Nov 20, 2019
How prepared is your manufacturing business for the impending economic recession?
The USA economy saw a record-breaking 11-year economic expansion. Indicators now show that we are heading into an economic slowdown. The hiring of new staff and the demand for labor has weakened across the board. This seems to be more of a trend in industries that are on the front lines of the trade wars: industries such as manufacturing, agriculture, and transportation. We see a negative turn in manufacturing, which, according to Moody’s Analyst Mark Zandi creates the fodder for an overall downturn in the economy.
A simple calculation used in the monthly ISM Manufacturing report determines whether there has been an improvement or a decline in the industry. Factors that come into the equation are things like employment, commodity prices, the backlog of orders, production, imports, etc. The item that is weighted the most in the PMI equation is one of new orders. If the number is less than 50 across the board, this indicates contraction and higher than 50 indicates expansion.
The ISM Manufacturing report for October 2019 indicated a contraction with a figure of 48,3 against an expected number of 49,1. The first time in 3 years that we have seen the ISM figures slipping into contraction was in August 2019. With these warnings in place, it’s time to re-look and re-evaluate your manufacturing businesses processes so you can become as cost-efficient as possible
There is still much uncertainty around trade discussions with the USA and China, as well as the USA and Europe. Additionally, Brexit is yet to be concluded and this creates uncertainty and angst for citizens as well as business owners. Unfortunately, these negotiations and ultimate conclusions thereof are not in our circle of influence, so we have little choice but to put our heads down and carry on. Spend your time, energy, and money on the things you can control.
In a recession, retrenchments, unfortunately, are often a reality. Companies would want to try and avoid this, so an excellent place to start is to re-evaluate your processes. Look at your current workforce and analyze how they are utilizing their time.
How much of your employee’s time is spent wasted on cumbersome and time-consuming tasks such as:
- Searching for information that should be readily available. As an example, production that comes to a grinding halt because raw materials haven’t arrived – this information should be visible to operations so they can schedule their time effectively.
- Duplicating data entry across multiple systems
- Managing complicated formulas and data entry calculations
Overall how much money does this cost you in resource time? Perhaps it’s better to automate a lot of these processes? Review each process throughout your business and identify where the bottlenecks are. Then, research solutions available that can fix these. Your end goal should be to shorten process times and increase your throughput.
Now, let’s take a look at ways in which you can increase efficiencies in your factory without expanding your workforce or equipment costs.
- Use existing equipment for more time by adding extra shifts and longer hours.
- Outsource equipment when capacity increases.
- Invest in maintenance. Through sensor-driven monitoring, you can be alerted on maintenance issues before they become a real problem.
- Create collaboration amongst your management and teams by sharing your current workflows and ask them to come up with ideas to find better processes.
- If you are using outdated equipment, consider upgrading them to smarter machinery. You will have a better chance of getting a capital loan before a downturn hits, and this will save you in the long run.
- When upgrading your equipment technology or your business technology, make sure that you train your employees so you can see the maximum impact on your investment.
- What about the layout of your floor – are the machines and tools laid out to provide maximum efficiency? If not, consider re-organizing this to create a smoother workflow.
- Make sure you can access your inventory information at the push of a button. If you have a system in place that can help you to manage demand, lead times, and replenishment quantities, this will enable you to achieve the fine line between being under or overstocked.
- Re-evaluate the classifications that you have set on your stock items. For example, items that should be classified as a non-stock item as they only leave your shelf a few times per annum. These items are taking up valuable shelf space that could be used for your fast-moving items.
- If you can free up floor space through better inventory management, you could look at renting out some of this excess floorspace.
- Take a close look at your inventory shrinkage, identify the issues, and put processes in place to minimize this.
- Your demand forecasting needs to be super accurate if you want to run a tight ship. Having a system in place that keeps history on sales, manufacturing orders, inter-site orders, and purchases means you are better able to forecast demand.
- A system that allows you to link your raw materials and sub-assembly demand to your finished product demand will also prove to be most valuable. Fluctuations at any level would allow you to take decisive action and avoid unnecessary costs
- Never compromise on safety and quality. If you have no other alternative and have reached the limit to what you can do within your scope to meet customer expectations and are still not able to achieve that commitment rather re-negotiate your delivery times or offer a discount for the inconvenience than forego on safety or quality
Staff morale can quickly become very negative during this time as employees tend to become anxious about their longevity in the business. This negativity tends to spread through an organization like wildfire, so your management must be highly visible and active in the business. If management and employees have the sense that they are all ‘in it together’ and are all working towards a common goal and objective, the likelihood that you will survive the downturn and come out the other side stronger is highly likely.
Written by Craig de Kock – President, NETSTOCK USA