So you’ve been hit by the economic crisis, eh? Demand has softened up a bit, sales are uncertain. You’re wondering what you’re going to to do with all that extra capacity. You don’t want to lay anyone off, but if sales don’t pick up, you can’t stay solvent. Here are some things you can do to avoid layoffs while keeping the wheels on and position yourself for the recovery.
Focus on customer service. I’m not talking about being nicer, I’m talking about the basics of performance. The number one reason that customers change suppliers is because of reliability issues. Not price, not quality. On time delivery. Are you delivering on time? Are your lead times consistent with the competition? Don’t give your customers a club to hit you with. This is entirely under your control.
I have a number of customers that improved their on-time performance and not only improved the customer service, but actually increased revenues. They became the suppliers of choice simply because they could be counted on to delivery the goods when the customers were in a tight spot.
Build customer relationships. I’m not talking about buying more steak dinners or tickets to the ball game (although building relationships is always good), I’m talking about finding new ways for your firm to add more value to your customers. Take a look at your value proposition. Can you find a way to deliver more value? You have all those skilled people. Can you redeploy them to find new ways of helping your customers? New services? Modifications to existing products or services?
One of my customers was able to increase the amount of business with a key customer because they added a service to keep their product on site for on demand consumption. It cost them very little, but it cemented a critical relationship, locked out other suppliers and positioned them for more business with that supplier.
Conserve cash. Eliminating non-essential spending is a common strategy, but there are other opportunities to improve your cost structure now and position yourself for even better profitability when things turn around.
- Look at your receivables risk. Maybe it’s time to offer discounts on those old debts to encourage customers to pay immediately. Better something now than nothing later.
- Renegotiate your materials pricing. Now is a good time to re-evaluate your supplier’s performance and pricing. There is never a better time to negotiate long term agreements than when the price is low, just ask Southwest Airlines! They saved nearly$2 B in fuel costs in 2008 because of their hedging strategy.
- Look at your compensation strategy, especially sales commissions. Are you paying for results achieved lately or a long time ago? Often we believe that sales reps are due a commission for life. That turns hunters into farmers. In this economy, you need hunters. Are you creating the incentive to generate new business or hang on to old business?
- Take a fresh look at outsourcing. Do you have the capability to bring some of that work you had sent offshore back home? Sure, your people cost more, but anything you can do in-house will go a long way to cover your fixed costs and help you retain your people.
Focus sales efforts on the stars in your product portfolio. Don’t waste your effort on selling marginally profitable products. Make sure your sales efforts are geared to sell the products that maximize the highest rate of return. That means focus on the products that generate the fastest return. It may not be the highest margin products that deserve the attention, but those products that earn the highest turnover.
For example, if you have a product that generates $5 in gross margin once a month, it’s not worth as much as a product that generates $2 in gross margin every week.
Reduce your lead times; finish early. Focusing on project or product lead times improves your rate of cash generation. Reducing your lead times also reduces your cash requirements. Less work in process equals less investment equals more cash flow. If you have projects in the pipeline, early finish equals early benefit. It may be worth the investment to focus on bringing those projects in early.
When business is down, managers often take a defensive approach and hunker down and wait for the storm to pass. Use this time as an opportunity to make your business more competitive. You’ll be healthier now and in a great position to respond when the economy picks up.