If you own a manufacturing business, your overarching goal should be to create opportunities and conditions that enable stability and business growth over the long-term. This is true whether you wish to continue operating the business or prepare it for transition. Financial professionals call this value acceleration, and the goal is all about charting a path toward maximum business value.
To reach that goal, there are three areas in particular that you should take action around: human capital, customer relationships, and vendor relationships. Gearing operations around protecting, building, harvesting, and managing value in these three areas will help you build a stronger and higher-performing organization. This, in turn, makes it a more attractive target in the marketplace while also helping to facilitate a more seamless transition to the next generation of leadership on your terms.
Let’s take a brief look at each area.
Businesses tend to operate at their best when the owner focuses on strategy and finds new ways to grow the company. Key management personal operate best when they are valued and are allowed a degree of autonomy.
The lesson here: Be close to your warehouse or shop floor, but hire key supervisors or managers whom you can trust to be independent and make appropriate decisions, identify potential issues and bring in new ideas and solutions.
This allows you to create value through focusing on strategy, R&D, product development, manufacturing processes, and project management. You can still monitor progress and trends through meetings and updates with supervisors and managers, but workers will respect your leadership if you are not unceasingly micromanaging their daily work.
Through updates and insights from supervisors and managers, you will be able to monitor whether the business is operating effectively. Set measurable and quantifiable goals to measure performance and verify they are performing at the level of your expectations and in line with the organization’s vision and mission.
Lastly, the little things go far when it comes to building trust and relationships. Bring back culture through finding a mild Friday afternoon to host an event for the employees. Recognize employees individually for personal and professional accomplishments. Be human and focus on truly engaging your employees.
Today’s war on talent is real, so it’s incredibly beneficial to retain top talent, because attempting to backfill positions can be quite challenging and consumes significant time and resources that would be better put to use building value through product sales, innovation, and delivering on customer satisfaction.
Optimizing customer relationships is another key strategy that can accelerate the value of your company. For customer concentration, focus on the 80/20 rule—diversify through new product lines with the “land and expand” strategy with 20 percent of your customers. In other words, examine their business needs and allow your sales force and innovators to target ways to support those needs.
Target one to five years ahead of time, strategizing pain points of customers before they even occur. Quality control is a major area an owner should be thinking about, especially with distribution and manufacturing. In today’s era of social media, poor quality can lead to costly reputational issues. Customers may ask to visit the facilities or see how their product will be manufactured.
First impressions are important within a facility, but a clean orderly facility is also more likely to be a cost efficient facility. Showing customers that products are stored in clean, organized warehouses with easy to identify and find items will increase comfort that they will receive complete, accurate and timely delivery of their orders.
You never know who will walk through your facilities one day; don’t let a potential or unsolicited buyer think the value of your company is lower because you are unorganized, have obsolete inventory or have unused or damaged equipment taking up floor space.
Vendor and Supplier Relationships
Building and nurturing strong relationships with vendors and suppliers is another key role for ownership to play in accelerating value. Diversification is critical, as it relates to vendor and supplier concentrations.
Take stock of all vendor and supplier relationships, and ask yourself what would happen if they shut down or became nonexistent. How would your company handle the adversity? In this regard, it’s wise to have contingency plans in place for your most critical material suppliers outlining any requirements and lead time changes if you made a supplier change.
You should treat your vendors and suppliers with as much respect as possible—you never know when you might be in a position where you need a favor to delay a payment or work on more favorable terms, especially in these unprecedented times.
In summary, relationships inside and outside your business are key to accelerating its value. A positive and team-oriented environment with strong core values creates an organization of choice for current and potential employees. That translates into positive figures on your income statement, and therefore higher enterprise value. Own from a higher level, and trust your team. Focus on strategy, innovation, and building relationships.
Do you have questions about accelerating value in your manufacturing business?
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