Consolidation, waste reduction and mergers are among the most common strategies that manufacturers have employed to rise above the recession, observes Ryan Hale, a lead consultant with Marblehead, Mass.-based Stroud Consulting Inc.
Ryan Hale, lead consultant, Marblehead, Mass.-based Stroud Consulting Inc.
Some of Stroud's manufacturing clients have been able to cut costs by "tightening their manufacturing footprint" or "tightening their back-office operations," Hale notes. "And that doesn't necessarily mean shedding jobs," Hale says. "It might just mean consolidating square footage." In the area of warehousing and distribution operations, it might mean reconfiguring the warehouse, consolidating the distribution center or looking for other efficiencies. "If they have a weekly shipping volume that used to take them six or seven days to get out to their customers, they were able to reduce the idle time in those operations and take advantage of the dips and peaks in the production schedule so they could do the same shipment in a five-day workweek," Hale explains. "That reduces their overtime costs, and it reduces the number of opportunities for damaging material and causing waste." Waste Reduction For some manufacturers, the lean concept of waste reduction took center stage during the recession. Hale notes that Stroud's food-sector clients, in particular, had "some big successes in terms of raw material consumption improvements." In general, manufacturers focusing on waste reduction have been taking a hard look at their energy use, Hale adds, particularly in plants where they invested in equipment that offers more than enough capacity for the facility's needs. "So the implication of that is that often there's excess capacity in some of these energy-consuming systems that people haven't gone back to and said, 'OK, do we really need to be running this thing flat-out all the time or can we put a variable-control drive on there to throttle it back when we don't need the full demand? Are we utilizing all of our steam capacity? Are we utilizing all of our electrical generation capacity? Can we scale back when we're not using it?'" Hale explains. "And often there's some direct cost savings there just in the energy costs for businesses that have that as a large controllable cost." Mergers and Acquisitions Some manufacturers with a "strong market position" and healthy cash reserves have pulled the trigger on mergers or acquisitions to grow their businesses. In a contracting economy, buyers often can acquire other firms at bargain prices, Hale notes. "If you're paying a multiple on earnings, and earnings are down, then you're picking it up at a discount," Hale says.