Downsizing at a Time of Crashing Demand: Three Keys to Appropriate Resource Deployment

The current era of coronavirus mitigating the crisis and the decline in economic demand presents top executives with a real historic challenge: they have huge financial and operational problems; at the same time, they have a historic opportunity to reform their businesses to offer great benefits in the years to come.

This is because downsizing can weaken or strengthen your business – during the crisis and for years to come – depending on how you do it. Meanwhile, the contraction exploded almost overnight. Layoffs and layoffs are almost everywhere, and this is important.

Managers are expected to develop and implement effective responses in real-time, without prior planning periods. Previous management practices are totally inadequate to successfully address this historic challenge in today’s highly compressed response times.

Historical challenge

With virtually no warning, many companies today face an unprecedented and externally induced drop in sales, with little time to match spending with disposable income. This combination involves taxes that threaten the survival of cash flow and financial reserves.

Creative approaches are essential. What worked in the past will not work now. Three fundamental principles are the foundation of success:

  • Focus on your most important profit.
  • Emphasize people and relationships.
  • Focus on quick and practical implementation.
  1. Focus on your needs

In almost all companies, 10-20% of customers, products, employees, and operations generate over 150% more profit. The main need for today’s administration is to focus resources on duplicating this area of   central power.

Companies that divide their customers into profit gains (large, high profit), profit margins (large, low profit/loss), and profit deserts (small and low profit) generally find that about 10-20% of their customers produce about 150. +% more profit; 10-30% got 40-50 +% more than the profit; and 50-80% of its customers consume more than half of its resources without making a profit.

  1. Emphasize people and relationships

Times of crisis demand a new emphasis on people and relationships, instead of the recent trend of impersonal systems and related digital transformations. Systems may be cheaper in some high-volume applications, but they may not solve people’s problems and problems and the complex coordination challenges between companies that dominate during crises.

This principle is rewarded in three main areas: customers, suppliers and operations, and the supply chain.

Customers

Effective customer management requires fundamentally different programs for customers with maximum profit, customers with lost profit, and customers with lost profit.

Earn money with the best customers. The goal for its most profitable customers is twofold: (1) it systematically builds the efficiency of its daily coordination, while (2) it takes targeted measures to develop a more integrated operational relationship with win-win mechanisms, such as joint forecasting, managed inventory by the intended supplier and coordinated category management.

Exhaustive customers. The goals for profitable customers are also twofold: (1) generate money by connecting the specific problems that cause their profits and money losses and (2) develop reciprocal operating cost reductions that increase those customers’ profits and convert customers with the highest profit. Accessing secure stocks of scarce products can provide a strong incentive for these customers to renegotiate their relationship with you.

Profitable customers. The main objective of non-profit organizations is to reduce operating costs and decrease the priority of the assigned product. This is where downsizing should take place – it is essential to reduce your costs to reach your earning potential, thus achieving more effective engagement.

These customers are the segment most susceptible to system improvements. Here, you need to understand the cost of serving these customers to make sure you are paying correctly for the services you are offering. The price discount should be the exception, not the rule.

Suppliers

The most effective program for transforming your suppliers is parallel to what is best for your customers.

The best for-profit suppliers offer their most profitable products. These suppliers provide dedicated teams of highly qualified managers in the development and growth of production relationships, with weekly coordination meetings and monthly forecasting and planning meetings (along with the steps initially selected to integrate processes in supply chain management, development management category, and product development) development). The required systems are relatively standardized.

Industry and supply chain

In addition to their main supply chain systems (for example, warehouse management, transportation management, inventory management), highly skilled managers are much more important than complex systems.

In situations of limited supply, it is important to make decisions in advance about the allocation of the product by the customer and communicate it widely. Often, companies do this in real-time, resulting in a share of everyone trying to support their customers’ priorities. This leads to the standard situation: no priorities and no order of entry.

  1. Focus on the quick and practical implementation

Profit segmentation must be the practical and critical core of financial planning and the analysis process.

  • Begin to develop an understanding of profit gains, profit draining, and waste of profit.
  • Continue to create an integrated set of applications for each segment, each with the right balance between people and systems.
  • Finally, the performance and risks of each profit segment must be monitored individually and carefully. You need to think about where you can develop your HR skills and where downsizing will have a net benefit.

At the same time, it is important to balance this effort with the selective continuity of its strategic investments in areas such as product development and new technologies that will be fundamental to its success after mitigating the current crisis.

Conclusion

Managers have no choice in terms of time, as today’s crisis is driven from the outside. The deadline for effective action is very short. Those who act quickly before getting the situation under control and quickly narrow the range of options will create a life-saving cash flow and gain a large market share from competitors who are moving very slowly to make a difference.