If you did a quick survey of manufacturing executives about business conditions, I am very sure that you would see a partial thumbs-up from most as production has picked up over the last 8 to 12 weeks. That said, everyone is interested in the shape of the recovery: are we in a "V", a "W", or does the turnaround look more like a trough?
From my vantage point as an independent counselor to manufacturing business leaders, I think the shape of the recovery curve looks more like a bathtub. Although we are on a positive trend, coming out of this recession is likely to be much more painful than many expect. Many with strong financial balance sheets are surprised with the few number of company bankruptcies that have occurred and are baffled at the lower number of opportunities generated from the transfer work arena. Our experience is that many businesses have survived by deeply cutting their resources and assets to a manageable level in order to simply function. Now, however, the real test will actually begin as we slowly ascend.
I predict that transfer work and company bankruptcies will begin to increase as entities experience the proverbial uptick. Those who've invested time to rethink and improve their businesses are ones that will flourish. Those who've just managed to survive will find themselves desperately struggling as the economy follows this "bathtub-curve" progression.
The primary reason for the struggle is that many will simply return to the way they did things before the recession. Combining this behavior with the lack of capital required for growth is a recipe spelling the beginning of the end for some. If for some reason you find yourself in this position, the upside is that it's not too late to challenge your organization to do more with less. Since most organizations have already taken steps to cut overhead and costs, business leaders MUST demand organizational improvements based on current staffing levels. (It's amazing to me how many organizations have learned that with fewer people they have still been able to accomplish the same tasks they did previously.) The challenge is not adding people back to the process when you begin your climb out of the tub!
Additionally, there are some key things that each organization should work on now in order to prepare for the future while climbing out of the tub and, more importantly, develop a culture of flexibility, sustainability and long term profitability.
1. Hire the Right People. It's been said time and time again that we continue to see businesses struggle because of existing management teams. Many small- to medium-sized companies struggle with having the right people working in the right areas of their business. Small, family-owned businesses struggle with this issue due to having friends and family in positions that may be hindering progress. Leaders must make the hard decisions to move or remove people; it's critical for current profitability and future sustainability.
2. Strive for Operational Excellence. Now is the time for company executives to focus on operational excellence; especially while you are at your leanest. To accomplish this, your people must be armed with the education and tools necessary to improve the processes for your highest revenue-generating jobs. This will require a focus on labor efficiency, downtime reduction, throughput, inventory, and scheduling. Additionally, the organizations must perfect their launch capability to be best-in-class as this will be the differentiator as suppliers consolidate in the future.
3. Weed the Garden: Now is also the time to evaluate each and every customer and weed out those that drive the most energy and effort in the organization but contribute the least to the bottom line. Many companies have customers that contribute the least amount of profitability yet drive more than 50% of the organization's resources. Again, leaders must make decisions to establish new requirements and fire those customers that don't add to the overall profitability of their business. No matter what the economic conditions, the thought of reducing the top line is always hard. However, many quickly discover that correctly weeding the garden yields greater profitability along with better working conditions for all!
4. Right Size Capacity for Today's Market: It's critical for company executives to take this time to evaluate their equipment and right size the business for today's market. It may be time to eliminate assets and meet new growth with efficiency improvements.
5. Evaluate Other Markets: Many companies today are focused on specific products and industries based on years of experience and the capability of their people. It's critical, in today's environment, for companies to look past their years of experience, evaluate their equipment, and determine if there are other markets they can attack to grow and diversify their business. I know a 100% automotive supplier executive who diversified his business over the span of 11 months because he saw the handwriting on the wall. By forcing his management team to think outside the box, by refocusing and by retargeting, they were able to penetrate new markets within this time frame, reducing reliance upon automotive to less than 40% while significantly expanding their growth potential.
6. Invest in Marketing: The other function that most companies tend not to invest in during a down economy is marketing. (In fact, some companies never invest in marketing.) As companies develop their long-term strategies, they must evaluate and develop branding, positioning, and awareness strategies that tie directly into diversification initiatives. And remember, marketing is a tough investment because it's hard to dollarize the direct benefits, but this is an all-too-important differentiator in the new manufacturing arena.
For those companies that have made it through the recession so far, I am confident that the impending upswing is upon us. Now it's time to carefully pick the steps you will need to take on your upward climb out of the tub!