February 15, 2016 / benchmark study, best practices, Cost Management, industry news, LIT, ROI, strategic planning
In general, growth is good in business. It means more customers, more orders and, typically, more profit. Growth also typically indicates a healthy market, a stable economy, and increased market demand.
In today’s uncertain market, however, industrial metal-cutting companies are finding that growth might not be possible, and in some cases, shouldn’t even be the goal.
According to the Metal Service Center Institute, December metal shipments and inventory levels for both steel and aluminum declined 11.4% and 21.7%, respectively, from December 2014. In addition, the Institute for Supply Management’s January Purchasing Managers Index rating of 48.2% indicates a contracting manufacturing industry for the fourth consecutive month. (A reading above 50 indicates expansion; below 50 indicates contraction).
This has left many industrial metal-cutting companies unsure about how to grow while balancing fluctuating demand, raw material costs, and shop floor process and machinery improvements. A recent survey conducted by the Fabricators & Manufacturers Association Intl., for example, concluded that small and medium-sized job shops and fabricators are “facing a lot of headwind and uncertainty,” according to a report from The Fabricator. While most of the survey respondents believe their companies will grow in 2016, only 39% were positive and a significant 23% said conditions aren’t getting any better.
The reality is that based on current conditions, growth in the traditional sense probably isn’t going to happen in 2016 for many manufacturers. In fact, according to the article, “Achieving Smart Growth: A Guide for U.S. Manufacturers” from manufacturing.net, growth may not be the healthy—or profitable—path to take.
Before trying to achieve growth of any kind, the article states that manufacturing executives should ask themselves a few key questions:
- Is there an ideal size for my business so as not to compete with current business while avoiding administrative costs?
- What is my greatest profit opportunity? Is it expanding sales or increasing efficiency?
- How do I ensure increased sales that lead to higher profitability?
- How long is growth sustainable and are we prepared for slowdowns?
- What will help manage cash flow during ups and downs?
Once companies answer these questions, the article states that “smart growth” is possible. What is “smart,” however, will look different at every manufacturer, depending on its unique circumstances. For example, a “smart” path for one company could mean maintaining their current size and optimizing operations, while another manufacturer might want to consider making some larger investments to achieve bottom-line growth in the future.
The manufacturing.net article says regardless of the circumstances, there are three key principles all companies should follow for “smart growth”:
- Plan. This includes defining objectives, planning how to achieve growth, and identifying risks. Managers should review their plans quarterly and change as needed.
- Invest. This includes looking for profit-generating opportunities for your business. Whether it’s through technology or training, managers should actively find new ways to improve the status quo.
- Fund. Managers need to find a balance between cash and credit. Relying on cash keeps interest costs away and demands financial discipline. However, relying solely on it can limit a company’s ability to grow when opportunities arise.
As reported in a benchmark study from the LENOX Institute of Technology, many of today’s metal-cutting companies exist because of their ability to survive even the toughest market conditions. However, best-in-class operations know they cannot afford to rest on their laurels. By developing a tactical, healthy “smart growth” strategy, industrial metal-cutting companies can continue to find opportunity, identify areas of improvement, and achieve long-term success, even in uncertain times.
Do you have a “smart growth” plan for 2016? What strategies are you using to ensure success?