May Issue of Manufacturing Monthly: Weathering the Storm: Manufacturing and Supply Chain during a Recession

Weathering the Storm:
Manufacturing and Supply during a Recession

“If size mattered, then Dinosaur’s would still rule the world.” Anonymous

Manufacturing companies have been dominating the headlines, from Pacific Brands massive job losses & share price plummet to Holden car manufacturers in union talks on reducing workers pay and hours. Both prove that just because you are big, doesn’t mean you are automatically immune from the current global economic crisis. Unlike previous recessions, which have typically been based on a ‘Boom and Bust’ cycle where excessive growth has led to higher interest rates and eventually reductions in output, the current global financial crisis has been created more by a lack of confidence in the system and thus is more psychological in nature. This means that tactics previously deployed to help weather the storm won’t be applicable.

Tom Peters, Business Management Practices says we all need to adjust our thinking, “Don’t think of our current economic crisis as a recession. Instead think of it as a recalibration. Everything is different now. If you think of it as a recession you may be tempted to ‘hunker down” and wait for the economy to cycle back. If you think of it as a recalibration, you will be motivated to focus on what you have to do differently, since everything is different now.”

Some companies will survive this recalibration or economic reset and some will not. Some will even thrive. The differentiator will be the strategy each company employs.

A strategy however, is not just about saving money and reducing costs, nor is it going back to what you were doing six months ago. What worked before won’t necessarily work now Blindly following what your competitors are doing under the guise of ‘best practice’ is also a recipe for disaster; more than ever you need to plan for flexibility and agility..

“Implementing the correct strategy for your business in this current recession has never been more important” says Dean Williams, Chief Executive Officer for WH Williams engineering. The company has recently conducted an internal audit of their processes and systems to put in place a strategy that will help them weather the global economic crisis.


Seven Rules for Success in a Recession

Rule#1: Understand your customers and develop a strategy for retention
· Know their financial situation and don’t be surprised by potential credit issues
· Develop a strategy and manage to it – better service, better price or both
· Consider some form of CRM Solution to manage customer interactions

Rule#2: Provide employees with the information they need to reduce costs and manage the business
· Provide employees will all the information to complete one job function on a single screen (Role Tailored Design)
· Enable employees to conduct searches for required business information in order to build their own reports

Rule#3: Manage and prioritise expenses to help with cash flow
· Set guidelines and policies around expenses in consideration of free cash flow
· Forecast your free cash flow 3 to 6 months out
· Provide your business with the tools needed to show complete visibility of the expenses being incurred and provide controls to ensure expenses are prioritised.

Rule#4: Be proactive and consider new opportunities to help your customers and suppliers
· Think “out of the box”
· Ask yourself the question “What new products and services will help my customers in these recessionary times?”
· How can you help your customers do more with less?

Rule#5: Use Business Intelligence effectively to improve your supply chain
· Use reporting and business intelligence to minimise the amount of inventory (and locked up cash) in your channel and reduce your inventory carrying costs
· Be quick to respond to demand signals indicating potential slow downs
· Understand the profitability of your product lines (do not be caught in the Standard Costing/Overhead Allocation trap)

Rule#6: Improve Collaboration
· Communicate quickly and accurately both internally and externally to be responsive to customers, reducing the probability of excess stock and incorrect orders.
· Reduce the time for demand signals to make it through your supply chain and automate the demand signals from your customers
· Reduce the costs and time associated with internal travel (utilise tools such as LiveMeeting, Unified Coms and Conf calls)

Rule#7: Build capacity through efficiency rather than real estate with a focus on:
· Materials and Requirements Planning (MRP) – ensure effective phase implementation of any MRP solution to provide the correct inputs and business processes are in place
· Distribution Resource Planning (DRP) – to reach deep in to the supply side and demand size of the equation
· Inventory Planning - Provide the right information when it is required

When WH Williams began their internal audit, they found that they needed to increase their order turnaround time to gain efficiencies but their disparate resource allocation and their billing and production systems hampered both their scheduling and administration needs. They chose to deploy Microsoft Dynamics AX 3.0 system which they upgraded to Microsoft Dynamics AX 2009 in 2008.

“Through the deployment of Microsoft Dynamics AX 2009 we have significantly reduced downtime, and cut production lead time by 20 percent. This has resulted in us cutting administration costs by $200,000 and reduced despatch invoice times by three-quarters” stated Mr Williams. “We now have the tools in place to better understand our customers changing needs with a deeper overview in real-time of what is happening within our business allowing us to respond quickly and efficiently. With a flexible strategy in place we are now better placed to deal with the current global economic crises.