In singer-songwriter Bob Dylan’s 1970s rendition of his classic song “Idiot Wind,” he hints at meeting a fortune teller who warns of possible danger ahead. We don’t have a crystal ball or trusted fortune teller for our economy, but in the event of an economic slowdown, here are some actionable suggestions for small to medium-sized manufacturers. While not an exhaustive list, it’s a good starting point.
Explore more recession-resistant markets, niches, and supply chains with needs that align best with your capabilities. Consumer staples and alcoholic beverages have been prior good bets. Also consider renewable energy, health-and-senior care products, and security/defense/law enforcement products. Identify and explore others, and consider pivoting away from anything that has a history of being, or is forecast to be, recession prone. Pivots may be harder to execute and may take longer depending on your brand or market promise.
Assess the health and recession-resistance of critical suppliers and key customers. Consider having conversations with them about their projections and plans, and how to more effectively collaborate in a downturn. Having customers compliant with payment terms during good times will set you up for better success when there’s a slowdown. Treating suppliers as partners when demand is strong will yield benefits when it’s not.
Build a very prudent operating reserve. Make sure you are in full and open conversation with your bank(s). Manufacturing-focused banks should be able to provide economic forecasts, financial health checks, and related advice.
Develop your workforce plan. Know in advance what triggers will initiate what actions, such as going to a 32-hour work week. Don’t hesitate or delay when a triggering event or performance occurs.
Have an open book policy for business health. There should be no surprises for your workforce if a downturn reaches a level of severity that requires layoffs.
If you’re ISO certified, make sure your risk management practices are solid. Your practices should not merely be a check-the-box exercise. If you aren’t ISO compliant or certified, consider adopting ISO-based risk management. It is just good business.
Evaluate capital investments. Utilizing the latest market inputs, rather than prior assumptions about demand and interest rates, will give you a better financial picture.
Review your three-to-five-year plans. Make sure you have updated and integrated (i) financial, (ii) sales and marketing, and (iii) operational strategies, scenarios, assumptions, and projections that reflect your current perception of the future. Be sure to execute your updated plans and keep updating them.
Remember that a downturn will present opportunities. It’s a good time to monitor your competitors for possible talent, customer, facility, equipment, and business acquisitions.
Thank you to Dave Allard and Tom Walker for your contributions.