IN THE FACE OF ADVERSITY Get Back to Basics
I joined a virtual Manufacturing Forum last week, attended by many local industry leaders. Most of these owners have been successfully trading internationally for decades, and are seasoned in driving their businesses through adversity.
Despite recently emerging from the global pandemic, only to be bombarded with a follow-up attack of economic challenges in recent weeks and months, I was pleasantly surprised at the resilience and optimism they exuded for the future of their companies.
The air of optimism was chiefly due to their proactive, agile, innovative out of the box approach to ‘finding a way” – working through their respective challenges to ensure they could still deliver, or pivot their products and services around the obstacles, to ensure they will survive and thrive in the short to medium term.
In conversations with SME owners I talk to daily, one of the key solutions to finding your way through this and ensure your business thrives beyond the short term risks, is looking introspectively at your business and getting back to basics.
The Levers of Productivity
Notwithstanding the pandemic, challenges facing all business over recent months are undoubtedly going to put extreme pressure on profits. Business owners will have to look inwards at those aspects of their business they CAN influence, to maximise efficiencies, minimise costs, and pull the productivity levers even harder to maintain their margins.
When your costs and overheads increase, productivity drops and your profit margins suffer. It’s critical to understand exactly what impact future cost increases will have on your overheads. You need to punch the numbers through the spreadsheets, testing your forecasts, budgets and cashflows to work out which of the 3 productivity levers will work for you to prevent profit erosion.
How much additional volume could you realistically market, sell and deliver to recover the additional costs, without increasing your prices?
Marketing initiatives are the key driver here. During lockdown we saw some truly energetic pivots, especially from the hospitality industry where pubs & restaurants offered take away and delivery services. This swift adaptation to the external forces closing their normal modus operandi, generated alternative forms of income to cover overheads, use up the food stocks that would otherwise have perished, and provided a hugely appreciated service to the local community.
This initiative had the unexpected, more intangible benefits of seeing locals in the community, support their village pubs and restaurants once the venues were allowed to open up as normal.
With the external cost increases in energy prices, fuel and employer payroll costs all starting to impact your overheads, or looming in the next 12 months, marketing and sales needs to be agile and focused more than ever. A robust process review may highlight new ways of channelling your marketing to boost sales. My last blog highlighted that consumer attitudes have shifted considerably during the lockdown, with 40% of shoppers surveyed agreeing that British food tastes better than imported. 59% of shoppers confirmed they try to buy British food whenever they can. That shift is undoubtedly extending to any British product or service, especially with the current delays in the supply chain affecting imports, so it’s the perfect opportunity to push the buy local agenda, to your best advantage.
How much more volume can your existing resources absorb to avoid recruiting additional staff?
Getting back to basics should start with a thorough re-think of how people in the business work. A complete 360 degree critical review of every single process, procedure and task can bring to light lots of small inefficiencies, or low value steps that, if eliminated, could sum up to significant time savings over the weeks and months, freeing up staff time to produce more, process faster, and deliver better.
The wider effect of taking the team through this exercise is it increases employee engagement as you involve them in shaping their own destinies. You may find their jobs become more interesting or motivating as they see their productivity improve. Not many people want to be bored, or stifled by red tape in their day-to-day jobs.
Foreseeable cost increases that will impact on your next annual financial forecasts for all of us, include the energy tariffs threatening to increase by 25% as world gas shortages loom on the horizon. Even if your business doesn’t rely on huge amounts of energy for delivering your products, your suppliers may be affected and they may pass those increases on to you as their client.
The shortage of HGV drivers was a key concern for the small group of manufacturers I heard from. The impact is affecting the supply chain both nationally and internationally for imports/exports. The solutions they’ve had to implement included stock piling where possible, but this requires working capital.
Where they’re aware of delays in imports, these entrepreneurs are constantly researching and sourcing alternative local options. The wider impact of import and export challenges due to the bureaucracy of Brexit, and new trade agreements coming online add to the complexity of running a business, and reducing the agility of SME’s who don’t always have the cash reserves to ride out the storm.
Additionally from April 2022, employer NI contributions will rise by 1.25%, which adds an extra £1,250 a year on payrolls from £100,000 – which can be just a small team of 5 or 6 people. Whilst it may not be your biggest increase in costs, it’s another driver to ensure your team productivity is at its optimum.
Combined with the staff shortages the UK is experiencing, retaining your existing staff has become of paramount importance to business owners. Employee engagement must be a key consideration, to avoid additional cost of recruitment, training and the initial weeks or months of lower productivity new recruits generally cost a business.
To counteract all these external forces driving up your costs, you need to be finding ways to both increase your sales, and drive down or eliminate those costs you can influence.
- Payroll is often the highest cost for SME’s and achieving target staff productivity levels described above should be the first consideration.
- Raw materials, stocks and consumables are worth reviewing for necessity and yield.
- Would smaller premises reduce your overheads, especially with flexi-working becoming more prevalent?
- Are you reducing the waste in the process of delivering your products or services to reduce the cost of materials?
- Do you really need to mail customers hardback catalogues when you could offer online brochures?
- Are all the lights and heaters switched off at night?
Some are really obvious and, what may seem, trivial considerations but if you take care of the pennies, the pounds take care of themselves. There are a myriad of cost saving initiatives you could consider – download the free e-book 20 Ways to Be More Productive for more ideas.
In summary, the recent pandemic, combined with the uncertainty of Brexit, has given businesses a double whammy of challenges to contend with, but out of the chaos the strongest leaders will always find a way.
There is a glimmer of hope to survive the seemingly never-ending threats and disruptions hanging over businesses at the moment. I’ll leave you with this extract from a LinkedIn article “Back to Basics – What is a Business Strategy”, by Guillem Garcia Galofre. Whilst aimed at a more corporate audience, he summed up my philosophy perfectly.
It might seem difficult to think long-term right now, but modern business history is defined by corporations constantly reinventing their business models and strategies in the face of disruption. It might not always be easy to keep an eye on the horizon when there’s so much chaos going around you, but having that beacon to guide you is what ensures that your company will outlast the chaos
Your Next Steps to Greater Productivity
Alluxi is here to offer you support through times of change and uncertainty, bringing a facts and figures approach to evolve your business and realise your goals.
As a first step towards identifying your current business challenges and evaluating where your future opportunities exist within your business, we invite you to complete the Alluxi Business Success Scorecard.
It’s completely free, and takes just 10 minutes to uncover your hidden opportunity in 10 key business success areas. You’ll be invited to book a follow-up Productivity to Profit Breakthrough Session to discuss the results in more detail and identify how you can implement rapid and measurable improvements.
Get Your Scorecard Results Here
Photo by Paul Skorupskas on Unsplash
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