By Polaris MEP Partner Josh Chernin, Business Improvement Group
Much of the advice thrown at manufacturing companies these days is about pivots.
Pivoting companies retain much of the original elements of their organization but change others. For example, many Rhode Island textile manufacturers adapted their product to a new market direction — masks and other PPE. That’s a “pivot.”
For some manufacturing companies, however, things have been negative for a while and a major shift is needed for financial recovery. External forces (such as the COVID-19 pandemic) and/or internal forces (perhaps a lack of continuous improvement culture) have put the company in a difficult position. They really need a “turnaround.”
Sound familiar? If so, don’t bury your head in the sand.
If your company is in trouble or heading toward it, time is not your friend. It won’t fix itself. Get ahead of it.
As a team of business and operations improvement executives, my partners and I have participated in many turnarounds. Here’s our road map to recovery for Rhode Island manufacturers.
First: Stay calm. Your people are looking to you for guidance and leadership, and also for subtle signals.
Second: Take care of yourself, whatever that means to you. You will need both physical and mental stamina. You can’t help others if you don’t help yourself.
Then: Follow this four step framework to move your manufacturing company in a new direction.
- Understand the situation. What’s going wrong?
- Get a handle on your cash flow. Put together a rolling 13 -week projection of Sources, Uses, and Net Cash Flow. At this point, cash is more important than profit.
- Understand the levers in your business. In every business, two or three customers, or two or three cost items, are the ones that really make a difference. Narrow your focus to those. For now, the rest don’t matter.
- Communicate what you have learned honestly to all stakeholders: Employees, customers, suppliers, the board, the bank, regulators if applicable, and any others. Honesty is important because you will be asking all to contribute something, and without the credibility that honesty brings, they won’t do what you need.
- Timing of all actions should be regulated and tied to your cash situation. If necessary, require personal approval on all expenditures.
- Take two or three major actions that directly address the cash situation and the root cause of the troubles. The specific actions depend on the specific situation, but they may include hiring freezes, pay reductions, ending a line of business which doesn’t produce a contribution, negotiating better terms with creditors, restructuring your finances, or any of dozens of others. Layoffs are a last resort only.
- Explain your reasoning and provide context to all stakeholders. Explain to each group what their role is, what they can do to help.
- Extend your rolling cash flow outlook to 180 days.
- Go one level deeper and put a short list of action items for each functional department to implement within a specific time period. Follow up with each department every 2-3 days. Hold one person in each department accountable.
- Communicate again with all stakeholders. Tell them what you’ve done, what the effects were, and what are the next steps. And thank them for their efforts to date.
- Take a hard look at your people. Who stepped up, who didn’t?
- Put a Continuous Improvement program into place.
- Explore more profitable markets and begin to ramp up your marketing.
- Do the forensics: What are the lessons learned?
- Communicate again to stakeholders: Update and thank them.
- Hold a small celebration.
Hard Turnarounds Take Softer Skills and Teamwork
The steps summarized above are a framework. To implement them requires a certain set of “softer” skills and teamwork.
You’ll need the ability to quickly toggle between the strategic and the tactical. The ability to empathize and communicate clearly. The ability to make very tough decisions with less than optimal information.
Critical will be having the skill to draw on outside resources when appropriate. With a reliable team of internal leaders and external experts, you’ll be able to drive the organization in a new direction.
Interested in process improvement or having a consultation with Polaris MEP resource partner Josh Chernin? Contact Kayla Viveiros at Polaris MEP, [email protected].