I had told my operations manager to gear up production to match sales projections. Except now sales are coming in slower than expected. I don”™t want to lose profits keeping operations over capacity while I wait for sales to catch up. But it can be expensive to turn down production only to have to gear it back up later. Any suggestions?
Thoughts of the Day: Ask a series of questions to get a handle on where to focus in operations while things are quiet. Proactively take advantage of the slow time. Protect the margin, so that you don”™t dig a deeper hole.
Ask sales for an adjusted forecast, by product. Ask them to look through orders and proposals for indicators of which products might be selling, and which might not. Ask if there are any big proposals outstanding that could require production to go from zero to full throttle, with little or no warning.
Figure out where to focus until sales rebounds by working your way through a checklist of questions:
- What”™s the status of customer backorders and continuous needs? What goods are consistently ordered later in the year? If we produce those goods now can we safely and cost effectively store them until they”™re needed?
- What about equipment and people sitting idle? Can we change the flow of orders through the shop in order to catch up on items that are backlogged? Is it cost effective to retool a machine for short term use? Can we switch people around?
- What does inventory on order look like? Can we cancel or delay delivery on goods? Can we sell goods in transit to someone else and divert the inventory before it”™s delivered?
- Is there inventory that”™s about to become obsolete? Should we write it off now? Can we find a way to sell obsolete finished goods at a discount? Should we have a sale of raw inventory?
- Do we need additional financing for inventory that will sit longer in raw, unfinished or finished goods? Should we ask finance to term out the inventory credit line, to give us more time to pay down the expense? Will vendors give us more time to pay for inventory that isn”™t moving?
- Which people need training? Where do we have only one person able to do a job? Who is the trained backup for people who are expected to leave or be promoted this year?
- Which people had higher-than-normal error rates last year? Do they need more practice to improve results? Or do they need to be asked to leave the company now that things have slowed down?
- What equipment needs repair? Can we take the equipment offline to do overhauls? What about taking aging machines completely out of production?
- How about moving up installation of new equipment? What equipment installations will cause the most production disruptions later in the year? What”™s our confidence that we”™ll need that equipment later in the year? Is it more cost effective to install now and be ready to gear up later, or to wait to see how sales pan out?
- What can we do to manage production hours? Why not ask people to take vacations now, while things are slow? Is it time to slow down the work week by five hours, or go from a five-day to a four-day work week? Is there anyone working overtime who should be cut back to straight time, only?
As you work your way through this list of questions, keep your eye on the Cost of Goods Sold Margin for the current quarter, as well as estimates for the full year. Get finance to run projections under differing conditions. Anything that can be done to lower the margin now will help to buy the company time to wait out the slow sales.
Looking for a good book? Try “The McGraw Hill 36-Hour Course: Operations Management” by Linda Brennan.
Andi Gray is president of Strategy Leaders Inc., strategyleaders.com, a consulting firm that specializes in helping entrepreneurial firms grow. She can be reached at (877) 238-3535 or AskAndi@StrategyLeaders.com. Visit AskAndi.com for a library of Ask Andi articles.
