After reading “The Goal”, a great book about manufacturing, I realized that many of the systems and “machines” in my own company could use the same application of principles to grow and operate at optimum total efficiency.
Here’s the thing, our company mows lawns. What does that have to do with manufacturing?
In manufacturing, there are separate machines that process materials along a chain, and at the end of it pops out the finished product.
In my company, we process leads. We call them, qualify them, schedule quotes, sign them up, onboard them, and visit them by adding more crews, trucks and trailers operated by trained employees. You could argue that my company “manufactures” signed up customers that get visits.
Each of these steps is a “machine”.
In the book, it discusses a few terms.
Throughput
Inventory
Operational expense
It also discusses two principles
Statistical fluctuations
Dependent events
If you have 2 machines processing 10 parts per hour and 1 machine processing 5 parts per hour, and the slow machine is at the end, your plant will only fully produce at 5 parts per hour or less, depending on defects and down time.
If you let all machines run, you will pile up inventory, raise carrying costs, and still be not productive as a whole. This slow machine is your bottleneck.
The slow machine needs to be operated at all times, improved to remove the bottleneck, and should have quality control beforehand to make sure it’s not wasting its capacity on defective products in order to maximize total productive efficiency of the plant.
If you place the bottleneck at the beginning, you keep inventory to a minimum and only run the other machines as needed. This is better.
What’s best is to use different methods to fix bottlenecks.
If your machines have statistical fluctuations and each following stage is dependent on the previous stage, you will only produce not only as little as the efficiency of the worst machine, but only so much as the worst of the fluctuations. If the slow machine has down time, now you’re really behind.
The total output of the actual plant that actually produces income is called the throughput. The stored up stuff in between stages is inventory.
The operational expenses are what you spend for all of these things to happen.
Looking at my company that manufactures signed up customers getting visits, here are our “machines”.
Too many leads to call
Too many scheduled quotes to call back and further qualify
Too many fully qualified scheduled quotes to actually give in person quotes to
Too many signups to onboard
Too many onboarded signups to visit because of lack of trucks
Too many trucks with not enough trained workers to fill them and mow lawns
Too many crews with not enough storage lot spaces
All leading to wasted ad spend. It's customers we can't signup and service because we dropped the ball somewhere along the chain.
If we want to add 4 crews, we will need at least 4 more lot spaces (maybe there’s limits to the place we use or availability issues), we need to hire and train the 8 workers, we need the 4 trucks, trailers and sets of equipment, we need to onboard the customers by charging them and selecting visit dates, we need to sign them up by giving quotes, we have to call the quotes to actually qualify them and explain the details of the terms and the nuances of our services, we need our outbound sales service to call them to initially lightly qualify the fresh leads, and we need to actually get the leads in the first places.
If we get a bunch of leads but any of those other things is a bottleneck, we are wasting money. Maybe we aren’t calling them back soon enough. Maybe we can’t schedule enough quotes and are booked out. Maybe we can’t buy another truck. Maybe we can’t hire enough people. Maybe we can’t train them. Maybe there’s no more room to store the trucks for now.
These things all are also subject to being limited by statistical fluctuations. If we can hire a new person every week maximum on average. That means sometimes we could hire 2, but sometimes we could not get any new hires for 2 weeks, as an example. So not only would we be limited to only being able to hire only 1 a week, it could actually be worse than that.
If we could only call 10 people a day on the quote schedule to further qualify them, and on average 20% of them are not good fits and we don’t go through with quoting, then some days statistical fluctuations could add up, and we would only be able to do 8, and 30% of them could be bad leads. So we would only get out to 5-6 quotes. And if we usually signup half of quotes, on a bad day for the 5-6 we could only signup 2. So even though we theoretically could call 10, actually visit 7, and signup 3-4, we would only get 2. That isn’t even factoring in fluctuations in leads, amount of fresh leads that want to schedule quotes, etc. It could be much worse and end up being no signups in a single day, even though we should be able to do much more.
My goal, as a manager of my “manufacturing plant”, is to find bottlenecks, mitigate them, reduce statistical fluctuations, and minimize the negative effects of different dependent events in order to maximize throughput.
In the situation of adding 4 crews, I work backwards. Do we have the space? Can we train the employees? Can we buy the trucks?
It’s about 400 customers to do this. Over a 20 week sales period of 5 days a week, that’s 100 days so 4 signups per day. Factoring statistical fluctuations we need a capacity of 6-8 signups per day. I would have one full time salesperson dedicated to just that one location we want to add the 4 crews to.
A capacity of 6-8 signups means we would need at least 16 quotes or more on the schedule that are fully qualified. That means we would need at least 20 per day that are initially scheduled by our outbound sales service. This means we will need roughly 40 leads per day coming in.
If we can spend $150 in ads and marketing to acquire a customer without it getting too expensive, as long as that’s our true cost per signup, and if we are assuming about a 20% conversion rate for all leads. We can spend 20% of $150 for a lead. That’s $30. So we need to spend $30 a lead and hit the above metrics, and that means after all the statistical fluctuations we would spend $600 a day on average.
But we would not be at capacity for many of our “machines”, doing so would cause waste since fluctuations would cause problems. So we would only do partial capacity for many of the systems and would achieve are goal costs for each new customer and signup our 4 customers a day on average and hit our 4 new crews.
This explained why we never got our ideal number of signups that we had capacity for, and now I’m able to look at our entire system of bottlenecks and address them logically.
What you should do in your business:
Look at each stage as a machine in a plant that can operate at a certain capacity. Where is the bottleneck? As you scale, how will different "machines" turn into bottlenecks next for you. How will you raise capacity in those machines and manage your processes to avoid excess inventory and loss/delays from other machines that have a higher capacity earlier on in the chain? Apply the concepts of dependent events and statistical fluctuations as well.
You can turn this into a flow chart of different "machines". Take notes on the potential productive capacity of each one and identify where you have problems. Prioritize these bottleneck machines and how to fix them into your daily schedule.
Now you have quantified your business in a much more clear way, and have a precise method of attacking problems and scaling your company.
What we have just recently done in our business to work on this.
Biggest bottlenecks: amount of leads coming in that we can acquire for a good cost. Calling all leads back quick enough. Salespeople to meet with customers for quotes.
If we remove those constraints, and have unlimited leads, can call them all back instantly, and have enough salespeople to meet with all of them in person, we only run into the question of how many trucks we can get. Our franchisees can get the trucks just fine, so we are not that worried about removing constraints beyond that for now.
We are hiring and onboarding people/agencies to help us generate much more leads for a great price.
We have hired an outbound sales service called HelloSells that calls lead submissions back within 3 minutes who will qualify our leads and set in person appointments with them. So we could literally have 1000 people submit their info on our website in a day and they would be getting called back within a few minutes and getting their quote scheduled.
We have made our sales process simple for anyone we hire. So they would be able to use our pricing formulas to simply come up with a price themselves and use our forms to sign them up. They will have brochures with answers to 90% of the questions we get so there's very little opportunity for any salesperson to give them bad answers. The only thing they need to do is be somewhat charismatic. So it will be very easy to hire on the couple of salespeople we need to be giving a ton of quotes every day in person.
This way, we are mitigating the effects of previous bottlenecks, and giving ourselves a better chance at scaling even faster.
Here’s the thing, our company mows lawns. What does that have to do with manufacturing?
In manufacturing, there are separate machines that process materials along a chain, and at the end of it pops out the finished product.
In my company, we process leads. We call them, qualify them, schedule quotes, sign them up, onboard them, and visit them by adding more crews, trucks and trailers operated by trained employees. You could argue that my company “manufactures” signed up customers that get visits.
Each of these steps is a “machine”.
In the book, it discusses a few terms.
Throughput
Inventory
Operational expense
It also discusses two principles
Statistical fluctuations
Dependent events
If you have 2 machines processing 10 parts per hour and 1 machine processing 5 parts per hour, and the slow machine is at the end, your plant will only fully produce at 5 parts per hour or less, depending on defects and down time.
If you let all machines run, you will pile up inventory, raise carrying costs, and still be not productive as a whole. This slow machine is your bottleneck.
The slow machine needs to be operated at all times, improved to remove the bottleneck, and should have quality control beforehand to make sure it’s not wasting its capacity on defective products in order to maximize total productive efficiency of the plant.
If you place the bottleneck at the beginning, you keep inventory to a minimum and only run the other machines as needed. This is better.
What’s best is to use different methods to fix bottlenecks.
If your machines have statistical fluctuations and each following stage is dependent on the previous stage, you will only produce not only as little as the efficiency of the worst machine, but only so much as the worst of the fluctuations. If the slow machine has down time, now you’re really behind.
The total output of the actual plant that actually produces income is called the throughput. The stored up stuff in between stages is inventory.
The operational expenses are what you spend for all of these things to happen.
Looking at my company that manufactures signed up customers getting visits, here are our “machines”.
- Lead generation either through Facebook messages or leads, site form submissions, or inbound calls
- Phone calls to schedule quotes (inbound and outbound)
- Office outbound call to further qualify leads, organize based on location, and set expectations with terms (year long contract, 12 payments, services and answering questions). Possible online quote given for simple properties.
- In person quotes with salespeople or managers
- Onboarding (charging, billing, assigning visit dates)
- Adding crews by purchasing trucks, trailers and equipment
- Adding crews by hiring and training employees
- Adding storage lot spaces
Too many leads to call
Too many scheduled quotes to call back and further qualify
Too many fully qualified scheduled quotes to actually give in person quotes to
Too many signups to onboard
Too many onboarded signups to visit because of lack of trucks
Too many trucks with not enough trained workers to fill them and mow lawns
Too many crews with not enough storage lot spaces
All leading to wasted ad spend. It's customers we can't signup and service because we dropped the ball somewhere along the chain.
If we want to add 4 crews, we will need at least 4 more lot spaces (maybe there’s limits to the place we use or availability issues), we need to hire and train the 8 workers, we need the 4 trucks, trailers and sets of equipment, we need to onboard the customers by charging them and selecting visit dates, we need to sign them up by giving quotes, we have to call the quotes to actually qualify them and explain the details of the terms and the nuances of our services, we need our outbound sales service to call them to initially lightly qualify the fresh leads, and we need to actually get the leads in the first places.
If we get a bunch of leads but any of those other things is a bottleneck, we are wasting money. Maybe we aren’t calling them back soon enough. Maybe we can’t schedule enough quotes and are booked out. Maybe we can’t buy another truck. Maybe we can’t hire enough people. Maybe we can’t train them. Maybe there’s no more room to store the trucks for now.
These things all are also subject to being limited by statistical fluctuations. If we can hire a new person every week maximum on average. That means sometimes we could hire 2, but sometimes we could not get any new hires for 2 weeks, as an example. So not only would we be limited to only being able to hire only 1 a week, it could actually be worse than that.
If we could only call 10 people a day on the quote schedule to further qualify them, and on average 20% of them are not good fits and we don’t go through with quoting, then some days statistical fluctuations could add up, and we would only be able to do 8, and 30% of them could be bad leads. So we would only get out to 5-6 quotes. And if we usually signup half of quotes, on a bad day for the 5-6 we could only signup 2. So even though we theoretically could call 10, actually visit 7, and signup 3-4, we would only get 2. That isn’t even factoring in fluctuations in leads, amount of fresh leads that want to schedule quotes, etc. It could be much worse and end up being no signups in a single day, even though we should be able to do much more.
My goal, as a manager of my “manufacturing plant”, is to find bottlenecks, mitigate them, reduce statistical fluctuations, and minimize the negative effects of different dependent events in order to maximize throughput.
In the situation of adding 4 crews, I work backwards. Do we have the space? Can we train the employees? Can we buy the trucks?
It’s about 400 customers to do this. Over a 20 week sales period of 5 days a week, that’s 100 days so 4 signups per day. Factoring statistical fluctuations we need a capacity of 6-8 signups per day. I would have one full time salesperson dedicated to just that one location we want to add the 4 crews to.
A capacity of 6-8 signups means we would need at least 16 quotes or more on the schedule that are fully qualified. That means we would need at least 20 per day that are initially scheduled by our outbound sales service. This means we will need roughly 40 leads per day coming in.
If we can spend $150 in ads and marketing to acquire a customer without it getting too expensive, as long as that’s our true cost per signup, and if we are assuming about a 20% conversion rate for all leads. We can spend 20% of $150 for a lead. That’s $30. So we need to spend $30 a lead and hit the above metrics, and that means after all the statistical fluctuations we would spend $600 a day on average.
But we would not be at capacity for many of our “machines”, doing so would cause waste since fluctuations would cause problems. So we would only do partial capacity for many of the systems and would achieve are goal costs for each new customer and signup our 4 customers a day on average and hit our 4 new crews.
This explained why we never got our ideal number of signups that we had capacity for, and now I’m able to look at our entire system of bottlenecks and address them logically.
What you should do in your business:
Look at each stage as a machine in a plant that can operate at a certain capacity. Where is the bottleneck? As you scale, how will different "machines" turn into bottlenecks next for you. How will you raise capacity in those machines and manage your processes to avoid excess inventory and loss/delays from other machines that have a higher capacity earlier on in the chain? Apply the concepts of dependent events and statistical fluctuations as well.
You can turn this into a flow chart of different "machines". Take notes on the potential productive capacity of each one and identify where you have problems. Prioritize these bottleneck machines and how to fix them into your daily schedule.
Now you have quantified your business in a much more clear way, and have a precise method of attacking problems and scaling your company.
What we have just recently done in our business to work on this.
Biggest bottlenecks: amount of leads coming in that we can acquire for a good cost. Calling all leads back quick enough. Salespeople to meet with customers for quotes.
If we remove those constraints, and have unlimited leads, can call them all back instantly, and have enough salespeople to meet with all of them in person, we only run into the question of how many trucks we can get. Our franchisees can get the trucks just fine, so we are not that worried about removing constraints beyond that for now.
We are hiring and onboarding people/agencies to help us generate much more leads for a great price.
We have hired an outbound sales service called HelloSells that calls lead submissions back within 3 minutes who will qualify our leads and set in person appointments with them. So we could literally have 1000 people submit their info on our website in a day and they would be getting called back within a few minutes and getting their quote scheduled.
We have made our sales process simple for anyone we hire. So they would be able to use our pricing formulas to simply come up with a price themselves and use our forms to sign them up. They will have brochures with answers to 90% of the questions we get so there's very little opportunity for any salesperson to give them bad answers. The only thing they need to do is be somewhat charismatic. So it will be very easy to hire on the couple of salespeople we need to be giving a ton of quotes every day in person.
This way, we are mitigating the effects of previous bottlenecks, and giving ourselves a better chance at scaling even faster.
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