Regardless of the reason for an economic shock, we need to view these unpleasant situations as cyclical events that will have a beginning, a middle and an end. We must manage them as projects, using many of the same thought processes and tools we would use for any other enterprise project. Enterprise resource planning (ERP) software has a role to play in helping:
- Identify the slowdown as it begins, and model the impact it has on your business so we can begin to take corrective measures
- Maximize revenue where we can, while reducing cost
- Make a business case for process improvements and investments to strengthen the business for the long term
- Communicate expediently with customers and suppliers to ensure demand and supply signals are being received
- Identify the signs of impending recovery so you can begin to ramp up and get product to market faster than your competitor
Any economically hard time can result in a siege mentality. Austerity seems the only priority, leading to mistakes that hurt the business’s ability to recover. Strong leadership is required to keep looking forward, and to manage the situation as a project, in real time. Now is the time to leverage the project management capabilities of ERP to manage as intelligently and courageously as possible.
What is still working?
Consider the case of an equipment engineering and fabrication firm that has traditionally served manufacturers in the electronics industry, but also has some customers in the food and beverage industry. Using the project functions of their ERP software, they can track resources consumed by each group of customers, and this might reveal that revenue from the electronics industry has fallen off while the food and beverage customers are sending increased demand signals. A project approach will help you identify these patterns and facilitate the process of shifting more internal resources to serve the food and beverage customers. That may result in fewer operational reductions and even increased revenue in a slowdown than would be the case if executives simply looked at demand company-wide.
Project thinking though requires a certain degree of agility, so that resources can be quickly moved from one part of the business to the other. Examples of how IFS customers are innovating at such times (and contributing to broader society) continue to materialize around the recent COVID-19 pandemic – one automotive manufacturer is now using its make-to-order capabilities to produce ventilators for the healthcare sector. Businesses need to be sure not to operate in separate information silos, preventing them from easily sharing resources where it makes sense.
A project approach can also help leadership react to supply shocks proportionally. Lacking this information, too many executives take the easy way out, laying off employees rather than repurposing them onto more profitable areas of the business. Many times, executives will over-react, cutting the workforce by 20 percent to correspond with a 3 percent decrease in Gross Domestic Product.
Stay strong for the recovery
While reductions often result from a demand shock, eventually the economy and product demand will recover, which will lead to a corresponding supply shock. Suddenly, the executive that was perhaps too hasty in laying off very good employees will have to rehire. This exacerbates that shock as hiring and training takes time, and those new workers will only gradually become as efficient as those they replaced.
ERP should be used to identify early indications of recovery—be that an increase in the pipeline or other leading indicators. Management by project can help plan the process of a return to full productivity and factor in the cost of new employees going through that learning curve. On the other hand, if you have managed to keep your workforce through the downturn, you will be able to keep your costs much more stable during the recovery and beat competitors to market with product availability.
Come back faster, stronger
When you are under pressure, you often do things you would not do under normal circumstances. Perhaps you eliminated redundant step to get by with fewer employees or tried outsourcing a portion of the manufacturing process. ERP should give you the tools to model and examine whether these steps should become part of your new normal, so you can in turn take valuable lessons from what was otherwise an unpleasant experience. It is also an opportune time to see how technology can improve process efficiency. AI and RPA are able to automate processes that may currently be inefficient or consuming skilled labor, which could be redeployed elsewhere in the business.
Maintaining a high level of service in the worst of the downturn is critical as well, as this too will position you for the future. Even when demand for your products wane, there will likely be some residual demand, and you may be able to pick up new customers that your less-prepared competitor, who perhaps radically changed their proposition or ran down their inventory levels, could not serve. Or, if your products saw increased demand or shortages, customers will have looked for alternative sources and may have found you. Will we go back to their earlier suppliers, or will they send additional business to the vendor who was there for them in a crisis? Downtimes can, in fact, be an opportunity, if you are prepared.
Ramping back up
As demand for your products returns, these lessons and the careful preparations you have made to ensure capacity to meet that demand may give you a lasting competitive advantage. Much of your success ramping back up for recovery will depend on how well you kept your wits about you during the crisis. Do you have essential staff still on payroll, and have you initiated hiring at the appropriate time to meet increasing demand?
The rest of your success will depend on your ability to leverage your enterprise technology to communicate both upstream to your vendors and downstream to your distribution channel and customers.
- Customer relationship management (CRM) will give you the tools to ensure that demand signals from customers are reflected in the demand plan
- Human capital management functionality needs to pick up on these demand signals and initiate appropriate hiring or cancellation of furloughs
- Purchasing and supply chain management (SCM) software must to be used to execute purchasing and inventory planning across locations, wholesalers or retailers to meet demand
- Supplier relationship management techniques can be used to communicate to essential vendors and partners of impending demand for the materials, subcomponents or parts so they in turn can ramp up to meet your needs
When times are hard, leadership matters even more than usual. But calm, cool and collected executives can make even better-timed decisions when they make the most of the software tools at their disposal.
If you enjoyed this blog please look for others on blog.ifs.com.
I welcome comments on this or any other topic concerning manufacturing.
Connect, discuss, and explore using any of the following means:
- Twitter: @ElkinsColin
- Email: firstname.lastname@example.org
- Blog: http://blog.ifs.com/author/colin-elkins
- LinkedIn: https://www.linkedin.com/in/colinelkins