Complex Manufacturers: Stop Looking In the Rearview Mirror
Believe it or not, we consistently get pushback from manufacturers around the benefit of adopting a growth-oriented strategy. Most executives say they want “to get to the next level,” especially in today’s boom environment. Yet, their behaviors belie this goal because many manufacturers believe they can cut costs to achieve greater prosperity. And they often act the most consistently on this goal.
As continuous improvement experts, On-Time Edge prefers to focus on what’s next with our clients. As an outside resource, we bring a fresh perspective to the issues challenging them. For instance, they can get lost in the woods when they focus solely on cost-cutting.
We assist our clients in taking a much longer view, which helps them think more strategically, beyond focusing on quarter to quarter. Together, we look several quarters into the future. There we see the potential impacts that potential variability has on their planning and scheduling (e.g., market demand, raw materials availability, etc.). Even more, we help them enhance their visibility into workflow and opportunities for more productive capacity that can absorb increased sales.
Shifting from a cost cutting mindset to a revenue and profit growth mindset is fundamental to the success of our clients and their growth in the marketplace.
Reframe Cost-Cutting to Growth Finding
One of the big challenges for manufacturers is to embrace the shift in thinking which needs to occur. The default focus on cost-cutting is often related to the cost accounting systems most enterprise resource planning (ERP) software and financial management accounting systems are built around. This view of the business keeps organizations focused on cost reduction.
As we see it, you can't really cost cut your way to prosperity. Yes, you have to manage costs, but you also need to be focused on:
What’s our next best opportunity for making a successful capital investment?
How do we grow our customer base?
How do we increase our profitability?
Once companies begin to reframe their beliefs about cost cutting, they can focus on how to grow their market share and, in turn, their return on capital invested.
Some organizations who are ardent practitioners of Lean, see the cost cutting mentality as the only way to achieve prosperity. This led many companies to outsource their manufacturing.
Outsourcing has been a tremendous tragedy; rather than getting better, learning how to do things better, executives decided to cut costs and offshore production. Of course, these decisions were not taken lightly and with a lot of angst. And they were seen as the only response to marketplaces and competitors that constantly offer lower prices.
With the manufacturing environment we see in 2020, we believe that a company manufacturing products in the geography of its target market is tough to beat by companies that produce and ship from thousands of miles away.
This local market factor is part of what has led to the growth of manufacturing in the US.
Adopting a Growth-Oriented Strategy
When we come into a new customer’s shop floor, our goal is to begin shifting how they think. With them, we look at four or five different ways of addressing any disruption that occurred on a production order. As anyone who has spent any time on a shop floor knows, on any given day...
Customers change their minds
Machines break down
A critical workcenter’s employees don’t show up
Incoming materials are out of spec
The weather forecast looks awful
Trucks grind to a halt
Each of these variables are opportunities if we operate in a proactive mode. The shift in thinking is not just from “How do I fix this?”, but to “What are the options we have now?”
A decision becomes a matter of choices. For companies who’ve adopted throughput accounting, it’s possible to analyze the financial impact of the decisions about to be made.
Determine the throughput impact of a particular decision
Should the task be outsourced?
Or will it require the surgical use of overtime?
Or, maybe, expedited shipping?
Understanding the workflow and financial impact of each decision is absolutely critical in terms of being more competitive in today's world.
Making the shift from cost cutting to revenue and net operating profit growth is a fundamental mindset that our customers adopt when working with On-Time Edge. It’s all part of our multi-vertical, significant years of experience, technology tools and initiative we bring to our clients.