Investing in efficiency versus cutting costs in tough economic times
by David Doyle
With stronger processes, you will win more premium customers by having the shortest lead times or by being the most reliable supplier
—Sponsored article by SYSPRO
You might have heard the joke about the doctor asking a patient that just can’t find any time to look after their health if perhaps they could find a spot on their schedule to be dead—kind of harsh, but it’s not unlike the choices companies face in a tough economic down-cycle.
In any industry that depends on oil revenues, the plunge of more than 50 per cent in prices has forced a lot of companies to decide not just what’s important, but what they’re going to do to survive. And it’s not just manufacturers supplying the oil industry that are affected. The ripple effects of cuts to new oil patch infrastructure projects will be felt by many manufacturing companies that aren’t directly involved in the oil industry.
With survival at stake, there are many ways to grow a company’s size and value, but they really come down to two major areas—revenue growth and cost management.
The danger in blindly cutting costs is you cripple core processes, leading to reduced efficiency and poor customer service, which will only further cripple your revenue and result in a spiral of more cuts.
Paradoxically, when facing tough economic conditions, the way to cut costs without crippling processes is to invest in efficiency. And like any investment, that means spending money.
Broadly, there are a few key areas where you can make this investment—your business systems and your shop floor. Business systems can include software and business processes, and these investments can facilitate further work in supply chain, sales and distribution once more meaningful information is available.
As someone who sells business systems, I’m going to focus on the systems side. But there’s no reason you can’t take these principles and start working with a lean manufacturing consultant to get similar benefits.
The job of purchasing with properly-configured MRP allows you to shift from making sure you have enough materials on hand to keep production moving; to looking for new ways to make inventory more efficient—from “just in case” to “just in time.”
Whether you’re buying an enterprise resource planning (ERP) system to streamline the intersection between front office and shop floor, or you’re looking to optimize your existing ERP or add modules, business systems offer many opportunities for improved efficiency.
The problem is identifying opportunities that pay off fast enough to justify the expense when you need to be cutting expenses. Just because you can make something more efficient doesn’t mean you should. This is where consultants add value. They can help you see past the pains that are most visible to you, find opportunities that will pay off in the shortest amount of time, and quantify the benefit.
The first place to look is at activities that don’t generate any value. Accounting, purchasing, and order entry are all necessary to running a business. But they don’t generate any value and I regularly meet manufacturers who could make these functions much more efficient by properly using business systems.
For example, many small- and mid-size manufacturers aren’t using material requirements planning (MRP) effectively. The job of purchasing with properly-configured MRP allows you to shift from making sure you have enough materials on hand to keep production moving; to looking for new ways to make inventory more efficient—from “just in case” to “just in time.”
There are a number of ways you can help your sales people take orders more efficiently, such as by pulling orders automatically from your customers’ systems or using configuration tools for customization. This second option also frees up engineers to focus on value-added activities.
Done right, you can manage costs while growing your share of revenue. Investing in efficiency will help you win more market share, and not just by competing on price. With stronger processes, you will win more premium customers by having the shortest lead times or by being the most reliable supplier.
Over the long run, it makes sense to implement a program to continuously identify business processes that maintain (or even increase) customers and root out inefficiencies. But in the short run, with tightening budgets, you have to focus on the most efficient investments to make your company more competitive without sacrificing your ability to execute.
The payoff in the short-term is survival. But when the oil industry rebounds, you will be more competitive and in a position to continue investing in process improvements to extend your advantage over competitors well in advance of the next downturn.
David Doyle is vice-president of sales at SYSPRO Canada. SYSPRO is an ERP application that integrates finance, distribution and manufacturing. To contact David, email: david.doyle@ca.syspro.com or call (604) 451-8889. Learn more about SYSPRO at www.syspro.com
