Standard Operating Procedure (SOP)
Too much human effort is spent developing solutions for the same problem. Mediocrity will be prevented if you can find ways of eliminating this duplication. Small companies frequently overlook the benefits of written policies. Policies reduce the effort needed for common/repetitive tasks, freeing workers for more productive, world-changing activities. Policies set the tone for the company and act as a guide for new endeavors. Policies will tie the team members together keeping everyone moving in the same direction.
Every system or policy will have advantages and disadvantages. In a young company, it is harder to set policies because there are no policies to build on. Where are we going to keep the policies? What font and type style should we use? How does the shipping policy relate to the returns policy? What return policy? Sometimes it is better to implement a system with flaws than to wait for a perfect solution. You'll get a deeper understanding of the issues by implementing a partial solution and building on it. Getting the routine stuff in writing lets all staff members concentrate on creating more value for the customer.
Three areas in any business require clear thinking in order to be successful- Pricing policy, production policy and financial policy. You cannot set policy in one area without understanding the impact on the other two areas.
Some companies use a pricing policy based on the costs. A simple cost-plus formula is used to determine the selling price. In this case, the pricing policy is directly related to the production policy. If the company can reduce costs then the selling price is reduced. If the cost of materials goes up so does the price. However it is better to use price as a marketing tool. The price is set to communicate the quality or desirability of the product. A high price tells the consumer our product is superior to the competition. In this case cost has no relation to the selling price.
Many small companies set prices based on what is needed to meet next week's payroll. A potential customer that is willing to write a check today is so important that pricing policy is thrown out the window. If you can make a sale, any price will do. For some companies the philosophy is "We lose money on every sale but make it up in volume." This short-term view only postpones disaster.
Production policies help the rest of the company grow. Inventories provide a good example. Depending on the nature of the business some companies have a policy of reordering when it gets down to a certain quantity, others order periodically. Both methods are designed to take advantage of lower costs by purchasing the inventory in large lots or batches. Unfortunately, a common inventory policy in small businesses is "if it's not on the shelf, order it." Not only does this increase the costs of the materials, but lowers overall productivity. Your staff will be reluctant to make promises to the clients because they will be unsure if they can fulfill the promises. Set production policy to under promise and over deliver. If your policy says you will ship an order within 4 days and you always ship in 3 days, your customers are impressed and your salespeople are confident. Most small companies over promise and under deliver. "Sure, we can have it to you yesterday." Consistency is better than speed.
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