Planning Beyond Survival
- November 2, 2020
Manufacturing experts discuss how to position your company for recovery and invest for post-pandemic growth
The stark reality over the last few months is that business has been difficult, at best. Concerns about the resilience of our global supply chain were thankfully unfounded, but many manufacturers who watched their five year plans go obsolete in a matter of days have been battling on all fronts to stay afloat. As we approach the new year, with nine months of COVID response behind us, it leaves everyone in the manufacturing industry wondering how to approach 2021.
“Let’s face it, most of us were better prepared for a meteor to hit our manufacturing facilities than we were for dealing with this pandemic,” says Shelly Fellows, Chair of Automate Canada. “We were blindsided by this.” She says the efforts to cope with the first wave has put Canada’s manufacturing sector on a solid footing for the months ahead. “The good news now is that everyone is preparing for a second wave. They have plans and understand how to adapt operations, protect employees and maintain production quality.”
Everyone knows the steps required to maintain hygiene to keep plants outbreak-free. But the steps required to shepherd a business through this economy into a rebound are less clear. Dan Tadic, executive director of CWB Group, says the path forward depends on what sectors you serve.
“A service company doing custom jobs and one-of a kind work, and small fabrication shops targeting jobs in the ballpark of $500,000 will do well,” says Tadic, but he warns that companies involved in manufacturing specific products could be affected by a surge in the pandemic and reduced consumer demand, naming companies selling to the oil and gas sector.
“Canadians have not been driving as much and airplanes have not been flying nearly as much. This lack of demand for fuel impacts companies involved in servicing the oil and gas sector. They were challenged back in 2014 and those challenges will remain in place until the pandemic has been resolved.”
Tadic says that if your company is experiencing a slow down on the production floor, now is a good time to focus on maintenance and training.
“The first thing any small or medium-sized business should do is take advantage of the programs available in their regions. We've seen a huge uptick in the training CWB provides, and if you are considering machinery or software, now is the time for planning whether you should make that investment now, six months or even a year down the road,” says Tadic.
Find the cash flow
One of the most wide-spread problems facing manufacturers over the first phase of the lockdown was cash flow. With many customers trying to defer payments—or stop them altogether—manufacturers were suddenly wondering how to make payroll or lease payments and pay for materials to finish work still on the shop floor.
“When you get this type of shift in the economy, you have to get more observant about what’s going on,” says Johnathon Azzopardi, president and CEO of Tecumseh, Ont.-based mould and die manufacturer Laval and director of international affairs at The Canadian Association of Mold Makers (CAMM).
Partnering with Automate Canada, CAMM formed a taskforce to survey its membership, and quickly learned cash flow was a concern.
“Some companies were better prepared than others. Younger companies were not prepared for the strain this put on their cash flow. Older companies, even though they had bigger bills and more administration costs, their position to weather this was much different.”
Laval has been in operation for 42 years and has been through a few economic dips.
“We had the tools ready to go from the lessons we learned in the recession of 2009,” he says. “We monitor our cash flow on a 16-week basis, so every day and every week we are updating our cash flow 16 weeks ahead. That’s very powerful when you are trying to manage money. If you had that tool going into the COVID crisis, you were already well prepared to make decisions today that were going to affect you four months from now.
“These newer companies were inside an economic event and trying to catch up, and that is a very difficult thing to do. A lot of these companies were not sure what they were seeing because they didn’t have the information at hand”
Azzopardi warns companies not to get complacent, even though it feels like we’ve weathered the storm after the first wave.
“If you look at that, industry did amazing. I honestly thought many more companies were just going to throw in the towel. The resilience was very good and our businesses deserve a lot of credit,” says Azzopardi, but he warns that there are shocks yet to come.
“I don’t believe the global economy is as stable as people think. COVID is hiding a lot—once we’re rid of it, we are going to find out the global economy isn’t as strong as we would like. If you were to ask me at the end of 2019, I would have said we were due for a pullback. The pandemic accelerated it.”
Plan for the unplannable
With that in mind, there are some concrete steps to help companies hold on until the rebound. The key is to never plan for the highs or the lows—aim for somewhere in the middle.
If your company was going to buymachinery, and you made that decision when you were very busy, you might not need that new machine just yet. On the other hand, if you are considering layoffs because you’ve experienced a new low in 2020, there’s a good chance 2021 won’t be as bad.
“I don’t see growth in 2021 for sure. We see maintaining or losing ground a little bit. This isn’t doom and gloom—it’s cyclical,” says Azzopardi. “It’s very different than the 2008 financial meltdown. Once we get back to our normal cycle, we will get right back to business.”
Robert Cattle, executive director of the Canadian Tooling and Machining Association (CTMA), agrees there is some good to be taken out of all the bad we’ve experienced.
“If there’s one silver lining out of this whole pandemic mess, it’s that people realized manufacturing is important, and we need to manufacture in Canada and not rely on other countries. When I heard Premier Ford say these things, its important stuff,” says Cattle, whose organization recently held its annual general meeting. Sentiment at the meeting was cautious, yet showed signs of optimism with manufacturers reporting that things are looking better.
“Responses as we went around the table and asked people about their company’s experiences were that things were picking up,” he said. “When things get tough, you cut your expenses and try to hang on, but eventually we know we have to produce to keep the country moving,” says Cattle.
Exiting ‘survival mode’
Sometimes it’s hard to dust yourself off and get moving ahead, but for companies looking to get back on the growth track, now might be the best time in a generation to invest in the capital equipment that will power your company’s future growth.
“I think the next two years is going to be really tough. We’ve come out of a very good eight years of business, but you can see the trend now is going to be survival mode,” says Tejal Mehta, CMTDA president and vice president of operations at machine tool distributer EMEC. “But I believe the fourth quarter will show signs of economic opportunity in Canada. We are seeing activity levels now starting to jump up with customers finally realizing they need to start getting back into the work and looking at alternative ways of getting better. There’s a fine line here because cash flow is important, but they need the technology.”
He says manufacturers looking to invest need to consider more than just the price. Look at the warranty—service and repairs might cost you a lot more because you can’t get the parts for weeks.
“Just because you are buying a low-cost solution doesn’t mean your costs will actually be lower,” says Mehta. “Leasing and financing is absolutely key right now. Rates are low. Leasing companies only secure the asset, where a bank will wrap up the complete business. Some rates are below four per cent—I haven’t seen that in machine tools for many years. Some are offering seven-year terms, and the lien is just on the asset. The ROI is a lot quicker now than it has been for years and there’s almost no risk. And from a tax perspective, the timing is right, going into the end of the fiscal year.”
Mehta says this could be a make-or-break decision for any job shop, because there will be much competition for the less complicated work that can be done on lower technology machines that are common in Canada’s job shops.
“The job shops who can invest in the bigger machines with longer bed length, longer travel are the guys that are going to be more successful because there will be a lot more competition for the less-engineered parts, and the pricing will reflect that,” he says. “The more complex the part, the more exotic the material, the better the revenues.”
Along with those revenues will come the versatility to pivot your operations to meet demand in busier market segments, and the capability to operate your shop with a socially distanced, reduced shift. All of which will help your company build its way out of 2020 and into years of growth. SMT