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Dealing with Crisis

  • By faber
  • November 30, 2016

The liquidity crisis in the market has been impacting the overall economy in endless ways. Now that we have seen the impact on prices due to changing demand, the overall demand is expected to be affected to an extent. The demand in various areas is to be impacted particularly for sectors like Consumer goods, Real Estate and Property, Gold and luxury goods where people used to use cash for transactions.

The key segments of the economy where cash transactions play a vital role are real estate/construction, gold and the informal sectors. The role of cash transaction in case of real estate and gold is mostly dubious, however in case of the informal sectors it is the lifeline.

Rural demand and retail outlets, which are largely cash-based, will get impacted temporarily. Their dealings distribution are largely through cash payment as India is still in the process of evolving and trying to get adapted to the new digital era. The transition is yet to take place. Since the final consumers who tend to pay cash, the withdrawal behavior has been encountered as people are trying to avoid spending cash. So there could be some sort of hiccups there for some time.

Liquidity crisis and the resultant fall in demand due to lack of currency have left industrial units gasping. Diamonds, garments, chemicals, ceramic, synthetic textiles and many other industries are mulling shut downs; several units have already stopped production temporarily due to their limitations to pay daily wages in cash.

To bring equilibrium in the current scenario companies will have to offset the resultant loss to it, the industry is resorting to production cut which adversely affects job situation. There is demand sluggishness in the economy leading to practically negligible private sector investment and stagnant industrial growth. Demand has been varying as in reduce and then peak due to hockey stick effect. Organizations should not panic and be prepared for these contrasting situations. Just like dehydration for athletes are too late situation, because caution was not exercised since early time. Similarly, struggling to cope with high or low demand is too delayed reaction for organizations. One should be responsive and it comes only through pertinent vision.

Essential point to appreciate here is that companies don’t compete but the supply chains do. It was found during the slowdowns in the past, that all those manufacturing companies, who had over the years worked on, leaning their supply chains, survived or emerged stronger. They were capable of being flexible with delivery times, batch quantities as they were lean and nimble. Interestingly, higher the amount of inventory in the supply chain, lesser responsive the companies are.

In contrast, manufacturing companies that had not worked on LEANing their supply chains, witnessed more intense problems. During the tough times they had to drive immediate change in the prices and orders deliveries, which inevitably forced the companies to hastily alter the manufacturing and supply chain practices.

Those companies which managed to adapt to the change survived. Operational Excellence (OE) is one of the cornerstones to Organizational Success and Transformation.

OE ensures the basic stability of the working where the health of machines, continuous flow of material, short throughput time and excellent quality ratio are the parameters that determine the competitiveness of the organization as well as decide customer satisfaction. Needless to say, customer is king and it is essential to heighten his/ her satisfaction levels to delight stage to survive in the market.

The strategic parking position of the inventory decides the responsiveness of the supply chain. Now, to maintain optimum inventory at the upstream levels is the key. If the inventory is upstream that is at the raw material form (towards supplier end) is good. Best would be just in time! Concepts of producing to takt time (customer demand rate) and shortest throughput times (time to manufacture) are not mere concepts there but real requirement.

Readers will appreciate that concept of Just in Time (JIT) is very glitzy. However, to reach the stage of Leanness parameters quoted earlier should be considered. And one can reach this destination of LEAN by a structured program for transformation. It is known by different names; some call it TPS (Toyota Production System), others WCM (World Class Manufacturing), some call it LEAN – all world class companies have different names for the structure. But as it is said, ‘All roads lead to Rome.’ All systems lead to one destination of world class performance.

And, at the cost of repetition, I would like to mention that world class performance was necessary just to survive the storm of the situation. Many organizations resorted to cost cutting initiatives and in turn cut the muscles and not the waste. What we intend to say is rather than attacking the muscles, one should hit the fat – the waste in the system by cost management and not cost cutting.

Identification of bad actors quickly is important and cost – benefit and time – benefit analysis of the problem solution holds key. One should start from the low hanging fruits and keep moving towards tougher targets. Now is not the time to get lost in semantics, one has to identify where the value is lost, identifying their causes and rapidly acting to fix them. Problem solving capability at all levels is vital for the above mentioned points. If we relate this further to the culture of the organization, it should be conducive to highlight problems which lead to improving the current situation.

To conclude, I would like to quote Benjamin Franklin. As he rightly said “Watch the little things; a small leak will sink a great ship!” So, watch out for the waste and sail smoothly even in stormy weather.

Right set of targets and frameworks, lean and reliable systems, skilled and motivated team – all in all Excellence in these 3 domains is the key to a stable work environment.

Written By: Faber Mayuri Pandya and Faber Devna Chaturvedi