How Manufacturers are Coping with Economic Turbulence

October 7, 2008

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In the face of economic crisis, other manufacturers are refocusing on continuous improvement methodologies, offshoring and other supply chain management strategies to keep their businesses afloat.

The manufacturing sector, along with most other industries, has heard nothing but a string of bad news in the last few weeks. U.S. manufacturing jobs continue to decline, factory orders are in freefall and the industry is suffering globally.

So how are manufacturers coping with all the grim news? According to a recent study by software giant Epicor, manufacturers are responding to the economic downturn by looking to streamline business, manufacturing and supply chain operations.

Having analyzed responses of 274 supply chain and corporate management professionals, Epicor found that 78 percent of the businesses were negatively impacted by the turbulent economic climate. These businesses faced declining sales, increased costs and lower profit margins — all by July 2008, before the financial system catastrophe really kicked off.

To handle the downward spiraling economy and to increase business efficiency, 63 percent of respondents have already adopted, or are examining, lean manufacturing, Six Sigma, Total Quality Management (TQM) and other methodologies for improving supply chain management.

Other solutions implemented included promoting business and management philosophies (54 percent), adding enterprise manufacturing applications (33 percent), offering software services (23 percent), installing eco-friendly policies (23 percent) and offshore outsourcing (23 percent).

Of the various management strategies, offshoring was one particular practice that drew a mixed response. Of the 25 percent of respondents conducting business globally, many of them chose not to offshore citing long lead times, high risks and increasing costs as deterrents. The cost of shipping outsourced goods from China to U.S. customers has doubled in the last two years, as noted last month by Fortune at CNN Money.

Sometimes cheap production costs do not outweigh the lack of control on the supply chain. For example, cookware manufacturer Regal Ware recently abandoned most of its Chinese business arm and told Fortune that bringing production back to the U.S. freed up the bottleneck caused by offshoring. Having better control of the supply chain and production enabled Regal Ware to deliver products in less than 48 hours, when it used to take up to 60 days. This heightened efficiency has allowed the company to pursue new sales opportunities.

While a majority of the manufacturers in the Epicor study are merely trying to get by with the aforementioned strategies, some contend that they will be able to capitalize on this downturn. A Harvard Business School blog post earlier this year provides a guide on doing just that. However, it adds the following caveat:

If your firm also finds itself in such a position of [having an impressive balance sheet, mountains of cash and no debt], remember that it too can use the recession to become even stronger relative to the competition.

To get ahead while everyone else is down, consider the following:

  • Learn about your competitors' weakest clients. Your rivals will be focusing on retaining their large clients, which gives you a chance to target those they may be currently overlooking;
  • Identify your most critical suppliers and distributors and asses their risk to your business; and
  • Keep an eye out for skilled workers who are searching for work or those disenchanted with their struggling firms. Capitalize on the opportunity to attract talented people.

How do you compare? Are you merely surviving or one of the lucky few gaining ground while everyone else is grounded?

Earlier/Related

Weekly Industry Crib Sheet: The Week after the Worst Week Yet

Light Friday Turmoil: On This Week's Variant of the Apocalypse

Developing a Lean Supply Chain (Successfully)

Continuous Improvement: a Practice by Any Other Name

7+ Sins of Muda

Manufacturers Strive to Keep Innovation Alive

Is Your Lean LAME?

Resources

How Manufacturers are Managing Business in Turbulent Economic Times Epicor, July 2008

U.S. Manufacturing Lost 51,000 Jobs in September by Adrienne Selko IndustryWeek, Oct. 3, 2008

Manufacturers' Shipments, Inventories and Orders U.S. Census Bureau, Oct. 2, 2008

Factory Data Show Wider Economy Suffering (registration required) by Chris Giles Financial Times (UK), Oct. 2, 2008

Made (again) in America by Stephanie N. Mehta Fortune (via CNN Money), Sept. 11, 2008

4 Steps to Growth During a Recession by Michael Roberto Harvard Business School Publishing: Conversation Starter Blog, April 8, 2008

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