Everyone has a natural affinity for large numbers: the highest batting average, the leading scorer, and, of course, the big sale and the huge order. Yet, are your employees focused on what truly matters? The million-dollar order at five percent gross margin (and, likely, very high handling costs) is far inferior (absent specific strategic reasons) to the quarter million dollar order at twenty-five percent margins. No doubt the daily order contrast at your operation is not nearly so stark, but the application of a steady stress on margin dollars over sales dollars will result, over time, in increasing profits.
All too often upper management may be aware of this, but the drumbeat emphasis of our culture on the revenue numbers (watch the business pages and see the headlines) means that your employees can overlook it. On the other hand, we recognize that not all margins yield both profit and a positive cash flow. Purchasing excess inventories unnecessarily in order to generate higher margins will lead to negative cash flow and liquidity problems. We believe that certain changes in structure and employee education in this area can yield positive results. We have successfully increased operating and net margins, while dramatically reducing inventory levels and improving cash flow.