As the new year approaches, we are eager to put 2020 and its challenges behind us and embrace a hopefully much improved 2021. Manufacturers are no different; whether experiencing struggles or business growth in 2020, most manufacturers are anxious to begin the new year. However, before we put 2020 in the past, consider five lessons that manufacturers learned – or were reminded of – in the past year:
- A strong balance sheet can help you weather challenging times.
Cash is king. That’s an unalterable principle, but one that took on even more importance in 2020. Having enough cash or cash availability to weather a storm proved vital to ongoing operations, if not survival itself. Government loans and grants supported many manufacturers, but overleveraged companies (or those with a high amount of debt) now find themselves in an unexpected position. Many are working actively to determine how to reduce debt in times of continuing uncertainty, while others face struggles and lender pressures to resolve the debt, as restrictions to capital have become increasingly common.
Lesson: Actively work on improving your balance sheet in good times to be able to persevere through tough times.
- Relationships are key.
Technology has been a boon to manufacturing, but in an age of technology and automation, some manufacturers have found that their face-to-face relationships have weakened or have been replaced by email, text messages, and automated communications. Although many relationships may remain more virtual than in the past for some time, virtual technologies such as video calls can create a pseudo-face-to-face environment while reducing the time and cost associated with travel.
Using all available methods to proactively build and maintain relationships will help manufacturers through uniquely challenging issues that have emerged in the pandemic. Think about the benefits of these relationships, including:
- Relationships with customers can aid in your understanding of their needs, allowing you to anticipate their future needs and make efforts to supply them without disruption.
- Relationships with vendors can help you ensure your own supply chain continuity by understanding potential problems and seeking alternatives, when necessary.
- Relationships with advisors can help you decipher complex COVID-19 regulations and maximize available loans, grants, and tax deductions or credits available.
Lesson: Look for ways to continue relationships in safe, meaningful ways, including through virtual technologies that can actually help us save time and money.
- Diversification and flexibility can build resiliency.
- The lowest cost might not be the best option.
- We can be optimistic about 2021 and beyond.
Firms with a diversified customer base were better equipped to navigate the pandemic economy. Even in non-pandemic times, having a handful of large customers or a focus on one end-user market created risk, especially if those customers or if that market faced a business downturn. Further, the pandemic caused markets previously identified as growth markets, such as aerospace, to falter, while some commodity markets, such as consumable products including disposable kitchenware, surged.
Some manufacturers took their diversification a step further and retrofitted their operations to support needs created by the pandemic, such as for personal protective equipment (PPE). They supported their communities while protecting their income by adjusting their operations quickly to respond to immediate demand.
Lesson: While focusing on commodity products and exploring rapid retrofits may never be key parts of your strategic plan, the ability to recognize and adapt to customer needs and diversify your customer base can help strengthen your business, especially in weak economic times.
Many manufacturers work with overseas suppliers to deliver critical products at low costs. However, after some tariffs were implemented, efforts to re-shore (or resource those goods domestically) increased. For those still working with overseas suppliers, disruptions caused by the pandemic and related international shutdowns created ongoing supply chain questions and resurfaced calls for the re-shoring of critical goods
A manufacturer’s supply chain strategy should consider cost, quality, and the potential for disruption. Even firms relying principally on domestic supply chains should have multiple alternate sources for critical supplies or materials before a problem occurs.
As the supply chain is critical to a manufacturer’s ability to supply, a manufacturer should carefully outline its supply chain strategy. Think about the supply chain similar to a succession plan or an IT continuity plan. A problem can occur that interrupts the ability to do business; what can we do to ensure that those interruptions are mitigated?
Lesson: Manufacturers should plan for supply chain continuity for equipment, supplies, and other inputs needed to manufacture their products.
While there remains uncertainty about how the pandemic will continue to affect us in 2021, there are many reasons to have cautious optimism about the year ahead. First, as additional federal COVID-19 relief programs have been passed into law, manufacturers may find new support options available to them, including a second draw Paycheck Protection Program loan, extended and expanded Employee Retention Credit, or tax credits or deductions. In addition, some states and localities have other programs that can support manufacturers, such as Ohio’s TechCred program. As always, manufacturers should carefully evaluate their eligibility for any programs available and carefully assess those that can support them.
As more people are vaccinated against COVID-19, the stress on our overall economy is anticipated to decline. Further, business opportunities may increase as additional reshoring efforts could result in more domestic production. Advanced technologies, such as robotics, artificial intelligence, additive manufacturing, data analytics, and cloud computing, will continue to make operating more efficient and level the competitive playing field.
Lastly, while manufacturers faced pre-pandemic challenges of available workers, the higher level of unemployment has more potential workers looking for their next opportunity. Manufacturers looking to expand their workforce may want to actively consider their recruiting and training strategy to support their business needs while also aiding those in need of employment. Lesson: Manufacturers planning for 2021 should have cautious optimism, considering multiple economic and healthcare factors that could contribute to a year of recovery and opportunity.
Most economic analysts expect slow but steady economic growth in 2021. It should be a year of recovery and a chance to move our companies profitably forward. The lessons we learned from 2020 will help us prepare for better times in the coming year and beyond.