How do you ensure profitability in a fluctuating market?

Many manufacturing companies have recently had to file for bankruptcy as a result of severe market fluctuations. We are in no way claiming that a solid ERP system would have saved these companies, but in a dynamic world where market-impacting events occur more often than before, we'd like to share some of our top tips for hedging yourself financially against market volatility.

 

It all starts with pre-calculations

 

You will hardly be surprised to come across calculations in this article. You are also likely to use them in a stable market. But before we dive into more advanced strategies, it's important to understand the importance of having a solid foundation for profitability management.

 

Calculations or cost calculations give companies a clear picture of the costs associated with the manufacture, distribution and sale of products or services. It is essential for setting prices, predicting profitability and managing the company's cost efficiency. It often includes factors such as material costs, labor costs, overheads, expected sales price and expected sales volume.

 

But while calculations provide valuable insight, they don't provide an absolute guarantee against market fluctuations. However, they create a better starting point for better decision-making when uncertainty prevails. Therefore, they are an excellent starting point for further risk assessment in relation to the market.

 

What if?

 

If the calculations were always correct, you wouldn't have to read this article. Unfortunately, we don't live in an ideal world where everything goes according to plan. And because the market fluctuates, calculations need to be updated. We call it a reassessment of value management.

 

Value management plays a crucial role in ensuring profitability in volatile markets. An effective value management strategy involves constantly reassessing the value of a company's products or services based on changes in the market. This can include adjustments to pricing structures, product portfolios and market positioning.

 

We also know that even the most advanced value management strategy cannot predict all market fluctuations. However, by using an ERP system that provides real-time data and analysis capabilities, companies can adapt more quickly when changes occur.

 

The price you paid last year

 

It is difficult to predict future price and exchange rate developments. However, historical data can give a good indication of how different fluctuations affect profitability. However, while historical data provides valuable information, we should remember that it cannot predict the future with absolute certainty. Still, there are some things you can do.

 

A clear strategy for price adjustments is important in the face of, for example, increased material and production costs or falling demand. This strategy should be flexible and adapted to market conditions. In general, it involves an adjustment of pricing structures. By being proactive with your pricing strategy, your business can protect profitability when market conditions change.

 

Manufacturing companies often operate internationally and are therefore sensitive to currency fluctuations that can have a significant impact on costs and revenues. This makes managing currency risk an important part of ensuring profitability. By using financial instruments such as currency futures or options, you can better equip yourself against adverse exchange rate fluctuations and thus ensure greater predictability.

 

A-B-C, easy as 1-2-3?

 

Another strategy that can help industrial companies ensure profitability in volatile markets is ABC analysis. It is a method of categorizing products or customers based on their relative importance to the company's bottom line. The analysis typically divides the elements into three categories: A, B and C.

 

Category A includes the most profitable products or customers that account for the majority of revenue. Category B includes elements of moderate importance for profitability. Category C includes elements of minor importance for profitability but which may nevertheless be necessary to maintain a coherent operation.

 

While ABC analytics can help optimize resource allocation, they are also not an absolute guarantee of profitability. Nevertheless, they provide a useful framework for prioritizing resources - where they are most needed - and adapting rapidly to changing market needs.

 

Embrace the future with ERP

 

Market fluctuations are a natural part of running a business, and no strategy can eliminate all kinds of risks. Nevertheless, the correct use of technological tools, data analysis and a strategic approach will give you better conditions for success in an ever-changing world.

 

Implementing an ERP system is not a "quick fix" to address the effects of tomorrow's volatile markets, but an ERP system is probably the initiative that gives you the best conditions for success.

 

In addition to the initiatives above, we can mention diversification of suppliers, efficient inventory management and optimization of logistics as areas where you can use ERP to meet tomorrow's challenges.

 

We cheer for Danish, Swedish and Norwegian industry: Their success is our success.

 

Should ERP be expensive, time-consuming, and complicated?

 

A common perception in many companies is that ERP projects are long, expensive, and complex. With the Cepheo Axelerator, it doesn't have to be that way anymore.

Read more about Cepheo Axelerator here.