Time To Be Flexible and Agile

Image by Sten, CC BY-SA 3.0, https://commons.wikimedia.org/w/index.php?curid=2226973

Recent economic reports suggest a rougher road ahead. The May jobs report showed only 38,000 jobs created with almost half a million people leaving the work force and the US unemployment rate was over 9%. At the same time, according to Mergers and Acquisitions, the magazine of the Association for Corporate Growth, middle market mergers and acquisitions 2015 activity was lower than 2014, and the fourth quarter showed “a dramatic dip.”

It’s not time to panic, but it is time to check on your plan for the next three years and  become as flexible and agile as possible. With the political head winds, events in China and other global issues, business leaders need to be fleet of foot and able to change course quickly, both intentionally and in response to events.

The third element of Rick’s Four Dimensions of Executive Thought is Resources, which includes human resources, partnerships with suppliers and customers, and whether to develop capabilities internally or externally. Agility is one of the elements of the Executive Command Center, and executives should reconsider their business model for flexibility and agility in these rough times to be sure they can react quickly, whether the market turns up or down. Take a look at how your workforce is structured, how your relationships with suppliers work and how your supply chains flexibly move materials from suppliers to customers. With some planning, you should be able to be flexible and agile in response to rough patches ahead.

© 2016 – Rick Pay – All Rights Reserved

A Positive Economic Forecast!

Earlier this week I attended the 2014 ISM International Supply Management Conference in Las Vegas. One of the keynote speakers was Mark M. Zandi, an economist from Moody’s Analytics. His thoughts on the US economy and our position in the world over the next several years were very positive. Some of his comments included:

  • Contrary to what many politicians are saying, the harsh weather this winter in the eastern US had little or no impact on the overall economy. What little impact it did have will be completely recovered by the end of Q3.
  • All 18 manufacturing industries they track are reporting growth expectations for 2014. This is the first time ever that all 18 are positive.
  • The non-manufacturing sector expects growth in revenues of 2.2%, growth in prices of 2.2%, growth in capital investment of 10.8% and employment growth of 1.4%
  • Our economic growth over the past couple of years has been held back by the policies of the administration (stimulus et al) by about 1.5%.
  • The ACA is not curbing growth in healthcare costs. This issue needs to be addressed by the end of the decade or early next, or it will become a wet blanket on the economy.
  • Housing is improving as under 30 year olds finally find jobs and move out of their parent’s homes. This could result in 700,000 new housing starts this year with about 2.1 million new jobs.
  • Short-term interest rates will be going up to as high as 4% (now about 0%).
  • The US worker is the most productive in the world. Taking that and currency into account, the US unit labor cost is one of the lowest in the world right now, well below China.
  • Overall, expect strong growth in the US, commodity prices will grow at 1% per year,  there will be a big wave of reshoring and US companies will be very competitive on the world market.

© 2014 – Rick Pay – All Rights Reserved

Is Inventory Growth a Good Measure of GDP?

I find it interesting that the government uses inventory growth as a sign the economy is getting better while Lean efforts consider it a waste. GDP (gross domestic product) is a measure of economic growth that uses consumption, investment, government purchases and net exports to indicate whether the economy is expanding. Investment includes growth in wholesale inventories. So in other words, if companies are building up stock, it’s considered a good thing in economic forecasting.

In reading the government guidelines for the numbers, it appears they think that increases in inventory indicate an increase in demand and increased “economic activity.” So, if you convert $10,000 in raw materials to $20,000 in finished goods (including the value added), it helps the economy. However, if those goods are never sold, it doesn’t show up. Just the conversion is tracked. The later sale of that inventory is only reported at the level of profit or value added in the sales process. Companies may increase inventory in anticipation of future sales, but if those sales don’t occur, the companies sit on inventory that has already been counted in GDP.

Perhaps the government should recognize that many companies are getting lean and are trying to hold down inventories as a means to free up cash, reduce costs and improving profitability. To me, the real measure of GDP is the consumption of goods and services by the final customer. If they don’t buy, the economy is not healthy.

© 2014 – Rick Pay – All Rights Reserved

Where Should You Go When You Come On-shore?

Here are some questions to ask when choosing a US location to set up production.

Is there government support?

A company who recently re-shored production chose Chicago because they were offered a 20-year tax rebate. Motorola went from Mexico to Tennessee in part because it takes lass than a day to get a building permit in Tennessee. By comparison, it takes 4 to 6 months to get a building permit in Portland.

Availability of labor

Does the local economy support the education of the kinds of workers that you need, particularly at the supervisor and middle-management level? Supervisors, team leads, manufacturing engineers, and certified welders all need to be educated locally, unless you have the means to bring them in from outside. Executives expect to relocate during their careers, but getting a manufacturing engineer to move across the country is more difficult.

Factors like minimum wage also play in. A couple of years ago a client of mine was building a wood mill in southern Missouri. At that time the minimum wage in Portland was $7.50 and the minimum wage there was $5.15. Most of the employees at the mill were minimum wage, and the mill had absolutely no trouble finding workers.

A certified welder in Portland costs $18-22 per hour, compared to the same welder in Alabama who costs $13, which explains why BMW, Toyota and Freightliner are starting to open plants in the South. The same thing goes with call centers, which are now heading to the plains states, where people can work out of their homes for a lower wage than other states will tolerate, and the quality of service is higher than taking a call center off-shore.

Transportation

This includes the quality of transportation, the ability to get trucks in and out, access to trains and proximity to good airports. One of the current issues with Portland is transportation. We have an excellent airport and it’s easy to bring supplies in, but we have some challenges in moving finished goods out. Truckers are currently limited to 11 hours per day in the cab of a truck, and if a driver spends an hour or two in a traffic jam he can’t get where he needs to go within that 11 hour period.

© Rick Pay, 2011 – All rights reserved