A lot of business owners will have ambitions to expand their operations at some point. Growth, after all, is one of the biggest measures of success (particularly for a smaller manufacturer). Growing too fast is a fear-inducing prospect though, as it has the potential to destabilise the equilibrium.
In this article, we discuss what it means to scale up, and highlight the difference between growing and scaling. We also provide some useful tips on how to scale up effectively as a manufacturer, and explain how our software allows you to achieve this in a seamless manner.
What does it mean to scale up in manufacturing?
Growing to scale (or scaling up), is when a business ensures all aspects of its processes grow in tandem so that one area isn’t left behind.
Perhaps you’ve just carried out a big promotional push which has led to a big increase in customers, or maybe you’ve won a big contract which will lead to a substantial number of sales. To scale up in these scenarios would involve increasing your efforts in other activities too (such as material requirements planning) so that you can deal with this added demand.
You’d maybe have to hire more employees or purchase more machinery to produce the necessary level of goods on time. This means that although your operations are now bigger, your costs have increased too. But this is a necessary investment to ensure that your business model is sustainable.
As we’ll come onto later, there are methods for scaling up in more efficient ways, so that you can still increase your capacity to meet demand, but also make a higher amount of revenue too.
Growth vs scaling
Some may view growing and scaling as the same thing. But there are some sharp differences that make scaling up the far more sensible option. Simply growing without changing the way you operate can be unsustainable.
Growth is all to do with the outputs of your activities, such as how many sales you’ve made, how many customers you’ve got, how much revenue you’re producing, or how many warehouses you operate from.
But by only focusing on these aspects, there’s no emphasis on the inputs. You may think that it’s alright to keep the business model as it is, as long as income is growing. But if this goes unchecked for too long, this is when the bubble can burst. If the same number of employees are being used to look after twice as many customers, or the same amount of machinery is used to generate three times as much produce, there will inevitably be a breaking point.
This approach is arguably a way of cutting corners, just to make bigger profits. But ultimately it means the wellbeing and fulfilment of your staff will be sacrificed, along with the quality of your products and the ability to deliver to customers on time.
When is the right time to scale up?
You should always look to scale your operations if you’re experiencing growth. So, really, the more sensible question is, when is the right time to grow? Ideally, this is something that should happen organically (as this is the clearest sign your business is ready).
However, there may be occasions when you must go out of your way to encourage growth, perhaps to keep up with competitors, or simply to reach targets. In this scenario, there are a few indicators you can look out for, to assess whether it’s the right time for your business to go to the next level.
The most obvious sign is if your overall performance is consistently excellent. You won’t want to expand from a position of weakness, as this doesn’t put you on a good footing to start with.
A specific element of performance to measure is cashflow. If you want to take proactive measures to stimulate growth, you’ll want to have a healthy cashflow in place first, as you may to need to make investments (or experience hiccups) along the way. If all your value is tied up in assets, then you may be putting your business in a perilous position by expanding.
You should also analyse the solidity of your supply chain management. If your supply chain is already delicate, it may not be a good idea to put it under more strain. You’ll want to ensure your infrastructure has strong foundations before taking steps into the unknown.
If you have a method of forecasting future financial performance accurately, this is a bonus, as this enables you to make smart business decisions that are measured, rather than looking to grow impulsively.
Top tips for scaling up in manufacturing
Have clear objectives
When scaling up you should have a well-defined plan for what you want to achieve. You should know exactly which areas you’re looking to grow and how you will go about doing this. Having clear objectives allows the entire business to pull in the same direction, and reduces instances of unforeseen outcomes.
Do your research
One way to be prepared for expansion is by looking at similar businesses that have done the same thing (perhaps competitors). By seeing what they did (and the results of their actions), you can have a better idea of which tactics to implement, and which to avoid.
Hire the right people
It’s always advisable to invest in your people, as they keep your company ticking. You may need to add to the ranks in order to cope with growth. However, it’s good to value quality over quantity. You should give employees regular training to keep them up to date with evolving trends. Highly skilled workers with expertise are more likely to pull you through transitional periods. But it’s also up to you to provide them with the tools that ensure they’re not out of their depth during growth.
Adapt your business model
It is paramount to keep your business model flexible, so that you don’t sacrifice product quality, customer service, or employee happiness. This may involve sourcing more materials from suppliers or building new partnerships. It could also mean branching out to new locations or harnessing new technologies. Whatever needs to be done to maintain your previous standards (whilst also keeping up with the new level of demand) should be prioritised.
Carry out a risk assessment
As with any ambitious endeavour, you should carry out a detailed risk assessment beforehand. This may involve scrutinising every change, as well as how it will impact the way your business runs. By taking these precautions, you’ll possibly highlight dangers that would have otherwise gone unnoticed, and you can then put pre-emptive measures in place.
Try not to increase the complexity
If you have an effective system in place for the way your manufacturing business works, it should be as simple as increasing or decreasing capacity when scaling up or down. If it’s not possible to do this without making things far more complicated, or without adding lots of extra steps, you may need to rethink the way your processes function in the first place (before even contemplating growth).
Seek advice where needed
There is sometimes value in seeking guidance externally when undertaking an important project such as scaling up. You may have the relevant expertise internally to weigh up the necessary decisions, but it can be helpful just to have an outside perspective. Such an investment in advisory services may be worth it, if it is instrumental in uncovering a risk factor that had gone under the radar.
One sure-fire way for smaller manufacturers to deal with extra burdens is to incorporate the help of technology. Using digital resources can be a handy way to trigger growth in the first place, as they bring about an increase in efficiency. This leads to higher turnover, and ultimately means you have more money to invest in increased marketing or production if necessary.
How cloud software can help to scale your business
Some business management solutions are highly flexible, which is advantageous when you’re going through a phase of change. It means that not only do these systems help with increasing efficiency and profitability, but they can also reduce your overheads (all important factors when scaling up). Due to their ability to complete a lot of your company’s heavy lifting, you may not have to invest as much in inputs as you’d thought when originally planning to grow.
If you opt for a solution that is also Cloud-based, it will be even easier to scale up, as they can be seamlessly upgraded to stay in sync with your growth. Cloud systems can be used from any place, at any time. This means that employees can access their work remotely, which has become increasingly important in recent times. It also means that data is more likely to be accurate, as it can be updated as soon as there is an alteration.
Its most transformational characteristic is that it empowers you with automation. Automation is a company’s best friend when striving to grow significantly, as it removes some of the manual processes that can be limiting.
The solution has interconnected components for e-commerce, accounting, payroll, contact management, production planning and stock control. This provides cohesion between all departments and allows for a consistent / single version of the truth.
If you make an online sale on your e-commerce platform, this will update your inventory levels and finances automatically. You can then trigger production runs and orders with suppliers based on customer purchases and stock thresholds.
This level of efficiency means that you’re always in the best position to deliver on time, even if you’re experiencing a busier period than usual. It enables you to operate in a much more cost-effective way too, so you can maintain the optimum amount of inventory, workers, machinery, and storage space in order to meet demand (which leads to reduced waste and more money saved).
So, not only does Manufacturing software allow you to scale up with fewer expenses, but it also improves your cashflow, and puts you in a position to make further investments if your ambition dictates continued growth.
When you combine this with the system’s powerful reporting capabilities, it means that you also have a constant picture of financial health, and can use accurate forecasting to grow at the right times.
If you’re looking to grow your business, but don’t want the discomfort that normally accompanies growth, take a more detailed look at our Manufacturing software solutions, which have been designed to flexibly scale up as you expand your operations.