As the COVID-19 pandemic progresses, manufacturing executives have been forced to consider the “new normal”. Businesses have faced notable change over the past year. Even for the many manufacturers that were considered “essential”, social distancing, mask use, and virtual meetings have replaced handshakes, trade shows, and face-to-face collaboration. As we face the one-year anniversary of COVID related changes, how will the pandemic continue to impact our operations?

Even without COVID, manufacturers should consider external forces that could affect their businesses; however, the pandemic has reemphasized the importance of this analysis. External forces are those that we cannot control, and their unpredictability can make them somewhat difficult to assess. As a result, some manufacturing executives choose to focus on areas they can control – pursuing new customers, adopting new technologies, or implementing lean processes, for instance. However, by analyzing and reacting to our external forces, we can look for ways to mitigate their impact or capitalize on them to strengthen our businesses. For example:

• Several hurricanes (or external forces we cannot control) that have affected the Gulf of Mexico area have impacted the supply and cost of certain plastic resins. To mitigate this risk, some plastic processors choose to increase their raw material inventories during peak hurricane season or dual-source these materials with suppliers in different geographies.
• The rise in dietary restrictions (an external force we cannot control) has increased the demand for certain products. Many food manufacturers have added gluten-free or dairy-free products to their offerings to satisfy those with such restrictions.
• The rapid pace of technological change (an external force we cannot control) has affected many manufacturers. By adopting additive manufacturing technologies, manufacturers can provide rapid prototypes more quickly than they can with their traditional processes.

You likely have evaluated how the pandemic has and will continue to affect your business. In addition to this key impact, consider three additional areas of external forces:

1. Customers.



Customers are a key external force: we cannot control them, but they are critical to our success. We take action to mitigate against risks, such as developing relationships with key decision-makers, but those actions may not always help us retain or grow that customers’ business, like when that decision-maker changes.

In addition, the pandemic may have changed your customers; perhaps, you manufacture a new product after entering the personal protective equipment (PPE) market, or you have lost customers who were not able to weather the economic strain of the pandemic. As you evaluate your customers, ask yourself:

• Why do your customers buy from you?
• What value do you bring to them?
• What new technologies, innovations, or trends are your customers seeing, and how can you help them? For instance, manufacturers who supply the residential construction market may consider curb appeal trends, while those supplying retail stores may consider needs for social distancing.
2. Competition.



Like your customers, your competitors are also a key external force on your business. You cannot control your competitor’s actions, but they can have a significant effect on you. You likely are already monitoring your competition. What actions can you take to ensure you remain competitive or to increase your competitiveness with these businesses? For instance:

• Who are your competitors?
• Are new competitors entering your market?
• Why do you lose business to your competitors?
• Are they offering different value to your customers?
• Should you look for ways to improve the value that you offer?
3. Other External Forces.



A popular tool for analyzing the external environment is called “PESTLE” (or PESTEL), an acronym of six key forces in an external environment: Political, Economic, Sociocultural,Technological, Legal, and Environmental.

Consider each area:
• Political: How can politics affect your business? We anticipate President Biden’s administration could invoke policy or tax changes. How can these changes affect your business?
• Economic: The COVID-19 pandemic has already impacted our economy, resulting in low-interest rates, threats to economic growth, and low levels of disposable income.
When economic fluctuations occur, how does your business react?
• Sociocultural: Do changes in the population growth rate, demographic, income distribution, or lifestyle behaviors affect your business or the products your business manufactures?
• Technological: This assessment focuses on how technology may affect your business. For instance, manufacturers may consider how automation could improve their efficiencies or how adding a different technology can support the value they bring to customers.
• Legal: How do specific laws affect your business? For instance, if you are exporting to a new country, what laws will you need to follow? If you are entering a new product line, what regulations should you consider?
• Environmental: A business’s impact on the environment can affect practices including corporate social responsibility. How do your company’s actions affect the environment? In addition, could other ecological forces, such as weather or climate, affect your business?

For support evaluating the impact of COVID-19 and other external forces on your business, contact a member of HBK Manufacturing Solutions, a team of professionals dedicated to supporting manufacturing clients and their unique needs. Team members can be reached by calling 330-758-8613 or emailing manufacturing@hbkcpa.com.

Michael Kapics, CPA, CCIFP, and Construction Industry Group Leader for HBK CPAs & Consultants, would like to share the following article written by Kyle Melewski, CPA, which highlights several important recommendations illustrating why a benchmarking analysis is so advantageous for a construction company.

Why A Benchmarking Analysis is Key

Knowing where you stand in your marketplace and how your operational and revenue/growth performance compares to that of your associates vying for the same customers is key to remaining competitive. You want to know where you stand among your construction company peers and HBK CPAs & Consultants (HBK) can help you acquire this knowledge by performing a benchmarking analysis on your business.

What is a Benchmarking Analysis?

A benchmarking analysis is a specific type of market research that allows organizations to compare their existing performance against those of companies similar in scope and services. This enables construction company owners and operators to make improvements that complement their overall business approach and ultimately benefit the company’s profitability. The main objectives of a benchmarking analysis are to determine what improvements are necessary and where they are applicable, to scrutinize how successful competitors achieve their high performance levels, and to use the data gathered to improve efficiencies, operations, and the overall performance of the construction company undergoing the benchmarking study.

How We Work with You

We compare your company and its performance to other companies of similar size, geographic region and scope of service. We evaluate your company’s financial performance by comparing key performance indicators (KPIs) against those of your peer group, including: working capital, amount of backlog, return on equity and assets, and generated revenue. We help you determine the effectiveness of operational functions, such as billing, collection, labor force efficiency, and how you leverage debt. By drawing these comparisons, we are able to assess the overall productivity and profitability of your organization.

HBK serves more than 500 construction firms across the eastern U.S., consulting owners and operators on ways to improve top and bottom line performance. We use our knowledge and experience in benchmarking to provide our construction firm clients with a blueprint for improving their bottom line and support their efforts to grow, expand, and succeed in all aspects of business.

To learn more about obtaining a benchmarking analysis for your construction company, please contact Kyle Melewski at kmelewski@hbkcpa.com or HBK Construction Group Industry leader Michael Kapics at MKapics@hbkcpa.com.