The economic headlines make grim reading right now, and for manufacturers, the headwinds have been blowing for quite some time. Between supply chain issues, skills shortages and rising production costs, it’s difficult to maintain a healthy optimism in the prevailing climate.
Manufacturing people are resilient and creative and make the most of whatever circumstances they find themselves in. However, humans have a herd mentality even in business, and when talk of recession starts, amplified by surging energy prices, the herd moves together.
But, as economists are predicting a lengthy period of suppressed demand, how can we turn adversity into opportunity?
Develop robust systems and processes
Cash is king in a recession, even before a recession ‘officially begins’ customers start to delay purchases, take longer to make decisions and put off paying bills. All of which throws your company cashflow into sharp relief.
Insurance products such as credit insurance can help protect you from the risk of your client’s insolvency or even the disruption of late payments. But much can be achieved by looking inward.
Fuzzy and disjointed business processes incinerate cash.
Inaccurate quotations, poor costing methods, over-purchasing, incomplete bills of materials, inadequate record keeping, component shortages, (un)traceability of communications… The list of ways our processes can be improved goes on and on.
The first instinct might be to throw more people at the problem, or maybe you could invent a few more hours in the evenings and the weekends to keep it all hanging together…
But as you face the next few quarters, do you want to hire more people to cope with the admin burden? Probably not, yet there is still cash leaking from the business.
The alternative is to examine your systems and processes, find the areas you can reduce waste, save cash and preserve your sanity.
With your team, map out your current business processes. Identify bottlenecks, and the cracks where things slip through, resulting in waste and unnecessary costs.
What systems and process changes can you put in place to address these, and stop the waste?
Don’t forget, if you are thinking about the impacts of a recession, your team will be too. There’s no better time to motivate your people to work on the business systems and processes, to work smarter, not harder, and to deliver more without increasing costs.
A quality but easy to use MRP software is your friend here, allowing your entire team to work in one unified system from purchasing, to sales, to production, to accounts – properly using a tool (such as Flowlens) can unlock efficiencies and reduce costs across your entire business.
Keep your team aligned with the plan
Getting buy-in for change is difficult at any time, but this process mapping exercise will help you get that commitment. Inclusiveness breeds creativity and collective responsibility for making things better.
You need to make sure your people remain focused on delivering for customers, meeting targets, and making improvements to how you operate. Transparency in the plans and projections you are developing to weather the uncertainty will be appreciated.
Participation in developing those plans will breed more commitment and ideas.
Plus, good systems are self-reinforcing as people seek to retain the benefits of less admin and “busy-work.” Recession proofing your manufacturing business might mean slowing down on some bigger plans, but it doesn’t stop progress.
Manage stock holding and smarter purchasing
Many small manufacturers hold raw materials or components unnecessarily. However, it’s understandable that with recent supply chain problems, you want to have some cushion in place. Therefore, the need for manufacturing stock management software is greater than ever.
Planning stock has become a lot trickier in recent years, and solid data is required to make good decisions. Combining historical sales data with forward-looking forecasts can give you more sense of what’s needed.
On the other side of the coin, unforeseen shortages play havoc with cashflow. Errors or omissions in bills of materials can be the difference in making your invoicing target for the month, or letting down a customer and delaying cash receipts.
Now is a good time to ensure your bills of materials are up to date and complete, and that purchasing people have the tools to ensure nothing is missed. Even with robust purchasing systems, surprises can happen as supply chains and lead times are still unpredictable.
Not having clarity of BoMs and supplier options is a ticking time-bomb. Knowing your options with BoM software makes life more predictable.
Impact the sales cycle
Activity breeds results, but only the right kind of activity. Many sales people still commit the basic sin of not following up.
Whether it’s the initial enquiry, or after you’ve quoted, or even delivered, timely and consistent follow-up can make 25-30% of a difference to your top line.
Do you have an established process and KPIs for following up enquiries and quotations? Is this consistently followed by your team? Can you monitor interaction patterns?
Having good information about the sales process, and how this varies by sales person can help you coach for improvement and get the revenue upside.
Without it, you are potentially burning cash on marketing campaigns and sales activity with no idea what is actually making a difference.
Track job costs
Waste is the manufacturer’s enemy. You don’t have to be a Lean Manufacturing evangelist to cringe at the sight of wasted or unnecessary materials. These are the unnecessary costs you can find easily, because materials are physical and you can see what’s doing in the bin. The money lost as wasted time through inefficient human operations is harder to spot.
Recession-proofing your business means tackling waste. Measuring both the time and materials spent in finishing a job gives your team the knowledge required to make improvements.
Many small businesses think they don’t have the time to track this information, but ignore the cost of not doing so.
Again, commitment from the team to create a lean and effective operating system for your business is the key ingredient to successfully changing a culture that has always accepted “the way things have always been done.”
People costs are an essential part of running a manufacturing business and an efficient production team will have many specialised and niche jobs within your process. Modern systems that are user-friendly offer new ways of working, breaking out of the traditional functional silos. By training your people to be cross functional on keys systems means there’s less waste, and fewer delays caused waiting for control steps to be completed.
Plus, tools such as interactive checklists and forms can help single operatives perform simple repetitive tasks, saving your business thousands in not having to hire additional staff.
Grow after-sales revenue
There’s no bad time to improve your customer engagement and retention practices. The best performing businesses develop processes to stay in touch with customers, and listen to their evolving needs and demands.
Those that are delaying purchases will still need to get the most out of their existing equipment and machinery. For example, have you developed a regular maintenance solution that gives customers peace of mind, and gives you a cash stream to replace delayed capital purchase revenues?
Use your historical customer data to better understand your customers and the asset base you have delivered to them. Where is the machinery and equipment that needs more attention? What packages can you design to sell the value of your ongoing service, and reinforce how these help your customer recession-proof themselves.
This will become a virtuous circle for your business and your customers.
Target recession-proof sectors
Perhaps you already manufacture products for a diverse customer base, and know which customer groups are more likely to decline, and others that’ll stay steady or even thrive.
If not, now is the time to use your historical data, segment your customer groups, and identify risks and opportunities. Health, food, utilities, energy, transport are among the sectors that remain resilient, whereas luxury or ‘nice to have’ items will fall down the shopping list.
Ultimately this is about living to fight another day. Some businesses will grow despite recession, others will flatten or shrink. Cash is key.
Efficiencies can improve your bottom line and let you do more without hiring more staff.
Small manufacturing business managers and directors face differing challenges, but every business has people at its core.
Transparency and inclusion in planning and adapting for tighter times is a team sport. Lead from the front, and be open to collaboration. The ideas, the energy and execution will flow from your people.
We can help you map your processes, identify efficiencies, and digitise your manufacturing business. Contact us today to learn more.