What to do when
times get tough
In the last Raymond’s View you
learned how industrial giant Toyota
is dealing with problems stemming
from internal faults in its processes.
Most of those issues were within the
scope of its control inside the company
and fixable with changes in its management policies and practices.
Often, companies face critical
issues outside of their control. The biggest of those bogeys is a weak economy.
Today all but a few companies in the
wood products industry are facing
such tough times.
In that circumstance, what should
you as a manager do? The first step is
realizing that such times require a fast
management response and real change.
When faced with
tough times, fast
response and real
change should be
the first step.
Look inside your company
Like Toyota, you must take a hard
look at your internal processes.
Manage Your Cash. Nothing is more
critical when sales falter than cash. For
many small businesses, managing cash
is second nature. But even in a highly
profitable business, a downturn can
drain a solid cash position. Your first
step is developing a realistic cash flow
projection. Realism requires that the
rate of sale, the timing of supplier and
customer payments, as well as your ongoing costs, are being accurately portrayed.
To achieve such accuracy, you must build
a system for gathering the latest information quickly. Being successful at that task
demands great communications. More
on that point later. Once the data is in
hand, you build the projection in spread-sheet form and examine a number of
Squeeze Cash from Receivables.
Tough balance sheet management con-
tributes significantly to step one above.
Run your receivables report regularly,
identify which customers are paying
and investigate the history of those
orders for which payment is overdue.
Find out why payment is late. Often
the problem is bad quality, billing or
shipping error, or simply ill-designed
customer service rules.
Balance Capacity with Demand. In
the face of a business slowdown, your
first reaction is real cost reduction. Unfortunately, doing so often requires the
difficult step of cutting your workforce.
Every facet of your operating cost also
warrants thorough evaluation. Can you
temporarily postpone some maintenance costs? Can insurance costs be
reduced? What steps must be taken to
cut utility costs?
Strip Time Out of Your Process.
When sales drop backlog falls too.
That situation often leaves a plant
under-utilized unless its order entry
process can quickly release customer
orders to production. Compressing the
time from customer order to payment
is a great way to improve cash flow.
Make no mistake however, process improvement is hard work when human
resources are reduced and everyone is
wearing more than one hat. But hard
work must not be an excuse.
Learn to Handle Demand Spikes.
Staffing cuts can harm process efficiency and lengthen production lead
times, a result that runs counter to the
faster order-to-cash cycle discussed
in the previous step. Your response to
layoffs must be increased cross-training, reorganized process flow, and
continuous measurement of through-