Recession Proof Your Shop
I contend that your participation in any recession or downturn is OPTIONAL.
Warren Buffet agrees. Check out this video of Warren responding to a question about what companies should do given the current inflation situation:
In summary …
“The best thing you can do is to be exceptionally good at something” … if you’re the best … customers “are going to give you some of what they produce in exchange for what you deliver.”
This means if you’re a job shop, you need to be the best shop at what you do within a 200-mile radius (sometimes more depending on the type of work you do).
- You need to have competitive or better lead-times.
What happens during a downturn is that shops layoff or don’t hire to replace those that leave or retire. This means that the already less than ideal lead-times get longer and/or you wear out your employees with over time. Tired employees are less effective which can increase re-work or injuries, neither of which help lead-times.
Another common reaction during downturns is that maintenance and investments are postponed.
So as sales are decreasing, reliability and responsiveness also decreases.
But, if you don’t want to participate in the recession, your lead-times need to be the best around.
- You need to be 99+% on time.
This means you can say what you’re going to do and do what you said when you said you’d do it. You can give a due date and deliver on-time. If you’re in an industry that does not provide due dates, then you need to meet or exceed customer expectations – all of them, consistently.
If you’re not on time now, that situation usually doesn’t improve during a downturn. But, if you don’t want to participate in the recession, you need to be 99+% on time.
- You’re quality needs to be exceptional.
Most shops have good quality otherwise, they probably would not have lasted this long. However, if you’re doing too much rework it’s impacting your ability to improve your on-time delivery and lead-times.
Now is the time to improve quality if your quality is not exceptional.
- You need to be profitable.
If enough jobs aren’t shipping fast enough (low productivity), chances are your profitability isn’t as much as it could be, and cash flow is tight.
Our experience in working with well over 500 custom job shops shows that many shops have hockey stick sales and are close to breakeven. Not a good place to be going into a downturn.
Likewise, if some months have good shipments and some have poor shipments, this is a sign there’s room for profit improvement.
The best shops are shipping throughout the month and have productivity over 65++% (some way over, depending on the industry). So, if you work 1000 hours per month, you’re shipping and getting paid for well over 650 hours of work.
You don’t need to be the cheapest shop around; you need to be the BEST and that means you need to be productive and profitable.
But HOW do I become the BEST?
The good news is that lead-times, on time delivery, quality, and profitability are all related, so becoming the best might be simpler than you’d expect. Notice I didn’t say easy. There’s no easy button, but if you’re willing to take action, results can be fast.
I’ve previously talked about Getting On Time & Reducing Lead-times. It all comes down to improving flow and productivity.
Little’s Law (and experience) tells us that when work-in-process is reduced, flow improves. When flow improves queue times reduce. As queue times reduce, lead-times reduce.
As queue times and lead-times reduce, quality improves. Why? Well, the less time a job spends in process, the easier it is to identify problems sooner and correct or eliminate future problems.
As queue times, lead-times and quality improves, you will be able to predict when every job will start and complete. That means you can provide customers due dates you can hit. And because flow has improved, those due date are for shorter lead-times.
As you gain flow and productivity you have time for maintenance, and you don’t need to overwork employees (or at least as much!).
If operating expenses are the same but you ship more, profits increase. And because jobs are not in process as long, less cash is tied up and cash flow improves.
That is the path to becoming the best. It’s not easy but it’s very possible. And if you begin now, you’ll start seeing the results in 1 to 5 weeks.
Best = Recession Proof?
If YOUR shop was the BEST would customers give YOU business over others?
If the choice is between a shop that quotes a competitive lead-time but is always late versus a shop with the same or better lead-time and always on time (everything else being equal), who would you do business with?
The bigger the gap between you and your competitors, the more recession proof you will be.
If I’ve convinced you that participating in any recession or downturn is OPTIONAL, then your next question may be …
Where to start?
Again, I’m not saying this is easy and I don’t know YOUR specifics, but recession proofing your shop starts with the relentless pursuit of increased flow and productivity.
You can certainly do this process on your own and I recommend you start right away. But, if you’d like some expert guidance, that’s what I do in my 14-week Velocity Scheduling System Coaching Program.
Wishing you success,
P.S. Here’s summary of the results of 442 job shops implementing Velocity Scheduling System. These shops are ready for a recession!