“The greatest teacher I know is the job itself.” James Cash Penney
One day, your general manager will understand how to read a full set of financial statements. Until that time, we need to use finance for non-financial managers. In other words, we need Operational Finance.
Operational finance focuses on the critical numbers that your Ops manager should monitor to ensure the success of the business.
Traditional financial statements measure the results of the entire organization. The income statement records the profit or loss, while the balance sheet presents the assets, liabilities and equity of the company. The cash flow statement shows – you guessed it – the company cash flow.
Operational finance presents numbers on a more granular level, and individualized by department. Operational finance is a common sense presentation of the numbers.
Today, we’ll focus on operational finance for operations manager or general manager, if you use that title. We’ll focus on the critical numbers that make a difference and that define success in your beer business. Everyone should have a critical number. A way to measure success in each department. Operations Managers have a lot of critical numbers to measure.
The operations manager oversees many (or all) of the departments below:
- Delivery
- Warehouse (day)
- Warehouse (night shift)
- Inventory
- Facilities Maintenance
- Garage / Vehicle Maintenance
For each department it is necessary to have a critical number (or numbers) to measure success. Critical numbers may sound the same as other measurements you may have used, like KPI’s, benchmarks or key metrics. The main difference with critical numbers is that they tie back to a specific area of the financial statements. Teaching common sense critical numbers will allow you to teach financial information without getting into the weeds of accounting terms.
Critical Numbers for Operations Managers
Below is a sampling of critical numbers for operations managers. Each of these ties back to the financial statements, and measures an important component of company profitability.
These numbers are not presented as traditional income and expense. Instead, the critical numbers quantify the work being done and use common sense language to get the point across. The numbers are meaningful and relevant to the folks doing the work.
- Delivery – cost per case delivered compared to gross profit per case, profit per stop, profit per route
- Warehouse (day shift) – product rotation, cleanliness of warehouse, breakage vs. goal, number of trailers unloaded and put-a-way
- Warehouse (night shift) – cases picked per hour, picking accuracy, breakage, cleanliness at end of shift
- Inventory: Days on hand, inventory turns, out of stocks, Inventory variances
- Maintenance – project accountability, securing multiple quotes for vendor work
- Garage – monitor/report on billable hours, accurate inventory levels for parts
These numbers are under the responsibility of the ops manager but should be disbursed to the relevant department managers for further oversight.
For example, the delivery team leader should monitor profit per stop and profit per route. The warehouse supervisor will can monitor product rotation by the day shift and cases picked per hour and accuracy by the night team. Each will have a critical number, and an understanding of how the number is calculated.
Wrap Up + Action Items
Finance for non-financial managers is about providing common sense numbers to your department managers. These critical numbers link back to the income statement, and make a real difference in improving financial results.
As an example, take a look at the Inventory Scoreboard. This is a template that can be replicated for each department in your organization: delivery, warehouse, maintenance, etc.
To teach finance to your non-financial managers you don’t need to start with income and expense, or assets and liabilities. Instead, begin with common sense critical numbers that measure the work that is being done.
Your operations manager, delivery manager and warehouse manager will understand these common sense numbers. Best of all, as they improve these numbers they will also be improving the financial results in your business. It’s just common sense.
