Investing in process efficiencies during the downturn
Wednesday 21st September 2011 - By Leo Alarcon Share
Like many businesses leaders in a difficult trading environment, you look at your sales forecast and think....how much of your cost centre can you compress, and do you continue to invest capital in the operation's efficiencies and ability to better serve customers?
Do you invest in the view that with things being slow your staff and teams can dedicate more time to improving current operations, work on improvement projects and business processes, but you will need resources to achieve results...resources come at a cost....and you may increase costs and capital expenditure during a tough period.
This is a major decision that could shape and define the business' future. Getting it wrong may constrain your business' cash flow and if tough times persist may force you to ultimately slash costs harder than you would have initially to keep the ship afloat. This could then render the initial improvement efforts useless.
A sensible review of operations should be undertaken in these situations. A sensible review will look at things like over-capacity, manufacturing costs, casual and labour hire staff expenditure, discretionary spending, import parity and toll supply for high volume components, projects and capital expenditure with strong business cases to either cut costs or diversify revenue streams, service and satisfaction of customers, inventory levels and management. These areas would be on top of the list as they can realize cost benefits, compress cash costs, boost cash flow and secure current revenue streams. Operational improvements and efficiency gains that can be achieved in these areas would be evaluated on a cost/benefit basis to create focus areas in both operations and sales. Search high and low in reviewing your operations. Care must be taken not to diminish the competitiveness of the business, as this may hamper it further down the track when business conditions improve.
Examples of these cases were seen during the 2008 financial crisis in some Australian mining companies. Although cashed up, some organizations decided to put projects on hold and halted capital expenditure. This was visible once markets for key commodities picked up and left the players which halted investment slightly behind the game and forced to play catch up.
Similar cases have been seen in manufacturing based companies such as a few selected building materials companies in the United States that have low cost positions keeping them competitive in one of the toughest periods in that industry. They invested in low cost production facilities, lean processes, technologies and their people during good times and continue to seek efficiencies and well place their operations to achieve great returns when markets eventually turn.