As the end of the third calendar quarter quickly approaches, manufacturing executives are looking ahead to the new year. However, after nearly eighteen months of employee health concerns, supply chain disruptions, increasing raw material costs, and labor availability concerns, manufacturers have one question in mind: what challenges will 2022 bring?
The pandemic has reminded us that many of our greatest challenges result from events that were not easily predictable, like the “Great Recession”, the COVID-19 pandemic, the winter storm that hit Texas in early 2021, or the “Great Resignation”. Manufacturers have worked to improve their flexibility and resiliency. Now, as planning, forecasting, and budgeting processes begin for 2022, these traits remain critically important.
Consider four questions that may help you think through potential challenges and their impacts on your upcoming plan or budget:
- Should you have one or multiple budgets?
In times of uncertainty, consider preparing multiple budgets to address possible scenarios. For instance:
• Prepare budgets for different levels of revenue, so you can determine the cost structure necessary to support your business at these different levels. This will help you react quickly if revenue changes from expectation.
• In addition to an annual budget, prepare a working budget that you can update as prior periods’ financial results are known or as circumstances change. While preparing multiple budgets takes more time and valuable resources than preparing only one, these tools can be invaluable for decision making and managing the business.
- How reliable are your data sources?
Manufacturing leaders rely on others to prepare the data that is used in plans, forecasts, and budgets. For instance, customers may provide demand projections for the coming year. However, are their projections reliable? Are you in contact with the right people to provide you with dependable data? For instance, a customer’s procurement team may be your primary contacts, but they may not have up-to-date data on projections, trends, or potential product changes that may affect your business with them. Consider the reliability of your data before making business decisions that are dependent on that data.
- What if current problems persist?
Many manufacturers describe their most significant challenge as the availability and turnover of laborers. Businesses should consider what happens if this problem continues in the new year. Should the company identify new partners to help them in recruiting efforts? Should the business reconsider its employee retention strategy? Has the company considered automating processes to reduce reliability on manual labor? Determining possible actions to prevent ongoing problems may help manufacturers be better prepared for the year ahead.
- What are your business’s most significant weaknesses?
Every manufacturing leader can identify opportunities for the business to improve. Have you thought about ways to address those weaknesses? Often, weaknesses can become more significant when the business is presented with other challenges . For instance, a manufacturer with weak supplier relationships can become especially vulnerable when global supply chain shortages persist. By identifying their weaknesses, manufacturers can work to prevent those weaknesses from creating significant challenges.
To discuss your 2022 business plan, forecast, or budget, please contact a member of HBK Manufacturing Solutions.