Turnaround your manufacturing company

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Turnaround your manufacturing company
Dr T R Madan Mohan

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Manufacturing is a major contributor to GDP
and employment provider in many countries.
Manufacturing accounts to 46% of GDP in
China, 19% GDP of Japan, 29% of GDP in
Germany and 16% of India’s GDP. The
sector consists of many small and medium
companies that account for significant
exports and innovation. Germany, home to
many engineering companies has more than
1000 small and medium companies, many of
them global leaders in their segments. In
India 47% of the manufacturing sector
contribution comes from MSME firms.
Gloomy global demand and tepid domestic
market impact the manufacturing sector.
Nikkei manufacturing purchasing manager’s
index, compiled by Markit, touched a low
ebb in December 2015, and is witnessing a
rebound in January 2016. A dip in the Index
of Industrial production (IIP) reported by the
Reserve Bank of India is a clear indicator of
the stress in the core sector of the economy.
The last few quarters have been tough for
manufacturing companies as capital
investment decisions have been postponed
or dried. Both large and MSME are facing
effects of global downturn which has made
survival a test for many. Many companies,
including the large ones are registering lower
operating revenues compared to last years
and some are bleeding. MSME, specifically
suppliers to the large companies are the
worst hit. With customer gains becoming far
and few many companies worried about
growth and profitability.
Symptoms checker
Many manufacturing businesses are
prisoners of their past. Their business
models and operations have remained
unchanged in years. In initial years a
completely integrated plant with most
operations done internally may have made
sense. However, with increasing economies
in scale in adjoining process and newer
technologies, cost and competitive
advantage of integrated operations could
have been lost.
Location is of strategic advantage and many
manufacturing companies built their factories
in states and counties for tax-breaks and
incentives. With sunset of tax breaks, many
of these factories turn unviable. An
associated challenge that plagues mostly
MSME manufacturing companies is that the
manufacturing plant is located close to
where the owners stay and not located from
sourcing/supply chain perspective. With
advent of stronger and larger manufacturing
competitors incumbent companies are
caught in the flux of lower pricing to survive.
Made to order manufacturing requires
tighter integration between design,
production and supply chain. Some made to
order companies place undue importance on
pursuing unique challenging and novel
applications and take great pride in
delivering one-off job orders with complete
organization stretched to meet the order.
While meeting new challenges exposes the
manufacturing company to the next orbit of
innovation, lack of standardization in design
and in-plant operations changes impacts
response time and delivery. With low
emphasis on knowledge management,
manufacturing operations improvement
information lost in translation or lethargy, the
company attends each order as unique.
Delivery and cost efficiencies are lost.
Associated challenge is high cost of
experimentation and waste for even scaling
up of existing designs or newer materials as
demanded by the market.
Seamless manufacturing operations require
effective alignment of sales-to-order (STO),
Order-to-delivery (OTD) and delivery to sales
(DTS) process. Sales process in many
manufacturing companies may be just

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reactive, may not be standardized or may
lack ownership of outcome at various stages.
The worst part sales leader may be
ineffective in motivating and driving his team
and engaging with customers. Customer
requirement process may be weak, or
product management role may be limited to
underplayed. Revenues may be stagnant or
moving south and orders predominantly
won because of low pricing. Worst, even if
orders are won receivables are gauntlet
around the neck, with some may have to be
written off as bad debt. Rework and
inventory may be high and affect what little
profitability the company may be making.
Most challenging part of manufacturing
industry is to attract and retain talent. Social
and economic changes also exacerbate the
availability of qualified technical talent. For
manufacturing companies that have been
successful in attracting qualified manpower
from other regions may find then availability
drop as the industrial development in that
region happen. Manufacturing companies in
Rajkot, Gujarat state or Holland, Michigan
state are affected by talent shortage. Recent
graduates find other newer industries like IT
and Biotech more attractive. Even if they
have been successful in hiring a good
candidate, spousal considerations would see
the resource walking away to denser
pastures. Even if companies succeed in
attracting talent, many find the attrition
heavy because of “expiry date” employees
those who join to gain a credible experience
and leave after1-2 years saps their employee
development programs. In short, many of
the manufacturing SME end up being the
training shops for larger companies to poach
industry prepared resources. Major challenge
is not just to attract junior resources, but also
middle and senior management. Unlike IT
and other industries, crossover to
manufacturing is limited because of
perception and other issues.
Bracing against the tide
To be successful, a company should build
strategies to fix the challenges and create a
revision plan to address the key factors for
turnaround. Based on our experience and
the management literature, we summarize
major approaches companies should use to
turn around profitability and survival.
Develop quickly an executable plan: Playing
what one is good at yields better predictable
outcomes. Get to the big picture to see
which way the markets are treading, catch
the cues early and cast the direction firmly.
Assess the product lines, identify core one to
invest and drop the “me-too” products.
Identify what minimum variants are required
to cover the market and limit the variety.
Better ensure about 70% of parts and
processes are common to gain from
procurement and production economics.
Identify approaches to become asset light
including facility sharing, outsourcing, partial-
sell off. Evaluate options to tap overseas
markets including acquiring bankrupt or
going out of businesses to gain access to key
markets and newer models. Define partner
ecosystem that can help increase market
reach, and product improvements on a
success fee model than investment model.
Evaluate methods to shorten supply chains
so that they could be served faster and with
quality products. Assess methods to lower
freight costs including assembly at site
options and associated changes that may be
required across the company.
Focus on cash flow: Turnaround is
predominantly based on the three pillars of
growth: Revenue, Cost and Assets. Conserve
cash and invest in quick cash generation
activities that may not need any investment

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(services and spares), cut unproductive capex
and cost. This entails assessing where the
cash is coming from, how much is coming in,
how much is going out and what to do to
maximize incoming cash flows. Develop a
cash management system and forecasting
system to manage short term liquidity and
efficiently manage working capital
Determine operational improvements that
can be made right away to reduce cost and
bleed revenue loss. Implement cost
reduction and operational efficiency
improvement activities. Determining how to
cut costs without disturbing the company’s
ability to generate revenue and survive over
the long term is a challenging issue. Evaluate
what is the immediate / long term impact on
the value drivers due to cost savings. The
financial and operational aspects of growth
must be balanced during turnaround of
business. Cost control would be on items
which do not have a lasting impact and does
not match the intended outcome. Discover
ways to new sources of revenue and
streamline the backend operations to deliver
the same. Discover the money your
companies is leaving from post sales service
and parts on table. Invest in a small team to
sell services and spares. Work on your
existing customer base and devise
campaigns to upsell mandated parts and
services. Integrate your post sales process,
ensure parts and services are monetized
effectively, first call responses are high and
customer feedback on services has a positive
impact on sales. Identify methods to reduce
inventory including parts substitution,
supersession or sale.
Pursue Improvements: Tighten up complete
business process so that the company can
only deliver better quality, no system failure
occurs in organization, equipment, and
workplace productivity. Identify process
bottlenecks and operational inefficiencies.
Devise simple systems to improve quality
and response. Outsource to gain from
major savings in terms of HR, procurement,
engineering services and other outsourcing.
Companies realize the savings from
outsourcing can be substantial, gain from
better market information and significant
savings.
Improve the total customer experience and
customer delight is very important. By
investing in improved customer relations you
not only build relationship capital, but also
defend your territories from your
competitors. Another major advantage of
investing in relationship is you that you could
plug “service recovery costs” and other
leakages. Work with large customers to
benefit from pre-order and other mutual
arrangements so that plant utilization and
productivity can be improved. Reduce span
of control across the organization, especially
in direct sales. Create self-directing teams
that bring a sense of urgency and ownership.
Dump regional and product specific sales
teams. Cross train, consolidate and upgrade
sales skills. Adopt and update KYC, measure
account mining efforts and incentivize
account mining by delivery or
implementation teams. Identify the right
programs, training and development
sessions that show your commitment to
people’s growth. What employees
appreciate lot more in turbulent times is the
trust management places in them to
shoulder newer responsibilities and invests in
their retooling and reskilling. Turnaround
times are a good harbinger of positive
change, rediscover the true culture you want
to embody and imbibe. Pursue cost effective
product and brand engagement. Low cost
social media and community branding
approaches help in dampening the negative
vibes associated with the products and

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company. Negotiate with media players and
discover there are lots of cheaper, cost
effective options including unsold inventory
on air, and tube for a song.
Create newer organizations to bring more
focus and market alignment, create space for
newer leadership to emerge to own and
direct growth and importantly, de-risk the
company from vagaries of markets and
offerings. Invest in mid and senior levels for
long haul and empower them to own and
drive outcomes. Cultivate internal talent by
creating newer platforms for the incumbents
to extend and stretch their capabilities. Build
stronger and hungry team by hiring cohorts
of fresher and align them to right mentors.
Complement external training and
development with coaching and mentoring.
Sustain Focus
An important aspect of a quick turnaround is
implementing right reporting systems. You
do not need a fancy all comprehensive
reporting behemoth, but one that can tell
you quickly about revenues, costs, and cash
flows. Implement a simple reporting system
that help in addressing how various units are
delivering to mission, whether they are
getting the maximum impact they from their
expenditures and how effectively they are
utilizing their budgets. First few months, have
a daily and weekly review and as the tide
turns better move to bi-weekly reviews.
Communicate the positive results to motivate
the employees and team to pull up and
deliver faster. You may have lots of areas to
improve, praise the areas that are working
well is critical to employee morale. Recognize
employee making a difference and let them
know their contributions have not gone
noticed. Offer incentives to encourage
employees. Make target achievements
public. A well aligned team rightly oiled
always accomplish more.
Bibliography
Boudreau, K. (2010). Open Platform strategies
and Innovation: Granting access Vs. Devolving
control, Management Science, Vol. 56, 1849-
1872.
Harrigan, K.R (1980). Strategy Formulation in
Declining Industries, Academy of
Management Review, Vol.5, 599-604.
Kogut, B. and U. Zander (1992). Knowledge of
the Firm, Combinative Capabilities, and the
Replication of Technology, Organization
Science, Vol.3, 383-397.
Kopitov, R and Faingloz, L. Ways of
transforming aims into results at Successful
companies, Technological and Economic
Development of Economy, 2008, 14(3), 312-
327.
Kotter, J.P. (1996), Leading Change, Harvard
Business Press, New York.
Mezias, S.J. and Glynn, M.A. (1993). The three
faces of corporate renewal: institution,
revolution, and evolution, Strategic
Management Journal, Vol.14, pp. 77-101.
Spulber DF. (1998) The Market Makers, How
Leading Companies Create and Win Markets,
McGraw-Hill: New York.
Browne & Mohan whitepapers are for information and knowledge
update purpose only. Neither Browne & Mohan nor its affiliates,
officers, directors, employees, owners, representatives nor any of
its data or content providers shall be liable for any errors or for any
actions taken in reliance thereon.
© Browne & Mohan, 2016. All rights reserved
Printed in India

Turnaround your manufacturing company

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Turnaround your manufacturing company