A news story which keeps resurfacing in the UK (and worldwide) is the continued shortage of the microchips and semiconductors required to manufacture new cars. A modern, electric car can use thousands of microchips – they’re used within the engine management, the entertainment system, the emergency braking system… the list goes on. It won’t be a surprise to learn that the production of these microchips has been severely affected by the pandemic. Following outbreaks of COVID-19 in regions where the microchips are manufactured – particularly in South-East Asia – factories were closed, and the manufacturing process ceased. This could have been expected, many industries around the world experienced the same problems. However, there is another factor the motor industry potentially hadn’t been expecting. That is, the introduction of new competition and additional demand… As countries around the globe were thrown into lockdown, demand for certain supply skyrocketed. Suddenly, the motor industry was competing against other sectors for ‘their’ microchips. This is especially true in consumer electronics – working from home created huge demand for laptops for example, and isolation led to people upgrading their TVs, home entertainment and gaming systems. So, organisations that rely on these microchips being available have all seen spikes in demand and competition for resources, this has naturally led to a shortage in the hardware and available components.
In line with this, many of these organisations will have suffered a loss in production and, ultimately sales. If they are unable to adjust – and quickly – this could easily drive them out of business – and has for many SMEs. This prompts two questions: If you are a company that is struggling with a shortage of sales, what should you do? And, perhaps more interestingly, if you have a competitor struggling (more than you are) with a shortage of sales – what should you do if, or when they go bust?
Let’s start with the first question. What should you do if you are currently struggling for sales? The first thing to recognise is that you are currently struggling due to a genuine shortage of components/products that you either produce or buy and subsequently sell. If supply chain issues cannot be resolved quickly then your sales will continue to decrease; so will margins, and so will the money that comes in to cover your operating expenses and keep your company’s doors open. If you do not want to resort to cost cutting (i.e., letting people go, sacrificing services or reducing the size of your premises, etc.) then you must quickly find alternative methods of generating sales revenue. This might mean new products/services, or it might mean better service or market offerings to entice customers to your business. These are not overly complicated solutions, but they do pose a good question: how well prepared is your organisation with additional capabilities and offerings that you could quickly put out to your marketplace? Are you prepared to fill a hole if it appears in your portfolio? The answer, if we’re being honest with ourselves, is probably not.
This leads to an interesting strategy question… how much of the company’s management’s brain power should be spent on protecting and expanding the future of the business rather than maximising the current state? (At Goldratt UK we work with clients to rapidly increase sales; that is revenue, range and volume – both for now and for the future – get in touch for more information, or click here for an article detailing 3 ways to increase sales).
The second topic we can look to address here is what you should do if it’s your competitors that are suffering these problems and they are not able to adjust to fill the hole in their sales/portfolio quickly enough to save their business. Many businesses have and will go bust this way; losing 20% of your orderbook could mean that you can’t pay your debtors/employees anymore, and once that happens, your business is done. This has sadly been a harsh reality for many business owners following the beginning of the pandemic. A survey from Simply Business reported that in the UK, 41% of small-medium sized business owners feared they were at risk of permanent closure as a result of the pandemic. In addition, 49% admitted their ‘top worry’ was losing customers – running out of money was also a significant concern for many.
So, here is the strategic question. We all understand that even a small decrease in sales – maybe 5% or even just 2% – can have a dramatic impact on a company’s profit and loss (P&L). If you are not one of the more fragile companies in your competitor base – are you fully prepared to take advantage when they are no longer able to satisfy all their customers, or any of their customers? Are you able to satisfy those customers and their business? Do you have the capacity? Are your marketing strategies ready? Is your R&D department? Is everything geared up to win and deliver this business when a competitor drops an order, drops a client or even worse, closes completely?
This challenge (…opportunity!) requires you to be prepared. It requires you to have capacity available (not completely filled by your current customers) to take on many new orders or be able to rapidly put it in place. It also requires you to meet or exceed your competitor’s service levels, and for the marketplace to be aware that you can help them, so that they are happy to come and give you their business. This takes a lot of preparation.
At Goldratt UK we work with businesses to grow their orderbook and profitability through collaboration with their customers and existing Sales, Marketing and Production teams and processes. Not only that, but we also work with them to ensure they are fully prepared to take advantage of their competitors’ limitations and failings. Contact us if you want to learn what this could mean for you.
By Phil Snelgrove, Lauren Wiles