Q: Our business is in the doldrums. We read about a recession, and have never experienced a severe downturn as we are having now. Do you have any suggestions as to how we can manage our business in these times?
A: I have experienced a few of these downturns. It takes strong management willing to change, to survive. Here are a few things you can consider.
1. Experienced people are your most valuable asset. You must be very up front with them and do what you can to keep them. First, communicate. Tell them what is happening in the industry and in your company, along with what you are doing to attempt to keep them employed as much as possible. I might suggest that you go to a four-day week if you haven't already. This cuts down on their commuting expense, allows them three days to get part-time work and allows you to cut off all utilities for one extra day. This will give them 32 to 36 hours of pay without any overtime. Check with your state; your people might be eligible for supplemental unemployment due to the import problem.
2. Cross-train people during this time so you will be able to move them around to prevent having to work overtime in any area. Also, clean-up, paint, fix-up should be done now.
3. Everything I read says the dollar will continue to decline against the other currencies for several years. This gives you a huge opportunity to export your products. The rest of the world believes as I do that we manufacture the best-designed, highest-quality products in the world. Owning a U.S.-made product indicates status. Assistance is available from your state government for exporting. I understand that the cost of containers going back to China is almost free. I believe that if a manufacturer in the United States doesn't have at least 60 percent of its sales exported in the next five years, it will be in more serious difficulty than it is today.
4. Make absolutely certain that all your people understand that manufacturing's sole purpose is to support their customer. The word "No" shouldn't be part of your vocabulary. The question of reducing prices could be met with, "We'd certainly like to meet your price point. Did you want the product with two-inch cushions, a dust cover on the outside back, or can we just use a plywood deck and eliminate the springs? The decision is the customer's. "No" is not used!
5. Speaking of selling prices, to remain in business, yours will have to go up. The cost of chemicals for foam, paint, glues, etc. will go up by 7 to 10 percent this year and next. This is due to government intervention for environmental concerns, as well as the fact most chemical plants, now off-shore, are paid with cheap dollars. Imports from China will get more expensive as the government of China has removed its 14 percent rebate to its manufacturers and tightened bank loans to cool its economy. The cost of freight to the United States is increasing substantially. I understand several foreign vendors could be in trouble soon.
6. From the mathematician Pareto, we know that 80 percent of your sales comes from 20 percent of your line, and 80 percent of your sales comes from 20 percent of your fabric offering. (I have verified this in many companies). Consequently, you can reduce your line and improve profits.
Most of your customers understand and will find something in the balance of your line to buy. If a product is not selling for most people, it will probably sit on the retail floor, take up selling space and needlessly tie up the retailer's cash. This doesn't build long-term relationships.
7. Use this time to experiment. Explore new ideas such as:
A. Eliminate piecework. If you are a professional manufacturing manager, you know down deep in your soul, it doesn't work. Piecework is the sign of lack of knowledge of management techniques and weak supervisory skills.
B. Try cushions with the old Marshall (TM) units in the core surrounded by foam. This could reduce the chemical costs.
C. If you file or handle one piece of paper in your office, or if you are paying $.50 just for postage to mail an invoice or payment, you are wasting money.
D. Once or twice a month, take your senior managers to work on a retail floor. Learn what customers expect, want or need. Check your competition's products, POS displays, etc. Synthesize this information for future product design, pricing, etc.
E. Figure methods to substantially reduce your "Go to Market" costs. Calculate your total market costs today. What does this really gain for your company in real orders? How much MUST you sell to pay for a market after out-of-pocket product costs are deducted? Radical new thinking is in order given available technology.
F. If you have your own trucks, study methods to improve delivery or get out of the trucking business. While you are "making up a load," your competitor has filled the order to a customer, who has put its credit card down and wants delivery now. Consistent delivery in three weeks or less is now the norm.
If you want more ideas, or want to take issue with those presented, drop FDM an e-mail and copy me, please. My book, titled China's War on the American Economy, should be available by the time you read this. The publisher is Booksurge, a division of Amazon. I've researched this book for four years. Consumers, manufacturers that exported U.S. jobs and our government officials should see what they have done to our economy. If you are a U.S. manufacturer, you should find it very interesting. Let me know what you think.
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