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Strategies to Help SMMs (Small-Medium Manufacturers) Increase Profits with Rahul Sarkar
Episode 317th June 2021 • The Manufacturers' Network • Lisa Ryan
00:00:00 00:24:53

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Lisa Ryan: Hey, it's Lisa Ryan. Welcome to the Manufacturers Network podcast. I'm excited today to introduce you to Rahul Sakar. Rahul is president of Clarity Manufacturing Consulting and has 30 years of manufacturing experience reinforced by postgraduate education from the Illinois Institute of Technology and the University of Notre Dame.

He has worked with a passion in the trenches, in the nooks and crannies worldwide to help small and medium fabrication and manufacturing companies win more bids, increase revenue and achieve operational improvements leading to greater profitability. Welcome to the show, Rahul. 

Rahul Sarkar: Thank you, Lisa. Thank you for having me. It's an honor to be here, and I'm looking forward to this.

Lisa Ryan: Great. Please, tell us a little bit about your background and journey. What led you into manufacturing and doing what you do?

Rahul Sarkar: Well, I initially had wanted to become a teacher, a professor at a university, but I soon very quickly got into manufacturing. And I think the reason I have focused for the past 30 years and worked in small and medium manufacturing companies is that many years ago, my first boss, who became a business partner, later on, told me that if you work in a small, medium manufacturing company, you will learn a lot. You'll wear multiple hats, and boy, he was right.

And so I have been, like you mentioned, all over the world, various companies, visiting and understanding what manufacturing is all about. And, you know, the other thing that has driven me is that the small-medium manufacturing companies are in so many ways disadvantaged. If you think of the two hundred fifty-thousand manufacturing companies in the US, 80 percent, 75 to 80 percent of that number have 20 employees or less. I mean, think of that, 75 to 80 percent have 20 or fewer employees. They're the backbone of the manufacturing in this country, which is about 10 percent of GDP. Right.

But think of what the parts that have had to experience for the last 50 years, 50 years. And it is not getting any better. Profits have shrunk, their sales have shrunk. And that inequity is really troubling. I've made it my passion to understand what and why this happens to what can be done about it. And I hope to play a part in that.

Lisa Ryan: Profit is certainly important for any business. And when you're looking at these small and medium manufacturers (SMMs) compared to OEMs and some of the big players out there, that's a big thing. So what are some of the ways that SMMs can increase their profits in those times?

Rahul Sarkar: The answer to that is don't focus on profits. I'll explain what I mean by that. I think that mindset that focusing on the profits mindset has contributed to the sufferings and troubles of SMMs. Here's the thing. If you think of the large OEMs' profit margins, double-digit profit margins, easily 10, 15, 20 to 20 percent for if you're an Apple, you're 35, 40 percent.

And the small guys are shrinking from double digits to single digits. And heck, if you are making five percent net, you're celebrating at the end of the day. So that squeeze has been brought about by the large OEMs and enforcing the smaller manufacturers. It's almost like you don't know what will happen because the OEMs make products know what they're where the revenues come from.

They know democracy. They have a history and can make forward-looking projections. But for example, you are waiting for the scraps to fall off the table that the big dogs are dining at. It's the large OEMs that are squeezing the smaller guys for profit.

And guess what happens if you think of the exodus of US manufacturing in the late nineties and two thousand who drove that? It wasn't the small-medium manufacturing companies. Large corporations had the resources to go over to Asia and set up shop there and look for manufacturers, look for supplies as some of the Tier one suppliers followed suit. But that assumes they don't have the resources to send people there. So they got even further squeezed. They had to drive the prices down even further to match offshore competition.

How far do you go this? You run into negative territory. That is why if you think if you look at the statistics, twenty percent of businesses fail within the first five years, 50 percent of businesses fail for manufacturing companies. Suppose you think of what happens in year 10. So if I make it past five years, am I all good? No. Unfortunately, within twenty-five years, 80 percent of manufacturing companies disappear.

So that's tragic. And that is where the focus has been on profits. But it has to be on revenue. You have to have a substantial amount of revenue before you start cutting and packing and making the reductions, trying to increase profits. And that's the mindset change that is really important in this case. So if you're not focusing on profits, what are some of the things that they can do to focus on their people? Focus on their culture because we know when they're doing the right things, the profits happen.

Lisa Ryan: But what do those right things look like?

Rahul Sarkar: If a company can focus on building revenues, for example, small, medium manufacturing companies, fabricators, job shops, they are getting requests for quotations. They may they're lucky if they win five percent, 10 percent would be an awesome number. How many actually look at why they didn't win the remaining ninety-five percent of the bids and analyze that and try to figure out what we do wrong and provide the proper training, provide the proper resources, and bring in all of the good stuff.

And secondly, along the same lines of revenue, you have to think of other ways to privatize our manufacturing capabilities and make products.

This is where the pandemic really proves the point because of the urgent need for small-medium manufacturing companies to jump in and really step up. They were able to help and help society in general and help people and first responders and all of that and help themselves realize, oh, my gosh, I can make a specific product like guards or whatever face mask that this.

And I think that that lesson should be carried on. It shouldn't just be during a pandemic where we realize that, oh, my gosh, we would make a lot of money if you had products. We have to carry that thinking forward and not just wait for the scraps to drop off the table. Yes.

But get a little more control of your own destiny by outside-the-box thinking. Unfortunately, that it's not a very tidy answer and you have to try different things.

Lisa Ryan: One of the things to do with them being such a part of the pandemic and making masks and making all the things and seeing that they were part of this greater mission, seeing that they helped in the greater good of society. And we can actually take that message forward so that companies are reminded that no matter what it is that they're making, no matter what it is that they're doing, what are their employees doing to contribute to that greater picture, even if they're making a spring, you know. They're just sitting making the same pieces, parts every single day.

But letting that employee know this spring goes into this piece of equipment that saves lives. The spring goes into this airline, this plane, or whatever it is to see that contribution that we make. Why is this job important?

Rahul Sarkar: And the people aspect is something that gets so neglected. Let me explain. If you think of when a downturn hits, who are the first to go? Which item gets cut first? HR and quality and people get cut because if you think of your revenue as a big pizza. That's your revenue, and slices of that pizza are coming off. Those are your expenses and what is left behind. A little sliver of pizza that you have left behind is what you take home for profits right now. If you think of the mindset of, OK, what do you focus on? You have to focus on the biggest contributor to that expense item. Where is there a piece of good?

You consume manufacturing. If you're in manufacturing, 50 percent of the pizza is goods and materials cost. People cost maybe 15, 20 percent if you have more of a slice, bigger slice. And that that is a problem that you need to address. But think to focus on the big, big problems, the big slices like materials. And that's why I recommend one thing, one mindset of thinking I recommend for all segments is the Pareto principle. It's the fundamental way of thinking.

You always look at the big hitters; the Pareto Principle says that 80 percent of your effects are caused by twenty percent of the causes. Right. For example, 80 percent of your losses are driven by 20 percent of your products or three. Some of your customers had problems that, you know, take up 80 percent of the time of your people and so forth, if you think along those lines, what are the biggest contributors to my problems today?

And you will have a mindset of thinking, oh, what can I do to help that, even from the revenue side of things? OK, why am I not what is driving those 90, 95 percent of bids away from us? Why did we lose that? Did we have proper training? Are our salespeople educated enough to gather information on the market, the market pricing, and accept what is not acceptable to mess up? Did someone bid to load it so that mindset will take a manufacturing company a long way?

If you have to think of the way you look at a problem, you cannot. And that's why Benjamin Franklin said, what is the definition of insanity? Doing the same thing over and over and over again and expecting the results to be different. That's insanity, right? For 50 years, we've been struggling. We've been struggling to have small, medium manufacturing companies make a decent profit. Yet nothing's happening. Nothing's changing because we are focused on profit first. Revenue first is what I say is we have to focus on that.

Lisa Ryan: So, with some of the clients you've been working with, what are you seeing? What are some of the things that they are doing that are helping them put their people first? You know, specific examples of maybe some of the cool things or ideas that you've seen?

Rahul Sarkar:  Companies that I have had success or seen succeed have treated their people as not line items but a part of the balance sheet. I think that is where it's. Again, it's a mindset. If you look at your people as expense items as opposed to assets. I think that's where I have seen. Just recently, I've been working with the company, and the leadership there is just incredible. And they understand the value of people and recognition and bringing having people that people have ideas.

So many ideas. Trying to pull ideas from the people. The power of ideas is immense. And I think we see companies where the owner tries to do it all. You cannot do it all. You have to trust your people, hire bright young minds, bring them in. Don't slash your workforce. Many companies get rid of people and all of that knowledge and experience that you just collected over ten, fifteen, twenty, walk out the door. That's your asset which is walking out the door.

Lisa Ryan: Now, when you talked about that company that you're working with, and you said they were a great leadership team, what makes them great?

Rahul Sarkar: The the CEO, the company president. His attitude sets the tone. I've seen companies with terrible, terrible employee satisfaction situations, the leadership, and the top person in command. I think they set the tone. I have known this for 20 years. The fish rots from its head. I see this in so many places.

And this company is such a classic example of how if you have the proper leadership, that is hands-on. He's running around the shop floor. He's cleaning up vehicles and showing the people that no job is above my level. I'm with you. I'm a part of the team. And we all have to succeed as a team. I think that mindset is so valuable. Appreciating the people. Walk around the shop, talk to people. Get to know them as people, not just expense items on your P&L statement.

Right. I think that has a huge, huge effect on making people think. Why am I making this spring? If they know the why and they understand that, hey, my spring is going in there, and if I don't make the spring properly, I can end up making the team suffer. Leadership drives that team spirit, and that's, I think, so vital. 

Lisa Ryan: It really does start at the leadership. There are way too many companies that look at employee engagement and retention and that type of thing as an issue or somebody below them. And it really does start at the top. And when you said walking through the plant, giving your employees access, knowing them by name, knowing a little bit about the employees, because when that leader is walking through the plant and says, hey, Bob, how are you doing? Bob can be like, holy cow.

Rahul Sarkar: Oh, my gosh, yes. That is so powerful. And this is another mistake companies make. They think, oh, I give financial incentives, financial incentives not to respect people, just that that high wage means so much. The recognition making the job meaningful. Why am I making this screw, or why I'm making the spring? Giving them all of that really makes a difference.

And this is where I think it's encouraging to see more and more of an awakening and a realization. In fact, some of your guests on your earlier shows have been talking about things like that. And it's really encouraging to see that. And I'm hoping that this will spread throughout the whole small-medium manufacturing companies because they really need the help, and they are the ones that can help themselves.

That's the thing that they have to understand, not the government, not some dole or something. They have to use their people's resources, their brains, the brains that they have in the companies use that.

Lisa Ryan: Yeah, especially since we have such a shortage of skilled workers out there. You think with unemployment being at an all-time high right now are high for a long time, that people would be easy to find, and they're not. So it's those skilled workers that you need. So if you have good people working for you, it's really creating those relationships and saying thank you and recognizing your employees. And all of that is not an excuse to pay them less than market wage is still left, right?

Rahul Sarkar:  That's exactly right. And Lisa, that the point you bring up about the skilled workforce gap? We've complained about this for 10, 15, 20 years. We've talked about the gap. Why do any good shop individuals go work at McDonald's instead of at the factory? That site that has to change, that really has to change. You have to attract the brains; you have to increase the wages you pay them.

And this is something, in fact, just yesterday there was a poster of a Forbes article and I was like very, very encouraging to read that the someone is saying that someone is saying those words like it will cost you minimal to pay the person two dollars extra per hour if you think of the the the downside off of retraining and attrition. So that's a whole different topic.

Lisa Ryan: Right, exactly. I know. And just as we move off that topic, I remember reading some statistics that said that by that time, when the employee walked in the door, you've already spent about sixty-five hundred bucks getting them in there on day one. So when you start to put that pen to paper, you can't afford to have that high turnover and just to look for these little things to make your culture a better place to work to people enjoy working there, then that's going to keep them, and it's going to increase your profits.

Rahul Sarkar:  It comes profit comes. If you do all these things right, profit will come. So absolutely.

Lisa Ryan: So if you were to think about your best tip from what you've seen or what you've worked when it comes to putting people first, what would that be? 

Rahul Sarkar: The power of ideas your people have been running, the machines have been making, the parts have been doing. Whatever you are having them do for many, many years. They have ideas that would blow your mind. And if you're about 15, 20 years ago, there was a book, The Power of Ideas or something. It was so profound. And then suddenly people stopped talking about it because everyone ran to the next big thing. 

In fact, they had the pie of ideas. Your people have so many ideas. Cool. Just make it easy for them to come up to you and talk to you and give those ideas and recognize them for those ideas, you know, and I think that's a tip that you can take to the bank really well.

Lisa Ryan: Yeah. And especially when you have new employees come in that are seeing the world differently from you, whether or not they have experience in your industry or not. Listening to them and acting on the things they share makes them even more loyal and more committed to you because they feel heard.

Rahul Sarkar:  Absolutely. And those new employees, new people coming in, bring in a whole different world view and different ways of thinking. If you've been in a shop, on a factory floor, you walk by that that that leaky oil pan or whatever leaky machine every day. And you don't think about a new person: Why is it leaking? How much is that costing? That's costing. You get new, fresh ideas. And that's, you know, absolutely like you just said, fresh ideas and respect and freedom to think and speak and be valued as an individual. That's so, so important.

Lisa Ryan: When you talk about that leaky can that people walk by every day, it's also thinking about what your break rooms look like versus your customer-facing places. You have people in the office. The office is bright and shiny, and clean. You go into the shop lunchroom, and it's dark and dirty. And so these little things about just helping the environment for your employees to make sure that when that new employee, that prospect comes in, who might be joining your company, they're looking around going, wow, that they must care about us because it's clean. After all, it's bright because it feels good to be in that place.

Rahul Sarkar: Absolutely. That is so, so vital because then people, the employees think, oh, they like you said, they care about us. And you feel like instead of just you walk into the lobby, nice, beautiful. And then you walk out of the shop. It's dark, and it's dangerous, oily. Its floors are slippery. It's like, whoa, you know, that's, and it sends a message, and they leave anyone who doesn't desperately need a job believe they don't want to work in there.

Lisa Ryan: Well, you and I can obviously talk about this all day long and being on the same page. If people want to get a hold of you to connect with you and learn more, what's the best way for them to do that?

Rahul Sarkar:  Email a call me on my website. My number