Three Ways Not To Respond to Increased Demand
In the United States, 2017 shaped up to be one of the most profitable years in recent history with the GDP growing at 2.5%. Was your company one that capitalized on the economic boom, or did you find yourself struggling despite the uptick in revenue? Most people see increased sales as an automatic win for any business, but what do you do when production can’t keep up with the demand of your sales?
Working as a consultant for the past two decades, I have seen almost every imaginable reaction to situations like these. What many of these reactions have in common is that on paper they seem like simple choices, they often become disastrous. These three mistakes can derail a year that should be profitable and often becomes a huge cost and headache to undo. So, I want to highlight a few of the most common mistakes I have seen, offering just a few ways you can avoid them to ensure that increased sales means increased profit in 2018.
MISTAKE NUMBER 1: Have a problem? Throw people at it!
One of the most common mistakes managers at all levels make is to try and solve a problem by throwing people at it. At first glance it seems like common sense: Your sales are going up so that means your profit is going to go up too. Why not hire more bodies until the demand is met? While this seems like a safe choice, I have seen time and time again how this so-called solution derails production and often crushes profit margins. Why? Due to something economists like to call “ The Law of Diminishing Returns”.
To put it simply, “The Law of Diminishing Returns” shows that adding to one area of production while keeping other areas constant will at some point yield lower per-unit returns. So, hiring more people will not only increase your salary and training costs, it assumes that your other systems can handle an increase in employees. But in most instances, those systems can’t function smoothly with more hands. Adding employees without thinking through how it will affect your systems often leaves companies bleeding out and unproductive.
What’s more, rushing to fill gaps with employees that may not be the right fit for the culture of your company will result in increased turnover which, in turn, results in wasted financial investment while you scramble to bring in new candidates yet again.
So I often propose that clients first reevaluate their existing organization before jumping into a hiring spree. Ask yourself: how can we increase our production by trusting and empowering our current staff to succeed? What systems can we optimize to increase productivity without increasing our overall cost?
MISTAKE NUMBER 2: Higher levels of demand require more production time. Not necessarily!
The second mistake, which is possibly even more common than the first, is overworking staff to meet demands. Now, I’m not talking about an overtime hour here or there. I’m talking about a production floor moving from 8-hour shifts to 12, and from Monday-to-Friday to 7-day work weeks. In my experience, drastic increase to work shifts decreases overall productivity, crushes morale, and skyrockets employee turnover.
In fact, a recent client – an auto manufacturer in Ohio – comes to mind. As 2017 began they faced a 15% growth spurt – well above what they could feasibly accomplish as they were. Their first thought was to increase manufacturing time, pushing their employees harder. It’s easy to see why – like most competitive industries, it is inevitable that managers will be attracted to ideas that seem most likely to help them reach goals quickly and easily. But their choice to increase hours to such a drastic point wasn’t really helping to increase the company’s profitability at all. From my viewpoint, it was clear that they hadn’t considered perfectly valid options that would meet the 15% growth and reduce overall costs without burning out employees.
There’s another dark side to this approach. Panicking in a mad rush to meet demand often can also cause costly problems with machinery, shutting down the production line altogether. One of your priorities as a manufacturer should always be proactive and preventative maintenance. When that falls to the wayside I can almost guarantee the loss of profit, loss of time, and loss of productivity. There are simple solutions to keep employees happy and still increase productivity, and it’s worth the effort (even if you do not feel like you have a moment to spare) to get it right the first time.
While it may take more time and effort on the front end, reviewing and revising the systems and processes in place can be the difference between a successful company and one that can’t get out of its own way. In the specific example above we were able to increase productivity by 30% and return to a standard schedule simply by adjusting employees’ roles, changing manufacturing speeds, reduction of waste, proper work balancing and by prioritizing specific activities within their organization.
MISTAKE NUMBER 3: Mis-managing bottlenecks or limiting factors effectively.
I suppose the upside to mistakes 1 and 2 is that it quickly reveals your capacity and bottlenecks within your system. A major mistake I see repeated again and again is in the management believing they can overcome those bottlenecks with more bodies and longer shifts. No matter how many extra people or hours you put in place, your systems are only able to handle what you currently have in place.
If you want to increase your production and overcome bottlenecks then you must reevaluate your systems and processes. How can you adjust your process to reduce downtime so that your bottleneck can expand to meet your growing demands? It’s not typically the first question asked when facing an increased demand for production, but it probably should be.
So what do I do now?
At this point, you’re probably wondering what solutions you can put in place to immediately reduce the risk of falling into these simple mistakes.
Well, here are a few easy tips:
- 1. Reinforce employee accountability – Rather than hiring more employees than you need, make sure that your current employees are empowered to do the jobs that they were hired to do well. Make sure they have the resources they need!
- 2. Provide training and focus on improving work culture and atmosphere – Simple enough, right? Make sure your employees are prepared for their work. Ensure that you have the right people in the right places – people that fit the culture and growing needs of your business.
- 3. Increase capacities through better bottleneck management – Make sure your processes are best situated to meet the growing demands of a growing economy.
- 4. Develop a management operating system of tools and processes for frontline management to be better equipped to manage the everyday challenges.
- 5. Instill the right management behaviors and discipline to keep your operation running at peak efficiency.
Increased sales should be exactly what it sounds like: exciting. Your company doesn’t necessarily need to be bogged down by new costs just to meet demands – there is most likely a better way! Don’t look for the quick fix – it often creates new problems that are even worse than the one you started with. By avoiding these simple mistakes and looking at the big picture (maybe even with our help) you’ll make sure that your company is ready for all that 2018 has to offer.