• Improve productivity for direct and indirect labor. Cross-train factory staff for increased flexibility in response to fluctuating demand. Use overtime and weekend schedules to substitute for unneeded full shifts.
• Reduce wages, benefits, and raw materials costs. Previous run-ups in labor costs may not have been justified, and many would rather keep their jobs at a lower wage than lose them. Remember the need for tremendous leadership as you embark on this path. Also, commodity prices are lower, which offers an opportunity to examine cost models and possibly rejigger raw material purchasing strategies. Renegotiate long-term contracts, readjust hedges, and switch to lower-cost materials that do not compromise product value.
All these critical measures involve judgment calls. They cannot be applied across the board. Some situations may call for cutting back some inventory but maintaining or improving service levels for the most profitable customers, or outsourcing in some areas and bringing operations in-house elsewhere. In each case, rapidly assess your situation, diagnose your problem, and then adopt a more frugal, adaptive, and resilient position — from which you can start planning for the upswing.
Conrad Winkler, a partner with Booz & Company based in Chicago, is an expert in manufacturing strategy, manufacturing transformation, and supply chain management. He is coauthor of Make or Break: How Manufacturers Can Leap from Decline to Revitalization (McGraw-Hill, 2008).
Kaj Grichnik is a partner in Booz & Company’s Munich office and coauthor of Make or Break. His manufacturing expertise has focused on the pharmaceutical, food, automotive, and aerospace industries.
Arvind Kaushal, a Booz & Company principal based in Chicago, is an expert in manufacturing strategy and competitive cost assessment. He focuses on the automotive, industrial, and building products industries.