Financial crisis and its impact on the real economy

The situation has not improved in the last weeks. Indeed, the first companies have been obliged to reduce their workforce. I am not speaking here of Kremikovtzi, a large stell plant that is hauting the city of Sofia with its yellow smoke, but of other production companies like Druzhba, a piston producer, or Tchugunoleene JSC, a foundry that is dismissing 25% of its employees. The list will definitely gets longer as time goes by.

A positive factor for the Bulgarian economy is that, due to the very low productivity of their employees, the companies have an important optimisation potential and should be in a position to offer their products for cheaper prices than what they do now.

This is only true if these companies currently make money on the orders they fulfill. Indeed, due to a lack of sofisticated pricing models, most companies only generate a return on their average orders. As far as the foundries for example are concerned, they may lose money on small complex parts for example and lose orders on large simple parts. With the crisis coming at full speed, they may be left mostly with the money losing orders, which may put them in a very difficult situation.

Provided that their cost calculation is more or less correct, the next step will be to analyse the production process and correct the production norms, so that they reflect the reality. In the last 3 years, working for a number of medium and large companies in Bulgaria, we are still hoping to find a single company where this is the case. We have again shortly conducted an analysis and come to the conclusion that the norms were twice as large as necessary. High norm, low productivity, overtime, the deadly cycle is started.

Based on the corrected production norms, it is then possible to assess the capacity needed for the next months and to adapt it to the sales forecast.

Finally, it is important, not to forget to have a look at the supporting functions. They consume a lot of money and are in most cases desesperately inefficient.

Do not lose time, call a specialist to support you, time is key, cash is king.