Recession ahead? How tech manufacturers can be ready.
Since COVID came to our shores in January 2020, we have been on one roller coaster ride after another. First, we contended with complete shutdowns, mask mandates, and truly dreadful pandemic-driven hospital and mortality rates. Next came supply chain issues and difficulties enticing and landing qualified candidates for employment. Atop all of that, America next found itself contending with a raft of jarring ongoing domestic political issues and unprecedented divisiveness. And now, we’re wrestling with and rightfully distracted by continuing Geo-political issues, a war in Europe, skyrocketing inflation, and shifts in monetary policies, interest rates, and stock market performance that make operating an organization of any size or scope exceedingly unpredictable.
Perhaps the shutdowns are behind us, but just the same the world has become and remains a lot more challenging for everyone to navigate, including businesses. And now, it appears economists and news media are beginning to use the “R” word, as the possibility of another recession looms ever closer. (This article yesterday from Reuters is but one of many recent pieces on the gathering clouds.)
In the face of all that, what’s an electronics contract manufacturing company like Cascade Systems Technology (CST) to do in order to prepare, stay nimble, remain ready to tackle the unknowns, and emerge on the other side of the storm healthy and even stronger? As Intel’s legendary Andy Grove said: “Only the paranoid survive.” Some level of paranoia is good in these times.
Here are some thoughts and strategies we are putting into action at CST. Perhaps my tech ecosystem partners and colleagues will find this summary of them useful.
- Especially in a recession, it’s important to keep one’s supply chain team strong. This includes hiring and retaining your own excellent procurement, purchasing, and supplier-management people who are adept at collaborating, negotiating, and motivating your valued suppliers.
- Keep you supply chain processes efficient, nimble, and structured around best practices. Are the purchasing requests efficiently captured and communicated to the purchasing team? Is the purchasing team on top of any open or late POs to the suppliers? Are there untapped or underutilized tools and functions in your existing ERP system that can reveal opportunities to enhance supply chain efficiency? Is the stockroom easily and speedily identifying shortages and communicating them quickly to the purchasing team? Delays and inefficiencies in these and related activities lead to constrained cash flow and money being tied up in inventory versus being utilized for business growth. In these times, the impact to your business is much greater.
- Speaking of stock, can you afford to stockpile? I know this is a business decision that might make you look like a genius (if doing so saves the day, at some point) — or a fool (if the company is left holding a lot of inventory for a customer who decides to cancel the order). But it warrants appropriate soul-searching especially when your major customer circuit board assembly orders are on the line and the pressure is on from your customers to buy the inventory.
- Take this time and make a small investment to revisit the critical language in your contracts. For example, no one wins when a “Force de Majeure” clause is invoked, but are there ways to share risks with your customers, such as your customer pre-paying for the inventory, putting agreements in place to address Purchase Price Variances in the PO due to component price fluctuations between the time PO was placed and when the component orders are placed.
- Deal with the problem parts up front. Gone are the days when your supply chain team could start with the first component on the BOM and work their way down the purchasing list. Now, upfront “surgery” of the BOM is critical. What the most problematic parts? At what volumes? Do you need to collaborate with the customer to locate some of the parts? Do they have a direct line to the manufacturer that you may not have? Are they willing to cover any price variances that creep up after the PO is placed? Or will you be left holding the bag if the price of a component goes up between the time of quote/PO is received and when the order is actually placed (my earlier point above)? How far ahead of the customer PO delivery can you place the order for the BOM? “Just in time” worked Pre-Covid. But now, it’s a risk that your order may go unfulfilled, leaving you with stuck inventory and an unhappy customer who is wondering why the BOM was not ordered for a job that was to be delivered 6 months out. The answer to that question used to be simple: “We run our purchasing efficiently using JIT!” Well, that’s no longer a sure path to success. To the contrary, it’s become a path to unfulfilled customer expectations and potential loss of business.
- Broaden your supplier list. Whether the goal is to increase the sheer number, type, or capability-sets of your suppliers – now is the time to examine how deep your bench is. (This is especially true as it relates to hard-to-find electronic components.) In the past, contract OEMs like CST could rely on the large component suppliers/distributors to find the components and avoid the “secondary market.” But as these large firms will likely face the same duress in a recession, it behooves us all to reach out across the supplier base ourselves to find those tricky-to-find components and materials we need: Plenty of solid, smaller suppliers are out there and just waiting to be found!
- Don’t forget that YOUR team and people will make the difference in difficult days. If you haven’t acknowledged your top performers lately, this is a good time to do so. Remind your team members that they are valued. Small gestures count. Put in extra care as a leader to ensure that your team is having fun at work, that they are enjoying what they do, that team issues are addressed immediately (do not let them fester!). After all is said and done, it’s about the people.
- Finally, remember that times of change, upheavals, and challenges are also the times when opportunities present themselves. This is when your potential customers become your committed customers. This is when your current customers reaffirm their loyalty to you — because you solved their problems, ensured their critical business wasn’t interrupted, and made sure your company was delightful to work with even during the hardest of times. And, again, remember (and reward) those who worked to solve those challenges: Your team members.
This is what it comes down to at the end. Those who are paranoid might be the ones who emerge on the other side, stronger. Difficult times present opportunities. These are the times when the winners and losers will be decided and when market gains will be made and solidified.
– Shantanu R. Gupta,
CEO, Cascade Systems Technology