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Small Manufacturers: Managing Your Business In An Economic Downturn

By Paul Rauseo, Managing Director, The George S. May International CompanyRecommended actions that manufacturing executives should take to handle concerns about today’s economic conditions and to prepare for the economic upswing that will inevitably follow.

Too often, smaller manufacturers get so tied up handling the day-to-day demands of their business that they have no time to step back and evaluate the direction and focus of their operation. The current concern about the economy and its impact on the business serves as an excellent “wake-up call.”

Stepping back and looking at the business serves two purposes. First, companies need to consider what must be done to ride out the current economic downturn. Second, today’s actions must take into consideration not only short-term fixes but also what should be done to effectively position the business for the next upturn in the economic cycle.

In our work with thousands of companies every year, we have found that independent owners are amazingly resilient and optimistic in their outlook for the future. This is why we always advocate “act today, but always plan for tomorrow.”

The following are a series of actions that manufacturing executives should take to protect their businesses today and align them for future growth. 

Focus On The Core Business And Core Values

While this might sound overly simplistic, a focus on the core business and core values that created the business can be one of the tougher issues for many manufacturers who have expanded their operations. In good times, many businesses are willing to experiment and try new ideas, special services and different products.

Success with the core business allowed expansion into new areas. These may be favorites of a limited number of customers or may be championed by specific employees in the business, perhaps even the owner. And, profits from the core business may have sustained these expansions in the past. But can they be sustained in today’s economic environment?

When times are tough, a hard look needs to be focused on these added-on areas. Key questions owners need to ask themselves are: Am I straying too from what made my business successful? Are the expansions to the core business providing enough performance to justify their continuance? Was specialized equipment or inventory purchased to support the add-on effort?

If the business is in danger of bankruptcy, everything must be considered as a cost-cutting measure for survival. However, if the situation is not severe and the issue is more of belt-tightening rather than survival, the priorities need to be weighed. 

For example, would you be willing to lose an employee who was displeased because you no longer supported a favorite service, or lose a customer because a desired product is no longer available from your business?  What would the impact to your business be?  How much does a specific service or product add to your bottom line?

Questions such as these lead to the next issue that companies must confront when managing in a downturn -- the contributions of their employees and customers/clients to the business bottom line.

Measure The Value Of Your Customers/Clients And Your Employees

Manufacturers must know the value of their specific customers/clients. Who are your best customers? Why are they your best ones? What services or products do they purchase? How often? With this type of information, you can knowledgeably consider the impact of eliminating or changing some services or products without losing customers.  

Every bit as important as customers are your employees. In fact, a specific employee may be more important to a client than any other person at the business, including the owner. Keeping that employee at the business and motivating them to remain, rather than move to a competitor or leave to open their own business, could be a critical issue.

Owners must determine the return on investment of customers and employees. What’s their individual contribution to the business? Even if the situation you are confronted with does not include the issue of losing employees or customers, the issue of employee morale is important to consider. 

Imagine your business as a boat. All the rowers working together in calm weather move the boat fast and straight. However, in stormy seas (bad business conditions), speed may not be as important as making sure all the rowers (your employees) are keeping the boat stable and facing the waves head on. If the boat turns and is hit by waves broadside, there’s danger of capsizing. A business can move into a dangerous position if its employees are not pulling together.

Communicate With Employees And Customers

Manufacturers should communicate their message more than they think is needed. Explain your plan, and then explain it again. Ask your questions, and then ask them again. The truth is, when you speak, people don’t necessarily pay attention. No matter how much we would like to think that employees hang on every word the boss says, the truth is they don’t. 

Manufacturers also need to communicate the conditions of the business to employees. Don’t keep it a secret. Some might flinch at hearing this suggestion for fear that the information may leak to the competition, the news media or cause valuable employees to leave. However, there are at least two very good reasons for communicating openly. 

First, if information isn’t provided, people will begin to make up their own ideas. Unless you want your employees and customers creating their own ideas about what is happening at your business, you must communicate.

Second, keeping the people that depend upon you and the business informed about what’s happening makes good business sense. Sharing information can bring surprising rewards to the business. For example, being trusted with this shared information can create a stronger bond between the owner and employees. It also fosters a “we’re all in this together” feeling and often sparks ideas on solutions from people who may have felt that their input was inappropriate or unwelcome.

Customers also appreciate exchanging insights on the economy and the business environment.  It moves a business relationship from being a vendor or supplier to being a partner. With communication channels more open, consider what these people can provide to help you plan the future of your organization.

Planning -- Do ‘What If’ Exercises To Build Confidence

Having a plan and “planning” are not the same thing. Too often, a plan is a static document. It sits on a shelf. One or two people may have created the plan, gave it to others, and that’s as far as the plan goes. Planning on the other hand is an activity. It is ongoing. As conditions change, the planning a business does needs to change. Planning adopts and evolves as conditions change.

An excellent method to keep the planning current and active is to do ‘what if’ exercises. These keep your managers, supervisors and employees mentally fresh and thinking about different ways of accomplishing tasks. These exercises also build the company’s confidence. If you and your team members have looked at different possibilities that could occur because of economic conditions, you and your employees will be more confident that the business can handle whatever situation occurs. 

These four recommended actions provide a structure for virtually any type of business to handle the immediate concerns about today’s economic conditions and to prepare for the economic upswing that will inevitably follow.

The George S. May International Company is a management consulting firm that helps business owners improve their operations, profits, efficiency and effectiveness. For more information, visit