Anyone who has been in manufacturing for more than a decade has seen a version of this scenario before. Consumers slow their spending, companies miss their targets, stock prices fall, and cost-cutting begins. It’s very painful, but history shows there are proven ways for manufacturers to not only survive economic downturns but to be better positioned to ramp up more quickly once things turn around.

When an economic downturn happens, recession or not, manufacturers are at the center of the maelstrom as they fight to stay ahead of quickly changing demand, work to ensure inventories don’t swell, and endeavor to maintain tight relationships with suppliers so production lines can keep running. Not counting the black swan pandemic event, economic downturns are a natural and recurring component of the world’s economic cycle. In other words, manufacturers have demonstrated, over the decades, how to successfully navigate a less-than-optimal economy.

Research from Deloitte points to better cash flow insights and continued-but-prudent investments so manufacturers can surge ahead of competitors when growth returns. McKinsey found that the “winners” after a recession—those in the top 20% ranked by value—had the insights to take immediate steps and “expand their lead” as a recession took hold. USC Consulting urges manufacturers to invest in new technologies to transform operations. Bain & Company research shows that manufacturers that “played offense” with technology investments during the last recession had 13% post-recession growth versus just 1% for those that pulled back investment. The firm says manufacturers should invest now in technology “they are going to need three to five years down the line.”

Manufacturing Resilience in 2023

In working with hundreds of manufacturers over the last 15 years, we’ve found that those who go for the seemingly quick fix of cost cuts and workforce reductions may see short-term benefits but quickly fall behind as an economic disruption bottoms out. Manufacturing is an intensive endeavor. Stopping and restarting production isn’t something that happens overnight, especially with labor-, capital-, and equipment-intensive operations. Those that make deep cuts will struggle to rebound when things pick up. Those that have the agility and flexibility to adapt, however quickly, will come out on top.

But how do you build that agility and flexibility? And what do you do today to prepare as a recession appears to be imminent? Here are three things to get ahead of now so you can stay ahead in 2023.

1) Visibility Is Critical for Resilience

To make confident decisions, you need accurate, timely data from across the business. Not just operational data, but supply chain, inventory, sales, customer, and other data, all combined and accessible at the point and time of need, so you have a clear view of the road ahead. As demand shifts, you can quickly work with suppliers to secure materials and with customers to re-set reasonable expectations. Remember your customers and suppliers are feeling the same pain, so being transparent and giving them the most information, longest lead times, and best prices require you to have that data instantly available. But, when you do, you become a preferred customer and supplier yourself.

Transparency also helps your internal teams better manage capacity, plan for market shifts, and react to changes. Finance can see which investments have the best ROI, HR can see where workforce changes need to be made, sourcing teams can stay ahead of materials and equipment needs, and logistics can ensure products get to customers on time. Every bit of added visibility gives you more power to manage your operations more effectively, and that’s crucial during a downturn.

2) Cut Costs with Increased Productivity

Productivity means doing more with the same or even less, which is the common mantra of every recession. Bad managers—we’ve all had experience with them—improve productivity by cutting people or eliminating tools, and then telling the remaining workers to work harder. That’s not productivity, and it’s not sustainable. Workers quickly burn out and quality drops, and, again, any short-term gains are quickly erased by missed targets and customer attrition.

Continuous improvement (CI) and lean initiatives are familiar to most manufacturers but require an effective means of measuring the before state. CI identifies waste that, when removed, results in increased output for the same or less input. Increasing productivity results in lower costs so you can lower prices to drive demand or increase margins to shore up cash flow.

Many manufacturers are still relying on legacy systems that require manual paper-based processes or slow, tedious spreadsheets that suck up hours of effort and invite manual errors. Digitizing processes enables automation that reduces or eliminates those manual tasks. It’s a fast track to productivity for the clerk who previously spent hours in Excel or the production line worker who used to manually fill out inspection sheets on a clipboard.

3) Right-Size Production

Once you have the visibility to stay ahead of demand and the productivity to meet demand at a lower cost, you can move to optimize production. Your increased visibility feeds improvements here, too, by helping you connect demand, plan capacity, and align supply chain planning to reduce inventory carrying costs. The longer raw materials sit in the warehouse, the more you pay for them and the longer they’re not making you money. Same for idle finished goods, which are customer payments not going to your bottom line. Or worse, these investments are incurring interest against your credit line—an expense any balance sheet wants to avoid.

Reducing carrying costs of materials reduces the cost of money and translates directly to your bottom line. That’s money that can be passed on to customers in the form of lower prices, or that can be used to invest in equipment, product development, marketing, or other areas that keep you ahead of the competition. During a recession, every asset is critical to your success. Letting it sit on your warehouse floor keeps it from doing its part.

It’s Critical for Manufacturers to Build Resilience—Start Now

Manufacturing is a unique sector for the U.S. economy. It’s frequently the hardest hit during a recession, and the capital-intensive nature of manufacturing means it’s slow and expensive to change. But it’s also a critical component of the overall national economy. Where manufacturing goes, the rest of the country goes. That’s why more manufacturers who modernize how they operate, according to Industry Week, will “empower companies in every sector to quickly drive down prices for consumers and help the global economy stave off recession.”

Learn how Rootstock Manufacturing ERP can give you visibility from sales to customer service, engineering to production, and supply chain to inventory. That visibility can then be put to work to increase productivity, right-size production, and give you an advantage over whatever economic conditions arise in 2023 and beyond.