As we start passing through the recovery stage of the COVID-19 pandemic and start thinking about growth strategies for the manufacturing and distribution sector, a few areas immediately surface as top-of-mind focus. Being an industry that was hit especially hard by market disruptions, manufacturers have been rethinking a number of considerations: What needs to change in order to survive? What does success look like? Where do shifts need to be made in order to stay competitive?
Supply chain disruptions and increasing costs are eroding competitiveness. Those that build and execute a plan to address these issues will be able to maintain and increase market share without sacrificing margin.
Our team has identified five areas of focus to start building a growth strategy for your manufacturing business in order to capitalize on opportunities.
1. Supply chain disruptions
Traditional supply chains—both direct material supply and product sales—have been disrupted by the pandemic. And they’ll continue to be disrupted for some time. Moreover, costs have increased. To remain competitive, businesses need to find new supply channels while minimizing these additional cost increases. To combat the disrupted sales channels, manufacturers must either find new sources of revenue or expand on existing ones. This might mean new geographies, new products, or new channel partnerships.
How can you get started with incorporating this into your growth strategy? Build and execute a plan to review and adjust material supply sources to improve resilience, manage costs, and adjust inventory-carrying policies. Further, you should review go-to-market options, think about diversifying your product portfolio, and prepare to expand into new sales channels.
2. Margin erosion
Another consideration is reduced margins for the foreseeable future. This is simply a reality that needs to be dealt with as we recover and revive business back to its usual pace. You want your manufacturing business to remain competitive, maintain or increase market share, and improve margins. That’s why your growth strategy must address the fact that direct material costs have increased while some costs have remained fixed. On top of that, in most cases revenues have declined along with productivity.
In order to start developing a plan, you need to incorporate reductions in direct material costs and fixed costs, while increasing revenue and productivity. This might include automating production lines, retooling parts of the company, and retraining staff accordingly. If it’s a possibility, completely pivoting what’s being produced may be a solution. We’ve seen a number of manufacturers do this successfully.
Staying on top of financial forecasting to respond to the current and future landscape is imperative in managing costs and cash flow. Our teams across Canada specialize in this type of future-proofing for a number of scenarios you might encounter.
3. Workforce management
It’s vital to protect an organization’s workforce in order to maintain productivity and plan for the future. This is especially true of the manufacturing and distribution sector, as so much of it is reliant on skilled labour. Unprecedented challenges have strained the HR capabilities of many manufacturing businesses. Many have had to lay off staff as production lines were halted. Or they were faced with a labour shortage caused by the closing of borders keeping foreign workers from being able to do their jobs.
What might the next steps towards a solution be? We recommend consulting our HR advisory team about options surrounding return-to-work programs, HR policy updates, leadership and management support, and a staff communications strategy.
4. Business continuity planning
It’s important for an organization to have a robust business continuity plan to minimize risk of disruptions as conditions change. Most manufacturing businesses don’t have a plan like this in place, making them that much more susceptible to changes in the market. As conditions in the manufacturing landscape change, your business needs to be ready to change with them—coming out stronger every time.
As part of your growth strategy, we advise building, testing, and deploying a business continuity plan to minimize business disruptions as conditions change. This would include preserving business continuity, managing cash flow, rethinking budgets, maintaining important vendor and stakeholder relationships, and leveraging technology to help keep your various platforms running. It’s never been so important to plan for the future with resiliency being top of mind.
5. Cash flow and working capital management
The ability to dynamically reforecast as conditions change allows businesses to maximize their use of working capital and avoid cash flow stress. Traditional budgeting and cash flow planning processes don’t allow for frequent re-planning, making you more vulnerable as conditions keep evolving.
Budgeting and cash flow planning processes should enable re-planning as needed. You should be able to pivot business at any given point and react quickly to change. Every business will suffer losses one way or another, in line with the economic downturn. That stresses the importance of managing liquidity and cash flow now—taking uncertainties into account for future planning.
How BDO teams can offer support
Manufacturing businesses need to move from response, to recovery, to growth mode. As such, our teams across service lines are ready to help you build a holistic business plan to minimize supply chain disruptions, reduce costs, and protect your workforce in order to maintain and increase market share without sacrificing margin.
We understand the challenges currently faced by manufacturing businesses. And we’re already helping hundreds of clients as they build their plan for business recovery. Our wide range of services help organizations build and execute growth plans to come out of the COVID-19 disruption stronger and better positioned for future change.
Some of those services include consulting on procurement, go-to-market strategies, people advisory, business applications, modern workplace, shop floor automation, cybersecurity, insurance review, business continuity planning, supplier audits, SR&ED, and government incentives.
Our industry specialists would be happy to connect and discuss your current challenges, review your business plan, and see how we can help.