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January 2009 Newsletter
(Happy New Year)
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Transparency at the Tactical Level in an Uncertain Economy.
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New manufacturing data suggests a deeper recession is under way. Executive management must make some difficult decisions in the coming months, if not weeks. One of the difficult decisions is how to control tactical operations costs in a rapidly changing economy effecting their revenue. Consider some key-points demonstrating the need to control operations from these recent Business Publications and news sources.
The Wall Street Journal (1/3, Evans, Matthews) reported, "Manufacturing activity around the world fell sharply in December, suggesting that the U.S. recession will extend well into 2009, if not longer, and that unemployment will rise globally."
The Washington Post (1/3, D1, Schneider, Shin) reported on the front page of its Business section, "The Institute for Supply Management's index of industrial production slipped from 36.2 percent in November to 32.4 percent in December, the lowest level since June 1980" and "None of the industries covered in the survey reported an expansion in their business.
The Chicago Tribune (1/3, Boak) reported, "Manufacturers such as Advance Lifts Inc. have a simple resolution this year: survive. Expecting a 35 percent drop-off in annual sales, Advance Lifts Chief Executive Hank Renken recently laid off 19 of 72 workers in St. Charles who make such products as hydraulic loading docks." In addition, "Steel mills, chemical plants, computer assembly lines and even industrial bakeries are bearing the brunt of a global recession that has struck with alarming force since October."
AFP (1/5) reports that manufacturers were said to be "reducing inventories and shutting down capacity to offset the slower rate of activity caused by a prolonged recession.
Bloomberg News (1/5, Chandra) reports, "Clogged credit markets, the collapse in housing and mounting job losses have hurt demand for everything from furniture and appliances to automobiles, driving General Motors Corp. and Chrysler LLC to the brink of bankruptcy. The ISM's employment index decreased to 29.9 from 34.2 in November.
None of the above reports are good news. We went from "maybe a short recession with small inventories in the supply chain in Q3 of 2008" to cutting production to counter increasing inventories in Q1 2009. It is no longer a question of decreasing production, but it is the path taken to decrease and level production to demand that becomes important.
Manufacturing and Service organizations tend to follow a generic path to counter the effects of a recessionary economy on their operations. Cash flow dominates decision making in trying times; bottom line concerns for revenue are most dominant. Cash flow decisions can quickly cripple tactical level operations in the short term, actually causing increased cost due to poorly planned rapid changes, and then cause more bottom line damage later when the economy improves and operations must be ramped up to meet increasing demand. Typical tactical level changes made during difficult times include terminating temporary workers, canceling training and special projects for line workers and processes, cutting production to one shift, and finally- termination of regular workers. This is a time when a rational ramp down of tactical operations, guided by a functional and transparent plan at the tactical level, can assist decision makers watching their bottom line. This is definitely the time to take a critical look at operations as changes are happening rapidly, and the focus is now on surviving current times, hoping the upturn is is coming soon. This is a time when everyone in the organization--especially at the tactical level must be pointed in the same direction, working on goals and objectives, plans, targets, and methods supporting a changing internal environment.
Performance expectation and process at the tactical level must be in sync, aligning tactical level operations to revised current planning to weather the storm-the yearly goals & objectives plan at this point is not effective and most revisions to planning are probably major cost cutting revisions. A transparent performance management plan must be implemented to allow executive management to measure the effects of their rapid change plans on tactical operations.
An effective performance plan for these times includes detail that easily tracks daily, weekly and monthly activity. A Plan-Do-Check-Act strategy incorporated into the plan is very effective in feedback of activity to executive management. A weekly or monthly reporting structure must be employed to show activity planned by tactical managers and supervisors to align to changing policy deployment and goals of executive management. Methods used at the tactical level to accomplish the plan, actual results versus targets, and future activity to counter under performance should be included. The reporting intervals allow executive management the opportunity to intervene with assistance when necessary. The performance management plan must be as simple to implement as it is transparent, the reporting structure is best kept to a one page report easily completed by tactical level managers and supervisors.
This is a time of great economic uncertainty for most small and medium size businesses. We all feel some degree of helplessness, waiting for the next economic shoe to drop. Some companies will go with the flow, and for these organizations I hope the best. For those companies who choose not to voluntarily participate in this economic meltdown, and choose to fight for survival, then-implementing alignment or (re-alignment) at the tactical level of your company is a pathway to cost savings necessary to promote cash flow and bottom line success. I wish all companies success in Y2009.
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Please visit our website emconsultingllc.com for our monthly articles on managing performance. Also, please use our contact information below if your organization is interested in obtaining additional information or help in implementing a Tactical Level Performance Management Plan. Next months newsletter will focus on selecting external help to support tactical operations.
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