How to navigate your manufacturing business and survive economic downturns

The USA economy has emerged from its 11-year economic expansion and is heading into an economic slowdown. Demand for labor is weakening as is the hiring of personnel across the board, but this seems more prevalent in industries such as manufacturing, agricultural and transportation; industries that are on the front lines of the trade wars not only with the USA and China but with the USA and the EU. We will see a negative turn in manufacturing, according to Moody’s Analyst Mark Zandi and this creates the fodder for an overall economic downturn.

The ISM Manufacturing report is used to gauge the state of the industry. Many things are taken into account, such as employment, commodity prices, the backlog of orders, production, imports, etc. A simple calculation is used to determine whether these areas have improved or declined month on month. The most significant weighting in the PMI equation used is that of new orders. The data is easy to interpret if a number comes in higher than 50; this indicates expansion, below 50 indicates contraction.

Octobers ISM Manufacturing report was 48.3 against an expectation of 49.1, indicating a contraction in the manufacturing industry. August 2019 was the first time we saw the ISM Manufacturing figures slip into contraction in three years. Now is the time to tighten your belt and operate your manufacturing business as lean and cost-efficiently as possible

While there is uncertainty with trade discussions with the USA and China and the EU, and while Brexit has been pushed out to January, creating more uncertainty and angst, we have little choice but to put our heads down and forge ahead. To navigate these waters, spend your time, energy, and money on elements in your business that you can control.

First, take a look at your employees and how they utilize their time. If a recession is going to become a reality, you need to maximize your employee efficiency to a new level.

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. For example, production coming to a grinding halt because raw materials haven’t arrived - this information should be visible to operations so they can schedule their time effectively
  • Repeatedly entering data into multiple systems
  • Managing complicated formulas and data entry calculations

Overall how much money does this cost you in resource time?. Would it not be better to automate your processes? Start by reviewing each process throughout your business, identify where the bottlenecks are, and research solutions to fix these. Your end goal should be to shorten process times and increase your throughput.

Manufacturing capacity is increased to address immediate customer demand or anticipated customer demand. Let’s take a look at some ways in which you can increase efficiencies in your factory without expanding your workforce or equipment costs.

  • Use your 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.
  • Share your current workflows with your management team and get them all to collaborate to find better processes.
  • If you have been using the same equipment since back when the dinosaurs were roaming, consider upgrading them to smarter machinery. You will have a better chance of getting a capital loan now before a downturn hits, and this will save you in the long run.
  • When upgrading your equipment technology or your systems technology ensure that you provide the necessary training to your employees so you can see the maximum impact on your investment.
  • Look at 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.
  • Ensure that you can access your inventory information at the push of a button. A system should be in place that can help you to manage demand, lead times, and replenishment quantities. In times of a recession, it’s even more imperative to achieve that 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 your excess floorspace.
  • Take a close look at your inventory wastage, identify the issues, and put processes in place to curb this.
  • Your demand forecasting needs to be super accurate if you hope to run a tight ship. Having a system in place that keeps history on sales, manufacturing orders, inter-site orders and purchases mean you are better able to forecast demand.
  • Having a system in place that allows you to link your raw materials and sub-assembly demand to your finished product demand will 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

In conclusion, in times of recession, people should stick together. Management needs to ensure that its staff morale is alive and well as its very easy to slip into negativity, which tends to filter through an organization like wildfire. A manufacturing floor is most productive when everyone works together towards a common goal and objective with as little conflict as possible.

These tips should help to steer your operation through the troubled waters during an economic downturn so you can emerge without too many cuts and bruises.

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