19/08/2020
Five ways to embrace the new normal successfully for every business:
Impact of COVID 19 have been negative on the GDP & the economies around the world. Individual businesses are craving to generate cash to survive and stay alive. With the situation of having no full work and uncertainty mounting with the question of how long it will take to return to the normal, there are numerous challenges that will provide a very little time to address such challenges once the pandemic is over.
In the new normal, the biggest challenge is to keep going with a lack of cash and shortages of resources. Cash generation is at its lowest level or has been totally negligible. What is certainly available is the current precious time for addressing such challenges with proven management tools and techniques.
Headcount reduction; the easiest option to reduce the cost is already exercised by many entities. In reality, an entity would suffer higher loss as reducing the headcount would mean the loss of trained employees. In the normal course of business, entities spend money on employee pay, training, and even pay huge money for learning through mistakes, which results in the generation of knowledge for an organization. Unless carefully planned, action to reduce the headcount could paralyze a range of products or activities across the organization creating long term negative impact. In one of the pharmaceutical entity, a divisional head was removed in the wake of headcount reduction. Once he left, the division could not produce the same products again for a very long time resulting in huge loss to the organization since the critical knowledge gained by the organization went along with the divisional head.
There can be very simple actions that can help entities for addressing the challenges in the expected new normal. There are several proven management tools and techniques which otherwise would have rarely attempted for performance improvement due to lack of time. Few of them I practiced are stated below which can produce great results.
1. Alignment of equipment/workstations on the shop floor:
When a business is growing, new machines are added and installed at the place available on the shop floor. If such installations lack unidirectional flow (moving in one direction) in the process of manufacturing; unless viewed especially, it may continue to cause wasteful movements resulting in slowing and lowering the organizational performance for long years, despite investment in the new machines. Hence, if the current flow of the process is studied, it may reveal the need for realignment of machines so to ensure the unidirectional flow resulting arrangement of equipment/ work stations in a sequence that supports a smooth flow of materials. Such alignment can reduce the waste of precious production time and work-in-progress inventory. Such a study can further highlight the need for balancing of capacities of machines in a row which can further lead to an increase in the overall output significantly.
2. In-sourcing and out-sourcing:
It is a good time to review what has been outsourced and whether the same can be in-sourced so to keep the wheels running with increased utilization of resources. However, vendor relationship, the ecosystem of such sourcing is of vital importance which needs to be carefully vouched before in-sourcing the previously outsourced components or activities. In one of the engineering company, when I was hired to review the performance, it was observed that a simple drilling operation was being performed on a 15-year-old machine by a person with 10 years of experience. The question was to what is the proprietary? Whether it is a final product or drilling operations? After a lot of brainstorming, the management took the decision to outsource several small operations resulting in faster delivery of the products to market and achieved above normal growth in the turnover.
3. Review the design of existing products and development of new products:
In an assignment of risk review, it was revealed that an entity is not growing as expected. The design department has hardly developed the new products and whatever has been developed was not contributing enough. Generally, 90% of the cost is committed at the design stage, hence the review of the design of existing products with inputs of value engineering, benchmarking with products of competitor and innovation could help in achieving competitive advantage. The auto industry is the best example and known for its competitive product development and innovation.
4. Data Analytics:
It is worthwhile to review the data of the past few years on wastage's so to find ways to reduce the same. In a lean manufacturing concept, 7 potential areas of wastage have been identified such as Transport, Inventory, Motion, Waiting, Overproduction, Over-Processing, and Defects. In case of one of the manufacturing entity, it was observed that they were working out the percentage of scrap as the value of scrap to raw material consumption and presumed the result as normal, but when the purchase value of scrap (quantity of scrap multiplied by purchase rate) was compared with consumption of raw material, then results seen were shocking, it turned out to be three times higher. Similarly, product/customer profitability analysis can provide insight into a good strategic direction. In the case of a valve manufacturer, such analysis revealed that products were contributing very low to the overall margins but contributed much better where the products were better suited to the specific requirements of the customer. When the next ‘WHY’ question was asked it revealed that their products were competing with low tech products resulting in very low overall margin. Subsequently, they started targeting the customer with such specific products. This decisions lead to the achievement of a sustainable position.
5. Employee Training:
It is the people in the organization who need to be empowered as they can effectively drive the movement of competitiveness, better management of risk, and explore opportunities. Employees can make much better contributions to the process of risk management provided they know what is meant by risk. In simple terms, ‘anything which affects organization’s performance adversely’ can be termed as ‘Risk’. There are several such tools and techniques which can be taught to the employees during this time so to take on the new normal period with confidence and create value.
Published by:
Pradeep Pathak FCMA (UK), CGMA, FCMA (IN)
P. G. Pathak & Company
