Recession
The recession can be an opportunity and not a threat. It will be so if we do not panic but act strategically. We need to think counter-intuitively and differently to survive. Two quotes help summarise our way through:
"The world will not evolve past its current state of crisis by using the same thinking that created the situation."- Albert Einstein, scientist (1879-1955)
"It is not the strongest of the species that survives, nor the most intelligent that survives. It is the one that is the most adaptable to change." Charles Darwin, scientist (1809-1882)
We outline here where we think we are, the dangers that face us if we react in crisis mode, what should you do, and how we can help you with our special programme. Click to go to the relevant section:
1. The current economic climate
2. The dangers of crisis management
4. The Delos Recession programme
5. Article on turning inventory into cash
.. Surf the crisis.
1. The current economic climate
The Global economy is in the midst of a deep recession. However, Government statistics on growth, borrowing and recession tend to show where we were six months ago, and not where we are now, or the reality of where we will be. There are signs that the recession is bottoming out.
Commodity prices have fallen dramatically but are now showing signs of increasing again, which is an early sign that economic activity is increasing - , as illustrated in the following chart:
There is still a danger of deflation in the short-term, but with the increase in Government borrowing in the UK, the balance has to be around increasing interest rates, and increasing inflation..
The FTSE Index is also showing some signs of increasing, and hence forecasting a recovery in fortunes - some 6-9 months ahead.
Clearly there is a risk that things will get worse before they get better, but in this climate it is vital to invest in better processes, like Integrated Enterprise Leadership, so that you can plan ahead, and invest in Lean thinking to make sure that as we come out of the recession we will be able to manage smarter not harder. Panic and crisis management is not the way to react to crisis.
2. The dangers of crisis management.
There are some simple remedies that people normal take when faced with a crisis like this. Cut-back on temporary labour, reduce all unnecessary expenditure, cut back on the travel budget, reduce inventory, cut back on advertising and marketing, get rid of consultants [!], lengthen payment terms to suppliers, and insist on being paid quicker by customers. This can all be short-sighted. Catch-all "cut the travel budget" just means all meetings get cancelled, and communication suffers. These are short-term panic measures.
All of this is fraught with danger in this economic climate.
In a global supply chain, cutting back on suppliers will only cause a whiplash effect through the supply chain and take us all into the bust cycle quicker than ever before. Putting suppliers into liquidation will only mean that you put your operations at risk. You need to work in partnership.
Customers should be working in partnership with you. Cutting costs by getting rid of people will only tempt your best people to leave for where they believe are more secure opportunities. Using people's creative thoughts to save costs, reduce real waste, and improve the business is far more productive.
Cutting inventory to raise cash is hugely sensible. But if you do so to the point where you reduce your customer service that will only mean that your competitors will quickly benefit. Reacting in a panic and in crisis mode will only cause more panic and crisis.
"He who every morning plans the transaction of the day and follows out that plan, carries a thread that will guide him through the maze of the most busy life. But where no plan is laid, where the disposal of time is surrendered merely to the chance of incidence, chaos will soon reign." Victor Hugo French dramatist, novelist, & poet (1802 - 1885)
3. What do you need to do now ?
The core fundamentals do not change - deliver to customers the quality they want on the date they want at the cost they want. Deliver to shareholders the returns they expect. Now - more than ever - CASH IS KING. TIME IS MONEY .
Now more than ever companies need an integrated process for planning and managing their business, which will - in an instant - give you a realistic picture of future cash flow, so that you can manage the risks and stay ahead of the curve. This is our expertise - helping companies understand how to put together a realistic strategic business plan, formally updated on a regular basis. We call it Integrated Enterprise Leadership - which enables Top Down communication of strategy and Bottom-up replanning based around current reality, enabling proactive decisions to be taken over the medium to long-term.
"By failing to prepare, you are preparing to fail". -Benjamin Franklin
In just such a situation you need to know where are the opportunities and where are the threats. You need a realistic picture of demand, which will decide if your customers are going to go away permanently, or whether they will they return in 2/3 months when their inventory has shrunk. If they do will the volume be the same?
We also know that volatility will not be anything unusual; we believe this is going to be business as usual. Just look at the number of global financial and business crises over the last 25 years - 19 October 1987 US stock market crisis, UK devaluation 1992, LCTM collapse 1998, dot.com bubble 2000-2002 and the latest crisis 2008. Based upon history some crisis happens every 5/6 years! So dramatic change is constant!
Hence in this situation companies need an integrated business management process, which will allow you to run multiple scenarios, and set up filters to detect when those scenarios are occurring. This needs planning and preparation.
"Fortune favours the prepared mind" - Louis Pasteur.
4. The Delos Plan for Recession.
Don't panic, think and act strategically !
A. Read an article from Harvard Business School Article from June 2001 which illustrates how to manage in a recession. Recession is an opportunity. If you have less than 100 % share of the market, you need to increase your market share. That means more innovation, more marketing, more process improvement, and not less. Less is not more. It shows how the counter-intuitive route led to real success last time around. Now is the time to acquire. Now is the time to spend on marketing, and so on.
http://harvardbusinessonline.hbsp.harvard.edu/b02/en/common/item_detail.jhtml?id=R0106F
B. Rethink the rules. from a manufacturing or supply chain company's point of view, the current situation changes many beliefs.
Previously inventory was viewed as an asset, and some companies wanted to put off process improvement projects until later - it was better to invest in growth projects. Now inventory is a liability in deflationary times. Everything must be done to make inventory zero. Lean is not an option. Effective planning processes are not options.
Profit was the goal. Now the goal must be cash-flow. Tricks like making more to increase profit through overhead recovery are absolutely stupid. Making more to reduce the cost per unit, is folly. In uncertain and volatile times, then you must only buy what you need and when you need it, and make only what you need and when you need it.
ERP systems will let you plan this. Lean thinking will help you execute this. Six Sigma will make quality processes work reliably. 7sigma would be even better.
Speed will kill competition dead, as customers will value you responding to them when they need what they need. Speed will also mean that you can respond to opportunities faster. Think velocity and not profit. Improve flow, not volume.
C. Develop through education, We believe that now - more than ever - it is right to engage in a strategically managed series of programmes which will help you through the recession, through Educating people.
"If you are planning for a year, sow rice; if you are planning for a decade, plant trees; if you are planning for a lifetime, educate and train people."
- Chinese Proverb
Here are the programmes, which consist of Education and facilitation. which we think help companies out of the crisis:
- Improve visibility into your supply chain, and understand when your customers will need product.
- Manage suppliers in partnership rather than adversity
- Simplify all processes. Cheetahs survive, elephants can't dance.
- Manage the risk [upside and downside] that the business faces through a formal process
- Bring about people change through a strategically managed programme.
Here is our outline programme of action, which will be tailored to you:
- Day 1 and 2 : Carry out a detailed assessment of your business and where the opportunities lie.
- Day 3 and 4 : Carry out a workshop in the relevant area
- Days 5-10 : Facilitate the development of the area
- Day 11 and 12 : carry out a workshop in the next most important area
and so on as required.
We will agree the fee up front for the programme. You will pay 50 % of that up front, and 50 % on completion of the agreed stage of the programme, subject to mutually agreed performance criteria.
Why not look at our package of offerings to help you surf out of the recession ? You will gain time and money through working with us. Why not get the business to be in good shape to surf out the recession ?
Click here to get the details of the programme.
5. Article on how to turn inventory into cash.
Clearly, a quick source of cash for many businesses is to reduce the amount of money tied up in inventory. We have put together a comprehensive article which summarises all of the tools and techniques designed to reduce inventory, which we know will help. If you have any questions, then you know where to ask !