Why are Policies and Procedures Important in Business?

In Business, Policies and Procedures define uniformity and reliability throughout an organization. 

Can I have a successful business without Policies and Procedures? Absolutely!

Whether it is myself (as the owner) or I have staff doing it, developing the company Policies and Procedures will cost money? Absolutely!

Okay, why should I do it? Policies and procedures are useful in a business because:

• (1) they provide guidance and direction for employees, helping to ensure that tasks are performed consistently and effectively.
• (2) Policies and Procedures can help to mitigate risk and protect the company from legal and financial liabilities.
• (3) Policies and Procedures can improve communication within a company.

A company policy is a rule determined by the ownership group. These are usually developed by C-level executives and approved by the Board of Directors or the ownership group.

Policies:

The Employee Handbook is an excellent example of policies within a company. This handbook defines the expectations of the employee and usually defines penalties when not followed. A policy guides the way people make decisions.

Policies can be tied to Employee Job Descriptions. An employee may have one or thirty Policies that must be adhered to. Employee Dress Code, Employee Expected Work Schedule, and Employee Computer Usage are three standard Policies that should be tied to an Employee’s Job Description.

There is accountability with the Policies tied to an Employee’s Job Description. When there is accountability, you should have a measurement and a supervisor. When the supervisor recognizes the deficiency, they will take the necessary steps as defined in their Employee Deficiency – Policy and Procedure.

Procedures:

Procedures are processes, and they are the How-Tos. The procedure manual can be called the Standard Operating Procedure Manual or SOP Manual; In Accounting, you have the ASOP Manual, Accounting Standard Operating Procedure Manual; For Sanitation, you have the SSOP Manual, Sanitation Standard Operating Procedure Manual, and so on. This manual must be a directional function of what needs to happen and in what order.

Many internet articles will discuss Policies and Procedures for an Employee Handbook. True, this is the most famous example of Policies and Procedures. Yes, it extends beyond the Human Resources of an Employee Handbook. Two Stories will explain why Policies and Procedures are needed throughout the company.

Story Time (from Experience):

Management discovered the Cleaning Crew was using the cleaning solution rapidly. The usage was 3x what should be used based on our production.

When Management discussed the usage with the Sanitation crew, they said the cleaning solution was not good. What defines good or bad? In this case, the Sanitation crew believed the cleaning solution was not good because it took so much more to make bubbles and foam.

The Sanitation crew had an opinion that bubbles and foam equaled cleaning. The Chemical Company Rep had experienced this from other clients in the past. The Chemical Company had a formula with bubbles and foam, and we started using this chemical.

The cleaning cost returned to standard. This exercise taught us two lessons:

• One’s perception is vital to their performance, and
• If you feel a procedure is not working, say something. Also, if you believe there is a better way, talk with your supervisor.

Why do we drive the forklift in reverse?

OSHA requires you to drive a forklift with a clear, defined line of sight. For example, you have a 40-inch x 48-inch x 80-inch load on the forks of a sit-down forklift. Do you drive straight ahead, or do you go backward? If you move forward, you can’t see. You may hit something, or worse, someone. You would drive slowly while turning around as you go backward.

In this example, the Company Policy is “When driving a forklift, you must have a clear, defined line of sight. If your cargo does not provide a clear line of sight driving forward, you must reach your destination in reverse.” A clear Policy provides the starting point for an effective Procedure.

Inventory Policies and Procedures

What are the Policies and Procedures within Inventory Management? There are several policies and procedures a company should have concerning inventory. A company may have the following:

• Purchase Order Document
• Receiving Process
• Receiving Document
• Put Away from Receiving
• Put Away from Production
• Picking & Verification
• Ordering Staging
• Shipping
• Cycle Counts
• Inventory Reconciliation
• Forklift Operation – This could include:
  • Checkout before Starting
  • Driving
  • Safety Protocol
  • Injury Protocol
  • Return to Charger (if Electric)
  • How to Change the Propane Tank (if it operates on propane)

You may be asking, do I need to cover all these items? Yes, absolutely!

Training Capture

You may say, “I am training the Receiving Process person now. He is doing a good job, and I don’t need that Policy and Procedure.” STOP! This is the ideal time to write the Policy and Procedure for Receiving if you do not want to write out the procedure, perfect! I completely understand. Use video. A Video would be a great way to communicate your procedures.

Let me ask you this question, What is your expectation of an employee staying at your company? According to the Bureau of Labor Statistics, the average employee 25 years and older are employed by a company for 4.9 years. This is as of January 2020. As of January 2010, 10 years earlier, the average tenure was 5.2 years. There has been a slight decrease in the term in the ten years. With COVID-19 and the Great Resignation in 2022, the tenure numbers will decrease more.

There is a chance your employee will not stay with you, or the employee may advance to a better position in your company. It would be advisable to have a Policy and Procedure for all functions to ensure your business meets the expectations of your suppliers, customers, employees and you as the owner.

Story Time (from Experience), Again:

At some point, we started a policy of Purchase Orders required on inbound shipments. This policy was valid for raw materials and resale goods. 

One day, a 53-foot 18-wheeler backed up to our dock door with a truckload of beef jerky. The Receiving Manager came to me and asked if I knew anything about it. I asked, “What is the Purchase Order Number?”. He replied, “No one is defined on the Bill of Lading.”

The Receiving Manager was calling the Manufacturer of the beef jerky product, and I was calling the VP of Sales. The Receiving Manager and I were calling to find out the Purchase Order Number for this product.

A Purchase Order was not issued, and the Receiving Manager refused the load. Because a policy and procedure were in place and followed, the company avoided a $40,000+ mistake. The $40,000 mistake was the cost of the beef jerky load. 

Training:

Another advantage to an SOP Manual is training. You have an employee not returning, and you get a temporary employee. The Human Resources department has informed you that the temp will start Monday at 8:30 a.m. Every Monday, you have Management Meeting at 8:30 a.m. What will you do?

Let temporary employees study their job functions from the Policy and Procedure Manual or the Job Function SOP Manual. If needed, the temporary employee can read it two or three times.

Have you ever thought about Training Programs on video? No, why not? If a picture is worth 1,000 words, a video is worth 1,000,000. Not all training can be placed on video. Such as back office procedures, entering accounts payable, recording a sale, etc…

What can be used in video training? Receiving, how to check-in raw materials. Shipping, how to build a pallet. Production, how to pack a case. In some cases, there may be a video plus a written section. You can mix and match the media as needed.

Policy and Procedure Manual Evolution

Your Policy and Procedure Manual, or SOP, is a  living and breathing document and will evolve. Today’s policy may not be applicable in 5 years, and your SOP needs to change as times change. Let’s see how it has changed over the years:

• Forty years ago, you would write a deposit and write each check on a separate line of a carbonless Deposit Slip.
• Thirty years ago, you changed your mailbox to the bank, a lockbox. Most of your checks would arrive at the lockbox, and the bank would deposit the checks and send you the documents, plus a copy of the check.
• Twenty years ago, you would process a check through a scanner, and the check scanner was like the bank check scanner.
• Five years ago, you could take a picture of the check, front, and bank and upload it to the bank via an app.

A new Policy and Procedure must be written and published for each change.

Recap

Before the final thoughts to the Entrepreneur and Ownership Group, let’s review Policies and Procedures.

• Policies are the rules that govern a company.
• Procedures are the How-Tos.
• The Standard Operation Procedure (also known as SOP) Manual can assist in training and cross-training.
• Policies can be tied to Employee Performance Evaluation.
• Video can be an effective means to document procedures.
• Policies and Procedures will change as time changes.

Entrepreneur and Ownership Group

What value does a Policy and Procedure Manual provide if you are an entrepreneur or part of an established ownership group? Let me turn the table and ask you this:

You have a choice to purchase between two companies in the same industry. Everything is exact, except one company has a thick book with defined policies and procedures. The other company does not have its Policies and Procedures document. Which company runs more efficiently? Since you do not have experience in this industry, which one would you be more inclined to purchase?

In the video below, the young entrepreneur develops the building blocks to develop a scalable and expandable business. What tool does she utilize?

That is correct. She developed a Standard Operating Procedure Manual, known as an SOP Manual. The SOP Manual allowed her to scale and expand her business.

From the beginning…

At the beginning of this article, I asked about the Franchise Cost/Fee for McDonald’s and Steak and Shake. In a Google search, I found a McDonald’s Franchise Fee is $45,000. A Stake and Shake Franchise Fee is $10,000. With that Franchise Fee, you will receive their playbook on everything. Policies and Procedures. All Franchises are selling two pieces of property with the Franchise Fee. The first property is their name. The second property is their systems. Their systems are the Policies and Procedures.

Have you seen the movie The Founder? During the film, the two McDonald brothers develop the future kitchen for fast food establishments. I believe it was called the Speedy Operation. Systematically, the McDonald brothers worked on a system (the Procedure) to provide food to customers quickly (the Policy). From the grill to the customer in 30 seconds.

Thinking for the future…

Let me ask you this: What would be the value if you could build a scalable system and operate it without your hands and eyes constantly on it? You may ask, what do you mean? What if you had a plan that would allow your business to grow, to open another location, and they operate without you? What would be the value? Developing Policies and Procedures or Standard Operating Procedures is the first step.

Closing…

I hope this post has provided advantageous insights on Policies and Procedures. Despite the blood and sweat, you will encounter in developing them, the value of Policies and Procedures out weights the cost 20x. Remember the two stories told earlier in the blog post. These stories were told to show the value of following Policies and Procedures.

If Policies and Procedures are keeping you up at night, maybe we should take some time to discuss them and how to solve your problem. Here at Creating a Better Version, we would enjoy talking with you about Policies and Procedures. Leave us a comment below and let us know how we can help.

As always, have a great day, and be safe!