Sometimes your challenges, be they losing money in a particular department or trying to improve your hiring processes can be easily solved by creating an new algorithm. I’ll give you some ideas on how to do that. And here’s the best news, it’s easy.
We already use algorithms in so many areas of our life that we don’t even think about. Any habitual task you do in your daily routine probably includes an algorithm.
An algorithm is just a recipe for doing something. The Oxford Dictionary’s definition is: a process or set of rules to be followed in calculations or other problem-solving operations, especially by a computer.
Whether it is making your bed in the morning or making a cake after dinner, it is essentially, a set of detailed steps to do something.
So, if it is taking you too long to do something or if something in your life or business is inefficient, perhaps you should come up with a new algorithm.
If you want to evaluate and change some of your processes, the first thing you should do is write down the steps you are currently using. If appropriate, add the cost to each step. Costs can be either time or money.
If you’re interested in creating an algorithm on a computer, here’s a great resource: Coding Freak. The author gives you twenty five algorithms with links to the instructions in different programming languages. But, an algorithm can also be simple step-by-step instructions. If you’re looking to change your algorithm, start with the things that take the most time. Or it can be problems that you’re having with a particular department.
I’ll use an example of a company having problems with its inventory. Let’s say their inventory shrink is too high – inventory is less than it should be based on what your accounting system says.
This can commonly come from problems in your receiving department – the people who receive your products from another manufacturer or an exporter. Maybe you’re losing boxes, or the contents in each box is inflated, or you might be missing on-time payments because your accounting department isn’t getting the proper paperwork. Or your accounts payable clerk is wasting time chasing down paperwork in receiving. Regardless, it’s good to go through all your procedures occasionally. Keeps everyone honest.
As an example, your company imports toys from China and sell them in the U.S. The toys are delivered from a freight forwarder after they clear customs. Your first task is to write down each step your department is currently using to receive your merchandise. This is your current algorithm.
1. Start by receiving purchase order from sourcing department. A simple wire basket can work for this step.
2. Receive boxes from the delivery truck along with manifest.
3. Count the boxes. Make sure it matches the manifest.
4. Make sure each box has a packing slip that tallies products in each box.
5. Go through your basket and pull the correct purchase order. Match the purchase order to the packing lists.
6. If all is in order, sign off on the purchase order and staple it to the packing lists.
7. Put it in the in-box for the controller (accounting department). She runs vendor checks every Tuesday and Friday.
Let’s say that your inventory shrink is too high as I explained earlier. Your system is telling you that you should have $5 million in inventory at the end of the quarter, but when you do a manual count, it’s only $4.9 million. That’s a $100,000 difference. That’s a lot. Two percent to be exact. If your net profit margin is four percent, you’ve just lost half of your profits.
There’s probably one of three reasons for the difference:
1. Your manual count is wrong. That could be from products that are not in the right place or whoever counted them missed something. Since inventory is kept by product number, it should be easy to see which products are off. Then you can recount those.
2. Your employees or warehouse employees are stealing merchandise. That happens and there are simple ways to protect against that.
3. You’re not receiving the amount of inventory that is listed on the packing list. In that case, your vendor is stealing from you. Maybe once you can give them the benefit of the doubt; mistakes can be made. But make sure it’s reflected on the paperwork you give back to the accounting department so you’re not paying for the shortage.
The important thing is that now you need to change your algorithm.
In between steps 4 and 5, you add two more steps:
4.a Open one out of five boxes and count the products to make sure they match the packing slip. Depending on how many boxes you receive, you can count them all or set up a testing ratio. If one out of five boxes is correct, you’re probably good.
4.b If any boxes don’t match the packing slip, count the products in every box.
Note: Check your vendor contract or Letter of Credit. They often allow a plus or minus to the total order. However, that should be reflected on the packing slip.
If your products are small items like sets of dice or buttons, it is easier to weigh your boxes that you know are exactly correct. Then weigh the boxes as they come in.
Most suppliers now use bar codes on their boxes. In that case, you can easily receive your shipments into your accounting system, but you will still need to test the count or weight of boxes and make sure they match your packing slips.
You now have a new, better receiving algorithm and your inventory shrink and loss of profits will be fixed.
Success is so often about collecting information and improving your processes. Try it on one small area of your business or life to increase your efficiency and solve your problems.
