According to a recent survey by the National Association of Manufacturers (NAM), 80% of U.S. manufacturers anticipate a negative financial impact on their business due to the recent coronavirus pandemic. In addition, more than 50% say it will change their operations and nearly 40% are facing supply chain disruptions.

Do you have struggling manufacturing companies in your portfolio? If so, these figures can be concerning. However, they are not beyond a turnaround.

Today, we’re sharing how a strategic financial and operational restructuring plan can help manufacturing companies find balance and restore efficiencies, even in the wake of such jarring changes.

5 Tips for Saving Struggling Manufacturing Companies in Your Portfolio

1. Assess the Crisis

In the coming months, many manufacturing companies will have no choice but to shift their business models in response to the rapidly changing economy.

While there are many moving parts to this economic shift, its impact on the manufacturing industry has mainly been a downward pressure on demand, production and revenue. As a result, manufacturing companies have experienced issues, such as cash flow problems and a difficulty meeting debt obligations.

What business issues has the current economic environment created for your manufacturing portfolio companies? One of the first steps in a business turnaround is understanding the specific business issues a company is experiencing.

Achieving Operational Efficiencies

Our operational restructuring team can help you enable rapid change to achieve improvements in cash flow, working capital and profitability.

2. Triage to Determine Priority

With so many issues vying for your attention, a triage stage is critical. During this stage, you should prioritize the improvements that will benefit the company the most. Then, they can determine the processes and technology required to help the company meet those objectives. 

Similar to a medical triage, a business triage is designed to put immediate focus on the most pressing, short-term needs. From there, it branches into other areas that can be optimized to fuel long-term growth.

From depleted cash reserves to increased worker layoffs, there are some manufacturing-specific concerns that will take top priority due to their immediate impact on the company’s bottom line. Once those areas are stabilized, attention can shift to more long-term goals, including:

  • Updating outdated technology that makes it difficult to retool production 
  • Redesigning operating models to prioritize flexibility over speed
  • Implementing ERP systems to streamline and simplify complex or compressed supply chains

With the right plan and resources in place, a struggling company can move into a stabilized state relatively quickly. This is especially the case if a business turnaround consultant is hired to help restructure operations and conserve cash.

3. Begin Financial Restructuring

As manufacturers adjust to a new, low-revenue environment, they’ll need to take a closer look at how their current financial model can support their ongoing efforts. 

Critical issues to consider include:

  • Assessing the stability of current profitability, loans, credit, and cash reserves
  • Identifying marginal investments in capital and corporate cost budgets
  • Finding discretionary expenses that can be cut
  • Divesting nonessential or underperforming assets as potential cash sources
  • Assessing M&A prospects 
  • Refinancing debt if required

Financial restructuring involves activities such as forecasting anticipated expenses and restructuring debt obligations to more closely monitor cash flow. A business turnaround consultant can help struggling manufacturers identify short- and long-term financial issues, along with resources that can provide stability.

struggling us manufacturing companies

4. Focus on Operational Restructuring and Business Process Management

As manufacturers struggle to adapt to the recent market changes, they’re forced to adjust many of their best practices and tightly held business processes. 

In the NAM survey mentioned above, manufacturers described the impact the pandemic has had on their supply chains and operations, citing these top challenges:

  • The need to find alternate suppliers
  • Reduced customer demand
  • Changing work schedules
  • Imbalanced inventory levels
  • Increased employee absences 

In response, many manufacturers are finding the need for operational restructuring. This might involve interim management, cultural changes, the alignment of operational strategy with enterprise strategy, or any other initiatives that help you quickly stabilize operations.

Once you have stabilized operations, we recommend focusing on business process reengineering. This involves understanding the organization’s current state, looking for opportunities for improvement and redesigning certain processes to remove waste and increase efficiency.

5. Don’t Forget About Human Capital Management and Organizational Change Management

In addition to operational and financial challenges, manufacturers are grappling with the human side of business distress and turnaround.

For example, as factory floors begin to look quite different, a few human capital management considerations include:

  • Discussing flexible work arrangements
  • Assessing plans to retain and deploy workers amid the slowdown
  • Creating risk mitigation strategies for workers who must remain on-site
  • Deploying new technologies to reduce workplace capacity (e.g. moving IT functions to the cloud)
  • Outsourcing nonessential internal functions

Along the way, there are bound to be some employees that resist these changes and are unwilling to adapt. This is where organizational change management is critical.

In terms of training, you should educate front-line employees on how to stay safe and minimize their risk of exposure. Similarly, anyone tasked with using new technology should receive training relevant to their induvial role.

In terms of communication, it’s important to educate your leadership team on how to best communicate the nature and benefits of proposed changes.

Relief for Struggling Manufacturing Companies

Over the past several months, industries around the globe have struggled to remain viable and competitive. This is especially true for the manufacturing sector. These organizations are tasked with balancing decreases in demand and production with rising costs and supply chain disruption.

If you have struggling manufacturing companies in your portfolio, our team of business restructuring consulting experts has the experience to help you facilitate an operational and financial restructure. Request a free consultation below.

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