The Credit Crunch

No doubt lots of articles written on this subject are hitting your computer on a daily basis. Taking a practical view we give some tips on how to weather the storm.

I don't suppose we need the experts to tell us that recession has arrived. We see it every day.

During these times you need a good strategy and press the right buttons to buck the trend and thrive. There has never been a more important time to know what the constraint of you business is and manage it effectively.

Meat in the sandwich - the credit crunch – what to do?

In our view what you should do to protect yourself in this climate is nothing more than good management practice. The only difference now is that you must do it to survive – a good bit of student syndrome. To be more helpful pay attention to the following:

Costs

Know your major costs and minimise them. Review – review – review and watch out for suppliers increasing prices. You don’t have to agree them – there are alternatives – but ensure specifications and service levels are maintained. Good purchasing practices will help - negotiate. If costs are unavoidably going to hit – know when and by how much.

Another cost that can hit is investments to achieve improvements – ensure that any spend of this type is justified (really worth doing). If it is then take the action quickly and measure the forecast change – ensure you get what’s predicted. If its not then don’t do it no matter how attractive the proposal may seem.

The message ‘only spend money if you really have to’.

Margin

Each of your products has a cost to make it (raw materials, bought in parts and labour) – the difference between this and what your customers are prepared to pay you for the product is the margin.

The messages on costs apply here but resist looking at every individual product. The mix may tell a different story. Don’t forget about your overhead costs. On major products review how long it takes to make them – methods, layout. Can improvements be made without spending money (or not very much). Ensure any changes are implemented effectively and result in predicted benefits

Organisation – headcount

You probably have a team to help you manage the business. If so ensure they understand the seriousness of what is happening and participate in developing the solution. In this respect, their roles, responsibilities and accountabilities become very important. A good test is – “if they are not going to contribute to maintaining or improving the bottom line then they’re redundant”.

So now you’ve got a team that is on board. They must go out and investigate – what are they going to sell? – how many people will we need to deliver the sales? This is, in the first instance, a numbers game but needs to move into developing clear roles and then its about implementation.

How much will desired changes cost? Don’t forget about communications.

Sales (orders in)

The message here is to maintain or improve the level of sales you have got. You may have to increase prices in an effort to maintain you margin but it is imperative to be consistent and have a good communications strategy.

The above looks after existing customers but don’t forget about new markets. These will probably require research and a plan to implement penetration into the more desirable ones.

Where to go from here?

Paying attention to the above should yield positive results but you can’t wait for your accountant to tell you.

We would recommend that you have key performance indicators and that any change is linked to these, monitoring impact on no less than a weekly basis.

A result of the various investigations into the above could be a raft of improvement initiatives. Remember benefits are only realised following effective implementation. Another question to ask is ‘which of the initiatives will tackle the core problem of the business?’ or ‘where is the constraint of the business?’

1. Identify the constraint of the business
2. Get the best out of the constraint – check assumptions
3. Ensure everything else supports getting the best out of the constraint
4. Get rid of the constraint
5. Go back to 1. since there will now be another constraint affecting the business

Using the above guidelines should ensure you don’t become the meat in the sandwich.