Wise heads and common sense is what we all need

Oct 9 2008 By David Wright

Anyone who has all of their costs under control, is confident that they are not wasting precious time or resource, and has no cash flow concerns at all is excused from reading this column.

Well, it looks like we’re there then, according to the British Chambers of Commerce.  Manufacturing and business confidence generally is low and we are in a recession, apparently; thank you brothers Lehman, thank you Freddie and Fanny and thank you to the rest of that bunch of, well, bankers.

I think even Onan himself would be unhappy with that particular epithet these days.

The illusion of the Emperor’s new clothes has been exposed; you simply can’t lend more money than they are worth to people who can’t pay it back.

How many manufacturers knowingly sell their products for less than the value of the raw material? Quite.

So, what do we do now? What we always have to do in times like these, we have to look after our cash.

By that I don’t mean that we all of a sudden stop spending wisely, or paying suppliers or generally sticking our heads in the sand, what I mean is we carefully manage all of those activities in our business that are cash-sensitive.

I know that we should be doing that anyway, but we all know that there is nothing quite like the threat of a crisis to sharpen our thinking.

One of the nice things about looking at cash is that one can, most often, get a quick return on one’s actions.

If you turn out the lights in the toilets (when no one is in there, preferably) you will notice the impact on your next energy bill; if you manage to get 110 pressings from a coil of steel instead of 100 (too much lattice, perhaps?) you will notice the impact on your raw materials bill.

If you buy the quantities that you need, rather than the quantities that someone is trying to sell you, you will notice the impact on your purchases bill.

Let me give you an example. If you go into a DIY store to buy seven picture hooks, I’ll bet you have to buy a packet of 10, or even two packets of six.

If the packet of 10 is £1 you have paid 30p extra for the privilege of buying 70p’s worth of goods; even worse, I bet you’ve got hooks left over from the last time you bought some, but have lost the nails, can’t remember where you put them or didn’t even bother to look.

In reality, you’ve paid £1 for seven, not for 10.

Apply the same thinking to your businesses; don’t buy the things that you don’t need – you may end up committing cash to materials that you won’t need for ages, leaving you without the cash to purchase something that you do need right now.

Question all of your purchase batch quantities, even if there is a small increase in the unit price; you may end up paying 75p for seven picture hooks, but that still ain’t £1.

Every little helps, and don’t think that this is just a management responsibility – your workforce is a rich source of ideas too and you simply must not be afraid to pick up the phone and ask for some help.

Sometimes it is difficult to see the wood for the trees and often a fresh pair of eyes can make all the difference.

Actually, I’ve just realised there is a whole generation of managers out there who, unlike oldies like me, haven’t experienced times like these before.

Luckily for you, there are a lot of old codgers, sorry, experienced engineers, like me who have seen it and who want to help.

All you have to do is ask. Now.

* David Wright is chief executive of Manufacturing Advisory Service – West Midlands