There are multiple signs that U.S. economic growth may be slowing from falling US Manufacturing growth to U.S. gross domestic product (GDP) growth declines and now the addition of the Covid 19 pandemic. As of September 2019, we have seen a 10-year low in manufacturing growth driven by drops in both new orders and export sales. And while there have been some indicators that the industry is declining, the same principles that allow organizations to grow exponentially in strong economic periods allow them to survive and thrive during economic stagnation.
Manufacturing Recession Strategy
In a potential recession, it is common that some short-sighted and cost- cutting measures take place. However, these tactics often have negative and unintended impacts. Reductions in spending without consideration of their impact (e.g., lower revenues, profits, or safety) invariably result in outcomes far more expensive than imagined including; wage, bonus, or benefit changes result in declining employee morale and lower productivity, emerging safety issues, negative customer experience, and even failed M&A activities.
A solid strategy to combat a potential recession requires 2 main crucial elements.
- Establishing a foundation
- Leveraging the right analyses to gain strategic insights
Establishing a Foundation
Not all leaders recognize market changes, and not all are ready to manage market changes. Variable or declining demand will affect markets and companies differently. An economic slowdown of any degree of severity will be far more painful for companies if the foundation isn’t in place. The right foundation allows your organization to standardize processes and practices to make informed decisions and implement lasting solutions, ensure your manufacturing equipment is reliable, and engage your entire workforce.
Engaged, educated, and empowered frontline associates can assume multiple roles in a production environment and provide operational flexibility. In a slowdown, flexibility helps managers to keep staffing levels commensurate with demand and aligning employees and assets with needs. By building your system to ensure that each associate is engaged, you will be able to identify the natural leaders in your organization.
- Frontline-associate ideal behavior —engaged, teachable partners willing to collaborate, team with colleagues, and improve the work (assuming skills and resources are trained/provided).
- Frontline manager ideal behavior — Managers are coaches who holds employees accountable without being dictatorial. They are also data collectors that provide strategic insights to upper management
- Expanding employee capabilities and flexibility requires a method to identify specific skills and educational supports that employees require — continuous skills development (CSD).
Leveraging the Right Analyses
Most manufacturers invest at least some resources, time, and effort into improving operations, but many don’t achieve significant results due to:
- Silo improvements — These initiatives may yield short-term, localized results, but they:
- Don’t take advantage of cross-functional synergies
- Often abandoned when the responsible manager leaves or more resources are required.
- Broad, shallow, tool-based — Plantwide implementation of a tool(s) without a strategic objective seldom delivers bottom-line results.
- Short-term focus — This misdirected approach is especially true of public companies that too often emphasize short-term results over long-term planning and investments for improvement.
Utilizing a zero-thinking mindset, it is possible to deliver more output at the same or lower costs by setting extraordinary performance targets and working towards zero wastes/losses. A zero-loss analysis guides manufactures to where they need to focus to eliminate problems in pursuit of a perfect state. It offers executives a cycle for prioritizing opportunities, allocating time/resources, and attacking losses.
Lastly, it is important to recognize how and why markets change during a recession and invest in areas that make the organization agile enough to reply to those shifts. Consider these 3 drivers of change as you think about your organizations landscape:
Geopolitical environment: Events close to home (tariffs) or far away (political) can significantly impact manufacturers:
- Impact is dependent upon global distribution channels and supply chains.
- Affected companies should have already begun evolving their operations to react to more uncertainty (e.g., contingency planning).
Technologies: Technologies drive powerful changes in operations and supply chains:
- Many companies have already leveraged technology to operate with fewer people due to decreased demand, with increased revenue-per-employee.
- Technology to have an even greater impact in helping manufacturers than it did 10 years ago.
People: Continuous skills development/training is always a driver of success, but even more important prior to a slowdown:
- Employers must do more with less, allowing employees to assume greater responsibility.
- Continuous skills development requires real engagement of associates, training, and empowerment.
When positioning your organization to thrive during economic turmoil, remember to start with the basics. These foundational elements can support your organization through ups and downs. Interested in how Performance Solutions can help? Contact us today.