Despite expectations that the end of the manufacturing recession finally may be in sight, this is still the time for distributors to look for ways to reduce costs.

In this month's issue (p. 37) we present a special report detailing ways for distributors to reduce their costs — and even prosper — in this economic downturn.

Al Bates, president of the Profit Planning Group, points out that distributors traditionally have been reluctant to reduce headcount. Some of these distributors remember that just a few years ago it was hard to find employees, while in other cases they are reluctant to let go of long-time workers.

Bates says that most distributors are still overstaffed and need to make a five to seven percent reduction in the number of their employees to bring the workforce in line with sales. Bates notes that this downturn allows employers to eliminate workers who are less productive than their counterparts.

Some distributors already have had managers take voluntary pay cuts; others have furloughed workers or put them on a reduced work schedule and instituted pay freezes. Every company (hopefully) has looked for other ways to reduce costs in their internal operating systems.

The problem is that internal costs can't lead to deep enough cost savings. The answer, unfortunately, is layoffs.

But it's equally important for you, as a manager, to make sure that those employees being terminated are treated fairly. Jack Welch, the legendary former chairman of GE, was asked about layoffs in a recent interview at BusinessWeek online.

Welch points out that every business leader has an obligation to treat all employees fairly — and that he also has an obligation to treat everyone differently. The best employees, he says, need to be rewarded and paid (or even given raises) while layoffs take place. Those who are less productive should be dismissed. And the idea of everyone sharing pain (such as pay freezes) equally is "ass backwards," he says.

Welch adds that it's useless to focus on the fact that cuts were made. "What counts is the team that you're going to put out on the field tomorrow, not the team you just cut from the squad," he says, noting that the best are going to take you to the next game.

Terminating employees is never easy. But sometimes it has to be done.