Blueprint For Renewal

Dec. 21, 2004
IndustryWeek presents 10 ideas to prepare your company for a return to economic prosperity.

Don't look now, but the recovery has begun -- if not for you, then for your competition. In fact, if you are sitting back, waiting and watching for a dramatic surge in the U.S. economy, it's likely you're already lagging behind while prospects for your competitors are getting better. Smart manufacturers know they can't cash in later if they don't invest now. They won't have to wait long for the payoff. Look at the manufacturing scouting report. No one is throwing caution to the wind, of course, but the numbers should reduce fears. This year's quarterly measures of future business activity from the Manufacturers Alliance/MAPI, for example, indicate a strong rebound from last year. Personal income continued a four-month increase in June, advancing 0.6%, reports the U.S. Commerce Department's Bureau of Economic Analysis. The U.S. unemployment rate remained at 5.9% in July, what most economists anticipated. Manufacturing employment declined by 7,000 jobs, but that is a far cry from the above-100,000 monthly totals reported for much of 2001. So what are you waiting for? We took our notebooks to manufacturing's top plants and executive suites in search of a concise game plan for recovery. We emerged with this 10-point program. 1 Maximize assets: Find the "hidden plant," that portion of your production capacity that is hidden by antiquated (or absent) asset-management approaches. You'll need that capacity when recovery comes. Optimizing the efficiency of production equipment significantly impacts both profits and shareholder value. Productivity and quality are enhanced. By increasing production capacity, an enterprise asset-management strategy may well determine a manufacturing company's ability to compete or even survive. Corporations that focus on overall equipment efficiency find they can add capacity without large capital investments. Asset management must replace the "fix it when it breaks" mentality. Replace those traditional reactive, function-based approaches with asset-management systems that are proactive and integrated into the production process. Search for solutions to replace labor-intensive data analysis with automatic analysis, fault resolution and work notification. 2 Design for lowered costs: Re-examine the factors contributing to the cost of manufacturing the product. Don't assume that a noncompetitive cost profile can be fixed by hammering the production department or your suppliers. For example, in the product-development community, it's conventional wisdom that 70% of the cost is determined in the design stage. But just what are those costs? All too often manufacturers start wondering when the design becomes a cost and/or production constraint. The analysis should begin when the product is being designed, say engineers at Boeing Co., Dell Computer Corp. and Harley-Davidson Inc. All three employ Design for Manufacture (DFM) software to integrate cost estimation with design automation. Boeing, for example, was able to reduce the number of parts in a helicopter dashboard from 74 to nine. Savings per dashboard total in the thousands of dollars. Dell uses the software solution to increase computer output by more carefully matching designs to a plant's production equipment. At Harley-Davidson, DFM is the basis for collaboration with suppliers. 3 Add value by partnering: Partner with firms or associations that extend the reach, awareness and potential sales of your product. Duron Inc., Beltsville, Md., and Professional Paint Inc., Denver, provide a nice model with their marketing alliance to sell paint, wallcoverings and sundries to major national accounts. The alliance provides both entities with nationwide distribution, which each lacked independently and broadens their product offerings. Another example: In January, Hewlett-Packard Co. and PricewaterhouseCoopers LLP agreed to develop and market collaborative supply-chain software to manufacturing companies. 4 Become reacquainted with key constituencies: Know your customer and use your sales force. Elementary? Sure. But in times of recession, it is amazing how soon we forget. Rather than suspend study until the economy surges, hit the books even harder. Look what the front-runners are doing: In a stagnant shoe market, Nike Inc., Beaverton, Ore., found and entered a growing niche -- skateboard shoes. And pharmaceutical industries learned they can reap profits by targeting consumers, not doctors, with their marketing messages. The key is to make prospect and market-data collection a strategic effort, not something left to the sales force. Too many companies have a poor sense of who their customers are due to lack of information -- or, almost worse, a wealth of collected but unformatted and undistributed information. While you're getting the word out, don't forget to walk softly but carry a big stick -- with a big carrot. Revisit your sales-incentive program to ensure that it includes incentives for the sales force to seek growth, not just profitability or customer retention. 5 Shore up sales forecasting: Implementing collaborative forecasting requires companies to first establish a formal sales and operations planning process. Manufacturers can use this process as the basis for communication and discussion among trading partners. For example, Fender Musical Instruments Corp., Scottsdale, Ariz., which uses the Demand Solutions Requirements planning package from Demand Management Inc., is establishing collaborative planning efforts with major accounts that represent about half its business. In another instance, consumer electronics distributor Memorex Products Inc., Sante Fe Springs, Calif., uses the software firm's Demand Solutions Forecast Management system to help plan and forecast sales worldwide. 6 Think globally and politically: Examine worldwide manufacturing cost structures and adjust the mix of exports and foreign investments to better capitalize on emerging-market opportunities. Even as the U.S. economy continues its recovery and exports stand to benefit from a weaker dollar, the rest of the global economy is gearing up for better times. A stronger euro, relative to the U.S. dollar, should help check rising inflation in Europe. Japan is poised for growth again, too. Meanwhile, caution has its place: Political risks abound around the world, particularly in the Middle East and on the Indian subcontinent. Both Western Europe and the United States remain possible targets of selective and wide-scale terrorist attacks. Examine supply chains and marketing channels to reduce vulnerability to disruption. Prepare contingency plans that can be quickly executed. 7 Attack healthcare costs: The cost to supply healthcare benefits is skyrocketing, but strategies are emerging to control these costs. One is to target drug costs. According to Express Scripts Inc., a pharmacy benefits management company, prescription drug spending is expected to soar 15.9% by the end of the year, and drug prices will climb 13.5% by 2006. But manufacturers can fight the drug war by cashing in on generic drugs. By persuading employees to opt for non-name-brand alternatives, companies can cure a lot of financial headaches. In fact, General Motors Corp. has saved nearly $50 million over the last two years just by asking its employees to consider generic-drug alternatives. Concerned you may be asking employees to risk their health to save the company money? Don't be. Many generic drugs are just as potent and safe as their big-ticket brothers are. However, employees need to ask their doctors and pharmacists if a generic version is available and if it is right for them. Another spark of hope is the Business for Affordable Medicine coalition ( The coalition is pressing for the reform of the 1984 Hatch-Waxman Act (aka the Drug Price Competition and Patent Term Restoration Act of 1984). The coalition, made up of employers, organized labor and governors, wants to eliminate the loopholes that enable the pharmaceutical industry to inflate drug prices by as much as 60%. 8 Refocus on profitability: Consider using profit optimization (PO) to influence strategic decisions. The idea behind PO is that by understanding the revenues, costs and margins involved, companies can make better-informed decisions about investing in customer, distribution and product programs. For instance, one company was able to increase net income by 8% by identifying and concentrating on the 18% of its customers that provided 82% of its profit. Another firm, a semiconductor manufacturer, used PO to identify and create an automatic replenishment program for its most profitable customers. Profit-optimization software can help, but these initiatives also require business process change to yield results. Some leading vendors in the PO market are Manugistics Inc., i2 Technologies, PeopleSoft Inc., Revenue Technologies, ProfitLogic and Zilliant. 9 Revisit supplier relationships: Remember that the recession has been tough on your suppliers, too. They may not be the companies they once were or their goals may have changed. A drastic economic downturn is the perfect time to plan radical new ideas for sharing assets, such as employees or equipment, and collaborating on lowering costs. 10 Reward valued employees: The recession has made for an employer market, but as the recovery picks up speed, many employees may jump ship in hopes of a better life on the other side of the river. Think there will be plenty of workers out there to fill the void? Think again. According the Bureau of Labor Statistics, 25 million people are projected to leave the labor force by 2008. Twenty-two million will be aged 45 years or older and thus will be leaving mostly to retire. What to do about it? Empower your employees, making it less attractive for them to leave your employ. In lieu of cash, The Better Business Bureau offers the following suggestions to retain employees:

  • Understand why people are working and commit to help them achieve their goals on the job. Develop a plan that will assist them in getting where they want to go.
  • Empower workers to do the job you hired them to do. An environment in which employees are constantly monitored and micromanaged can be stifling.
  • Keep employees informed. Share the big picture as to why they are being asked to do what they do and how their work can benefit others. Invite them to share their opinions. Allow them to actively participate in the discussions that lead to business decisions. By including them, you signal that you value their expertise and recognize that they are a valuable asset to the organization. Remember, involvement equals commitment.
  • Take care of the people who work for you. Recognize their accomplishments with frequent and sincere praise. Take time to single out employees who have gone well beyond the call of duty.

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