Manufacturing industry Q&A: Concerns and possible solutions
Nikolai Sands is a consultant in our New York office. In this edition, Nikolai shares his perspective on the manufacturing industry.
What types of issues do you typically focus on in your work, and are there specific industries on which you focus?
In working with clients, I’m focused on cash flow management, cash flow clarity, and cash flow projections. No company management, or advisor, can 100% predict where the cash position of a business will be “x” weeks from now. However, as a consultant, my goal is to bring as much cash visibility as possible. If cash projections (a balance of art and science) are done correctly, a company will be better suited to navigate turbulent times when any and all forms of clarity are worth their weight in gold. I’ve worked with clients in a range of industries, but manufacturing is certainly an industry in which I have a particular interest.
What do you see as one of the major issues that the manufacturing industry will face in the post-pandemic world?
In the post-pandemic world, supply and demand in relation to commodities will have a significant impact on the manufacturing industry. There has been an explosion in demand for all consumer goods and this explosion has far outpaced supply. At the root of the issue are the commodities from which all goods are manufactured. Manufacturing firms that assist in turning commodities into consumer goods cannot “price shop” since commodity prices are determined by the market, so manufacturers are stuck paying the higher prices that result from heightened demand. In the near term, this will likely erode manufacturing margins.
What are three things companies should be focused on now to help protect themselves?
Manufacturing firms that turn commodities into goods are currently caught between a rock and a hard place. Since commodities tend to be inflexible with regards to both price and product (i.e., a cathode of copper is more or less a cathode of copper with some minor variability in purity), firms will be unable to price shop. This leaves manufacturers with a few options:
- Raise prices: Competitors will do it to preserve margins and it is the most natural route when there is a spike in cost of goods sold.
- Increase factory-floor level efficiencies: Presumably, most manufacturers are running as efficiently as possible, but it may be worthwhile to look to outside parties who can share insights about underutilized 5S and lean six sigma processes.
- Hedge prices where and when possible: Futures contracts can allow companies to predetermine their margins and subsequently budget around them. In an inflationary, volatile, and novel market, price hedging can bring a sense of certainty.
- Manufacturing & Distribution
- Consumer & Industrial
- Transactions & Turnaround
- Restructuring & Dispute Resolution