Disclaimer: the title has nothing to do with current events like Covid, the recession, racial injustice, any political party, or similar. While not about sports it may have something to do with your favorite team, especially if they’re bad.
What caught my attention was a front-page article in the Wall Street Journal’s weekend Exchange section on August 22 titled, “Why Aren’t There Enough Paper Towels? The lede was, “A decadeslong effort to eke out more profit by keeping inventory low left many manufacturers unprepared when Covid-19 struck. And production is unlikely to ramp up significantly anytime soon.”
The article “blamed” the just-in-time inventory system, i.e. lean manufacturing, which means only having enough on-hand to last until the next shipment arrives. When you operate like this it’s tough to increase output when there’s a spike in sales. The same applies to the manufacturing operations. If your machines are cranking out all they can operating 24/7, you can’t quickly increase production (this is how the paper towel plants were operating).
On the other end of the spectrum I talked to the owner of a manufacturing operation doing about $20 million in sales who told me they constantly struggle with productivity and therefore profitability. He said, “It must be me.” I won’t argue with him, at least until I know more because often it is a people issue, and more often than not an owner issue.
Georgia-Pacific increased production by 25% by reducing the number of products made, which reduced the amount of equipment changeover. The owner I spoke with can probably increase productivity with a manufacturing process expert advising him. Just-in-time isn’t a panacea and operational inefficiencies can be improved.
The above is what planning is for.
- What if sales go down 10-20-30%? Banks call this a stress test.
- What if sales go up 20-30-60%? Can you handle the production, the cash and credit needs, the stress on your people, and even finding enough people?
Most businesses don’t do this. Even more owners don’t plan for their exit. Nobody predicted Covid and very few were ready for its effects whether good or bad.
Nothing is as Good or Bad as ProclaimedNothing is as Good or Bad as Proclaimed“Nine tenths of the ills from which intelligent people suffer spring from their intellect.” Marcel