4 ways manufacturers can maintain high-growth trajectory

Many middle-market manufacturers with high-growth aspirations—whether through organic means, acquisitions, or a combination of both—eventually encounter challenges to sustaining their trajectory.

The most common concern we hear? Resource constraints. Growing strategically takes bandwidth—but bandwidth is in short supply: “We don’t have enough people” or “the people we do have don’t have the time—they’re too busy keeping the lights on.”

Manual processes—like gathering information from across systems and compiling it in spreadsheets—consume considerable time that could be spent on higher-value activities. Continuous change and steep learning curves for new technology/tools keep people focused on the present. Individuals who should be paving a path to growth and value creation struggle to get out of reactive mode. It’s a vicious circle that becomes more difficult to escape the bigger an organization becomes.

From our experience in many types of manufacturing environments, there are four levers for accelerating—and more importantly—sustaining growth.

1. Reduce technical complexity

Organizations that have grown rapidly—particularly through acquisitions—often have a technology environment that has become too complex. It’s not uncommon to see multiple systems doing the same tasks because the organization has lacked the time or resources to rationalize technology and consolidate operations on a single system. Instead, they rely on integration middleware and inefficient, error-prone manual processes to connect operations. Staff must manage multiple vendors, creating duplicative effort and pockets of expertise with people who know one system but not the others. Managing multiple vendors requires staff to handle duplicative tasks and expertise gaps, which diminishes economies of scale compared to consolidating licenses with a single vendor. Technical complexity doesn’t just impact costs and limit operations; it can also erode customer experience.

Older systems that have been customized extensively over time also add complexity. These require more maintenance and downtime, making it more difficult to adapt as an organization grows.

Complexity snowballs as new businesses are acquired. Addressing it requires resources—but this can go a long way toward addressing bandwidth issues. Some steps to consider:

• Assess your current technology landscape for redundant legacy systems or aging systems that require increased maintenance or attention. Identify opportunities to consolidate operations onto fewer systems or employ point solutions that handle specific activities such as Product Lifecycle Mgmt., Advanced Warehouse Mgmt., Transportation, Work Order Mgmt., or Demand Planning
• Examine user experience—both internally and for customers—to identify problems that result from technical complexity (for example, delays in consolidating information across units because manual effort is required).
• Enhance reporting and analytics capabilities to improve visibility into business performance and effectively pinpoint opportunities for improvement
• Prioritize opportunities based on both value potential and investment/effort required and look for quick wins that can help build momentum.
• Develop a business-driven application road map and then have quarterly reviews and updates. In a rapid-growth environment, it’s important to remain adaptable.
• If continued acquisition is part of your strategic plan, think ahead about how you can build toward a technical infrastructure that makes it easier to integrate new businesses.

2. Mature back-office operations

IT, HR, and other business functions find it challenging to do much more than run the business, making it unlikely they’ll be any better prepared to run a much larger organization. Keeping the lights on will only become more challenging and consuming as the organization grows. High-growth manufactures will need to grow back-office operations—but they must do it effectively.

Revitalize upskilling: It’s important to think ahead about the roles and skills you’ll need in two or three years—and how you’ll acquire or develop them. Today’s capacity constraints leave little time for people to develop new skills they’ll need to run a larger and more digitally focused organization. Manufacturers need to explore new strategies for upskilling teams and ensure people have the time and space to get up to speed in skills they need to drive growth.

Optimize talent channels: Manufacturers—like all organizations—will need to change how they think about different types of talent and the work best aligned to those groups. In the evolving Gig economy, manufacturers need to adopt flexible models for talent acquisition, ranging from temporary staff to expert networks. Optimizing talent channels (employees, contingent talent, outsourced, and automation) and aligning work with suitable talent groups is key to maintaining competitive advantage in this landscape.

The evolving workforce framework for back-office operations includes contingent and outsourced and near/offshore talent, in addition to employees and automation. We’ve seen companies that optimize work to talent type save 30-40% (often millions). But talent optimization is not just about cost; by balancing cost, risk, employee experience and service quality across all talent channels, an organization can enable growth—even in challenging markets.

Talent optimization will look different for every company, so start with a thorough assessment and modeling of areas such as:

• Current skills relative to those required to drive strategy
• Current and projected labor costs
• Locations for talent
• Feasibility of automating certain business processes

Business seasonality is one scenario that may lend itself to alternative strategies to avoid paying for low labor utilization in slower months.

Keep in mind that some talent channels may not be a fit today but could be viable options once the organization achieves a certain size. For example, once you reach $750 million, you may be able to achieve greater efficiencies through outsourcing. Still, you can begin laying the groundwork for utilizing alternative channels now to increase preparedness down the road.

Organizations tend to approach workforce challenges one problem at a time. This can lead to an amalgamation of strategies. Developing a vision today for how you want to function and then planning for it leads to better solutions—and better results.

Don’t skimp on leadership development: This is an area where many manufacturing organizations have deprioritized. Organizations need to assess whether functional leaders have the right presence and capabilities for running a much larger team in the future—and be planning ahead for developing (or finding) the leadership skills and qualities necessary to do so.

Enable teams with technology: Finally, as you address technical complexity (above) and develop a technology road map, look at how potential solutions can enable talent to be more effective—for example, automating data collection and PE reporting—and free up capacity to focus on value-added work.

3. Optimize your manufacturing and distribution networks

Manufacturers often stitch together a patchwork of facilities and operations in an effort to expedite integration of acquired businesses. This can lead to all sorts of issues, from redundancy and inefficiency to inventory in the wrong spots. As a result, costs go up and margins erode as the organization grows, when in fact the exact opposite should be happening—benefitting from the economies of scale.

Cost is a key driver for network optimization, but don’t forget there is also a significant customer service aspect. Whether in a business-to-business or direct-to-consumer model, an optimal network gets product to the end customer faster. That makes the organization more competitive—leading to greater revenue growth.

Some steps for optimizing manufacturing and distribution network operations:

Explore different methods of moving products efficiently to streamline operations—for example, consolidating shipments to move by FTL instead of LTL or parcel, lowering the cost per shipment.

• Rebalance inventory to take advantage of newly acquired locations to increase customer service, shorten lead times, and reduce cost.
• Revisit vendor and transportation relationships and look for ways to reduce spend given new economies of scale.
• Use technology and process improvements to enhance supply chain visibility and resilience.
• Leverage data and analytics to provide a consistent and accurate method of measuring facility and network performance.
• Adopt a continuous improvement methodology as you grow to assess the network and increase efficiency while reducing redundancy.

4. Align acquisitions with strategic growth goals

While acquisition activity dropped last year, we’ve seen deal volume in the middle-market manufacturing sector begin to tick back up in 2024—and we expect buyers to continue to become more active in evaluating potential acquisitions. If your business or investment strategy involves growth through acquisitions, focus here:

Have a clear investment thesis: This should be clear, concise, and well-structured. It should outline the strategic rationale behind the acquisition, the expected benefits, and how these align with the overall business strategy.

Apply a value creation lens to network, operations, and technology diligence: In our experience, manufacturers don’t always devote consistent attention to these areas when acquiring or merging networks or brands. Diligence is often risk-based, looking for red flags or problems rather than focusing on what the organization should and could do to maximize value. Ask questions such as:

• What opportunities exist across the value stream to drive incremental value and competitive differentiation via digital and data solutions?
• To what extent is technology integrated across business processes and operations, including reporting and analytics, and are there opportunities to consolidate redundant technology?
• Does the current data architecture support embedding advanced analytics capabilities and tools to drive additional value creation post-close?

Develop and deploy an M&A playbook: Quality of integration planning and execution will make or break value creation. For organizations planning to grow through acquisition(s), it’s imperative to have an M&A playbook that provides a standardized and repeatable approach to acquiring and integrating across all functions of the business. This is a single repository for all corporate M&A intellectual property so integration teams can hit the ground running with all of the necessary integration checklists, tools, templates, and step-by-step processes based on proven best practices and a tested approach.

Conclusion

A deliberate and strategic focus on each of the four areas above will help middle-market manufacturing organizations accelerate—and, more importantly, sustain—high growth and value creation.

Adopting the right organizational mindset is also part of the equation for success. First, keep your eye on the longer term. Make it a matter of routine to consider what people, process, technology, and data should look like two to three years down the road. Creating future-state road maps and organization structures can help maintain focus on where the organization is going.

Instill a continuous improvement philosophy and approach to supply chain network design, back-office operations and processes, and alignment with business strategy. Always be on the lookout for new cost opportunities, unnecessary overhead, manual processes, and areas of redundancy—and target those for action. Finally, don’t lose sight of customer relationships as you evolve systems and operations. After all, customers are at the root of future growth.