Few areas of the economy have faced stronger headwinds over the past year than those occupied by commodity manufacturers. Chemicals, steel and plastics are all feeling the effects of China's economic slowdown in a highly competitive and price sensitive marketplace. Many of the top commodity manufacturing firms have reacted decisively to these conditions; however, after the first wave of layoffs are complete and excessive overhead costs are reined in, the prospects still remain gloomy. The sustained impact of depressed demand and oversupply are forcing executives to look inward for additional, innovative sources of cost savings. The positive news for many organizations is that the "good years" of strong demand and rising prices have left behind pockets of inefficiency and waste that can be structurally addressed in the interest of long-term corporate competitiveness. A few examples of such opportunities are as follows:
- Shared Assets – there is no better opportunity to break down internal silos than the burning platform of corporate hardship. Many manufacturing plants have segmented their sites into areas on the basis of production and infrastructure zones. There can be tendencies to retain rented, leased and owned equipment as well as maintenance craft resources in individual areas without providing visibility to the larger plant site. This can result in duplicative expenditures that could be mitigated through increased coordination and communication amongst areas. Additionally, there is often a tendency for plant maintenance personnel to retain maintenance and repair supplies outside of central storerooms, often for the purpose of convenience. By encouraging the reintroduction of these items into central stores, plants can obtain greater inventory visibility and prevent unnecessary re-orders.
- Efficient Maintenance – Many struggling manufacturing companies must react to an environment where base demand for plant maintenance and repair services exceeds staffing levels. This is a function of budget restrictions and cost cutting efforts that result in headcount reductions for both the internal and contracted workforce. Rather than letting plants slip into a state of disrepair, companies have the opportunity to optimize work management and maintenance planning. A reassessment of preventative maintenance based on historic data and internal expertise can drive step-change cost improvements. Autonomous maintenance programs also represent an opportunity to enable the remaining workforce and ensure plant staff is fully leveraged. Under these programs, machine operators assume responsibility for simple and safe maintenance activities rather than relying solely on the maintenance organization.
The broader lessons of a commodity manufacturing downturn can be summed up in the words of Rahm Emanuel. “Never let a serious crisis to waste.” Tumultuous market conditions can either be an opportunity for manufacturing organizations to shift their internal paradigms or risk death by a thousand cuts. Those that take a strategic approach position themselves well to weather the downturn and reap the benefits of an inevitable rebound.
Joel Johnson is a Director at GEP and is responsible for leading the strategic sourcing efforts of consulting teams for CPG and Consumer Durable clients. He specializes in logistics and also has experience in a series of other indirect categories including professional services, marketing and direct materials. He brings experience managing large stakeholder teams across a global clientele base. His areas of expertise include strategic sourcing, global solution development, process transformation and innovative sourcing practices. Joel has earned a Bachelors Degree in International Business and Finance from Georgetown University. For more interesting thinking on procurement, visit the GEP Knowledge Portal.