Manufacturers, here’s a blueprint for success in volatile times

The DJIA stock index was down 5.5 percent for January, and after the ride it took us on last month, many investors are probably just thankful it wasn't worse. We've been hearing about the uncertainty within our economy since last year, and the fears are still there, but the positives are too, which explains the wild up and down swings in the markets. It's Wall Street's way of saying, they simply don't know.

We do know that the global economy is slowing down, but the U.S. is not an export driven economy, so the impact should be minimal. We know that the energy industry is hurting, but low fuel and transportation costs will benefit us. We know that the dollar is strong, but again, that would mainly affect exports. So who can we turn to for sound advice?

Like it or not, to seek out the expert that could guide you best into the future, you should look in the mirror. Think about it; the volumes of economic indicators are very useful metrics, and market trends should obviously not be ignored, but no one knows how your company is structured, its financial situation, deals in the making, regional intricacies, and your competition better than you do. It's up to you to assess your position by interpreting how external forces of the economy will affect your company's health, and make decisions accordingly.

Since this isn't the first potential downturn in the economy, it's not new. When a hurricane approaches the Gulf Coast, residents board up their windows, buy extra food and fuel, and start stacking the sandbags, though no one knows its severity yet. Likewise, you should also prepare, to ensure your business will survive a downturn as best as possible, again without knowing the severity. Again, you know your business best, but the following are general activities that would help to put any manufacturer in a safer position:

Survey your customers: If you're lucky enough to make a product that goes straight to the store shelf, then you have immediate feedback on the market. But for companies that are business-to-business, there's a time lag before realizing market downturns. You're in a partnership with your customers and vendors. They have their own business sources, and all should be happy to trade information that can be mutually beneficial. Also, who's your customer's customer? What's the end use of your products? If you make a component that goes into a sub-assembly that goes into a crane that's sold to Brazil for excavating iron ore that's sold to China, that's good to know because China won't be buying as much ore this year.

Scale your business: Unless you have great confidence (strong order bookings) well into the future, it's prudent to be able take incremental steps either downward or upward. Since labor costs are significant, it is helpful to have a percentage of contract labor that you can fluctuate much easier than your more loyal, better skilled, and higher priced regular full-timers. If you're purchasing capital equipment, you might take possession of fewer machines immediately (along with the cash outlays). Then add more when the time is right. If volumes might decline, your inventory levels need to scale downward, especially with materials that have a shelf life or can become obsolete. You might take a hit with minimum order quantities, but it keeps you more flexible in scaling up or down. Some materials procured overseas can have a 16- to 20-week lead time, and market conditions can change dramatically in that time span (always a main argument for re-shoring). This should be monitored and managed carefully.

Assess your company: No one wants to say no to a potential customer or market (and potential revenue stream), but if you've expanded beyond your core competencies, you might have some products with little to no profit margins. Now is a good time to review your mission statement. If there are product lines you've launched, but haven't met expectations, then it's time to ask if they still show promise. Or if they're draining resources from what you do best, consider cutting bait. Don't try to be everything to everyone. If a potential new customer pushes your technical capabilities or machine tolerances to their limits, it might be wise to not accept it. Retreat back into your comfort zone, your zone where productivity and profitability are assured.

Analyze your competition: During this self-assessment, you should be able to identify what makes your company better than other firms within your industry. If there should be a thinning-out, what will keep you in business, while your competitor across the river shuts down? Are you faster? Cheaper? Do you offer better follow-up service? With fewer sales opportunities to go around, now is a perfect time to be able to convince a prospective customer why they should buy from you.

By now, a perceptive manager is probably reflecting that they already do these things, and more. And not just during a market downturn, but all the time. If that's the case, then you're doing everything within your control to go forward in an uncertain economy. And keep in mind that if your predictions and forecasts aren't entirely accurate, you're in good company.

Curtis Williams has been in manufacturing management and operations for over 25 years. Contact him at cwmscolo@comcast.net.