A crisis offers an opportunity to reset the business, to raise the internal sense of urgency, and to make changes. I invite you to consider the following eight points as part of the reset opportunity.
1. Rethink supply chain dependencies. There are limits to globalization. This has been a warning shot. We need to focus on supply chain resilience and establish a more robust network of strategic suppliers. Bottom line, manufacturers might consider reshoring or near-shoring critical parts and equipment. The reliance on an Asian supply base is not sustainable.
2. Embrace omni-channel strategies. Many manufacturers have already prepared their e-commerce strategies. Most, though, delegate this activity to their distributors. Get your website cart ready and get ready to activate the cart functionality. You cannot just rely on your distributors to conduct touchless interactions. Prepare to control your e-commerce future.
3. Think D2C model. Selling direct online and establishing a direct-to-consumer model are not the same as selling on an e-commerce platform.
A D2C business model is a radical change in marketing, supply chains, and other support activities. It should not be perceived as an opportunistic change to address a portion of the business through a website or a marketplace.
4. Launch usage-based and subscription-based business models. If you are selling equipment or solutions requiring customer’s capital expenditure (CapEx), accelerate the development of consumption-based pricing offers to ease the reliance on CapEx. Now is the time to take leadership in your market as long as your cash situation allows for it.
5. Refocus on profitable growth and cash flow. As the economy resets over the next quarter or two, refocus your strategy away from unsustainable growth and more on profitable growth. That means making priorities in allocating cash to attractive opportunities and focusing on differentiated innovation development.
6. Discontinue cash-draining activities. Right now, everyone is focusing on cash flow protection to pass this storm. It is an amazing opportunity to revisit cash-draining activities. It is a great time to discontinue pet projects and programs that distract the organization’s attention from core operations. By doing this, you can also reduce the amount of unnecessary complexity that might slow down the organizational bandwidth.
7. Revisit and reset business rules. This is a great time to reset your business rules and kill the high cost-drivers in your cost-to-serve analysis. Maybe you can change your delivery conditions. Or you could consider canceling allowances or legacy favors that were in place for many years. The focus here is to optimize costs and protect cash flow.
8. Scratch your asset plan and start over. This pandemic is challenging all the strategic assumptions, perhaps for the next 12 to 18 months. As CapEx budgets shrink, your short-term focus should be on critical maintenance needs and supporting short-term recovery. Your long-range asset investment plans are going to be challenged.
This crisis is not a demand crisis or an economic crisis. It is a surprising turn of events that could not be anticipated. It is a wake-up call for all manufacturing companies, and I believe it will change our mindset. We need to refocus our attention on cash and profitable growth. This test of our readiness level must challenge the status quo. Make the necessary preparation for the next crisis and avoid going back to the old routine.
Stephan M. Liozu, Ph.D. is chief value officer at Thales Group and founder of Value Innoruption Advisors, a consulting boutique specializing in value-based pricing, digital pricing, and industrial pricing. He is the author of nine pricing books and is a frequent keynote speaker at industrial and digital conferences.
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