How Manufacturers Can Take Advantage of a Recessive Economy
Taking the correct proactive steps may provide a chance to consider the growth and expansion of operations.
With over four decades of a front-row seat in industrial recruiting, our team at Omega Point Partner has seen every industry, from manufacturing to power and energy, jostling to satisfy growing market demand.
As we are heading toward 2023, it is the perfect time to discuss the Recession.
The world is hitting with multiple speed breakers and slowing-down multiple industries, including manufacturing. This is a sign of an upcoming recession, or it has reached its destination.
The real question is how manufacturers can handle and take advantage of the recessive economy.
In this post, we will share how the Recession is affecting the manufacturing industry, its outcomes, and how to prepare for the other Recession.
Inflation at a four-decade high, a slowing economy, and interest rate rises by the Federal Reserve are all increasing the likelihood of a recession. Many manufacturers are understandably afraid, especially in the face of excessive news coverage.
Manufacturers have historically struggled to maintain profit margins during recessions, and many have been forced to alter their business strategies to stay above water. Manufacturers and consumers alike are feeling the weight of economic anxiety, and considering the current state of the economy, it is safe to say the pressure is already on.
How Recession affects the Manufacturing Industry
- Increasing production cost
- Increased production wait times due to the part, workforce, and transport shortages
- Supply chain disruptions since most of the parts used in the U.S. are sourced globally.
During a recession, supply shortages and wait times for a sub-component to complete an assembly can increase. According to economic data, every Recession results in a massive drop in production followed by an enormous upswing. In predicting the future, a sudden increase in production during a recession indicates that the Recession has ended.
Ever since the pandemic started in early 2020, the global economy has shifted from low inflation to elevated levels. A drastic reallocation of demand, supply chain difficulties, and labor challenges fuel an inflationary drive.
Naturally, slowing growth weighs on inflation today as governments and central banks struggle to combat mounting pressure while avoiding unnecessary tightening.
As a result, many manufacturers face high financing requirements to battle inflation and solve supply chain challenges. Some businesses are looking to raise credit lines to satisfy their working capital requirements, while others are trying to continue doing business as usual to the full extent feasible. This cycle has rerun its course time and time.
What Manufacturing leaders can do is they can watch for recession indications and identify patterns in the U.S. economy to be robust and flexible and shift their processes. They can brace their business with the help of a super-solid management team and identify all the opportunities and possibilities to improve and grow a unique solution.
Always remember that recessions and inflation are a natural part of the business and economic cycle.
Can manufacturers expect any positive outcome from a recession?
A recession can help to balance inflation. The economic cycle naturally swings between periods of expansion and periods of slow growth, which can sometimes mean Recession. Economic imbalances can be resolved by the Recession, clearing the path for change.
Leveling out inflation would ease many issues plaguing small and medium manufacturers in recent years. In addition to lowering product and raw material costs, supply delays & cancellations will be less common. On the employment side, the cost of finding, hiring & retaining talent should return to pre-recession levels, although forever changed by workers’ new preferences.
A recession can offer the opportunity for growth. Companies with delicate management or financial situations risk bankruptcy during a downturn. When a company declares bankruptcy, its finished goods & inventory will stay. Since recessions help the market to become more efficient, its interests, products, and services, as well as its employees, will shift to higher-performing enterprises.
How can manufacturers prepare for a possible recession?
An impending recession allows one to rethink short-term business goals and seek new opportunities. Focus on issues under your control:
Help and support your employees:
Employees hear and read the same news you do, and the possibility of a recession can be worrying. Please pay attention to employees’ concerns and prioritize their mental health. If possible, provide
- More flexibility,
- Opportunities for development and training, and
- Other perks that allow a team to perform at its best.
Evaluate your financial management strategies.
Cash management is the process of collecting & managing cash, and it is critical to the overall financial health of your company. Make it a habit to maintain your balance sheet regularly to ensure you have enough working capital and liquidity, as well as a review of margins & expenses. You can eliminate profit drains and maximize cash flow by understanding your cash conversion cycle, profit margins, and key performance measures.
Conduct a health check of your business.
Partner with a bank and an accountant to analyze your company’s financial status. Incorporate contingency planning against unexpected events. Developing or implementing a financial performance dashboard can assist you in keeping your finger on the pulse of your business. A dashboard with real-time metrics & critical ratios will help you analyze and understand financial data and guide you in making business and performance decisions. Staying on top of these aspects of your economic well-being will help you make quick decisions regardless of where a recession takes you.
Explore finance options before you need them.
In addition to traditional loans, small and mid-size businesses have several more financing options. Many offers, such as asset-based or SBA loans, provide favorable interest rates & convenient, flexible terms. Explore your options with a banker and ensure your financial documents are in order so that you can apply for the right loan when the need arises.
A robust manufacturing company has excellent management and an advisory team that understands the goals. A reliable financial advisor, banker, lawyer, and accountant can assist you in identifying opportunities that might otherwise be washed out by noise or fear. Determine what is achievable and capitalize on a once-in-a-lifetime economic opportunity.