Speaking of Precision Blog

Volatility. Uncertainty. Complexity. Ambiguity. Welcome, to the year 2012!

The headlines are filled with factors that make our planning for the year ahead futile at best. Eurozone Sovereign Debt. China Currency. U.S. Economic Problems. High Unemployment.

With all of these issues potentially ready to emerge at any second, what can we do to intelligently manage our risk?

Here are 5 ideas to thrive in the face of today’s uncertain market environment:

1) Edit your customer list. In the old days, adding customers was the thing to do. But noone ever made up for low margins with volume.Edit your customer list to those customers that provide you with a return at or above your cost of capital. Just like we add value by taking stock removal from barstock, removing the customers who cost you more than they contribute will free up limited resources so that you can better serve the customers who do cover your costs. (Note: this will really pay dividends for you with your banker, who is no longer lending on B.S.)

2) Work your supply chain- in both directions. Communication and cooperation are critical to success when facing uncertainty. You just might find that your communications is what is keeping your part of the turned products market thriving. Communicate, communicate, communicate.

3) Manage your inventory and dollar cost average in high variability times.There is no doubt that the year 2012 will be one of high variability. Rather than making a few outsize buys of raw materials, placing smaller regular purchases will enable you to dollar cost average as the market does its roller coaster thing based on whatever news story is hot that day. You can’t sell parts this week if raw material is 4 month lead time. You know what you typically use. Intelligently manage risk, have material on hand to make parts, and then you won’t have to listen so carefully to the news.

4) Producing low value added in a high cost location is a losing business strategy. Your peers have been leaning, innovating, and reducing their costs to remain competitive. In addition to editing your customers, you need to edit those low value added jobs out of your business plan. Editing adds value.

5) Improve cross functional communications between your team and your customers’. This is a great year to take your people to meet your  their customers and counterparts and to exchange ideas on ways to improve performance and reduce costs and waste all the way around. While this might be seen as a corollary of idea number 2, the fact is that taking your people to customers is a great idea for continuous improvement anytime.

We have no idea when any of the crises we know of will blow up. We have no idea when the sword might fall. But inspite of increased volatility, uncertainty, complexity and ambiguity, we can improve our chances for success by taking the steps outlined above.

What do you think is the most likely issue to emerge in 2012 that we have not listed above which will affect your business?

Sword of Damocles