Focus on growth: Five steps to take during the economic recovery
Hit hard by market disruptions, manufacturers are rethinking strategy.
Supply chain disruptions and increasing costs are eroding competitiveness. As manufacturers pass through the recovery stage of the COVID-19 pandemic and think about growth strategies, there are a few areas to keep top-of-mind.
What needs to change? What does success look like? Where should the shifts be made to stay competitive?
Here are five areas for building a growth strategy:
1. Supply chain disruptions. Traditional supply chains – both direct material supply and product sales – will be disrupted for some time. Moreover, costs have increased. To remain competitive, find new supply channels while minimizing additional cost increases. To combat disrupted sales channels, either find new sources of revenue or expand existing ones. This might mean new geographies, new products or new channel partnerships.
Build and execute a plan to review and adjust supply sources that improves resilience, manages costs and adjusts inventory-carrying policies. Review go-to-market options, think about diversifying your product portfolio and prepare to expand into new sales channels.
2. Margin erosion. Reduced margins will continue for the foreseeable future. Your growth strategy must address the fact direct material costs have increased while some costs have remained fixed.
Incorporate reductions in direct material costs and fixed costs, while increasing revenue and productivity. This might include automating production lines, retooling and retraining staff. Pivoting from what’s currently being produced may be a solution. Stay on top of financial forecasting to respond to the current and future landscape.
3. Workforce management. Unprecedented challenges have strained the HR capabilities of many manufacturers that have laid off staff as production lines were halted. Or they were faced with a labour shortage caused by the closing of borders.
Consult an HR advisory team about return-to-work programs, policy updates, leadership and management support, and a staff communications strategy.
4. Business continuity planning. A robust plan minimizes risk of disruptions as conditions change. Be ready to change with them.
Build, test and deploy a plan to minimize disruptions as conditions change. Include preserving business continuity, managing cash flow, rethinking budgets, maintaining important vendor and stakeholder relationships, and leveraging technology to help keep your various platforms running.
5. Cash flow and working capital management. Dynamically reforecast as conditions change to maximize your use of working capital and avoid cash flow stress.
Re-plan as needed, pivoting business at any given point and react quickly to change. There will be losses in line with the economic downturn. That stresses the importance of managing liquidity and cash flow now, taking uncertainties into account for future planning.
Addressing these issues will help increase market share without sacrificing margin.
This is an edited version of a longer article contributed by BDO Canada LLP (www.bdo.ca), an accounting, tax, consulting and advisory firm. Contact David Linton, partner and BDO Consulting’s national manufacturing and distribution leader at (647) 795-8008.