How to run your manufacturing business with less resources to succeed in today’s marketplace

How to run your manufacturing business with fewer resources

While the case study above focuses on a manufacturer in the automotive parts industry, the same challenges are affecting manufacturers across all industries today.

A strategy to run your company with less can help you generate more profit and meet your debt coverage ratios to receive more financing opportunities from the bank. You can get started by:

Evaluating your customers

Assess your customers to identify which customers consistently delay payments, the margins you are making from each customer, and the quantity of products you need to meet their orders.

Prioritizing customers who make payments on time and who give you large profit margins can help increase the amount of cash entering your business. This helps contribute to a positive operating cash flow and gives you more money to put toward meeting your debt service coverage ratio.

Reconsidering your approach to inventory management

You may be manufacturing more products than you are able to sell from one product line. Alternatively, there may be a product line that sells so well that your business struggles to keep enough products in stock.

Consider decreasing the production of low-demand products and increasing the production of high-demand products. Exploring approaches such as just-in-time (JIT) manufacturing or contractual manufacturing can also help reduce storage costs and free up more cash in your business.

Working with your suppliers

Suppliers are now asking for shorter or upfront payment terms. Meeting those terms can cause a drain on your cash flow — however, those who do not meet these terms risk delays in delivery. This can cause further delays in production and impact your profits.

Contact your suppliers and determine how you can work with them to reduce the upfront requirements on these payments without jeopardizing or losing those relationships. This can help decrease the strain on your cash flow and give you more money to put toward paying your debts and meeting your debt service coverage ratios.

Assessing your assets and products

Review the machinery and product lines within your business to identify which ones are the most profitable — and which ones are not returning a profit. There may be some machines that you are not using at full capacity, or some product lines that are not breaking even.

Divesting, downsizing, or temporarily closing those assets and product lines can help reduce your operating costs. This helps increase your EBITDA and meet your debt service coverage ratios.

How can you make the right decisions for your business?

Each of the steps above can contribute to a positive operating cash flow, helping your business meet its debt service coverage ratios and secure more financing from the bank. However, these decisions may also have a significant impact on your relationships with your customers and suppliers.

Scenario planning allows you to anticipate the potential pitfalls of your decisions — and take the right steps to mitigate those risks. An approach that focuses on financial modeling and planning can help you make informed decisions to support the future of your business. It is essential to assess the financial outcomes of your decisions from all angles to identify potential pitfalls and avoid irreparable damage to your business.

Our next article in this series will further examine how financial modeling can help support informed decision-making in your business. Additionally, financing constraints will also make regular monitoring of your cash flow statements a vital key to success. Our next article will also cover how cash flow monitoring, financial reporting, and other tools can help you make changes to support successful outcomes for your business.

Take the next steps

If you need support to improve the performance of your manufacturing business, contact a member of MNP’s Consulting Services team. We can help provide the insights you need to help you grow your business through uncertainty towards success.