Memo to manufacturers: What are you doing differently this year?
INSIGHT ARTICLE |
By the end of 2016, many manufacturers were left wondering where top line growth will come from and when pricing pressures will ease. The short answer to both questions is that there is no easy answer. Some manufacturers will tell you they are already in a recession while others see continued pressure to drive sales in a sluggish worldwide economy. Couple this with continuous pressure throughout the supply chain and you have an environment that begs the question, “What are you doing differently?”
Here are some ideas we are hearing and sharing with our middle market manufacturers:
- Evaluate consolidation of operations: Can you eliminate excess capacity while providing for future flexibility when the signs of growth return? Many companies are taking a hard look at their activities to drive long-term value despite short-term costs.
- Reduce inventory levels: From raw materials to finished goods, truly analyzing your data can help you find and reduce slower-moving items; changing your supply chain can reduce raw materials and other inventory; and focusing on process can identify areas for improvement.
- Leverage technology to increase productivity: Productivity in U.S. manufacturing has slowed, but remains one of our greatest industry strengths when compared to other countries. Having the latest machinery is only part of the equation; using data to drive efficiency and quality can lead to lower costs.
- Location, location, location: Many companies are looking at their footprint to ensure they are close to their customers and their suppliers to reduce costs, reduce inventories and drive customer engagement. We’ve seen the “reshoring” trend for the past five years; don’t forget you can do the same thing in the United States.
- Timing for international expansion: There are many signs that navigating the worldwide economy is a challenge, but history shows that our economy runs in cycles. When business improves in certain parts of the world, is your company ready to reap the rewards? This approach is not without its pitfalls, but we are seeing companies slowly evaluate their options for international growth.
- To hedge or not to hedge: Betting on an increase in key raw material prices is not really a strategy. Engaging in a comprehensive strategy is the only way to ensure a company wins over the long term. This would include a careful analysis of trends, protecting a set percentage of your material requirements and considering ways to protect the purchase as well as the sales side of the equation.
- Sales team structure: What worked in the past is not guaranteed to work in the future. More companies are using multiple channels to drive sales. Relying on sales personnel or distributors who have driven sales in the past will not work by itself. Many companies are developing corporation-wide sales strategies, aligning sales teams by industry (vs. by geography) and employing social media for outreach.
- Investing in innovation: Do the math: There has to be a return on your innovation investment, even if some new ideas don’t work. The only way to ensure consistent investment is to have an innovation budget, assign responsibility and measure the results. Every year might not be a winner but, in the long run, a comprehensive strategy will ensure your company is around for decades to come.
There are more good ideas to consider, but you should first start with the question: What are we doing differently this year?
Good luck―and let us know if RSM and our worldwide affiliates at RSM International can help.