What is the first thing that pops up in your mind when you hear/read the word – Resource…?
Is it capital… investment… workforce… raw materials… corporate / business contacts… technology… innovation… or the combination of all?
Actually, it is everything mentioned above!
Startups may or may not be resourcefully very sound and established; that’s why they are startups. They build up resources as they grow. It’s a disappointing fact that a majority of startups close or shutdown before maturing into a booming business, because of a number of reasons. The primary ones are given as follows: –
- Incompetent leadership; lacking the mettle to take risks in the market.
- The paucity of resources; no assurance of near-perpetuity regarding resources.
- Lack of a comprehensive strategy for thoughtful inventory management.
- Incoherent chain of commands.
- Disruptive supply chain management.
Although, there are many factors that trouble any given startup in the early days of getting established in the market… the ones mentioned above are the most boldly visible!
Resource Management is the development of an organization’s resources in an efficient and effective manner, to optimally utilize them whenever required. The resources can be related to financial, inventory, workforce, production and/or technological – technical aspects!
Understanding resource management is not everyone’s cup of tea. However, to do that, one must be familiar with the following: –
- Resource assessment.
- Resource budgeting.
- Resource allocation.
- Resource Utilization.
- Resource distribution.
Startups find resource management even more challenging than running the startup on full-scale. That’s why many crumble under the load of inefficient, incompetent, inadequate & illogical resource management and shut down their business venture. We’ll deal with the given aspects in detail now (only in the context of startups)!
Resource assessment: –
It is the need to know about resources!
As a startup, the top – level management needs to understand this most crucial aspect of resource management. Knowing what resources (and in how much quantities) you will require to run a business beforehand, really helps a lot to eventually grow/expand it. This aspect mainly includes – finance, raw material, skilled workforce (both employers & employees) & information technology (IT).
Resource assessment is included in the planning phase of the project management. Once the assessment is complete, the supply chain management gets triggered & starts functioning.
A good example to cite here would be that of Flipkart & Amazon. Both these e-Commerce platforms have expanded exponentially in the last few years. Their resource assessment is based upon and directly related to the consumer feedback and preferential purchasing power. They use information technology to assess the optimum resources and are thus able to execute a laudable inventory management; especially during the peak days around the festive season sales.
Resource budgeting: –
It is the need to spend on resources!
This aspect is simply related to allocating monetary capital towards the expenditure related to the procurement of those resources, which have been assessed to be required!
Smart financial planning will help you, as a startup, to procure more by spending the least possible; however, keep in mind that quality shouldn’t be hampered. A brand is everything and poor quality would result in adverse consequences.
Resource allocation: –
It is the need to assign resources!
Each and every resource acts as a redundant liability as long as it’s inefficiently allocated. Startups need to strategically allocate all the available resources to the concerned divisions/departments at the ripest times. Any delay or inefficiency will certainly trigger your doomsday clock to go tick-tock. Resource allocation requires expertise & precision; don’t over – allocate… especially while dealing with multiple projects!
Snapdeal suffered one such situation a few years ago. They allocated a hefty portion of the available financial resources towards branding, marketing & advertisement. The blind race of market competitiveness nearly ruined them.
Resource utilization: –
It is the need to use the resources!
Resources, once assessed, budgeted & allocated, require proper & optimum utilization so that they don’t go useless over time. Startups need to understand one thing for sure – if they don’t make their allocated resources utilized to their best, a domino effect will create a plethora of liabilities.
Believe me… NOBODY wishes to deal with useless & burdening liabilities. So, utilize your resources to most of their capacity.
Most of the e-Commerce platforms like Flipkart, Amazon, eBay, etc. direct & utilize their resources mostly towards the delivery end of the supply chain management. Each good delivery ensures potential customer retention.
Resource leveling: –
It is the need to manage the resources: –
This is the most popular technique of resource as well as inventory management. It basically aims at managing the stock of the available resources so that both excess and shortage get reduced. It is mostly concerned with the inventory.
It requires the inputs like – demands from various resources; forecast (time period) for replenishment; resources’ configurations for the given demands and lastly, the supply of the resources. Since everything is calculated within the reasonable limits (including the forecasts) so the risk(s) involving the over-allocation of resources gets mitigated to a great extent.
Enterprises like Walmart are very smart regarding resource leveling. Everything they store, the majority of it has a very short shelf life. During peak times of sales, they compensate for the goods’ shortage by planned over-stacking.
For startups (regarding resource management): –
Invest in resources as stored capabilities;
then unleash the capabilities as demanded…!
Since so much has been explored regarding resource management, the discussion would be incomplete without the Op-Ex or Operating Expense.
Op-Ex goes by more than one expansion in the corporate world.
Other than Operating Expense, it’s also known as Operating Expenditure, Operational Expense & Operational Expenditure.
What is Op-Ex?
Dealing with the simplest definition; Op-Ex is an ongoing cost for running a product, business or system.
Let’s understand it by an example.
Suppose you have an established business. Once, a need to purchase multipurpose photocopier machines arises. You, as the finance allocator, direct the concerned department to buy such machines. After the machines are bought, the expenditure occurring due to buying paper, toner, power/electricity and maintenance accounts for the Op-Ex.
In a nutshell, expenditure for operating anything is the Op-Ex.
Op-Ex generally includes the following in its domain: –
- Rent / lease amount.
- Taxes (property related).
- Business travel expenses.
- Sales, administrative & regular expenses (office expenses, supplies, legal fees, etc.).
- Salaries & pension plan contributions.
- Maintenance & repairs.
- Insurance premiums.
- Advertising & accounting expenses.
Point to note: In contrast to capital expenditure or Cap-Ex (expenses related to various purchases like property, machinery, equipment, hardware, etc.)… Op-Ex is fully tax – deductible in the year they are accounted for.
Tip to the startups: Most fresh entrants in the business world (the startups) face a common problem – Where to set up the office?
Since not everyone is financially sound to own a property; the same can be either leased or rented. This way, the Cap-Ex of purchase amount becomes the Op-Ex of lease/rent amount. For startups (who mostly have a limited cash flow) this serves as a lucrative option to be able to deduct the total item cost for any given year.
A term related to Op-Ex exists and that’s – Cost Optimization.
How can startups optimize or scrutinize the costs occurring due to Op-Ex (because you’re running a startup with limited cash flow)?
Execute the given steps: –
- Streamline transactional jobs.
- Advance tactical procurement.
- Operationalize maintenance strategy.
- Apply risk-based approach.
- Establish KPIs (Key Performance Indicators) on implementation & effect.
- Pipeline your procedures; the more the better but avoid overlapping.
- Train & develop the staff.
- Strategize crewing.
- Challenge conventional business processes; innovate.
- Develop integrated IT plan.
- Adapt to lean processes.
Not telling you to execute all of them in a single go; it will be devastating.
Assess your startup for the requirements & then apply accordingly!
Remember, it’s your business that has to be grown beyond expectations. Manage your resources well and utilize them to the optimum; success will surely knock at your door!