There’s a lot of pain in trying to do the right thing. Strategy is not everyone’s cup of team.
Are you good at short-term pursuits only and do not have the patience for long-term commitment?
“Give the your efforts and money the power and time to grow”
“Strategy Today” for the manufacturing companies
Their focus should be on the volume growth.
When the demand remains strong, the company’s strategy of increasing capacity without straining balance sheet will yield results in the long run. This will improve the business prospects.
The capacity will remain a key contributor to the volume growth in the coming years.
If the company is new, it should plan to penetrate the market and if the company is already operating in the market, it should make an effort to increase penetration in the new regions for geographical diversification. The market in the new region will be a key trigger for the counter.
The chances of a price improvement in the key markets will be lower, and that is where the company should look at increasing its volume. Example, in one of the established manufacturing company, 14% revenue growth in the first quarter of the year was observed because of 18% growth in volume.
Funding for this capacity addition will not strain the balance sheet of the company because of its superior cash flow management. Example, the company should reduce the debt-equity ratio in a span of 5 to 7 years.
There could be other factors that might challenge the cost pressure like the surge in the fuel prices for production. Example, diesel.
In such scenarios, the company should adopt the cost saving efforts by using the alternatives. Example, lignite.
The management’s focus should be on increasing absolute EBITDA (Earnings before interest, tax, depreciation and amortization) by increasing the volume.