Q: In your last column, you explained how to manage in difficult times. But what about the next step? What should manufacturers be doing now to prepare for when the economy and the market recover? Should they be conducting comprehensive market research, pushing new product development, refining manufacturing processes or are those steps too risky in a time of reduced sales and limited resources?
A: Joseph P. Kennedy said, "When the going gets tough, the tough get going." Another quote I enjoy is attributed to Albert Einstein, "Insanity: doing the same thing over and over again and expecting different results."
I have spoken with several manufacturers recently. The general consensus is what I call "bunker" mentality. This is where you crawl to the lowest corner of your bunker and hide until the shelling ceases. However, I contend that, in agreement with Mr. Kennedy, "The tough get going." Now, go where and do what? Fair questions!
I would contend that furniture supply has been well ahead of demand for too many years. This was caused by the low cost of entry into the upholstery business. Because of technology, the cost of remaining in this business is rapidly escalating.
Software for design and development of upholstered products that gives a company the ability to create a prototype and have it in production in five days, with multiple configurations, is "off the shelf." This software is being used by progressive companies in order to satisfy their customers' rapidly changing requirements and whims.
Rapid frame production
Frames, likewise, may be rapidly prototyped and cut, one at a time, from engineered wood products, with minimum waste. Fabric-cutting equipment with flaw correction built in is also "off the shelf." Computerized sewing is the norm. New methods to cut leather are coming forward rapidly. All these tools are being used today by you and/or your competitor.
Those embracing the technology will survive and thrive because they can rapidly manufacture a quality product that will exactly match the same product built months before. They can produce the order within days, not weeks or months. Because of the use of the technology, the product will contain the fewest man hours. High-quality, low-cost design and development, fast delivery obtained through technology will eventually destroy an "insane" competitor. So, get out of your bunker and immediately go and get educated on all the latest technology. It sure beats waiting for the postman or watching the fax machine.
Second, and I might get a few arguments, I believe quantity and price of upholstery units sold in the United States over the past five years have declined each year. I believe U.S. consumers are strapped, fearful of losing their job, house, health insurance, etc. and are not in the mood to buy furniture, other than big screen TVs costing well over $2,000 each.
It is a fact that, even in the 1920 depression, people purchased entertainment. My new book, China's War on the American Economy offers my explanation for the malaise impacting our economy.
That said, there is a huge growing world economy that tends to believe that the best designed and highest quality products are made in America. An additional assignment is for you to leave your bunker and get with your state and federal government and find out all the information you can about exporting your products to other countries. You will find there are programs available to assist you in your efforts as this country is desperate to find exports. You will also find that Asia and South American countries such as Brazil are just booming with new millionaires being created continuously. I understand that more than 256 Lamborghini autos were sold in China last year. India's Tata Motors just bought Jaguar and Range Rover.
Become an exporter
With globalization, it is my belief that if a minimum of 50 percent of your sales and growth is not from exports in five years, you will not be able to survive. There are just too many "insane" U.S. companies continuing to compete by price reduction for no profit/declining sales until they run out of cash.
Now for a final assignment to move you out of your bunker. If you are not growing sales and profits, you're going. Use the current business lull to answer the following questions:
1. How do you stack up in satisfying present customers compared to your competition? What can you do better? How? (There is a hex on anyone who mentions "price reduction.")
2. What does a potential end-user really care about in upholstered products? Frame? Springs? Padding? None of the above? (Note: You don't get paid more for what is unimportant to an end-user. )
3. How do you get the attention of the potential end-user, leading to the selection of your product? (If you are relying on a rep and/or a retail floor sales person, as in the past,
4. What potential customers are you not selling, and most importantly why?
5. Calculate the cash you have spent on going to markets, along with the amounts spent on sales commission, new product introduction, swatches and advertising over the past three years. Take this as a percentage of product sales adjusted down for inflation. Are you spending more for less? Are your present sales and marketing efforts "insane"?
6. If 20 percent of your products and fabrics produce 80 percent of your sales and 100 percent of your profits, why not reduce your line by 50 percent?
The "insane" bunker-bound companies will continue to slide down the slippery slope to oblivion. The tough managers will make hard decisions and champion tough changes. While your bunker is being shelled, the tough get going. So get!
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