Cashflow Isn't Always a Finance Problem: What the Numbers Can Tell Us Inside a Manufacturing Business
What’s that saying, if I had a € for every time I looked at cashflow, I would be retired already. It’s totally a true story across all companies I have worked with that are not somehow linked to a larger corporate entity or multinational.
Balancing money in and money out is no joke and is a constant pressure for business owners, day by day. But the story behind the cash can also help us to see where other areas of the business may need to be looked at. We need to be open to asking the right questions and following the evidence back to root causes.
Working capital is always important and one to watch carefully in line with budgets, forecasts and plans as we need to understand if the business can fund the expansion. For new companies that invoice to credit terms invoice discounting, whilst an expense, can be useful, although the banks will need good finance processes in place to offer this and will do quarterly audits to verify same. All good and as it should be, but you need to ensure your finance peeps have the capacity and capabilities to make this facility work on an ongoing basis.
Stock, Purchasing, and Uncaptured Floor Adaptations
In manufacturing particularly, problems with cash may highlight issues with stock and how long we are sitting on stock. Production may stop and all eyes are on purchasing right? And sometimes yes, it is a purchasing issue due to supply chain lead times, customs issues or human error, but it’s not always the answer.
Are the BOMs correct?
Were there last-minute changes not updated in the system?
Is the team leader normally “adapting” the design on the floor that no one else knows about or because they had that quiet chat with the design office!
All grand in the moment to keep the floor moving, I get that, but what happens next time we do a rinse and repeat on this order? We have not captured the stock items needed to make the build so manual intervention will be required again.
In my experience these parts in terms of the overall value of the job are minimal, right! But we can’t close off the bigger project and so now we are sitting on stock value of, let’s say €40k waiting for a €500 part. Often, we see large stock balances, but we do not have the part that we need to progress. This is impacting the overall cash of the business and has your finance peeps quite literally pulling their hair out!
Also, when we start micromanaging individual builds instead of allowing the system to take the load, owner intervention becomes more likely and the feeling of why is this heavier or why can’t I get out of the day-to-day becomes a recurring thought!
Staffing Capacity, Recruitment Timelines, and Retention
Staffing is a tough one right now and has been for the last number of years. There is no denying the quality and availability of skilled labour on the floor have a direct impact on the cash and production of the business.
I repeatedly have open and honest conversations with many stakeholders around this, and the comments are always the same: where have all the good people gone, people now do not have the same ability / work ethic, we cannot get people to join, we cannot get people to stay. The best forecasts in the world are not going to help if we cannot work around the current staffing issues.
In my experience this needs to be planned out at least 10 - 12 months ahead of the forecasted growth. Work permits, visas and housing all now form part of everyday life inside manufacturing companies, and these take time and patience. As with all companies our preference is to hire locally where possible, but the market is not massive.
We then look at the employee experience. If people are leaving, we need to look at the why and how can we amend this to ensure staff turnover settles and the company can get into its stride production-wise which is a huge win for cashflow.
Margin Variations, Material Cost Increases, and Rework Friction
Margins also play a role here; there is little point in building the best product in the country if the margins do not significantly contribute to the overall costs of keeping the doors open. This is especially important in today’s economy with rising fuel and energy costs and staffing increases.
Are we updating the costs with the changing steel costs?
Have we noted the CBAM implications if any?
Do we know how much extra the rising costs are adding to the cost base and roughly what that looks like per build?
What are we doing with the reworks, are we looking at the amount of lost production slots as a result?
So many variants on this one I could talk for days 😊.
Following the Trail Across the Operating Structure
My core belief is that cashflow is not just a finance problem. The numbers are telling us something, but sometimes we must follow the trail through stock, purchasing, production, people, systems and margins to understand what that something is.
Fixing the loudest problem without understanding where it started can give us temporary relief, but it does not necessarily fix the underlying issue. Follow the evidence, connect the dots and then decide what needs fixing. This is what The Chain Reaction™ is designed to look at
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