The initial reaction of my client base has been shock and resignation over the election results last night.
Expectations were probably misplaced - aside from the expectation that Romney would actually pull it out - the expectation that a business friendly administration would ease regulatory tensions, improve the business and economic environment, and create instant peaches and cream for all was not totally realistic in the first place (peaches and cream were never mentioned in the debates).
As morning breaks after Election eve - businesses find themselves facing the certainty of Obamacare with the uncertainty of what costs that might entail. Regulations (especially in the Food Industry) will likely grow and evolve now that an army of smiling Washington regulators is 'here to help you'. Again, a certainty of regulatory involvement without the certainty of knowing what that will cost or what areas of the business it will impact.
So what now? Several key clients had been holding back on strategic expansion pending the election outcome - should they just place plans on hold for the next four years?
My feeling is that they should not. We've known for quite some time that it's the medium sized businesses that are getting squeezed. Large players, your Fortune 1000 businesses have the resources, the IT staff, the QA staff (and the Washington Lobbyists) to react to new regulations, to meet the paperwork and inspection schedules. And the very small players are often exempt from things like Obamacare - as long as they have less than 50 employees.
But the medium sized businesses are facing the worst of it - and I'm afraid doing nothing is a strategy designed to get your business acquired or merged, or even worse - squeezed out of the market.
So how do we face this new reality? #1, I think we need to realize that labor costs are going up and will represent the biggest drag on the overall supply chain (until gas prices exceed $6). #2, we need to realize that many of the technologies the big guys have been using for years are now table-stakes - you need to have those technologies - simply to stay in the game.
Example One: You're a regional food distributor. You serve your markets pretty well, and have for many years. Lately, Sysco has moved in and is serving some of the national restaurant chains in your territory. Also, a start-up bakery has been offering specialty goods that a few of your customers have picked up. Question: what's the margin on that case of tomatoes you just delivered to Eat at Joe's Restaurant? Actually - I mean the actual margin after gas, delivery costs, driver labor, COGS, overhead to warehouse, label, pick, stock - everything? A lot of my clients answer - "Well, we kind of know and we'd need a special report and that's custom...." I'm afraid that answer is not good enough. Because the manager at Sysco knows - it's three mouse clicks away for him - he's working with the latest Business Intelligence software. And the start-up bakery knows - he only has one truck going out and 20 customers to keep up with so it's relatively simple for him. You have 5 trucks and 400 customers and 20,000 products so it's not so easy.
Example Two: Closing the books each month is taking longer and longer. There's freight bills to reconcile, divisions to consolidate, invoice matching, AR, AP - you had to add two people to the business office last year just to keep up and now they're hiring to fill another open position in finance. This is called 'throwing people at the problem'. So many businesses look at a $100k ERP program that would automate the process and determine that 'it's too expensive.' In the meantime, they've thrown 3 people at the problem over the last couple of years and it's now costing them $120k annually, in perpetuity, to avoid a one-time $100k investment. And it's not just the business office - there's too many people in the warehouse that a WMS system could control, there's additional trucks and drivers to run hot-shot routes to deliver out of stocks or shorted orders that could have been avoided with better inventory and load-checking automation.
It goes on and on.
But Sysco doesn't have that same drag on their supply chain - they're fully automated with the latest and greatest software and technology. And the small bakery can't afford to hire more, no drag there...
But here's the bottom line. Times are tough, and there's no coming election that's going to change that. As I travel around the country, seeing empty storefront after storefront, I realize a lot more businesses aren't going to make it to the next election.
The ones that do are the ones that invest in technology and cut down on labor costs - I'm not saying fire all your employees - but get the tools you need to find out what your true cost picture looks like, get the automation to prevent mistakes and work smarter - and you don't have to invest millions like Sysco - there are software solutions at nearly every price range that can help - not a panacea or instant fix, but can at least keep you in the game. Then, with fewer employees, you can afford to pay to keep the best - and really create that competitive advantage that will keep you moving while others fall.
Get in touch with your Technology Consultant today and start working on what you can address, where you can cut costs and what automation can do for you. And if you don't have a trusted Technology Consultant - contact me below and I'll get you in touch with the right person in your industry or focus.
Gene Hammons, MBA can be reached at email@example.com
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