Global economic slowdown? what to do?
After several years of economic growth several indicators point at slower growth in several markets. In the United States recent earnings reports have been less optimistic for 2015, several corporations have started to adjust their full-year estimates. China’s economy, an important barometer, even with economic stimulus has not yet shown a definitive positive trend, and Europe is still balancing the optimism of the European Central Bank stimulus with the challenges surrounding Greece’s situation.
Amid all this uncertainty, what can you do as a manager to prepare for a potential slowdown?
As mentioned in prior deliveries, anticipate! On your financial equation there are two elements, one you can’t control: revenues, but there is another element that you can control: costs.
Cost are represented by several components: cost of goods or services sold, direct labor, sales, general and administrative (SG&A) costs, and other discretionary expenses. Assuming that you are not planning to reduce headcount your focus will likely start on all other items.
A strong culture of continuous improvement and innovation will help you improve your production costs, reduce manufacturing floor-plan, increase up-time, shorten set-up times, minimize use of consumables, and achieve other factory-related productivity gains.
Next in your list will be your cost of goods sold. Your commodity team will be instrumental in adjusting your COGS position. In some cases, a candid conversation with your key suppliers will help you improve your cost base; in other situations, dual-sourcing and Request for Proposal events will be key levers that will help you achieve your goals.
Last to evaluate will be SG&A expenses (excluding labor). In many industries this category will represent a significant opportunity and first in the list to reduce costs. Categories such as travel, sales expenses, marketing expenses, consulting and other outside services, among other can be managed more quickly than any other spending buckets.
Where to start?
The answer is, it depends. Rapid results are usually achieved in SG&A and other discretionary expenses. Manufacturing and Production productivity initiatives may take longer to execute. Naturally its always best to start with the biggest opportunity, which may vary by industry and by company.
For recommendations on how to start a cost reduction program you can review our summary presentation “Reduce expenses, five steps to implement a discretionary spending reduction program” located in our Education Center. You can also visit an abridged version in Slideshare.net. For additional details please contact us at your convenience.
