What should you do if your manufacturing firm faces an increase in demand for your products?
It can be a real challenge for manufacturing companies. That’s because many firms operate ‘just in time’ supply chains, with a normal contingency of about 10% for increase in demand.
And while an uplift in work would look great for your revenue, there are other factors to consider.
From a need to devote more funds towards the creation of the additional products to a potential requirement to get more staff involved, you’ll need to take a look at your cash flow to see if you’ve got the finances in place to meet the demand.
Richard Wilding OBE is Professor of Supply Chain Strategy, Logistics, Procurement and Supply Chain Management at Cranfield School of Management.
Bruce Wainwright is Director of SOE Projects, which works with businesses to identify improvements within their supply chains and operations. He has freed up more than €15m of companies’ cash through process improvements.
In this article, they share top tips to help your manufacturing firm manage an increase in demand and position your business for success.
Predict surges in demand
Some surges in demand are totally unexpected – true ‘black swan’ events – but many others, such as extreme weather events, can be anticipated. Here’s what you can do to prepare.
Assess potential challenges
It’s worth looking through your historic data to spot any recurring increases in demand.
Look at the news, commodity prices, weather patterns and reports about changing consumer habits to see which factors might affect your business.
Assess your supply chain
Take time to map your supply chain and identify any instances where you rely on single suppliers. Ahead of time, diversify your supplier base to ensure business continuity, and avoid having a weak hand in any future negotiations.
Consider setting up a flexible workforce
It may be helpful to have a team of casual workers you can call upon for high-intensity projects tackling an increase in demand.
Work with your existing staff to identify which training materials would be required, and how this should be managed.
A team of untrained temporary staff may not be as effective in a high-pressure situation. However, if you do need extra headcount, make sure there’s capacity to give temp staff the right training, so they’re up to speed with what’s required.
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Weigh up whether to serve an increase in demand
Should you take up the challenge of fulfilling an increase in demand or decline the opportunity? Here’s what you need to consider before making a decision.
Consider cost implications
It’s costly to deliver against an unpredicted increase in demand. Last-minute staffing, deliveries and storage come at a high price.
A vital first step is to work out your own costs and margins in fine detail, to ensure you will actually make money fulfilling orders that require significant effort.
Assess all the materials, goods, services, stock and manpower you will need to fulfil the order. You need to identify and mitigate any potential breaks in the chain before you commit.
Similarly, if you fail, what is the cost of reputational damage be to your business? Be prepared to say no if you suspect your business would lose money fulfilling the request.
Surges in demand usually set the scene for a pressured environment.
Before launching in, check with the customer whether they really do need their order all at once, or could the demand be smoothed out?
This could be a lifeline in terms of balancing the workload, reducing pressure and supporting cash flow.
Speak to suppliers
Check that your supply chain contacts have capacity to deliver the order. Assess what alternatives you have in place to support demand.
Review contracts carefully
Many contracts have clauses that say you must do everything ‘within reason’ to support a demand but on condition the request is ‘reasonable’.
Don’t be afraid to see legal advice if anything is unclear.
Once you’ve decided a response, you should share this with key internal stakeholders. Assign only one agreed person as the point of contact for negotiations. This stops the customer from contacting, and putting pressure on, multiple people in the company.
Be honest with the customer about your capabilities
Tell the customer what you can and can’t do. Ask for help from the client if you need it – if you’re working with a large organisation, they may well have much bigger leverage in the market to fill in any gaps.
They may also have resources you can use, such as airfreight shipments, and may even help to pay for additional services.
Watch your cash flow
It’s worth speaking to your finance department before tying up a significant amount of working capital in stock, or dispatching a large amount of inventory.
Any sudden spend or shift of stock (equivalent to cash) will impact your accounts, and may cause concern unless it is explained and recorded appropriately.
When ordering significantly more stock, be mindful about payment terms, so you know when that cash will be injected back into your business.
Managing the demand
Should you decide to go ahead and fulfil a surge in demand, it will impact almost every part of your manufacturing business, from sales and production to operations, warehousing, transport, distribution and returns.
Communicate with your people
It’s critical that you gain the support and cooperation of all your people to fulfil customer promises and maintain your reputation.
Form a dedicated project team with representatives from key parts of the business, including finance and people working on the front line, whose cooperation will determine success or failure.
They will know how to get the job done but make sure managers are available to answer any questions.
Encourage open and transparent communications, with regular reporting and updates, to ensure understanding and quick responses to any issues.
Continue to build relationships with suppliers who will be integral to the success of your business.
Reward and recognition
Make sure you recognise staff who have gone ‘over and above’ for you – either financially, by saying “thank you” or using other benefits such as time off in lieu.
Maintaining morale will help your business to be sustainable in the long term, once the surge has passed.
How two businesses tackled an increase in demand
Soap manufacturer Incognito has seen a 50% increase in demand for three products containing antibacterial ingredients, amid increases in hand washing due to coronavirus. The firm is using a bank of flexible staff to manage demand.
The company is also preparing for another potential surge in demand for its products, which contain citronella, later this year. Mild weather and a higher water table could cause an influx of mosquitoes – the company’s products help to ward them off.
In response to this extra demand, the team has maintained a healthy level of working capital to invest in stock marketing – flexing both according to the need to maximise efficiencies and customer service.
Oxford Packaging Solutions produces bottles for Zoflora cleaning range, and saw demand double after social media star Mrs Hinch promoted the brand online.
To manage demand, the company maintained a strong working relationship with its client and worked collaboratively to improve the production flow, increasing line efficiency in order to speed up production.
The firm has invested in training to create a highly flexible, multi-skilled workforce, which is able to operate and meet customer needs in the most efficient and effective way.
Conclusion on increased demand in manufacturing
Seeing an increase in demand for your products can be really positive for your manufacturing firm. However, it’s always worth assessing if your business has the capacity to meet that demand.
Jumping right in without considering implications to cash flow – needing to allocate more funds to get the work done – could be detrimental.
But by considering the points highlighted in this article, using your company data to make smart decisions, and putting the right planning steps in place, you’ll give yourself the best chance to make the right moves for your company.
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