Timing is everything. When it comes to balancing cash flow, inventory, and revenue in a small manufacturing business, this age-old adage has never been more relevant. In our current post-pandemic, brink-of-recession state, manufacturers are at a tipping point, faced with low orders, high inventories, and labor shortages. And if you’re a small business manufacturer, the answer to these pressing challenges is the antithesis of everything your gut is telling you. Now is the perfect time to invest.
Taking a deeper look into the inputs of change, we see new orders for manufactured goods fell twice this year. The summer dip was to be expected, but we took another hit in November, which is more concerning. This latest downtick was about 2%, which equates roughly to $10 billion in the U.S.1 And of course, the decrease in orders and shipments left us with surplus inventories.
Add to that the rise in inflation, countered by the Federal Reserve raising interest rates, and there’s even more pressure on the revenue side of your income statement. The natural reaction is to suppress expenditures and cut costs, since you simply don’t have the revenue to finance material purchases. Yet, you still have to find a way to generate more orders and keep the factories going.
The other challenge looming over your shoulder is a prevalent labor shortage brought on by an aging workforce and overall lack of skilled talent across several industrial production sectors. The working-age population growth rate is the lowest it's been in 50 years which has a direct negative impact in the industrial production labor force.2-5 This is actually a global phenomenon and it’s only getting worse.
It’s the perfect storm to paralyze your operations. And it’s what makes perfect timing so very critical right now.
If the pandemic taught us anything, it’s not to rely on “just in time” operating methods. We heard the screeching sound of our supply chains grinding to a halt as we learned just how fragile these infrastructures can be. An especially poignant lesson if you’re in the manufacturing business and rely heavily on the day-to-day shipping and delivery of goods. But now is the time to think beyond keeping things running day-to-day. It’s time to future-proof your business.
How can small business manufacturers like you staunch the losses, stimulate orders, and generate revenue at a time like this? There are a couple of strategic moves you should be making right now:
Invest in your workforce
In order to combat the labor shortage and stay in the game, you’re going to have to incentivize your retirement-ready employees to keep working, upskill existing labor to fill gaps in talent, and join the competitive war going on to recruit and retain skilled workers through higher wages and more robust diversity, equity, and inclusion (DEI) initiatives. Your labor costs will increase, but so will your long-term growth opportunities.
Digitize and automate
Another strategy to help you offset the shortage of workers is to move toward technology that can digitize and automate existing processes to take the place of manual work. While this is going to require an investment in capital to adopt emerging technologies, implement digital capabilities, and install secure systems to protect you from cyberthreats, you’re going to end up with a more sustainable operating system that’s going to maximize efficiencies and production while giving you a definitive competitive edge.
Build supply chain redundancies
It’s time to evaluate the costs of expanding your supplier network against the benefits of increased agility and risk mitigation. Many manufacturers are acquiring suppliers to provide in-house supply chain capabilities. Others are opening new production facilities to avoid logistic issues. Either way, the goal here is to secure supply chain assurance and gain more control over the entire process through vertical integration.
The bottom line is, you may be faced with two choices: fold or compete. The challenges of your current environment, while daunting, also open the door to a unique growth opportunity—if you take the proper steps to prepare your business to move forward. In order to compete, you’ll need to employ strategies that will future-proof your business. And the reality is, that’s going to require more capital. There’s a smart way to do this.
Diversify your lending sources
Expanding your financial ecosystem of lenders will help you avoid over-accessing your primary credit facility and ensure you can secure capital and access credit, even if your primary bank has no more capacity to lend to you. This is especially important for small businesses in today’s environment as the banking industry continues to consolidate, leaving fewer lending options available to small and mid-sized businesses.
The fact is, the financial institutions that are still available are in a risk-off environment, so not only are interest rates increasing, but many banks are pulling back from small businesses and focusing more on larger companies they consider to be less risky.
You need to add a lender to your team that understands the unique needs of smaller businesses and is willing to structure tailor-made financial solutions to support your growth needs for long-term success and sustainable operations.
Pitney Bowes Bank is focused on the needs of small businesses
Pitney Bowes knows small businesses are the backbone of our country. For over 100 years, we’ve grown alongside small business owners like you, evolving our portfolio products and services to meet your ever-changing needs. We take pride in partnering with you to listen, learn, and strategize on custom financial solutions that position you for success. We take the time to analyze all of your assets, from equipment and property to investments and existing loans and lines of credit. We take a solutions-based approach to create opportunities for your business, with tailored terms that build cash flow and flexibility so you can invest in your business in ways that help you compete for the long term. Our success is found in making you more successful. We would welcome the opportunity to discuss your needs.