Automation cannot be defined as “expensive” or “cheap” because it is an investment. It accelerates processes, increases turnover, and reduces production and labor costs. Money is in each of these aspects, so the automation eventually pays off and makes a profit.
First – Set A Goal For Automation
The automation will be expensive in two cases:
- A payback plan is not developed. In such a case, the manager focuses on expenditures, not on investments. Consequently, he or she doesn’t plan the ways and periods in which the invested funds will return.
- Goals for automation are not set. The manager doesn’t understand what effect he or she wants to get. “We need to automate procurement.” But what for? This situation can be compared to the purchase of a car: “I want to buy your best car!” Then, a customer leaves the dealership in a new SUV with a 5.0 l engine and fuel consumption reaching 10 gal/100 miles, and then uses it as a taxi vehicle. When people don’t know what they want, they pay more and get wrong things.
Business is about money. And automation should be related to financial goals. If you want your business to become faster, more accurate and clearer, count its speed, accuracy and clarity in dollars. Knowing what he or she wants, an entrepreneur reasons: “By means of automation I want to increase the product turnover by 15% to decrease the number of goods in inventory. This will free up 5% of working capital which can be invested in advertising.”
When goals get specific values, it’s time to make a plan for achieving them. Schedule the time when the automation will be completed and the effect will start. The latter develops gradually, so you can schedule it as well. In this way, you will get a return-on-investment plan: “Finish CRM and ERP integration in March of this year. Test automatic mailing with 20% of customers in April, and reach 100% in July”.
What remains to be done is to introduce a plan-fact analysis of goal achievement, i.e., to keep track of which of the planned milestones were achieved and which were not.
Define How Automation Will Pay Off
When it comes to small businesses, people sometimes either don’t understand what improvements the automation will make, or don’t know how to calculate their value. Let’s find out what leads to the increase of income after automation.
Greater Accuracy Of Product Records
In this case, the number of losses and spoilage will be reduced. If you do inventory checks and get surprised with their results, imagine to what extent you will shorten losses when the product accounting is automated.
Improved Raw Material Records
Precosting orders and analyzing bills of quantities and labor costs will allow you to optimize the allocation of materials. The data will accumulate gradually, and you will be able to cost the orders accurately.
A Plan-fact Analysis Of Orders
It will allow you to be more exact in planning the expenses for each order. Also, you will be able to manage prices flexibly and calculate costs more accurately, which constitute a competitive advantage.
Faster Business Processes
They affect the number of sales directly. Think of the cashiers at McDonald’s during rush hour: they serve the customers fast, because all the processes are calibrated, goods are limited to the menu, and order processing takes just a few taps of the screen. Besides, the work of the cashier is more and more often delegated to automated machines recently.
Accuracy Of Processes – E.G., Servicing
How do you calculate the dissatisfaction of a customer who didn’t get any sugar for his or her coffee, or the one who didn’t get the change? It’s worse if by chance mechanics forgot to tighten the nuts on the wheel, although it’s easier to estimate the loss in this situation. If you break down the whole process into parts and automate the control over their execution, the quality of service and customer loyalty will grow.
Automation Of Marketing
This will increase the product turnover with the groups of customers or by groups of products. You will be able to see your customers’ preferences and offer them the goods they need. Alternatively, you will form the packages with the key products and some less popular items.
Reduction Of Goods In Inventory
Any product that rests idle in the warehouse equals some money that is outside of the turnover and does not generate any income. If you reduce the amount of illiquid goods, or automate procurement in a way that will prevent the goods from stockpiling in the warehouse, you will reduce the expenses on paying for goods credit.
More Time For Managers
The time of executives is expensive. How much time do you spend on calls, questions, clarifications and explanations? It’s easy to estimate the related costs by multiplying. When you shorten your labor costs, you will be able to spend your time on more important things. Time is money.
Other Aspects To Consider
To distinctly assess the benefits of automating your business and its processes, calculate the two ratios:
- Cost of automation to company’s turnover = cost of automation / yearly turnover
- Cost of automation to net profit = cost of automation / net profit
On average, automation of one process in a small company amounts between $5,000 and $10,000. This makes up to 10% of the average annual turnover of the small business, around $100,000. With a payback period of about a year, this is not a big investment, is it?
This article outlines the effective ways for automating businesses and turning expenses into investments. The one who knows your company’s financial situation best is, of course, you. How much you are ready to invest and when you want to return the investment with a profit depends solely on you.
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