Annual operating plans (AOPs) have long been mission-critical tools in helping organizations set goals, allocate resources, and guide overall operations planning for the year ahead. As a baseline a good plan should be flexible, and to the extent possible, consider the projected economic conditions that lie ahead.
Of course, the environment we continue to operate in has made this an increasingly complex task. As we head into Q4 2023, cue up the broken record, we are still wrestling with global supply chain issues, high-interest rates, and worker shortages and disruptions, including most recently the Big 3 autoworker strike in the US. All of this is conspiring to make any type of proactive planning feel like guesswork.
While this uncertainty might be the new normal, there is a silver lining: Businesses have gotten smarter as so many ‘what if?’ scenarios have materialized. Leadership teams have gained irreplaceable experience navigating through a gauntlet of challenges, and the lessons learned need to be integrated into planning.
Through more than 30 years of planning cycles, we have helped clients successfully mitigate the risks that come with economic instability by helping them identify both short and long-term strategies that can drive bottom-line improvement. Here’s our top-10 list.
Short-Term Strategies
- Tighten financial operating disciplines.
Operational performance is a major driver of overall performance and tightening these disciplines – especially during challenging periods – is key. Businesses that are engaged and have strong daily, weekly, and monthly controls in place will be better able to meet projected output, costs, and profitability. A custom Management System adds value here by embedding these controls, performing critical checks, and identifying problem areas. - Focus resources (people) on the “critical few”.
This sounds logical on the surface, but people/priority management is not easy. In many cases, companies bite off more than they can chew, fail to resource correctly, and then break down. We always tell our clients to focus on the critical few and not the trivial many. In this climate, this means staying laser-focused on what needs to be done exceptionally well, mapping out a good plan, and executing it. - Staff strategically to balance work life and meet shifting work demands.
In terms of staffing and allocating work, companies can’t afford to operate in ‘this is how we’ve always done it’ mode. Re-thinking how you allocate “people capital” to certain projects brings better work-life balance for workers and can generate significant efficiency gains for companies. For example, consider shifting schedules to adhere to a broader mass. Instead of sticking with 12-hour shifts that exclude young parents who cannot find daycare options at 5 a.m., add additional shifts that new and perhaps better talent can consider. Rather than moving resources into different roles every day, which many didn’t sign up for and aren’t adequately trained to perform, develop strategic cross-training strategies that are predictive for the employee and create less angst wondering what they are going into every day.
Long-Term Strategies
- Practice Value-Added Engineering.
Some see value-added engineering as a pure cost-cutting measure, but we view it as more of an exercise in optimization. In this tough-growth environment, making sure you’re getting everything you can out of existing resources and infrastructure is another important lever to pull. Instead of making that big purchase, ask some key questions. Can we modify something already in place to meet this need? Can we design something in-house? Is there a lower-cost substitute that could serve the same purpose? As the attached case study shows, the legwork involved in implementing lean principles into the product development processes can be well worth it. - Conduct a comprehensive, material cost analysis, including supplier and price negotiations.
Most companies operate in a silo and ask Procurement to perform individually and achieve cost out via price negotiations. However, this is only one lever to pull in conducting a comprehensive cost analysis for incoming goods. It is important for companies to make sure that customer segmentation aligns with their products and processes, and that they closely examine their overlay and total cost for essential raw materials, which typically represent the largest cost bucket. Evaluating the total cost-to-serve balance and uncovering hidden quality, performance, or reliability-related costs can help companies achieve a whole new level of operational improvement. - Automation: Not a first resort – use selectively and thoughtfully.
Automation can be effective, but it should always be a proactive, highly selective process when deciding to use and not a reactionary problem-solving move. If the decision to automate goes awry the consequences can be damaging. A case in point: We worked with a firm that had consolidated 6 plants into one central, fully automated plant located in a remote region. They started out okay but quickly fell behind as it became harder to a) find the right talent to oversee the automation, and b) attract quality talent in such an isolated spot. They eventually went out of business – and are now a cautionary tale in reinforcing the importance of considering all potential effects automation can bring. - Assess/develop strategic succession plans.
Successful company transformations that fail over time usually do so because of inadequate long-term succession planning. New leadership teams come in and tend to focus on areas to shore up to drive growth. Succession planning often gets overlooked, despite the fact that it is both predictive and expected. A good way to start is to build out a rolling 12-month plan that creates a knowledge transfer process between new and outgoing employees. Whether it’s the shop floor or the C-suite, be sure to consider those employees that can truly train vs. those that “just know”. Tenure is an important factor but not always the most critical one when it comes to effectively training new staff. - Good sales processes = good sales results.
It’s always good to keep mining your current inventory of sales prospects. Take the time to go back over your tracks, for example, and see where an operational improvement here or there – to drive better quality, delivery, and/or lead time – could drive a sales conversion. As this case study shows, it can be time very well spent.
Short- and Long-Term Strategies
- Right size the sales, general, and administrative (SG&A) cost structure through “empty seat” kaizen.
Many organizations are running with a much higher Sales, General & Administration (SG&A) (as a percentage of sales) relative to their industry peers. In the current environment, the G&A functions offer the most opportunity for quick process improvements that can reduce the human resource needs required to support the organization, and this can all be accomplished while still improving the customer experience. At the same time, these plans can be a very sensitive topic as they will inevitably require changes in responsibilities, and some may view any changes as a threat to their standing. There are times to do this in a more strategic way, such as when an employee departs or retires from the company. This presents the perfect opportunity to conduct an “empty seat” kaizen process that maps out the department’s full range of responsibilities and existing processes and then creates a process that assumes the departing resource will not be replaced. While this may sound like a scene from the movie “Office Space”, the approach is structured and requires full buy-in for the benefits to be realized. - Use new technologies (i.e., predictive AI) to streamline and optimize maintenance costs.
Predictive AI is the buzzword everywhere, and we certainly see clients utilizing it in ways that make sense for them, such as helping to flag or “predict” when specific pieces of equipment are due for maintenance. Those firms using it effectively are and will likely continue to see considerable gains. That said, AI-driven solutions may not be the right fit for every business, particularly those with marginal amounts of automation and new technologies.
We hope these strategies provide some good food for thought. A buttoned-up, multi-dimensional AOP built to be flexible and nimble can not only cut costs but also deliver big increases in operational speed, agility, and problem-solving skills allowing you to respond and deliver to opportunities faster than your competitors, and help pave the way for sustained, continuous improvement and profitable growth.
