At the start of the new year, the international trade scene remains uncertain, and the effects of tariffs on steel and aluminum continue. What’s a sound approach in the meantime for affected manufacturers?
Of course, the first play is to try to share the cost increase or pass it on. We know two businesses that have renegotiated contracts for every single line of products with their OEM customers. Still, it’s a zero-sum game at best.
For those without negotiable (or indexed) contracts, the squeeze is on. It’s exhausting to look everywhere for fragmentary savings. And in the panic, it can be tempting to try to cut the cost of labor somehow. Don’t!
Consider pass-along increases and cost cutting as part of a larger profitability strategy. The best way to overcome rising costs is to increase the speed of production. By looking to rearrange processes without significant capital investment, good things can happen even in bad times.
When we can get past the feeling of being controlled by uncontrollable forces, it dawns on us that doing the obvious is often wrong, the real objective is getting people and machines to play like an orchestra. The leading manufacturers worldwide don’t wait for downturns to look internally, and constantly, for improvement under their noses. It’s the toughest place to see clearly, but it’s the most profitable.