Five Steps To A Prosperous Recession

Recession is said to be in the air. How can producers of precision machined products ensure a profitable performance during a possible recession, when Detroit and Tier One buyers are squeezing their suppliers for price concessions?

A recession normally means fewer sales (auto sales are predicted to fall to 15.6 million in 2008, down from 16.4 million last year). But an alert precision products manufacturer can still manage to turn a profit even on a lower volume. A shop’s profit level, in booming times or bad times, is a result of management pushing for a high level of continuous improvement. This requires a steady attention to what’s going on inside the company in manufacturing, sales, marketing, finance and human resources.

As Socrates said to Glaucon in Plato’s “Republic,” “The stars are worthy guides in perilous travel, but on shorter trips at home we need more earthly guides.”

I have taken the liberty of summarizing the experience of my teaching at the University of Chicago and more than 40 years as a management consultant for many major companies to provide more “earthly guides.”

These 40 years of experience have led to my identification of the essential five steps (questions), which deal with factors at ground level, and are most helpful not only in meeting a recession but in prospering in such a climate.

Here are the questions:
Are you instituting incentive employee programs to boost productivity, thereby chopping unit costs and elevating profit margin on sales?

Since hourly employees are closest to daily work, do you have a method to obtain workplace information from them, such as suggestions on how operations performance can be improved on the plant floor? This requires some special interviewing techniques.

Have your supervisors been given any special training on how to improve production, particularly in managing Hispanic workers, who may require different kinds of motivation than American workers?

Have you explored the reduction of investment in inventory by shifting inventory responsibilities to suppliers?

Are you continually leaning on department managers to awaken them to improve profitable operations in their areas?

These key questions are of special importance for manufacturers with plants of 50 to 1,200 employees, which collectively account for 71 percent of U.S. manufacturing employment.

To ask these checklist questions is only the beginning. The answers require an organized and persistent effort, so as to build your strong defense during a recession.

Executives of companies producing precision machined products are sometimes bored by internal plant operations. Typically, they are inclined to give most of their attention to the world outside, where they can ferret out any increased sales and profitable opportunities. As a consultant, I typically insist on asking questions about the prosaic elements in plant performance. Leaders in business should determine company goals and priorities and give their achievement a sense of urgency in protecting against the strain of a recession.

Many executives settle for the modest results reached because improvement requires considerable effort and sweat.

Leadership is not to be confused with affability, nor perhaps popularity. As reported in the New York Times, Jack Welch, then the president of General Electric, was quoted in commenting on “leadership” as follows: “I guess one thing I’ve learned is that with leadership, if everybody waited until everyone agreed on everything before one did anything, there wouldn’t be such a thing as leadership…”

Similarly, leaders determine goals and priorities and give their achievement a sense of urgency. The presidents of companies producing precision machined products should exhibit a perpetual drive to improve. Concentration on digging out answers to the five key questions cited is a sure method not only to staying alive, but staying alive well. 