Lincona have made history this year by increasing their turnover by as much as 25% in three months. How did they manage this? Sven Ersling, a member of the management board of Lincona, revealed that the keywords are process automation, shortening of the supply chain, and state-of-the-art IT solutions.
‘Increasing turnover was simple on the surface: we began monitoring stock levels at our dealers ourselves, because successful sales requires properly stocked shelves. We upped our frequency of supply and kept shelves consistently stocked with goods. This translated to our turnover increasing by 25% in just three months,’ Ersling explained. ‘Of course, this kind of increase cannot go on forever, but the point is that keeping your eyes fixed on the past and placing your orders based on previously sold quantities is the wrong approach. Instead, what you should be doing is running production and supply according to real-time needs – this avoids both overproduction and stock shortages,’ Ersling noted.
This real-time tracking of supply needs was made possible by Vendor Management System (VMS) analytics software and the company’s desire to automate everything that could be done by robotic machines. ‘The supplier always knows more about their product than the vendor, and is equipped to make better stock-keeping decisions. VMS allows us to really shorten the supply chain and reduce costs,’ Ersling added. ‘Evidence from the processes of various companies indicates that measurement, especially high-precision measurement, is still too rare a sight in our country. Decisions are instead mostly made based on ambitions, past experience, and even just plain opinions, without knowing what the reality is. This often leads to missed opportunities, missed income, and missed chances for growth. And without growth there is no point in doing business.’
RESOURCES CAN ALWAYS BE USED MORE EFFICIENTLY
In the Estonian business world, full exploitation of the potential of enterprise resource planning (ERP) software is still in its infancy, and resources are frequently used without thinking things through. Upgrading your existing business software and linking actual processes to it, however, should always be given careful thought.
‘Here it helps to take a regular look in the mirror: has everything been thought through, has anything been left unresolved? Over the last six months, we have been actively introducing changes to our stock-keeping and purchasing processes, because we want to move this job from the desks of four or five people to that of just one. Process analysis and assembly of the functionalities of ERP software should allow us to achieve this, though we are currently only halfway there. Nevertheless, we can already safely say that what used to take us a full hour before, we can now do in 20 minutes. By thinking carefully, you can always find ways to use some resources more efficiently.’
Constructive criticism is a driving force for the improvement of processes: are we really doing things perfectly or could we do even better? What are our inefficiencies? And if you do solve a problem somewhere, you should not expect it to last forever: as people’s habits and living environments are constantly changing, businesses too need to be ready to introduce changes again.
ESTONIAN COMPANIES ARE GIVING TOO LITTLE CONSIDERATION TO PROFITABILITY
Indeed, the changing economic environment is producing major impacts on businesses: margins are falling, companies are having to make do with a smaller revenue base, and we are now veritably at the point where services and products are starting to suffer due to price pressure. There is no stopping this snowball, but it can still be slowed down to avoid a bone-breaking collision.
‘The world is moving in a strange direction: on the one hand, we want to increase turnover. On the other, we are forced to lower the quality of our products. Sooner or later, something’s got to give,’ Ersling considered. ‘What could save us from that collision is a conscious effort to keep up with the times and invest in placing ERP software and every business process under constant monitoring. This will take time and money, but it’s possible for anyone if you just do it little by little and don’t let things get out of hand. And ultimately it will give you a competitive edge. If you let your processes get out of hand, however, you will have to start everything over from scratch, which is considerably more costly. In other words, the more small steps you take, the more of a lead you will have over those who are doing nothing.’
As an example, Ersling cited a Polish company that switched its ERP software. During the transition period, the head of the company became concerned that their invoices were not moving fast enough. ‘I told him that all invoices should be moving on their own, and that every party should be able to see from their computer who is away or whose signature is being awaited. And that when people are on holiday they could be redirected automatically. He was amazed, while I was happy that we had implemented IT solutions to solve these simple things a long time ago.
For Lincona itself, the next challenge is to connect the manufacturers to the supplier’s IT system. So that if goods arrive in Estonia from China or Malaysia, the incoming products, invoices, and delivery notes could all be automatically scanned and systematised in a matter of minutes.
Ersling noted that, in the Estonian business environment as a whole, profitability is given too little consideration. ‘It’s funny that companies are created to generate revenue, but if you look at how the competition is working today, for some reason it is founded on price, while defending one’s price and profitability is neglected. I suppose people don’t understand how long the effects of price competition can last on the market, and perhaps don’t have a sense of responsibility regarding what the actual cost of a senseless promotional campaign is in the long run. Sometimes a single campaign of massive discounts can put a company in a very difficult position for 5 to 10 years, because it primes consumers to expect very low prices from that company in the future as well.’
Lincona collects market information monthly on price levels, on how rivals are monitoring each other, and on how they are trying to keep their prices lower. ‘But somewhere along the line you can lose that sense of what a reasonable sales price is. Yet balance is crucial for the economy. If a company says they can’t raise wages – well, they could if they increased their revenues. But if you are constantly reducing your revenue base, i.e. lowering prices, then your revenues can never increase! This is not the fault of the state, nor of customers or competitors, but of the traders themselves, who should be analysing their quantities, prices, and the whole market more closely and thinking about what changing each number will give them or cost them.’
Nonetheless, for those setting out to do so, Ersling warns not to overthink things or overcomplicate one’s processes.