There are two kinds of businesses in this kind of economy. There are those who sit on the sidelines and wait for the economy to turn and there are those who scramble to make the best of the situation. I interviewed a number of companies to determine: 1) what are the biggest issues facing them in the last three months and 2) what are they doing about those issues. Recent interviews with companies have provided me with 5 problems and solutions that are being used to advantage.
- Cash Flow
Revenue decreases to 50% of levels from last year, tight credit and customers pushing back payments has made cash flow critical to survival. Most manufacturers have reduced hours worked and reduced salaries to maintain cash flow. Most have increased cash by reducing inventories. Some have been able to hold the line on collections.
A few have been able to continue the development of new products by working with Chinese manufacturers who need business and are flush with cash. The Chinese suppliers are more willing than ever before to underwrite development costs on new tooling and spread those costs over future production. New products coming down the pipeline now should pay big dividends in the future.
Reducing costs during this downturn has meant reducing expenditures including direct labor and salaries. Reduced work weeks and layoffs are normal. Some workers have resorted to disability claims as workers look for ways to maintain income and be off work.
Rather than rotating short term layoffs or reduced work weeks, it may be better to make the hard cuts initially and adjust as needed with some overtime or bringing people back as needed.
- Fewer Communications with Customers
Reduced employee counts throughout the distribution chain have also reduced communications. There are fewer buyers today and they are burdened with picking up the duties of those that have been let go. This means less time to spend with sales people and thus less communication between businesses.
The downturn has demoralized salespeople to the point where many are not making as many calls. This also reduces the needed communication between vendors and suppliers. This makes it that much harder to meet the needs of customers with what they need when they need it.
The companies that are succeeding in this downturn are maintaining communications and exploring new ways of working together. These new ways of working together include, but are not limited to: new products, private label, new product uses, exploring potential new markets and taking market share at new and existing customers. Some manufacturers are picking up business that used to be supplied by China as customers want lower inventories and faster turnaround. Now is the time to increase communications, not reduce them.
- Rising Costs
Steel costs and plastic resin costs have been rising. This is a problem that may become much worse as the economy improves and demand increases. Price increases must not be allowed to erode profitability or long term survival is jeopardized.
In some instances, manufacturers have been able to lock in longer term contracts which should be beneficial when demand increases. Others are raising prices as their costs increase so that they can maintain margins for long term survival.
- Knowing when to gear up.
Reduced inventories, reduced work force hours, credit shortages, poor customer communications all combine to make gearing up for a recovery even more difficult. While no one knows when things will turn around, none of us want to be caught short either.
This makes it critically important to maintain good communications with your active and prospective clients. It also makes sense to streamline operations and build capabilities that will help to react to demand fluctuations in the future.
The organizations that try to ride out this downturn will not fare as well as those organizations that are taking action today to either develop new product offerings or improve operational efficiencies. My experience combined with what I have learned from these leaders leads me to believe that survival depends on praying for the best, preparing for the worst, and being grateful for whatever comes.
– Bob Cannon helps visionary leaders improve performance and profitability. He is the author of the new book “Taking Aim for Better Decision-Making”.