We heard a story recently from a large precast manufacturer that expects to produce a windfall of multiple millions of dollars by initiating a change that is available to any concrete producer. This 'found money' has nothing to do with growing sales. No change in price; no change in collections processes. In fact, it has nothing to do with changing anything external to the company. It will be produced by making a very simple internal change.
This windfall will be produced by reducing the time it takes to generate invoices.
Intuitively, it is obvious that we all want to issue invoices as soon as we can. But the size of the impact this can make is not always obvious. Consider this example.
Your company generates $20 million of sales each year, or $400K per week. Invoicing is done each Friday according to a schedule similar to the following:
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Product is shipped at end of day; shipment tickets are created.
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Shipment tickets are delivered to accounting the following day.
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Accounting uses shipping tickets to prepare invoices for the week each Friday.
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Accounting mails invoices Friday afternoon.
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Customer receives invoice on Tuesday and enters bill into accounting system sometime that week.
Depending on the day of shipment, one to two work weeks have passed from the time a shipment leaves the yard to the time the invoice is entered into the customer's system as a bill. Reduce that time by one week and you will collect $400K a week ahead of your ordinary schedule- your 'found money'.
The same concept applies to inventory management. Figure out how to manage $20 million of annual sales with $4 million of inventory instead of $5 million, and you now have $1 million more in cash instead of inventory. 'Found money'.
These are the precepts of lean manufacturing and lean construction practices. They are rapidly gaining adoption because they are so effective in converting working capital into cash.
Not surprisingly, information technology makes all of this possible. Is the purchase of a new Enterprise Resource Planning system that generates automated invoices on a daily basis a good investment? If it produces $400K of 'found money', absolutely! Does it makes sense to invest in a technology solution to improve inventory efficiency? For a $1 million windfall, no question.
As the market continues to strengthen, investment in construction technology throughout the entire supply chain will only produce bigger windfalls. Putting off 'found money' is tantamount to 'lost opportunity'.
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