downturn strategy

Home

DOWNTURN STRATEGIES


“Great managers embrace a recession because of its opportunities.”

- Atkins & Slywotzky, WSJ article: 'You Can Profit From a Recession,'

Adrian Slywotzky, writing alone says:

“The best-run companies have always been relentless in
 taking advantage of business downturns and market transitions.”

Fortune magazine’s cover story on “Managing for the Slowdown,” recommends the following strategy:

“A strategy we’ve seen work well, though it’s still not prevalent, is reviewing the total needs of your existing customers and imagining how you can satisfy a larger proportion of them. You’re no longer focused on taking business away from competitors; you’re focused on getting a larger share of your customers’ wallets.”

Another theme of Fortune’s cover story on managing for slowdowns was that “improving productivity during a downturn puts a company in a stronger competitive position when things turn up.”

Harvard business professor Donald N. Sull was quoted in Business Week’s article on investing during Recessions, saying, “Making a big bet is the thing that allows you to build sustainable advantage – in technology, manufacturing improvements, or relationships.

 

Conclusions of these learned quotes: companies contemplating the most effective product development, operations, and Spontaneous supply chains   improvements should use slowdowns as an opportunity to start implement the, or mat least start on the prerequisites, such as  Designing products for Lean Production  ,   Standardization,    Build-to-Order, and   Product Families.    Here are some major opportunities with links to articles on how to take advantage of them.

 

DFM / Produce Development Opportunities  that can start now:

Start  implementing DFM.  This free article shows Initial steps that can be started now; Establish goals (like any cost goal wanted in  half the time to stable production;   Arrange DFM training to everyone, wherever they are by webinar.  Project teams can hole workshops now remotely

 

Lean Production Opportunities that can start now:

Start  Designing products for Lean Production ,   which will result in the fastest, easiest, and most effective way to realize the benefits of Lean Production.

 

Build-to-Order Opportunities to Product Families on-demand can start now:

Start structuring product families that can build on-demand without setup or inventory for the best order fulfillment in your market.

 


Opportunities for High SKUs and Large Inventories


Don’t Keep Plants Busy Building Inventory


One of the biggest mistakes made by mass producers is to keep plants “busy” building inventory. This is a bad strategy that will have counterproductive effects because:


• It costs real money now to pay for the materials and pay for the inventory carrying costs,

• It will be hard to make a good guess of which of the many versions to build now, leading to obsolescence or expensive reconfiguration,

• Customer preferences may change before products can be sold, thus obsoleting products,

• The distribution channel may then become clogged with obsolete or hard-to-sell inventory which may have to be sold first, thus delaying new product introduction,

Even in good times same bad results can be caused by the wrong metric:



A Utilization metric can keep machines busy building inventory that has not been ordered. can  cause all the above problems too. The worst case scenario would have both of these in effect at the same time!


Eli Goldratt (an expert on bottlenecks) wrote in industrial novel, where a company was building inventory to meet its utilization goals, but about to go out of business! See, The Goal, North River Press.

Dedicate all manufacturing lines, no matter how "full" they are

If enough decision-makers do this  and remove "utilization" as a metric to be strived for at all cost,  then a lot of money and labor efforts  can be saved now  in a downturn by  dedicating each product of family  that it doesn't have to be changed over, thus :

(a) saving setup labor, which may be subject to labor shortages  

(b) getting those products shipped right away to brig in income right  away,  

(c) avoiding building batches for inventory (to amortize the setup over many products), and 

(d) in times of contagious epidemics, this will spread people out to different lines to  avoid  close contact in setup changes, especially if these have been honed in the "pit stop" model  (with some industrial setup  crews being trained by real racing pit stop crews). 

 

What to do with Existing Inventory


Use Rationalization technique to identify the following categories:

1. Money-Losers; identify with:

- Identify with total cost measurements
- Manual computations
- Set-up and other costs

What to do with inventory: for  SKUs that are suspected of losing money, there will be no way to “make any money on it.” and each year it sill loose another quarter of its own value, so therefore the sales force and market must do whatever it takes to unload it from inventory!


2. Slower-sellers’ identify with:

- Sales histories
- How many buyers are left
- How many times has it cost 1/4 of its own value, which automatically happens every year!

What to do with inventory: for s; For all SKUs that have been there too long, do whatever it takes to unload them, from inventory!

 

3. Obsolete or Legacy SKUs; Identify  and discounted SKUs
 

- Find buyers who want “end of life buy”
- Find buyers who sell to collectors

 
Don't hang on to any of this inventory just because it is there.

If it is a lot, then it shows how bad your forecasts are, and
how important it will be to use this opportunity to learn how  to eliminate inventory.

Don’t Cut Prices on good inventory or products that deserve to be built

Downturns usually result in excess capacity, so it may be tempting to cut prices to improve sales and market share – at the cost of profits – but this book, and many other leading management books, strongly advises against this even in good times!

The opening chapter in Slywotzky & Morrison’s The Profit Zone which is titled: “Market Share is Dead.” The only exception would be if your company used all the principles of this site and had a real cost advantage. 

Rationalize Products to Get Rid of Money Losers

Rationalizing product lines can cut costs, raise profits, and support advanced initiates like Build-to-Order and DFM and Advanced Product Development  programs by reducing product and part variety.

Some companies are reluctant to prune back on any products for fear of decreasing revenue, which many  people are pressured and rewarded for.  However, if the company is going to take a temporary “hit” on revenue anyway, a downturn may be a good time to go rationalization  since revenue drops are already expected by investors and have probably been explained away to other causes. Further, during downturns, companies have people available to perform the rationalization.

Doing this during a downturn will set up the company for a stronger recovery.
 

Planning to pursue Build-to-Order of families an enable you to build high-variety at low volumes now!

When intending to structure product  lines into product families, future Build-to-Order companies can "save" all SKUs that will probably fit into some family some day.   

So, during a recession now, the company can should learn all they can about setup reduction, even it would be too expensive in yesterday's inflexible factory.  This would allow the company to expand sales today to include those salvable low-volume/high mix products. 

If the company does follow-through with BTO of families with advanced setup principles , then today's expensive setups would not be charged products or overhead, but would just be an investment until BTO of families are implemented.  This would also give the company a preview of  the value of profitably broadening  sales to lower volume, higher SKU sales.

CROSS-TRAINING

Cross-training is a Lean Production technique that, once done, will ensure that product lines and cells will continue building high-quality products without delays, even if some works can not come to work for quite a while.

This avoids situations where one worker, who has a unique skill, can shut down a line or cell as long as that necessary worker can not come to work.

Value of cross training to maintain worker spacing

Cross training can enable plants to operate in three shifts per day even through a downturn, thus providing triple the worker spacing when that is important to protect them through a contagious epidemic.

This can  even more effective when all lines are operating, as proposed in the above discussion:  "Dedicate All Lines, no matter how full they are."

Prerequisites

The cross-training is an excellent activity that can be done  during a downturn or full factory interruption or any time workers can not come to work. This is easier to do when the training can be dome remotely. This is especially valuable during any situation that might keep key workers from coming to work

Concurrent Engineering can ensure that the product itself is designed so that all the workers can do all the tasks to build it.

 

These are the general principles. Pass around this article or URL to educate and stimulate interest

In customized seminars and webinars, these principles are presented in the context of your company amongst designers implementers, and managers, who can all discuss feasibility and, at least, explore possible implementation steps

In customized workshops, brainstorming sessions apply these methodologies to your most relevant products, operations, and supply chains.

 

If you want to discuss Downturn Strategies by phone ot e-mail, fill out this form:

Name

Title/Position

Company/Division

Location

Phone number

e-mail address

Type of products


 Other challenges, goals, and opportunities:
 

   To Submit, first enter "12" and hit "Enter" to bypass Robo Filter (required field)
i

 

 

Call or email aout how these principles can apply to your company:

Dr. David M. Anderson, P.E., CMC
fellow, American Society of Mechanical Engineers
www.design4manufacturability.com
phone: 1-805-924-0100
fax: 1-805-924-0200
e-mail:
anderson@build-to-order-consulting.com

copyright © 2020 by David M. Anderson

Book-length web-site on Half Cost Products: www.HalfCostProducts.com

[DFM Consulting]    [DFM Seminars]  [DFM Webinars]    [DFM Books]    [Credentials]    [Clients]   [Site Map

[DFM article]     [Half Cost Products site]   [Standardization article]   [Mass Customization article]   [BTO article]   [Rationalization article]