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Editor’s Note: March 24 Ram Charan and other experts will share a new, multi-disciplinary approach—from communication to pricing to cost cutting—to help your management team fight inflation and win. Join us >
Nearly fifty years ago, a young Ram Charan was brought in by GE to create a Crotonville playbook for their managers on how to lead through that period, as they hemorrhaged cash amid soaring inflation. Now, nearly two generations of managers have literally no idea what it’s like to operate in an inflationary environment. And that has Ram, one of the world’s best-known and most widely respected advisors to C-Suites and board deeply concerned.
Here he offers a few tips to transform some essential functions to be a more effective inflation-fighting tools:
In an inflationary period, general, regional and country managers share some of the same tasks as the CEO. They must communicate the urgency of the challenge and understand the overall effects of inflation on their operations. Help them develop a point of view on inflation based on an understanding of the causes in your markets. Project inflation assumptions out one, three and five years. Develop contingency plans for worse-than-expected conditions either in inflation or economic growth. Redesign key performance indicators by which they evaluate their teams—those KPIs must include cash and cash-related items. Target weak competitors who don’t recognize the dangers of inflation or who can’t cope.
Plan for the worst. Reexamine the supply chain from vendors to you and from you to retailers and distributors with the assumption that energy prices are going higher, perhaps much higher. Does a supply chain designed for $50-a-barrel oil work in an environment of $100-a-barrel oil? What happens if the chip shortage continues for another two years? Factor in deteriorating infrastructure, congestion in freight terminals and other bottlenecks that could slow or disrupt movement of supplies and products. Be sure the people doing pricing understand how logistics is changing and what impact that will have on operations.
In B2B, legal contracts are very common, which gives the customer the upper hand to hold you to the terms of the contract, which, in many cases, was crafted before inflation was on anyone’s radar. This is why the legal department has to be linked at the hip to other departments as they fight to adapt to the new realities. Push to include flexibility in new and existing contracts to reflect the need to renegotiate terms more frequently in conditions that most managers have never experienced before. Work with your best customers and suppliers to streamline the contracting process. Anything your company can do to make it easier for suppliers or customers to do business with you will give you a competitive edge.
Everyone knows manufacturing in most industries is suffering these days. Supply chain issues, lack of available talent in the plants, exaggerated prices in logistics. Wherever there is an assembly line, there is lack of balancing. This volatility is not going to be alleviated soon. Meanwhile, customers are clamoring to receive your output. The job of the manufacturing managers has become more demanding. Often, they have to decide which customer to supply first.
This is no time for wishful thinking. Be merciless in weeding out product lines and unnecessary complexity. You need fewer and better products and you need the best product people possible thinking about making things better, faster and more efficiently. Be flexible. Rapidly shifting demand curves will require rapid changes in production schedules. Beware of growing inventories of either raw materials or finished products.
One imperative should not be deferred: The use of algorithms and digitalization must continue. If you have not started, do not delay. Manufacturing and purchasing need to link together as a team. In some industries, the great resignation is more prominent. In manufacturing, depletion of experience can be very harmful. Capital expenditures for automation, digitalization must get priority.