Cost reduction almost always takes center stage in an economic downturn. When the pipeline begins to hollow out and sales flatten and start declining, the natural reaction for a manufacturer or any company is to reduce both variable and fixed costs. We've seen this reaction in poll after poll here at Managing Automation. In fact, MA readers signaled last fall that cost reduction had become their top priority looking ahead to 2009, ending nearly three years of emphasis on growth initiatives.
The focus on cost reduction this year remains firmly in place as manufacturers try to adapt to the economic downturn and all that it has meant in terms of declining sales, less cash on hand, and the need to remain profitable. But just below the surface of cost reduction activities lies another set of initiatives that manufacturers are increasingly relying on to both get through the recession and better position themselves for the recovery that will follow.
It's not some big, new idea from a management guru, nor will it require you to turn your company upside down. It is simply the idea of driving operational excellence throughout the company. Better-run operations can yield not only financial gains, but also faster time to market, higher customer satisfaction, and greater employee productivity. Stepping up operational excellence in a recession puts a premium on performance based on the realization that cost reduction alone won't be enough to ensure competitiveness. It's like an athlete preparing for the toughest game of his or her career. The old routine just won't do.
Getting to the next level in operational excellence is very much on the minds of manufacturers this spring, but getting there is no simple task. In a new poll conducted in cooperation with IDC Manufacturing Insights, readers of MA's sister publication in Europe, Manufacturing Executive, said that operational excellence is a key strategy for them during the recession. In fact, a solid majority of poll respondents, 56.5%, indicated that the importance of operational excellence — encompassing quality; lean, Six Sigma, and other continuous improvement initiatives; demand sensing and forecasting; and green manufacturing — is increasing this year.
Manufacturers are looking to improve results in a number of ways through enhanced operational improvement initiatives. At the top of the list is increasing the efficiency of supply chains, and close behind is improving on-time deliveries to customers. Laudable goals, but poll respondents also reported that organizational complexity and the need for significant change management are the chief barriers to making these improvements. To help, many are looking at technology, particularly manufacturing intelligence and quality management applications.
These are encouraging signs that manufacturers are not just cutting costs and trying to figure out ways to work harder, but also focusing on ways to work smarter. In some sense, a recession is a terrible thing to waste. Cost cutting may be necessary sometimes for survival, but it won't make a company successful longer term. Most manufacturing companies have miles to go in streamlining and better automating a host of business processes, using operational data to make better, fact-based decisions, and, quite frankly, sustaining improvement efforts over time. For those that can handle it, a focus on operational excellence during these troubled times makes a lot of sense.
What's your view on ways to deal with the downturn? Write to me at Dbrousell@thomaspublishing.com.