Our last blog was about the need for a feasibility study to understand your company’s future manufacturing operations. I urge you to read it before going forward with this post. Feasibility study on your manufacturing operations is a valuable tool and something that should be updated on a regular basis to ensure that you are ready for what the market will throw your way.
Why You Should Update a Feasibility Study on a Regular Basis
The modern world is an especially chaotic place and is likely to stay that way for the foreseeable future. The past 5 years, for example, have seen a global pandemic, a large land war in Europe, the rise of AI, a return to tariff regimes, wars in the Middle East, and significant social unrest. It seems unlikely that the next 5 or 10 years will calm.
For that reason, companies need to be ready to make large and even radical changes to the manufacturing operations to remain profitable and successful. The last thing that any business wants to be is flat-footed when change comes or being forced to make rushed decisions. All companies should have a plan or at least a general outline of a plan on what they should do if the business environment changes.
If tariffs with China jump to 150% overnight, you will be ready with a mitigation plan that will allow you to react quicker and more effectively than your competitors. That scenario would be terrible for all involved and you will be poised to make the best of a bad situation.
Most businesses fail to plan for alternatives because they are focused on current challenges, and it is easier to believe that the status quo will continue than it is to plan for an uncertain future. The largest corporations in the world fall into this (see American auto manufacturers in the 70’s and 80’s) and a myriad of smaller companies, many of which we have worked with in the past.
The Steps to Create a Continuous Feasibility Study
First, you need to create a baseline feasibility study. You can find the steps to do so in the previous blog, and we will expand on each element over the coming months. The best feasibility studies are those that are designed to your company’s specific situation and needs rather than high level. For example, if your company does not have significant supply chain connections to China, then you do not need to bother with that consideration. The baseline should be detailed enough to provide guidance for decision making but not so detailed that it restricts flexibility.
The baseline feasibility study provides a structure that can be built on and altered as needed in the future. It should not need to be changed in a drastic way unless there is seismic change in the global geopolitical environment or a particular industry.
The feasibility study should be updated with inflation, interest rates, the cost of key components, tariffs, shifts in your industry, etc. These can be subtle (a point five increase in interest rates) to drastic (doubling of tariffs). These are easy to use metrics that can be adjusted to game out various scenarios.
The final update, and the most ambiguous, is to review the underlying assumptions of the feasibility study. This update is the most ambiguous because there might not be hard data as there are for other aspects of the business. Understanding of the state of your industry and your business may have change and what once seemed a viable assumption no longer is and vice versa. In light of greater geopolitical tensions and tariffs, many companies, for example, have shed the notions that they cannot manufacture in the United States.
How Often Should My Company Update?
Barring a massive shift in the economy or industry, the feasibility study should be updated on a yearly basis. You could do it more often, but a yearly update is a good general rule. It is enough time for the broader economy to change and smooth over some of the spikes that may happen along the way. By integrating the feasibility study update into your yearly operations, it will be easier and neatly fall into regular planning sessions.
A continuous feasibility is yet another tool in your kit to hedge risks and to take advantage of opportunities other companies are less prepared for. Over the next few weeks, we will provide more context on a good case study and how it will help your business develop.
What can MTG do to help you improve your operations?
