Manufacturers and the looming recession – manufacturing cost reduction

Sam Miles Date published: Nov 25, 22

The International Monetary Fund (IMF) had their half-yearly update conference this October where, they forecast a slowdown in global growth from 6.0% in 2021 to 3.2% in 2022 and 2.7% in 2023. Pierre-Olivier Gourinchas, the Economic Counsellor and Director of the Research Department at the IMF, said in his foreword to the World Economic Outlook that “the worst is yet to come and, for many people, 2023 will feel like a recession.” The cost-of-living crisis and the consequent tightening of financial conditions, along with the war in Ukraine and the lingering effects of COVID-19 have all culminated in these forecasts and inflation reaching a 40-year high in some economies. Manufacturing cost reduction is therefore an essential priority.

The manufacturing sector is often one of the worst impacted during a recession. A report by Deloitte found manufacturing employment declines by 11% on average in recessions and, during the Great Recession of 2007-2009, 4 in 10 companies that filed for bankruptcy were from the industrial manufacturing sector. However, the same report found that manufacturers were often among the fastest to recover after a recession, when compared to the overall economy. Industrial manufacturers saw, on average, 3x higher recoveries in corporate profits in the 12 months following the past two recessions.

The looming recession is an issue playing on the minds of manufacturing CEOs. Three-quarters of manufacturers say inflationary pressures are worse today than six months ago, with 54% also saying higher prices are making it harder to compete and remain profitable.

Resilience through recession

Increasing your resilience and becoming a more adaptable organization is going to be vital for those businesses who quickly bounce back. There are a few key areas that should be a focus-point for your business when preparing for the next few years of economic turbulence.

Investing in technology

In a recent study, it was found that organizations that were utilizing smart manufacturing saw a 10% increase in production output, an 11% increase in factory capacity utilization, and a 12% increase in labor productivity. Industry 4.0 should already be at the forefront of your planning, but it is especially important to increase your efforts to prepare for the expected downturn.

Diversifying your supply chain

If you’re operating a just-in-time (JIT) production strategy or general lean principles this will be particularly important. However, looking to expand your supplier options is never a bad idea. If elements of your supply chain aren’t delivering on time, or you're concerned about their quality processes, then having alternative partnerships with reliable suppliers is going to be essential.

Reducing the cost of poor quality

Calculating the amount of time, and potential profit, you’re losing through poor quality in your processes will help you identify where problems are stemming from. Improving your quality processes not only saves you money that you’re losing in waste and delays, but it also improves your brand image, reputation, and helps you retain customers.

Why a QMS is essential for cost reduction in the manufacturing industry

• Increase efficiency and improve workflows

With Ideagen Quality Management, you can hugely increase your efficiency, improve your workflows, and cut costs. For example, with the audit management module, you can have complete control and oversight of any internal audit. Assign auditors based on their availability and experience and keep an eye on the proceedings, with findings and actions being recorded in real-time, via any device. The system automatically directs actions to relevant people and notifies them by email.

Because Ideagen Quality Management modules work together seamlessly, you can then pass your audit findings into the issues modules with designated response actions.

• Reduce operational error

The documents module allows users to access content in a consistent framework and have full confidence that the documents they access are accurate, up-to-date, and correct for their day-to-day activities. A secure, single source of truth means there is far less chance for miscommunication. Additionally, the Ideagen Quality Management training module allows you to support your staff with continued professional development. You can build and schedule training sessions and push prompts and reminders to designated users to ensure any skill gap is plugged.

• Risk assessment and risk management

A QMS allows you to fine-tune your risk management and assessments, helping to mitigate risks at every stage of the production lifecycle. Build categorized registers with the various risks your business is exposed to and assign stakeholders to take responsibility for risks, encouraging collaboration and a risk-based culture. Apply banding and matrices to fully understand risks and create concise visual qualitative frameworks of how hazards and risks are controlled in your business. Thoroughly assess any risk by scheduling regular and automatically recurring assessments.

• Improve supplier quality and supplier communication

The interested party module gives you the tools to monitor your supply chain and have complete visibility over each and every supplier and their performance. Access categorized supplier relationship information from a single source, from contact details and product information to attached contracts and SLAs. Assess, review, and approve or reject suppliers. Stamp out non-conformances and build happier relationships by driving reviews and reports quickly and easily.

Using Ideagen Quality Management and the modules in tandem will drastically reduce the cost of poor quality. With the true COPQ ranging from 5% to 30% of gross sales for manufacturers, this could prove to be a significant saving. Using a QMS to make small and simple improvements across the business, from improving training to streamlining your auditing, can make all the difference when trying to reduce your expenditures in times of economic downturn. As the IMF report said, the worst is yet to come, so if you’re looking for options when it comes to manufacturing cost reduction, there is no better time to implement a QMS and start reaping the benefits.

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