Bigger Volume = Bigger Profit
In a highly competitive market, even when prices appear to be holding steady, manufacturers are often tempted to lower prices. Lowering prices may win bids and allow manufacturers to continue utilizing existing or even excess capacity.

This, however, is a dangerous strategy, if done in an environment which does not utilize breakeven pricing. Taking a loss on one item, one hundred items or a thousand items is still a loss. Do not be misled into rationalizing that, at the end of the day, volume will offset the loss, unless breakevens are a part of the formula.   

Instead, manufacturers need to manage operations more efficiently and more effectively than the competition. Such real-time, precision measurement is only possible with proper internal systems and processes that equip management with the tools necessary to monitor and measure results on a day-to-day basis.

That means the true cost of every item shipped out the door is known with precise accuracy. Equipped with this information, manufacturers can bid aggressively while still maintaining a profit. Without measurement, there is no management; and, without management, there is no success.

A Winning Strategy
A winning strategy requires an organization to pioneer new ways of operating that are not easily emulated, or at least not emulated too quickly by too many. Manufacturers need to be resourceful and willing to take the time to examine every possible angle to gain an advantage. Given today’s global marketplace and economic outlook, here are a few suggestions:

1.) Maintain an economically sensitive strategy relative to changing market conditions. In today’s inflationary cycle, with beef prices up 4.5 percent, poultry up 5.2 percent, dairy products up 7.4 percent and fuel costs through the roof, consumers have less income to spend on discretionary consumer products.

Conditions such as these dictate the reevaluation of a company’s product mix and the need to manufacture more of the necessary items that can withstand fears of a recession.

2.) Take advantage of technology and stay abreast of new developments. Software engineers are always looking for ways to improve existing applications, so there is always something new. For example, technology vendors of supply chain management and enterprise resource planning (ERP) are integrating their functionality to create ERP-distribution software that can span the entire production process across multiple continents with the added capability of tracking final goods, components and materials to meet the demands of a changing distribution environment. [Manufacturing to Distribution: The Evolution of ERP in Our New Global Economy, 2007 in Supply Chain Software].

3.) Create an environment and culture that recognizes the value of employees. Identify, motivate and incentivize people in your work force who possess innovative and creative ideas, whether they think of ways to lessen scrap and waste of costly raw materials, enhance product design, improve product rollouts or can identify new markets in which to ship products. Keep innovative and creative employees engaged and aware of the value of their contributions.

4.) Think like a board member. It is essential for management personnel to take time out of the business to work on the business. Encourage key employees to remove their daily operations hat and put on a board of directors hat. A fresh look at an organization from the outside looking in is a key component to developing an effective strategic plan.

New Markets
Global resourcefulness is essential for manufacturers today. Although China and India will continue their forces for strategic alliances, other parts of the world deserve a look. Consider, for example, Central and Eastern Europe. Many of the countries in this region are now part of the European Union, yet still offer low wages with less cultural and language barriers (not to mention less geographic distance). Furthermore, these countries are working diligently to create an infrastructure capable of attracting Western business. Equally important, manufacturers must constantly search globally for new markets to sell their products.   

With the U.S. economy slowing down, foreign trade is fueling expansion. In fact, the economies of our major trading partners are growing faster than the U.S. economy. On a trade-weighted basis, the economies of the 20 largest markets for U.S. products (countries that together represent the destination for 80 percent of U.S. exports) grew by 4 percent, which is 60 percent faster that the U.S. GDP growth in 2007. [National Association of Manufacturers, Outlook for U.S. Economy and Manufacturing, February 2008]

At the same time, the declining value of the dollar has made U.S. products more competitive abroad.

World Class Competitors
The number of manufacturers producing the same or similar product has increased dramatically, providing consumers with abundant choices and innumerable means to access those choices. As competition escalates, the manufacturing sector is bound to experience some fall out. A world-class athlete once commented, “A competitor will find a way to win. Competitors take bad breaks and use them to drive themselves that much harder.

“Quitters take bad breaks and use them as reasons to give up.” Those who take the challenges facing the industry today and learn new ways to maneuver will win, and win profitably. 

Gregg Steinberg is president of International Profit Associates Inc. (IPA). IPA and its related companies provide comprehensive business consulting services and business valuation services to companies in the United States and Canada. For further information, call 847-495-6786 or visit www.ipa-iba.com.