Here's what you can do instead of laying off employees
Companies worldwide are facing a tough economic climate. With trade uncertainties and an unfavorable business climate due to the slowing global economy, many executives find themselves forced to make tough decisions about where to allocate their resources.
However, the manufacturing industry has historically recovered from downturns more quickly than other sectors, and this trend is expected to continue. Moreover, The National Association of Manufacturers (NAM) conducted a survey where 82.6% of executives felt optimistic about their company's prospects for the year ahead, despite inflationary pressures and economic uncertainty.
Nonetheless, not all manufacturers feel the same confidence level, with small and medium-sized companies particularly vulnerable.
A common response is to let go of employees, and in the second quarter of 2022, The U.S. Bureau of Labor Statistics reported there were 406,000 layoffs in the manufacturing industry alone.
But this isn't always the best or wisest course of action — especially in the manufacturing industry, where the jobs are more specialized and difficult to replace. Here are some money-saving alternatives to consider:
1. Negotiate with vendors
There's no doubt that manufacturers are feeling the effects of the trade war, with 90.1% of companies in the industry reporting the rising costs of raw materials as their primary business challenge, according to NAM's 2022 survey.
But this doesn't mean that as a manufacturer, you're defenseless, especially if you're paying vendors on time. For instance, if you can't get your suppliers to lower their prices, consider negotiating with them for better terms — such as longer payment terms or zero-interest financing — that will reduce your current costs and help you avoid layoffs.
2. Cut back on capital spending
Another way to mitigate the impact of economic uncertainty is to cut back on capital spending. This may mean scaling back plans for new facilities and equipment purchases or even just postponing them.
Consider whether the project is essential or if you can wait until the economy improves. If you decide to make these cuts, though, be careful not to cut too far or for too long — otherwise, you'll find yourself behind competitors in terms of quality and technology.
3. Reduce overtime
Due to the skills gap and labor shortage, working overtime is the norm in many manufacturing companies. However, the more hours your employees work, the more you have to pay them — and the more you pay them, the less profitable your company is.
As a result, it's crucial to control overtime whenever possible by finding ways to streamline processes or reduce workloads. This will help ensure you get the most out of your employees' time without severely affecting your bottom line.
4. Contract labor
When you need to scale operations up quickly, hiring full-time employees is tempting. However, by using contract labor instead, you can bring in employees when you need them and let them go when you no longer need their services.
This approach is especially advantageous in situations where there are seasonal fluctuations in demand. That way, when the market drops, you don't have to lay off any full-time employees.