Manufacturing Today - Winter 2011 - (Page 22)
[ FOCUS ON FINANCES ]
/ Profitability /
believe that the only answer to sustaining the business is to reduce work force without considering other possibilities are short-sighted. The result of their actions may well result in cutting muscle instead of fat. This assumption can and should be challenged through the use of advanced business technology and the alternatives a sophisticated assessment analysis can uncover.
The Trouble with Slash and Burn
Liquidity and profitability rank among the top day-to-day issues that merit executive attention in every line of business, especially manufacturing. When cash flow drops below comfort levels or margin rates fall, management goes after the usual suspects – in this case, the work force. Headcount can be compared with low-hanging fruit – easily grabbed and just as easily disposed. Unfortunately, many senior executives rely solely on this “slash and burn” tactic as their preferred approach to cost reduction. The problem is that work force cuts are generally reactive in nature, which makes them more tactical than strategic. That’s because executives have unwittingly administered these cuts with twoedge swords. One end of the blade may solve an immediate problem, but the other edge delivers its coup de grace long-term; to wit, the executives wield the sword only to discover the company has been left with a limited capacity when business is on the rebound. What has been lost in this sweeping action is valuable response time due to inadequate long-term work force planning. Some executives may argue that headcount reduction is strategic because such decisions are based on future projections. Still, this approach cannot be considered proactive. Rather, the decisions made are instinctive responses based on historical precedent; that is, management has determined no other option exists because nothing else remains to be trimmed, or so executives believe. Analytics may well dictate otherwise.
Roadmap analytics help manufacturers uncover potential cost reductions without jeopardizing the structure of the business. By Doug Willmot
Consider a business trend that manifests itself predictably during economic downturns. A company’s revenue stream drops too fast, and executives conclude that the obvious expense reductions (travel, paper, etc.) will be inadequate to offset the deepening red ink. What follows next is obvious, at least from the perspective of financial officers: reduction of head count and payroll. In an economy that is suspect – and the 22
manufacturing-today.com WINTER 2011
current environment certainly is – the company is placing a bet that business isn’t coming back at least for the foreseeable future and concludes the size of the current work force is unsustainable. This type of wager can be compared with going all-in at poker without a clear understanding of the game being played. True, there’s always the chance of winning, but here is where the analogy differs relative to business: Executives who
Table of Contents for the Digital Edition of Manufacturing Today - Winter 2011
Manufacturing Today - Winter 2011
Freudenberg Household Products
O.K. Foods Inc.
Packaging Progressions Inc.
Burr Oak Tool Inc.
Patriot Forge Co.
Aseptic Solutions USA
Comex Group/Frazee Paint
Fabrica Fine Carpet and Rugs
Peerless Mfg. Co.
R.F. Hunter Co.
Advanced Fiber Technologies
Behringer Saws Inc.
Berger Paints – Trinidad Ltd.
DBS Manufacturing Inc.
Fisher Tank Co.
Hess Industries Inc.
New England Ropes
SET Enterprises Inc.
Total Electronics LLC
Weinbrenner Shoe Co.
Manufacturing Today - Winter 2011