Challenging Times Dictate Challenging Past Standards
In most circles, business is down about 30 percent compared to last year. While most companies are doing their best to hang on, other companies are leveraging this time to grab market share. Successful growth has come from staunch non-acceptance of the status quo and an informed relationship with the marketplace.
A quick realization of the market changes and understanding what customers want is key today. Mediocre performance is no longer acceptable. During the past couple of years, our leverage was high due to a lack of capacity in the marketplace. It was a seller's market and most of us were struggling to keep up with orders. The high capacity in the marketplace allowed us to overlook measurements that were lagging. Poor on-time delivery and sub-par quality were acceptable because customers had few options.
How quickly things can change! We are now in an environment where we are fighting for every sale. Our customers are asking for more concessions, and they have a multitude of options for suppliers.
Successful companies are those who quickly identified the coming shift in the marketplace and were able to adapt their businesses accordingly. They were able to radically transform their organization, so that the old "standards of performance' were no longer acceptable. Lead times were cut in half; anything less than 100 percent quality and delivery was unacceptable. Productivity levels were expected to increase.
All of these factors will have an even greater impact as business comes back from the recession. The competitors are amending their processes and incrementally making things better. Their measurements have gotten an up-tick because volumes are down, but they have not gotten in touch with their customers to understand expectations. They do not have a handle on how to gain business in these times. They have cut spending. Their employees are frustrated and looking for other opportunities.
Case Study #1
One client radically changed its business recently. Although business levels have been down, this company increased its ability to respond to the market ' which is now more important than ever. Last summer, the leadership team believed it was at capacity and could not take on more business within its physical and labor constraints. It had poor inventory control that drove up levels of raw materials and finished goods. This had the detrimental effect of limiting the company's ability to take on more business. This lack of confidence slowed sales efforts.
Fortunately, the company was able to transform prior to the slowdown. It is now paying dividends ' making more money on 20 percent less sales, and positioned to handle 25 percent more business than previously thought possible. This has freed up the sales and R&D departments to generate more work.
The confidence to go get more work began with an understanding of customer needs. This led to changes in the business to meet these expectations. Poor inventory control metrics and perceived physical constraints in their building were no longer acceptable. In the old days, it was unheard of to keep an accurate inventory count. Now, 97 percent location and inventory accuracy is the norm. Any dip below 95 percent causes a team to investigate the cause and make improvements. The cash reallocated from being able to lower inventory has been used to invest in speeding up the R&D process. This allows our client to gain customers at a quicker pace and to take advantage of more opportunities.
Case Study #2
Another client is number two within their industry. While its main competitor has cut R&D out of its budgets, our client is working hard to implement new products. Last year, more than 80 percent of sales were attributed to products not available three years prior. This success was made possible because of a radical transformation in its operational methods, which allowed the company to cut its scrap in half and improve machine throughput significantly. This transformation started with a realization that historical numbers were not acceptable; scrap rates and utilization needed to be addressed. Production methods that had been in place for years were being questioned and transformed. The marketplace's quality standards had risen, but the company's quality process had not. Simple re-training was no longer enough to gain market share. Radical change had to permeate the group in order to improve product production.
It takes leadership courage to invest the time and money to transform your organization in poor economic times. This often requires traveling outside of your comfort zone and taking the time to learn enough about your customers to make the necessary changes. However, the companies that are doing so will continue to see results as their organizations improve.
For more information contact:
Jay Kuhn, President of Definity Partners