Tips for Surviving 2012
All the indications are that 2012 will be a very tough year for global business. Even if the leaders of the Eurozone manage to avoid a 1929 style “Great Depression”, it is clear that Europe and much of the western world will go in to recession, leading to a slow down of growth in the rest of the world. I therefore thought I would share a few ideas of how lean manufacturers can make the most of the tough conditions:
What’s Your Thing?
You need to be absolutely clear on what your business is, who your target customers are, where they are located, what they want and why they will continue to buy your product rather than your competitors. In our experience, the most profitable lean manufacturers are absolutely clear on this. In a time of tightened demand, if you can not differentiate yourself clearly, you will face falling prices and miss out on work to more focused competitors. Beware when your Marketing team trumpets the fact that you are a “One Stop Shop”. Sometimes this can be a valid differentiation strategy, for example if you are the only supplier that can meet all the needs of a particular market niche, but more often “One Stop Shop” means that the business is not clear on what they do well, so they try to offer everything.
In lean manufacturing terms, focus your improvement efforts on “your thing”. That means the value stream that you are most recognised for and that is most likely to drive your growth. If your non-core products are unprofitable, get rid of them, don’t waste time and lean manufacturing resources by trying to reduce cost and lower prices for non-core value streams.
Focus on Value Creation and Eliminating Waste
Businesses often loose sight of what they do that creates value for the customer. Use value stream mapping to highlight the waste in your key processes and work to reduce it. In doing so, you wont just eliminate cost, you will also drive down lead time and increase the agility of your business to respond to customer needs. Challenge the need for activities and even functions that don’t add value for the customer, while making sure that you support front line employees to do an exceptional job for the customer.
Often big companies cut their improvement activities when a recession comes, this is extremely short sighted and means that their competitors will often improve and overtake them. Now is the time to ramp up improvement and challenge what you do and how you do it.
Conserve Cash
Obvious advice, but worth following. In the words of financial guru, Alan Miltz, “Revenue is vanity, profit is sanity and cash is king”. Sales might look great, but if your bank balance is not improving then you are probably kidding yourself about the state of your business. Lean focuses on the reduction of lead time and the elimination of waste. A key source of waste and lead time and a key consumer of cash in your business is inventory. Lean processes such as one piece flow, kanban systems and first in first out lanes can reduce lead time by up to 75% and inventory by a similar amount. This can liberate large amounts of cash for your business. Beware of blanket edicts to cut inventory as they often lead to shortages, missed deliveries and can actually make the problem worse as this article explains Slashing Inventory can Cost you Cash (76)
Apart from inventory, the other controllable area of working capital is accounts payable. If you have agreed payment terms with a customer it is reasonable to expect them to pay within these terms. Very few customers will take offence if you ask for them to pay within the agreed terms, but very many will pay late if you don’t follow up. A polite, but assertive accounts receivable person is a great investment!
Keep Developing Your Best People
The unusual feature of this slow down in the Asian hemisphere is that it is still a “sellers market” for labour. It is essential therefore that you work to retain your best people so that you have the right base of skills and capacity when the recover comes. Implementing lean will keep your key people engaged, develop their skills and put their time to good use improving your business. We often find that the greatest benefits of improvement activities is the development of people.
Open communication is also essential. If employees feel insecure they will often take matters in to their own hands and find another job. Maintain regular briefings with employees and open two way communication, particularly if reduced sales lead to reduced working hours or layoffs. Many businesses in the region gained huge benefits by retaining staff and reducing working hours during 2008. A similar approach next year might be needed to keep your business going with its best people.
Smart businesses survive, improve and grow during tough economic times. They can then meet the good times, stronger, leaner and more agile.
By Clive December 18, 2011 - 10:21 pm
At our planning session on Friday we revisited our business model – make, sell, count. We believe 2012 will be hard, but we focus on top line sales, process improvement, discretionary cost control and safety (focus on near misses)
This year when we talked about lean projects, we said that having lean in day to day thinking was already happening. We split our goals into quick fix or long term, normal work or projects. We built a dozen or so key goals for making our business better. It took 3 hours with a group of about 18 mangers and team leaders.
Bring on 2012