Ram Charan: A Manufacturing Playbook For A Turbulent New Era

Editor’s Note: We’re pleased to announce that Ram Charan, longtime advisor to CEOs and boards worldwide and dear friend to the Chief Executive community, will join the already-great lineup at our Manufacturing Leaders Summit in St. Louis May 4-6. Ram will help you prosper amid geopolitical challenges, rethink your AI plans for maximum ROI and workshop your thorniest strategy issues LIVE. Please join us for a rare session with an extraordinary thinker—at an extraordinary time. Learn more >  

In a time of great geopolitical and technological challenge and change, there’s no one more useful to talk to than our longtime collaborator and friend, Ram Charan.

He’s developing a new playbook for manufacturers that he’s already deploying with clients, especially in India, where he just worked with a company and quickly added millions of dollars to their bottom line with overlooked opportunities using AI.

He’ll be walking us through this new framework—exclusively—at our upcoming Manufacturing Leaders Summit in St. Louis this May 4-6. It’s the right session at the right time, with an unparalleled master of global business operations helping with his best thinking for the current moment.

“Your psychology is: Turbulence will always be here. There will be pauses. You will be in the era of war, and you’re going to be preparing your business for that,” he says. Cash, he reminds us, not ephemeral EBITDA or revenue scorekeeping, is the ultimate survival tool in times like these. “Those who don’t watch their cash, they won’t be around.”

In a conversation on Friday, he outlined what amounts to a business flywheel (in the parlance of Jim Collins) for manufacturers, with simple but impactful uses of AI at the hub. Here’s a brief walkthrough:

1. Mindset Shift

To begin, you and your team need to adapt a shift in your thinking. “Keep your psychology and mindset that these turbulent times will never end,” he says. “We are going to go through them and yet we have to keep our eye on the ball for the long term because business will be here. We have to adopt to it.”

2. Hunt for Cash Traps

Step two, Charan says, is to sit down with your team and map out your entire value chain from end to end, from vendors and raw inputs to people, inventory, technology and customers. This, he says, should not take long—you likely know it already. Explore where cash is trapped in the process, and where it is created. You’re going to target these specific areas for your AI efforts.

3. Immediate ROI With AI

A lot of companies are running a lot of AI pilot projects, but Charan says the real wins—the ones he’s pulling off immediately for his clients—aren’t technically challenging or capital intensive and yield immediate ROI.

In essence, his advice is to follow the money: Deploy AI where it will have immediate impact analyzing the data that is closest to your cash flow. Think accounts receivable data, inventory control and, first and foremost, vendor management.

Not only is this likely have the best, most organized data you have in your shop already, allowing you to bypass most of the arduous, expensive “clean up” that kill AI efforts before they begin, but it is the data that immediately tells you the most about where cash is either being trapped or being created in your business.

Within hours, using just ChatGPT and a few years of vendor data, he says most companies can extract meaningful intel simply by scoring your vendors on issues like timing, pricing shifts, delivery charges and so on. Beyond that, you can tackle inventory, receivables, customer data—any other area where cash gets trapped in your business. “Ten percent savings is almost guaranteed, and less cash. And we can do that very fast,” says Charan.

(He’s actually looking for a volunteer to do this process live at the Manufacturing Leaders Summit. Reach out if you’re game: events@chiefexecutivegroup.com)

Seems simple. So why isn’t happening already? Charan says the problem is that in too many shops, IT people and technology enthusiasts are at the vanguard of deploying AI, not business people, and they’re focused on doing “sexy” projects with AI they can showcase, not “dull” analysis that can increase cash flow. 

“The first step here is using AI that creates business profitability,” he says. “Without that, we will not succeed.”

4. Pricing Courage

For better or worse, Charan says, tariffs and inflation are here to stay, and the best lever you have to deal with it is pricing, period. Charan has, as many of you recall, written extensively for Chief Executive on how generate profitability amid inflation, and it is well worth revisiting his playbook (which he later turned into a book) on leading through inflation, particularly the section on transforming your sales and marketing departments.

Hopefully here is where your AI work can really help pay immediate dividends, since you’ll have a greater understanding of your customer behavior and know where your best opportunities lie for raising prices.

5. Have A China Plan

This must be an essential part of any manufacturing CEO’s long-term strategy, says Charan. Dependency on China is the Achilles heel for so many manufacturers, creating a massive vulnerability that too few executives want to grapple with until it is too late. As he outlines in his new book, China’s 90% Model, “too late” will almost certainly happen to you at some point because decimating key American industries isn’t a side effect of China’s economic activity, it’s a core goal of their geopolitical strategy.

“You need to know what dependencies you have, what you buy from them. And if they stop supplying to you, what will happen to you and therefore what will happen to your customers? You need a list,” he says.

In the latest issue of Chief Executive, we share an excerpt from the book focused on crafting a decoupling plan for businesses that can serve as a useful framework for what can seem to be an overwhelming project.

6. Reinvest In Innovation

This is what makes this a flywheel. What do you do with your profits from more sophisticated analysis, smarter pricing and stronger supply chains? Plow it back into the business, starting with the workforce.

“You need to upgrade your people, train your people,” says Charan. “Upgrading here means learning how to use AI, how to make better decisions, faster decisions, but think longer term. Longer term means you must continue new product development. You must continue to innovate. You’ve got to rethink your capital allocation because without capital allocation you can’t build the long term.”

How to focus? “Quality, number one, innovation number two, productivity number three. And of all that, upgrading the people—this is the secret.”