During an economic slowdown, a siege mentality” is understandable but not always productive, says Steve Deist of Indian River Consulting Group. Though many industries are still seeing growth, some -including the housing industry -are struggling. This is a timely excerpt from a piece by Deist on how to turn a downturn into a strategic opportunity.
&nbsp ;
No. 1 Focus on the Other Guys
Customers, employees, competitors and suppliers are facing many of the same challenges you are. Many are probably playing defense and are reluctant to make long-term commitments. They likely have reduced expectations of performance in profitability and sales growth.
&nbsp ;
Commit to sustained and improved customer service. Reducing inventory and cutting staff can have a major negative impact on customer service. Gain market share and maintain sales volume by resisting this temptation.
&nbsp ;
Revisit your value-added services selling proposition. When companies are looking for true cost reductions, you will find a more receptive audience for cost containment value-added services like inventory consignment, integrated supply and vendor managed inventory.
&nbsp ;
Add new product lines. During times of lower demand, suppliers are more anxious to expand their channels and find new partners.
&nbsp ;
No. 2 Don’t Downsize, Upgrade
Personnel costs are a tempting target for cost reduction. Many companies however make the mistake of approaching a reduction in force solely from a budgetary standpoint instead of considering the value of their most important asset.
If a force reduction is needed, think strategically to get the most benefit from a painful exercise.
&nbsp ;
Don’t rely solely on department managers to select the staff cuts. Use recent performance appraisals and solicit input from additional sources like customer surveys and other managers.
&nbsp ;
Don’t depend on voluntary early retirement. You will tend to lose the best performers who are most marketable elsewhere.
&nbsp ;
Don’t cut “rank and file” pay. Pay cuts leave affected people in place to spread bitterness and resentment. Reductions in upper management pay, however, are a viable tactic. Top management has a bigger stake in the company’s future so will likely be more receptive.
&nbsp ;
No. 3 Use a Process Approach to Cut Costs
Most managers start the cost-cutting process by looking at the income statement for the last quarter and identifying expenses to cut. This is appropriate; do it if you haven’t already. But some companies are looking for new ways beyond the traditional to reduce expenditures.
&nbsp ;
The process approach looks at costs from a value standpoint. Follow a few customer orders from order entry to shipment to understand the steps required, the number of people involved and the opportunity for error. The key is identifying opportunities that offer incremental payback. A few basic principles:
&nbsp ;
Document the way the process really happens -not the way it should.
&nbsp ;
Attempt to do steps in parallel (at the same time) rather than sequentially.
&nbsp ;
Avoid unnecessary handoffs between people. This is typically a large source of error.
&nbsp ;
When in doubt, choose error reduction over speed. An estimated 25 percent of labor cost in distribution is in correcting errors.
&nbsp ;
Consider using a fresh set of eyes to examine basic processes. An outsider can avoid the company culture and politics that can cause a faulty internal diagnosis.
&nbsp ;
Steve Deist can be reached at 321-956-8617. Indian River Consulting Group specializes in Distribution and can be found on the Web at www.ircg.com.