How To Win Business In 2021’s Volatile Global Economy
With multiple vaccines approved and being distributed across the country and around the world, it certainly seems as though the pandemic that has locked down nearly everyone on earth for the last year is starting to come to an end.
COVID-19 is still raging, as evidenced by rising cases and hospitalizations in Europe and much of the United States, but there is an undeniable light at the end of the tunnel now. This means we are once again heading into a time of great change in a short amount of time and having a plan for how your business will deal with the changes is critical.
The Current Landscape is Volatile
The first quarter of the year is nearly done — how are those New Year’s Resolutions going? — and while messages from buyers and investors have been mixed over the first few months of the year, some clear and important signals are emerging through the noise.
PMI — a measure of manufacturing growth or contraction based on monthly surveys — is expanding at its second-fastest rate since 2010 according to ISM. This is due to a huge amount of global demand that has been held back for most of the last year. The upward trend started last fall and is still going strong.
Also in the survey, however, was the note that prices for raw materials and other inputs are rising quickly because there are supply constraints in addition to the explosion of demand. This means that as business picks up, producers will need to either pass increased prices on to consumers or deal with decreased margins by increasing the amount of work they do.
To get prepared for these trends, we recommend three steps you can take today:
- Lay the groundwork for growth
- Plan ahead
- Stay in close contact up and down the supply chain
Lay the Groundwork For Growth
One important change our customers have communicated to us is an increase in new business opportunities from unexpected or non-traditional sources. For those businesses that didn’t suffer too much of a downturn in 2020, now is the perfect time to invest in sales and marketing efforts to win these new customers.
Spending 10% of revenues on marketing is the handy standby a lot of industries use, but on average manufacturers spend just 3% of their revenues, meaning there’s plenty of room for growth even for smaller organizations.
The rise in demand combined with the worst constraint in supply since the 1990s is leading larger manufacturers to investigate new ways of getting their products made. Some are looking for additional capacity for their usual components, others are experimenting with entirely new ones, which require them to find entirely different suppliers from those they’ve become accustomed to using.These contracts are not often up for bid, which makes this a unique opportunity that could help change the trajectory of your business.
Plan Ahead
Nothing about the current trends should result in a panic, but they should spur you to action. Steps like double-checking your pricing to ensure you’re not caught doing unprofitable jobs, looking for easy efficiencies — particularly material efficiencies — to get the most out of what you already have on hand, and having a good understanding of what excess capacity you may be able to utilize are always good to take, but doubly so when they may help you win substantial new business without incurring new costs.
This level of planning requires ensuring you have good insight into your business from end to end, which can feel like a daunting task. Advancements in technology have made this process much smoother than it used to be and now is the perfect time to put good reporting systems in place because the upside of new business is so clear. Your payback period will be much shorter than during times of low demand, and you’ll never regret having a clear picture of exactly what’s happening on the shop floor.
Stay in Close Contact Up and Down the Supply Chain
Having a good relationship with your vendors is never a bad thing, but in times of tight supply, it may be the difference between getting a heads-up that items you frequently order are running low because their stock-up order has been delayed and finding out that the 4-6 week lead time you just quoted a customer is about to become 14-16 weeks thanks to upstream supply issues. Keep a close eye on your inventory — if you take inventory positions — and start conversations with your suppliers well in advance of when you normally would so you aren’t caught by surprise.
In a similar vein, be open with your customers about what challenges you’re facing, especially if they’re not another manufacturer. Getting an understanding of their needs and timetable can help you come up with a timeline that still gets them what they need when they really need it, but doesn’t force you and your staff into a frenzy to get it done in time.
If you already work with a large company you know uses several suppliers, now is the time to proactively offer capacity if you have it, as well as to let them know any other capabilities you have that they may not currently utilize.
Are These Changes Likely to be Permanent or Just a Temporary Shift?
While the direct causes of the supply shortage should clear eventually, they are likely an acceleration of a larger trend that will likely result in more consistent, potentially permanent, business for domestic manufacturers.
In the short term, this business is available largely thanks to the forecasting cycle of larger publicly-traded companies, particularly those that are risk-averse or fiscally conservative. As they made plans for the year, they were forced to forecast demand at the muted levels they saw for most of last year. This means they’re positioned to cover their costs well, but leaves upside potential largely untapped if consumer demand is strong. Early signs indicate that is the case.
Americans paid off over $80 billion in credit card debt last year, they received record amounts of direct government support, and now they’re ready to spend again. Businesses, too, spent much of the last year warily watching their finances closely as demand grew and shrank, so many of them are ready to invest.
Since this increased spending wasn’t factored into the planning, each additional sale a business gets translates directly into marginal revenue. Unlike the revenue needed to cover overhead, which is tightly planned out, marginal revenue has a greater range for negotiation.
For example, if their current suppliers can produce 10,000 sellable units that generate $5 each in profit, but new suppliers can produce 100,000 sellable units even at a mere $1 each in profit, the company is still better off going with the more expensive suppliers since — for this part of the business — top-line revenue is more important than gross margin.
Much of what’s out for bid right now is production that used to be done offshore, but that is still a complicated proposition — as evidenced by the recent Suez Canal stoppage — meaning domestic manufacturers that can deliver high-quality goods with competitive lead and shipping times will be at an advantage, even if their prices are higher than foreign competition.
In the long run, as the trends toward efficiency and environmental sustainability become more visible in sales the way they already are in both investor and consumer sentiment, we expect to see more rounds of onshoring, accompanied by a search for domestic suppliers. Because there are costs associated with switching suppliers, larger firms with a solid grasp on global trends may well see this as an opportunity to get ahead of their competitors and onshore now instead of in the frenzy in a few years.
How Do I Win This Business?
Nothing beats a personal connection, so if you have contacts at large companies from networking over the years, now is an ideal time to check in and see if they have new needs you can fill. If you’re not fortunate enough to have good contact, traditional marketing tools can be spun up quickly and remain an underutilized tool for many manufacturers.
The lowest hanging fruit is making sure your website is up to date with your current capabilities and even your current machines. An SEO-focused audit of your website can help reveal opportunities for easy wins, and Google Adwords may be a worthwhile investment for those businesses that feel they’re already well-positioned, but need more exposure.
Trying to capture spontaneous demand is a situation where perfect can be the enemy of done, and time is limited, so pick a few things you feel you can execute and go try them. Don’t get bogged down in a year-long strategy deliberation when you need to think more nimbly to out-hustle your competition.
It remains to be seen how quickly the supply shortage will clear up, but it’s worth keeping an eye on. The US economy is expected to continue to grow at a rapid pace throughout the rest of the year, which means that the demand will stay high until supply can catch up, at which point the constraint becomes production capabilities and time.
If your business is already running near capacity, low interest rates and several new federal programs may make this a perfect time to expand your physical capacity or grow your headcount, since in many places there is still a talent pool of workers laid off last year looking for a new job. Upskilling your current workforce is an option as well, but now is the time to take those steps so they’re ready to help you when you need it.
As always, Fulcrum is here to help manufacturers thrive. If you have any questions, we’ll do our best to answer them or connect you with people that can. Current customers can use their launch team member as a great resource; if you’re not already a Fulcrum customer, shoot us a note at contact@fulcrumpro.com and we’ll take it from there!
