Load Cells for Copra Tank Weighing systems. He has set sight of selling me a Weigh Bridge one day. I have recommended his products to other oil millers and industries. He has got a few orders from them.

In our very fist meeting, he used to call up people and refer to me as his friend. I used to think it was just lame marketing tactic. But over the years I have realised he really meant it. Most vendors talk rubbish that they give good customer service and cater to their needs. Again his company has gone extra mile to meet our needs. He has a team of service engineers to service his machines all over. He isn’t motivated towards service because it is his business or it is good for business, but because he believes his customers needs the service. While in distress or good times, he calls me or I call him. We share jokes, to be specific he cracks jokes and I just laugh, both Veg and Non-Veg, tells me various stories/incidences from his vast experience. He looks young for a man in early 50s, more importantly he thinks like he is young.

When one customer was bargaining over phone for a machine in front of me, he said, “I have already given you the best price. Please understand, if you are to grow, you need suppliers also. They are the pillars of support for any business”. Good suppliers can indeed be strong pillars on which business builds.