This is part of our Leading through change series. The series explores how manufacturing leaders can succeed in turbulent conditions.
The unrelenting uncertainty about supply chains, timelines and markets might make it feel like your budget has become impossible to project, and too complicated to contemplate.
To identify, prioritize and adapt a path to success, manufacturing leaders can use scenario planning. Scenario planning has become essential for many businesses and even not-for-profit organizations.
However, current disruptions in manufacturing require leaders to consider some unique factors. Now, you need to adapt your planning process, to strengthen your company for the short and long term in spite of the world’s disruptions.
Current disruptions in manufacturing
Most pandemic pressures have eased, and gas prices have dropped from stratospheric levels, but questions remain about how smoothly manufacturing can operate. Even as the Federal Reserve takes steps to counter inflation in the U.S., concerns are rising over new taxes, the possibility of a global recession and political instability that could fuel several ongoing disruptions:
“In the face of an ambiguous future, you can get decision paralysis. If you wait too long to make a decision, the only option is to try to maintain the status quo.”
- Supply chains are still a problem. Robert Hersh, National Managing Principal for Manufacturing at Grant Thornton, said some of raw material delays still seem unmanageable. Hersh said the leader of a stainless steel manufacturer was recently given a 72-week lead time for one of his raw materials. “He said, ‘It’s as though the material isn’t coming at all. How do you adjust for that? How do you find other sources? How do you become more nimble?’”
- Indecision can become your decision. With so many factors in flux, that it can be hard to commit to a particular path. “I think a lot of business leaders have trouble thinking about ambiguity and uncertainty at scale,” said Andrew Glover, Grant Thornton Strategy and Transactions Senior Manager. “In the face of an ambiguous future, you can get decision paralysis. If you wait too long to make a decision, the only option is to try to maintain the status quo.”
- Past is not a precedent. A lot of companies develop their annual budget and make decisions about their future based on the way they operated in prior years. That can produce tunnel vision, said Grant Thornton Strategy and Transactions Senior Manager Alex Kalra. Or on the flip side, they cannot plan for every scenario of all of the possible things that could affect their operations. “So, then they can become so scatterbrained that it is very hard for to identify the core issues and prioritize them. It’s a tough balance, to make sure that you’re looking around the corner, but in such a way that you’re really focusing on the things that matter rather than everything,” Kalra said.
Planning factors in manufacturing
To be more effective, manufacturers need scenario planning with some key adaptations:
Shorten the planning cycle
The concept of an annual operating budget may be outdated — at least, for now.
“Scenario planning cycle times have gotten a lot shorter. When things become more ambiguous, clients tend to shift their focus; While they don’t know what the future is going to look like, they can try to take control of their next quarter.’”
“Scenario planning cycle times have gotten a lot shorter,” said Grant Thornton Strategy and Transactions Managing Director Adam Bowen. “When things become more ambiguous, clients tend to shift their focus; While they don’t know what the future is going to look like, they can try to take control of their next quarter.’”
As the pace of change becomes even faster, manufacturing leaders need to plan accordingly. “Find a balance,” said Kalra. “Take your company’s pulse more frequently, gathering customer and employee data sooner rather than waiting an entire year,” he said. If not every quarter, perhaps twice a year will enable you to make proactive decisions and revise strategies to meet shifting market demands.
Consider spending cuts carefully
In this extended period of uncertainty, many manufacturing leaders are hoping for the best, yet bracing for the worst. Concerns about inflation or an impending down cycle may prompt manufacturers to look for ways to trim expenditures. Many companies will hunker down — conserve their cash and cut their spending for research and development, sales and marketing. But that could hurt, in the long run.
Business cycles are never as long as people anticipate, Bowen said. “The winners are the ones who prepare for the short term while simultaneously making decision that will impact long-term growth. They’re able to think not only about their cash management plan but, at the same time, invest in sales and marketing efforts. They double down on sales enablement because this is the time to steal market share from less committed competitors. In this environment of ambiguity, they are going to write the future.”
Those are the types of manufacturers that will lead with new pricing models and new contracts, by being “proactive on the front foot rather than reactive on the back foot,” he said. “I think one of the worst things that manufacturers can do is get caught being too conservative, missing critical growth opportunities.”
Think twice before you reprice
If consumer spending falls and the pullback reverberates down the supply chain, manufacturers may consider cutting the prices they charge in order to hold onto their customers. But that could “dilute your brand” and hurt your long-term position against your competition, Kalra said.
“It’s a perfect opportunity for you to be rethinking: Are these products in line with your long-term goals?”
Instead of slashing prices on products that are no longer selling as well, reevaluate your portfolio products. “It’s a perfect opportunity for you to be rethinking: Are these products in line with your long-term goals?” Kalra said. If not, narrow your focus, and your product line.
Invest in tomorrow
Manufacturing leaders need to see the future as an opportunity, Bowen said. Manufacturing is changing and, even in an uncertain world, companies should think about how to embrace those changes. For example, the die casting industry has made major advances, eliminating many components from the manufacturing process, Bowen said.
“Nobody is going to take on the capital risk of complete upgrade and take on the debt to accomplish that now. However, if you’re not planning for those kinds of investments in the near term, then you’re going to be even further behind when those headwinds shift into tailwinds,” he said. And the transition into the modern manufacturing economy will be that much more difficult.
Work together
One benefit that manufacturers have today — particularly those in the middle market — is that they can take advantage of technological advances in manufacturing and energy efficiency coming from academic research centers working on next-generation systems, products and vehicles.
“What we’ve seen in the world of manufacturing is the democratization of excellence and innovation,” Bowen said. Beyond working with a designated supply chain, companies should embrace the larger manufacturing ecosystem that may have been out of reach in the past.
“When you look at the interconnectedness of what you’re doing and how you’re doing it, things can become clearer,” he said. “Lean into where those sources of knowledge really are, and where the most advanced thinking is being done. I think this is a huge opportunity, and I really do think it democratizes the industry. You don’t need to go it alone.”
Embrace change
Manufacturers today may face more ambiguity than is comfortable, but they should not resist change. Traditionally, companies thought of their quarterly or 12-month financial performance as their achievement. But evolution is also an important factor in the lifespan of a manufacturer, said Glover.
“The world’s leading companies don’t look anything like what they did five years ago or, in some cases, 24 months ago,” he said. “It’s really about having a finger on the pulse of your own evolution and how you are existing.” Embrace change with proactive solutions to your workforce, supply chain and other issues, to make an impact on your own terms rather than letting external circumstances determine your future.
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