5 New Year’s resolutions to increase your resiliency.
The new year is well underway and if we’ve learned anything from the past 36 months, it is that managing risk in its many forms—geopolitical, operational, market, and human resources, to name a few—is now a key factor in optimizing manufacturing operations. Unanticipated circumstances have become the norm. That’s not likely to change anytime soon.
Generally, most manufacturers realize this truth. Over the past three years, we’ve seen nearly every company we consult make changes in sourcing, logistics, labor, and/or operating strategy in the name of de-risking operations and supply chains. But, more often than not, these changes have been made reactively and in the moment as companies have done their best to keep up with the tsunami of events crashing down from every direction. There simply hasn’t been much time or space for management to get out of firefighting mode and strategically contemplate if shifts made to survive are the right ones that will help companies thrive.
This is the year that needs to change. While the day-to-day challenges may evolve, they are not likely to abate. Despite that, and indeed, because of it, manufacturing leaders must step back and find ways to work on the business instead of just in it. Only by intentionally building a more resilient business can companies protect themselves from current and future risk.
Here are five manufacturing risk mitigation strategies that can help you develop and stick to a more proactive approach for 2023.
- Divide and conquer so you can think long-term and short-term at the same time. Recent events have turned us all into first responders to some degree. We’ve gotten into the habit of reacting fully and immediately to whatever the crisis du jour happens to be. Your organization needs leaders who can continue to do this. But it also needs people who can stay focused on strategy and longer-term resolutions to risk management and optimizing operations, even when the next emergency pops up.
Taking the time to discuss and assign risk-management priorities to different leaders so they can ensure the strategic work doesn’t fall by the wayside in times of trouble. This effort also helps facilitate a cultural shift in the organization and sets the tone for prioritizing risk management on an ongoing basis.
- Always maintain the balance between costs and risks. Many manufacturers have learned the hard way that the lowest cost solution is often the riskiest, ultimately leading to more significant costs for the business in the long run. While it can be tempting to capitalize on volume discounts by giving all your business to one lowest-cost supplier, chasing every dollar in savings is not worth jeopardizing your ability to receive supplies and meet customer demand.
Diversifying sourcing for key components across geographic regions, nearshoring, reshoring, and even bringing supply in house are all options for reducing global supply chain risk, and each comes with its own set of costs and considerations for the business. It takes careful analysis and a concerted effort to determine the ideal balance between service levels, cost, risk, and regulatory concerns. Investing the resources in this analysis is becoming mandatory in todays’ business environment. Keep in mind, this is not a one and done exercise. Companies need to continuously monitor the various factors to identify weaknesses and opportunities for improvement to supply chain strategy on an ongoing basis.
- Never be caught without a plan B again. The best way to shift from a reactive to a proactive approach and increase the resiliency of your business is to know in advance how you will respond to future crises, material or labor shortages, or shifts in demand.
Start with a top-down review of manufacturing processes to map out any vulnerabilities or areas where your business lacks resiliency in the event that something disrupts operations. This requires identifying inventory, human capital, and any other aspects of production with the potential to hamstring your business if, for example, you find yourself unable to access critical components or needing to shift production geographically.
Then, consider your potential responses. For example, how does safety stock factor into your backup plan? What about alternative materials? Do you have a detailed plan for quickly adding a second or third shift in different locations, including strategies for finding, training, and onboarding qualified people? What will it take to retool machinery to shift production if necessary?
The more you can preestablish your game plan for various scenarios, the better positioned you will be to control the negative impact on your business if and when disruptive situations play out.
- Embed risk management into your processes. Just like people, companies often start out strong on their resolutions for improvement only to find that they lose traction over time. In today’s world, conversations about managing and mitigating risk need to become routine and baked into regular operating processes. While it’s impossible to predict every scenario that could disrupt your business, lessons learned over the past few years have reinforced the necessity of expecting the unexpected and being ready for anything.
Some manufacturers are introducing a new executive level role to continuously stay on top of global circumstances and business vulnerabilities. Whether you onboard a Chief Resiliency Officer or divide risk management responsibilities among existing members of your executive team, remember that this work is now critically important to the sustainability of your business. It needs to be prioritized and risk management needs to be part of every high-level supply chain and operations strategy conversation going forward.
- Get help if you need it. And be ready to receive it. Understanding the criticality of risk management is one thing. Freeing up the resources to devote to it is another, especially when the day-to-day challenges of running a successful manufacturing outfit in today’s business environment are escalating.
Organizations that cannot spare internal resources to give long-term strategy and resiliency building the attention it deserves may want to consider bringing in outside experts or consultants to help. Such an approach increases your bandwidth for risk management, provides focus, and makes the process of identifying and implementing long-term solutions much more efficient with dedicated support for much of the heavy lifting involved.
Keep in mind, however, that external consultants are most successful when they work collaboratively with internal teams. An important goal of any consulting relationship should be knowledge transfer so internal teams can continue to make improvements and execute against key changes after the consulting engagement ends. Internal leaders need to be onboard with time to dedicate to maintaining the risk management effort. Before bringing in consultants, it’s a good idea to assess the change readiness of your team and determine if your key people are ready and willing to make the engagement a success.
Make resiliency the priority it needs to be in 2023.
When you have been in firefighting mode for as long as most manufacturers have, it is very difficult to break free and find the time to address the root causes of the problems. But manufacturers that hope to thrive in a challenging environment must find ways to resolve this conundrum and build more resilient organizations from the inside out. Make this year the year you recalibrate and dedicate the necessary resources to de-risking your business. With the right mindset and discipline, it is possible to create an organization that really is ready for anything.