Three ways manufacturing companies can prepare for an uncertain economy
The projections about what the economy will bring in the coming months and years are all over the map. On one hand, big tech has made major layoffs. On the other, U.S. unemployment is at a 50-year low following an unexpectedly strong jobs report. But still there are plenty of warning signs that a recession-style pullback could lie ahead including inflationary pressures, a weak housing market and lingering supply chain challenges.
As manufacturing companies know all too well, economic uncertainties are a fact of life. Even if a full-blown recession isn’t immediately around the corner as we all feared, no one really knows what is coming. And history is littered with manufacturing companies who expected good times to last forever – and were surprised when they didn’t to their detriment. The good news in all this is that there are time-tested ways to make sure your manufacturing company is more prepared regardless of which way the economic wind shifts.
The manufacturing industry and recessions
Should a recession come to pass, a key indicator will be a cut back in consumer spending, which leads to a decrease in demand for manufactured goods. If it gets bad enough, the inevitable result is layoffs and plant closings as companies try to reduce costs. The loss of jobs in the manufacturing sector can have a ripple effect on the rest of the economy as these workers will have less money to spend on other goods and services.
The manufacturing sector is also subject to “boom and bust” cycles, characterized by periods of rapid growth followed by periods of sharp decline. Changes in technology, shifts in global demand, or other factors such as major swings in energy prices can cause these cycles.
With all this potential risk swirling around, improving organizational resiliency and your ability to respond to change can make all the difference.
Here are three ways resilient manufacturers are preparing for an unpredictable future.
1. Diversify your products and services
For many companies, the instinct is to fall back on what you do best when times get tough. But far too often, this has been shown to increase risk if your core business starts to show weakness. To avoid this trap, look for new markets for products or services that align with your core competencies, including researching competitors to differentiate products or services.
Adding new products or services that complement existing offerings can give you a new source of revenue that can offset any decline in demand for your existing products or services. Additionally, it allows you to tap into new markets that may be less affected by a recession. For example, if a manufacturing company makes products used in construction, they may be able to diversify into making products for home renovation, which is often less impacted by a recession.
Looking for new markets for existing products and services is another way to diversify. This could include finding new geographic markets or new customer segments that may be less affected by the economic downturn. For example, a manufacturing company that sells its products to businesses may be able to diversify into selling its products directly to consumers via an online marketplace. Or a company that sells its products in North America may be able to expand into Europe or Asia.
In any marketplace, competitors aren’t standing still, and neither should you. In uncertain times, it’s critical to understand what your competitors are doing and make sure you are offering differentiated products and services that meet the needs of your target market. For example, if your competitor is offering a lower price, you may be able to differentiate your product by offering superior quality. Or if your competitor is offering more features, you may be able to differentiate your product by being simpler and easier to use.
2. Invest in automation
While there’s never a bad time to invest in automation, it becomes that much more important during a recession. Automation can help you become more efficient and productive, while also reducing labor costs. In other words, you can do more with less.
When looking for areas to implement automation, first develop a clear understanding of your current manufacturing processes. This will enable you to identify areas where automation could improve efficiency. Then consider what type of equipment would be required to implement the change. Not all automation changes will require expensive new equipment; in some cases, simple changes to existing equipment may be all that is needed. For example, a universal print controller integrated with your ERP system could eliminate the need for manual message updates across primary, secondary, and tertiary packaging.
When selecting the right type of equipment for a particular automation change, there are a lot of factors that need to be considered. These include the cost of the equipment, the expected return on investment, and the impact on existing employees.
3. Create a leaner operation
Streamlining your operations can be done in many ways. These include reorganizing the company’s structure, outsourcing non-proprietary processes, practicing lean manufacturing principles, and managing inventory more effectively.
Often, manufacturing companies are organized into hierarchical structures, with each level of management having a specific area of responsibility. While this type of organization can lead to clear lines of authority, it can also create silos that make it difficult for information to flow freely between departments.
To overcome this obstacle, some manufacturers are adopting flat organizational structures. This type of structure features fewer levels of management and more decentralized decision-making. Additionally, this setup encourages greater collaboration between departments, helping to break down silos. The company also becomes more agile – an important trait in today’s rapidly changing business environment.
Another way to streamline operations is to outsource processes. Outsourcing allows you to focus on core competencies, reduce overhead, and more easily scale capacity to respond to shifting demand.
If you are not doing it already, now could be the time to invest in lean manufacturing tools and techniques such as value stream mapping, just-in-time production, and Kanban systems. Similarly, a good inventory management system can boost efficiency when times get tough by helping you avoid stockouts, minimize storage costs, and reduce the risk of obsolescence.
Beyond specific strategies, one thing that all resilient manufacturing companies have in common is optimism. Beyond every challenge is an opportunity, and with the right strategies, determination, and belief in your organization, you will be well prepared for whatever the future may hold.
With more than 170 years of marking and coding experience, Matthews has helped countless manufacturing companies streamline and automate their operations and streamline marking and coding processes. If you’re looking for the right guidance from a supplier you can trust to be there year after year, we’re here to help. Give us a call at 1-800-775-7775 or email us at [email protected].