Data is the Name of the (Competitive) Game
This is article is part of a series of monthly articles produced by Harbour Results for PMA’s MetalForming Business Edge e-newsletter. Click here to view the full collection of articles.
As the manufacturing industry continues to manage ebbs and flows, it’s critical for leaders to continuously work on their business. To remain competitive, data is one of the best tools in a manufacturer’s toolbox. Understanding the industry and your company’s performance helps identify key areas of improvement.
But what data do you need and where do you find it all? Here are some helpful tips.
Tip #1: Inventory Management
With today’s economic and market factors, inventory management has become extremely important. Optimizing inventory levels can improve your cash standing, provide significant savings, or free up cash to invest in other areas of the business. To understand how you are managing your inventory, ask yourself: are you buying at levels based on the previous year’s business? Do you buy based on business forecasts from your customers, or are you ordering based on revenue projections?
You need to look at your processes and make improvements by looking at your data, specifically:
Forecast to actual inventory use
Inventory lead times
Inventory turns
Finished good turns
Slow moving materials and obsolescence
Measuring your inventory turns is important because this metric is a symptom of other issues. If your inventory turns are low, you should be asking yourself why. Do we have too much inventory on hand? Has demand significantly dropped for some reason? Did something on the shop floor impact production? If your inventory and finished good turns are not aligned, it’s a symptom of another issue, for example, having too much raw material. If possible, calculate inventory turns by customer to identify what relationship is most misaligned.
Finally, reevaluate and review input material and customer order lead times. Are there trends that can be identified? Are there changes? If so, have you adjusted to accommodate those changes?
If the data shows you have a lot of slow-moving or possibly obsolescent inventory, use it to identify where you have idle working capital and build the commercial case for addressing these situations.
Tip #2: Stress Test
Customer forecasts can be inconsistent and frequently change, making planning for the future difficult. To help prepare for the unknown, stress test your business to see how it will react to a significant positive and negative scenario. Testing beyond normal business and operational limits, often to a breaking point, will give insight into weaknesses and allow you to build a game plan that will help insulate your company and improve its flexibility.
Aside from being a good business practice, today’s uncertain economy, technology changes and growing competition create a situation in which a change could come from anywhere. Whether it’s material costs or the economy, losing or gaining a customer, or a strike, it’s imperative you take a proactive look at how, or if, your business will respond. By doing so you eliminate risks by:
Identifying vulnerabilities
Understanding gaps and risk points
Future proofing your business
Creating transparency
Creating a few real-world situations – your largest customer pulling nearly all its business, or your newest customer doubling its production requirements – and “testing” your business allows your management team to take the necessary time, without real emotion or stress, to determine what decisions need to be made, levers to pull and communication to share. Then, when your business faces future challenges, your team is “practiced” and has a roadmap to follow for quick implementation of the necessary tools and tactics.
Tip #3: Headcount Decisions
Many businesses are looking to add headcount but are not expecting the same level of revenue and profit growth. When you exclusively base your decision to hire on revenue, you may be adding costs or overhead when business conditions are not improving.
To better understand your need to increase or decrease headcount, leaders need to understand if there is an increase in unit volume or machine-hour volume. A best practice is to create a monthly projection based on expected sales volumes and convert it into machine hours. This is a solid indicator of the amount of work you will be performing and allows you to build a staffing plan aligned with forecasted work and not forecasted sales or revenue. By focusing on volume, you’ll have a clearer understanding of the work that needs to be completed, regardless of project pricing.
Tip #4: Business Assessment
With uncertainty and unpredictability in manufacturing, it’s critical to understand your business, identify gaps and determine how to be more flexible and efficient. This means regularly assessing your business – top-performing companies assess their business every 6-12 months.
Assessments can be done by an outside party, such as Harbour Results Inc. (HRI) consultants who will conduct interviews, review processes and analyze existing data to help you understand the status of your business. But assessments can also be done internally. Grab a board member or colleague, or create an internal cross functional team, and then take a step back from your day-to-day jobs and look at your business holistically.
Your assessment shouldn’t just focus on engineering or operations – it needs to take a hard look at ALL functions of the business, technical and non-technical. When the HRI team conducts an assessment, we focus on nine areas:
Engineering
Finance & Administration
Operations
Materials
Quality
Program Management
Management
Sales & Marketing
Human Resources
As you go through the assessment, questioning what and why you do things in a certain way will force creative thinking about different solutions. What are the gaps? How do they impact your strategy? What needs to be done to close the gaps? Assessing your business helps build a roadmap of tactics to achieve your commercial, operational improvement and talent strategies, and more.
Remember not everything uncovered in an assessment is a high priority. When your doctor tells you to cut back on alcohol, you can choose to do something or not. But if your artery is blocked, you’re probably going to act immediately. Use the same philosophy with your assessment results – address what needs to be addressed to avoid a major issue in the future.
The best piece of advice for conducting an assessment: don’t overcomplicate it. Focus on understanding your company’s past, present and future. But none of it matters if you aren’t ready, willing and open to act on what you learn.
Putting It Together
It all comes down to leading your business. Don’t stick your head in the sand, hoping things get better. Prepare your leadership team, continuously review all your company metrics and make smart decisions. It is hard to forecast drastic changes up or down, so be proactive by establishing a road map to position you for success.
