Crisis or no crisis, manufactures must stay vigilant about driving performance.
TBM kicked off the new year by talking about the importance of increasing resiliency as the best strategy for preparing for whatever 2023 may bring. Now, with more than half of the year in the rearview mirror, it remains somewhat unclear whether or not a new global crisis has or will materialise. Are we at the brink of recession, or aren’t we? Will a full-blown economic disaster be a reality before the year is out? Often times, ongoing speculation about a recession can help trigger the actual event, which makes such a downturn a very real threat for the remainder of the year.
Regardless of any classification we put on the current macroeconomic environment or what does or doesn’t happen next, manufacturers in the U.S. and Europe continue to contend with many of the same challenges we’ve been dealing with for years. Supply chain issues, labour shortages and labour retention challenges, uncertain demand, political and trade tensions, and inflationary pressures all continue to persist to some degree or another, collectively presenting headwinds to growth and profitability. At the same time, increasing attention to ESG from investors and governments, particularly in European markets, adds a new dimension of complexity to each of these formidable challenges.
4 ways to manage the challenges of today and tomorrow.
So, while it’s fair to say that we are not operating in full-on crisis mode right at this moment, companies can’t afford to let down their guards when it comes to ongoing performance improvement and preparedness for the new demands and challenges the next few months will hold. Here are four ways to remain committed to operational excellence for the remainder of the year and beyond:
- Use process efficiency to offset costs. Even though inflation is abating, it remains at historically high rates. Overall, consumers are worse off today than they were one year ago, and net-net spending has declined. All of this puts the greatest pressure on demand for consumer products as we see preferences continue to shift to lower-cost options, making it increasingly difficult for manufacturers to pass on their own rising cost to their customers. Indeed, we’ve seen companies shut down production entirely because they couldn’t afford to produce at a cost they could recoup.
While such a course of action is drastic, companies have fewer and fewer realistic options for trimming their own costs. Many are investing in procurement and looking at creative ways to cut costs. However, because supply chain risk remains a very real factor, reverting back to a lowest-cost sourcing approach with just one supplier is not feasible for most businesses.
Time and again, what does work is process efficiency and optimisation, and they remain the best way to offset costs in any environment. With the right process discipline, behaviours, standards, and structures to drive precision of execution, companies can realise increased capacity at lower costs. This enables a strong competitive advantage allowing companies to steal market share by keeping their prices lower while competitors’ prices continue to increase.
- Concentrate on asset utilisation and OEE. “Recession-proof” industries like pharma and tech are less affected by inflation-driven fluctuations in demand. But they are in no way immune to the labour shortages and retention issues that continue to plague manufacturers of every type, which makes cost-effectively meeting continued high demand for their products their most pressing challenge right now.
Capacity issues are further compounded by ongoing supply chain problems for high-demand raw materials as well as an economic climate where executives must think twice about capital investment in plant and facility expansion. With increased capital consciousness putting new projects on-hold and upward pressure on wages from governments and competitors driving up operating costs, process improvements around scheduling, planning, and resources utilisation are once again the only viable option for many organisations.
Manufacturers looking to establish a competitive advantage by maintaining or improving service levels to meet demand need to find ways to unlock their “factory within the factory” and drive more output with their current assets. While there are several routes to operational excellence worth pursuing, it makes sense to look at your most inefficient processes first. For example, TBM recently worked with a pharmaceutical manufacturer to reduce excessive changeover times and expedite batch recording processing, leading to significant gains in capacity while driving costs down.
- Pair operational excellence with ESG efforts. While ESG is a relatively new consideration for many manufacturers—causing them to look at issues such as waste, emissions, and workplace safety through a new lens and with more scrutiny—the concepts are very closely tied to the principles of lean manufacturing that have been around for decades.
As more companies set net zero goals and make public commitments to higher environmental and social standards, it just makes sense to pair these efforts with continuous improvement initiatives. After all, whether the main driver of efficiency and safety gains is lower costs, capital expenditure avoidance, or a greener earth, spending less time and energy to do things right the first time, without incident or injury, and with less scrap, cheques all the boxes simultaneously.
What’s more, the KPIs used to track productivity and op ex improvements can inform ESG reporting and how environmental and social gains are measured. More output per hour translates into less energy consumption per product. One thousand less truckloads of waste are good for sustainability and the bottom line. And 25% fewer workplace accidents are a win in everyone’s books.
- Drive efficiency gains with external resources. Just as it’s a given that you can’t improve what you don’t measure, it’s also true that companies that partner with change management experts are much more likely to make and sustain change than those that go it alone. External resources obviously add capability and bandwidth for performance improvement execution. But they are equally important to fueling the motivation, drive to succeed, and organisational-wide behavioural change and ownership that are critical factors in continuous improvement and breakthrough performance. Most executives don’t lack passion for driving the business forward. But the most successful ones rely on change management experts to help them achieve their growth goals as efficiently and effectively as possible.
Expected or not, be ready to succeed in any environment.
A recession will either happen or it won’t. Either way, companies still need to manage through the challenges at hand and be in the best position to thrive going forward. Process improvements, operational excellence, and precision of execution will always be the keys. Those manufacturers that stay committed to these principles, even when they aren’t neck deep in a crisis, will be the ones the enter 2024 the strongest (and the greenest), no matter what happens during the remainder of 2023.
