It may take years until demand for travel and hospitality services returns to pre-pandemic levels. Schools and universities are figuring out what it looks like to have fewer (if any) students in the classroom. Professional sporting events may never be the same. And, for many of us, the upheaval has also been pervasive at our day job.
The fact is that the Coronavirus disease (COVID-19) pandemic is forcing the hand of many manufacturers and retailers to make drastic changes, many in a sometimes desperate bid for survival. As a result of precipitous drops in demand, unprecedented volume surges, or any stop in between, business executives and senior leaders are taking a hard look at their future challenges and opportunities. If you find yourself in this position, now’s the time to reconsider the mid to long-term plans for your supply chain, financial situation and staffing.
Re-set your supply chain
If you are looking to score a quick win, start with SKU rationalization. Conduct a thorough, value-driven analysis of your product portfolio with an eye toward identifying opportunities to reduce complexity and eliminate low-margin, and in particular, no-margin products. A rationalized SKU base unleashes more production capacity through fewer changeovers, higher levels of throughput and reduced buffer inventory requirements. This relatively simple exercise has the potential to radically increase the efficiency of your production and distribution operations.
It would be a great idea if you also took this chance to reevaluate your manufacturing footprint. Throughout the last couple of decades, much of the North American manufacturing base has moved to Asia in a bid to reduce production costs. While this migration of so much manufacturing capacity away from the United States, Canada, and Mexico has helped keep the price of a wide variety of products low, it has also introduced both expected and unexpected supply risks. Most of these have been laid bare as the COVID-19 pandemic began to take hold. Now is the time to consider building a risk-adjusted supply chain network. Reshoring or nearshoring manufacturing operations and implementing a multi-sourcing strategy will help mitigate future supply disruptions.
Lastly, you may want to revisit your philosophy on “owning” your customers and fulfillment channels. Many manufacturers have a de facto policy of owning their customers; however, many of those customers can be disproportionately expensive to service and may be more efficiently served through a distributor-based model. Take this time to find the best customer fulfillment model(s) to support your corporate strategy.
Re-set your financial position
Other opportunities for a reset may come to light upon examination of your balance sheet and cash flow statements. Your cash position and available working capital are directly related to increased flexibility in inventory and contract management, as well as your cash-to-cash cycle time.
If you are experiencing decreasing commodity prices, excess labor availability, and soft demand, then consider resetting your procurement contracts to reduce costs, secure better payment terms, and/or increase service levels. You can also review your end-to-end supply chain— from suppliers to customers — with the purpose of making adjustments to help reduce your cash-to-cash cycle time. The main levers here are your supplier payment terms, the ownership timing of raw materials, and customer payment terms as well as their payment efficiency.
Re-set your staffing plan
An ideal starting point for a comprehensive staffing plan reset is an evaluation of the compensation structure. Over time, annual pay raises can become routine, whether justified by the labor market or not. Companies can reset compensation by increasing – or, if necessary, introducing – a variable pay component to offset any decreases to fixed salaries. Also, firms should benchmark market rates for their staff and adjust compensation levels accordingly, while correcting for geography and competition.
Beyond compensation, it is essential to ensure that you have the right staffing mix. Over time, organizations grow and experience turnover. Misalignments often arise between the skills required and the skills you have on hand. A staffing mix reset starts with an assessment of the critical skills necessary, the headcount needed for each skill, and comparing the results with your current roster. In some areas, a staffing level reduction may be called for. Other competencies could require an increase in headcount.
Sometimes, the right answer may be “buying” the knowledge and skills you need, without the commitment of hiring additional staff (i.e., leveraging an external service provider). An in-depth analysis of the cost-benefit relationship is a crucial part of a staffing reset. Areas and skillsets that have intermittent or varying demand, support routinized information and data processing, or those that require highly specialized skills are ripe for an outsourced or managed services model.
Change is an opportunity for growth—if you seize it. Re-setting your business today through a value-based, analytical approach will hone your competitive edge and better prepare your organization for future successes in the coming recovery.
