Balance Cost-Cutting with Smart Investments in Manufacturing and Maintenance During Recession

I think we’re seeing the same dynamic in the manufacturing industry right now. Although the 4 percent consumer price index has tamed inflation worries, the real possibility of recession still looms on the horizon. Experts believed there was a 61 percent chance of recession earlier this year, and discussions have heated up with interest rates rising and debt ceiling debates. We know that recessions are an inevitable part of the economic cycle; historically, they have occurred on average about every 4-6 years. The reality is that we’re due for one.

As a result, the U.S. manufacturing industry has started cutting back on equipment spending as demand for goods and services as measured by the producer price index dropped by 1.6 percent. Individual investors, venture capital firms, and manufacturing companies are growing more cautious and fearful by the day.

Speed up when others slow down

While an impending recession may be a good time to look for opportunities for greater efficiencies and cut costs where there is obvious waste, I think it’s important not to focus solely on cost-cutting.

In many cases, I believe that decreasing demand is a signal for all of us to be busier than ever, while not always in producing more goods, but by investing in automation, robotics, maintenance, and people. For example, businesses tend to take struggling equipment off production lines due to the cost of maintenance when orders drop. I would advocate that slow periods are, instead, the perfect time to run needed maintenance. By doing so, you get ready for the next economic upswing. It’s the perfect opportunity to get ahead of the competition when things inevitably pick back up in the future.

I was talking with an UpKeep customer who said it’s better to “zig when everyone else is zagging.” I have always told our team to choose to be a little weird and a whole lot different. A slow economic period is a great time to work on being extraordinary because I’ll guarantee that others are going to be primarily focused on cutting back, handicapping them to be only ordinary in the future.

Right now, forward-looking companies are playing the long game. They are automating their production lines, implementing robotics and lights-out manufacturing, and investing in those technologies that will put them far beyond the competitors who are pulling back. In fact, switching to a lights-out manufacturing process can potentially save up to 20 percent of labor costs and bring about a 30 percent increase in productivity output. If you’re fearful when others are greedy, and greedy when others are fearful, you’ll be ready to hit the ground running when the economy turns around.

Hyper prioritization is the key to good resource management

Manufacturing has historically struggled for resources, whether that be due to labor shortages, supply chain issues, or lack of time. I know it can be difficult to think about investing in a new production line or beefing up your maintenance efforts when you are running operations around the clock and barely meeting production goals. But, remember, if demand is slow right now, this is the critical time to be completing preventive maintenance, improving production lines, and adding technology such as automation and robotics. Otherwise, you’ll be even further behind when the economy picks up, giving the competition easy access to your market share.

The key is to find those projects that are expected to generate the highest return for the lowest amount of effort. At UpKeep, we look at each project through three lenses:

• Return or impact for our customers

• Cost, time and effort required

• Confidence in product success

For example, we have the opportunity to make a myriad of incremental improvements to UpKeep, but many of these will have limited return and moderate costs. Instead, we’ve made a fundamental decision to bring new products such as UpKeep Edge, which allows our customers to monitor critical assets in real time, and DataHub, a centralized, integrated data ecosystem, into existence. We are highly confident that both promise best-in-class impact and high returns for our customers with a reasonable investment from UpKeep.

The bottom line is that we all need to do more with less. It’s going to be impossible to fight the labor shortage with hiring alone. Datahub is about helping manufacturers centralize all of their asset data, and Edge is about helping them gain knowledge and insights about that data to make smarter decisions. They work together to make people and technicians more effective and efficient.

History proves that a delicate balance between cost cutting and investment is key

I think it’s interesting to look at past recessions and their upswings to see if we can discover any patterns to help us know the best way to move forward. According to a comprehensive study of the three global recessions of the 1980s, 1990s, and 2000s, Harvard Business Review found that both those businesses who made early and deep cost-cutting decisions as well as those who only invested heavily in the future did not necessarily perform well post-recession.

Instead, the study discovered that companies who found the right balance between cutting costs to survive the economic downturn and investing for the future were the ones who thrived the most. Businesses that worked on boosting operational efficiency instead of straight cost-cutting while investing in the future deliberately crafted a successful multi pronged strategy.

As we all look to the latter half of 2023, let’s take some wisdom from those who have gone before us, embrace the best calculated risks for our industry and specific company, and use the current economic downturn as an opportunity to reground and position ourselves for a bright future.