A recent article over on CFO, which states the obvious, says that big lesson from the downturn is to cut inventory, not people. The timing of this is so poor it’s shocking! Why couldn’t they have run this *before* organizations cut so many people that joblessness came close to reaching an all time high: 10.1 in October of 2009 compared to the all time high of 10.8 in November of 1982! (Source: The Misery Index)
As noted in the article, there is a huge savings potential in inventory reduction, which ties up working capital, eats up storage fees, and risks significant losses from obsolescence if the product is not sold before it nears the end of its useful life. In fact, I’m willing to bet that if the right end-to-end inventory optimization strategy was employed, the average mid-sized company (10M to 500M in revenue) would save significantly more than the 520K saved by the average company in the report. But still, even if your company only saved the average amount from its inventory reduction effort, it would save 30% more than the average savings the average mid-sized company obtained last year by slashing headcount. Headcount which you need if you’re going to recover when the economy picks up — because if you’re regularly turning away business like the contractors in Pittsburgh, eventually word is going to get around that you’re not interested in new business and then, because potential customers stop calling, you’re going to stop getting new business. Instead of growing, you put yourself on the fast track to bankruptcy!
So cut your inventory, optimize your working capital, and spend more strategically. Not only will you save more, but you’ll make more too when times are good!
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About a month or so ago, Software Advice released it’s Manufacturing Software State of the Industry Roundtable (Part I and Part II) where they reported buying activity, spending patterns by business size and industry, and the primary motivations behind current buying activity as well as well as activity in the software as a service (SaaS) market, how vendors are adjusting prices to compensate for the economy, how offshoring influences spending and whether manufacturers are implementing integrated enterprise resource planning (ERP) systems or best-of-breed applications.
The main results are summarized below. Everything is pretty much as you’d expect if you’ve been keeping up with the supply chain space and the economy:
- Market Activity Up
It’s a recession, and most M&A happens during a recession when there are good deals to be had.
- Small and Medium Enterprise Spending Up
Most innovation comes from small and medium size enterprises, who have probably figured out it’s a do-or-die, and do it cost-effectively, economy. Hence, a slight rise in SME spending.
- Large Enterprise Spending Flat
No surprise that the slow behemoths are trying to keep the status quo and wait it out.
- Food, chemical and consumer packaged goods manufacturers Up
People have to eat and meet their basic needs, but they don’t have to buy overpriced products to do so. Hence, the F&B and CPG companies will be investing to cut costs and retain market share.
- Aerospace, semiconductor and automotive manufacturers Flat
Business people still have to travel, old cars still break down, and sales make flights and cars very attractive to vacationers and buyers who have disposable income. Plus, all the bailouts allow the dinosaurs to keep bumbling along at their slow and steady paces. As for semiconductors, we live in the information age where we can’t do without the chips they produce.
- Software as a Service Up
Companies are getting comfortable with the concept, which is becoming very attractive with limited budgets and high-speed internet everywhere.
- Manufacturing ERP Software Pricing Down
The lumbering giants are realizing that people won’t pay seven figures for a solution when they can get an 80% or 90% solution for five figures.
- Integration Across Plants and Supply Chain Up
It’s still slow, but the onslaught of vendors that have hit the space in the last decade are continuing to make progress.
- Best-of-Breed Applications Flat
Nothing has happened to make them more or less attractive as a whole.
- Integrated ERP Suites Up
If you have to buy ERP, you’re at least going to buy one that enables organizational efficiency.
To dig into the details, check out the two part series over on Software Advice which just released it’s Manufacturing Software State of the Industry Roundtable (Part I and Part II).
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