Surviving a lingering economic downturn

By Rich Schmitt

Management specialist

I want to remind you up front that I am not an economist, soothsayer, mystic or whatever Carnac the Magnificent -- the Johnny Carson character -- was. From what I have read and heard, I think that the rest of this year will be trending down. It seems that a recovery will start some time in 2009 and that recovery will be slow. There is also a theory in politics that the incoming president -- from whichever party -- will attempt to take the most unpleasant medicine early in his term. Then with voters' predictably short memories, we will forget the suffering after a couple of years and reelect him. If this scenario occurs, 2009 could be a dose of some bitter medicine.

So the outlook is that things will great worse for a while and then get better slowly. With this outlook in mind, I want to provide some thoughts about ways to reduce the impact of this down economy and survive the downturn.

Some wholesalers think that their success during the past few years was further evidence of their brilliant business planning and execution. For the small percentage that performed at the very highest levels, this might even be correct. For many though, the reality is that "a high tide raises all boats." Said another way, almost everybody does well in a rapidly growing economy.

Mariners say that you don't have to be much of a captain to avoid the reefs during high tide and operate on smooth seas. The real captains earn their keep during low tide and rough seas. In wholesaling, the past couple of years have been relatively smooth sailing and deep water. In my mind, though, it is the current economic climate that will test and validate the management team at many wholesalers.

The main point is: Don't assume that your strategies and operational processes from a couple of years ago are the ones that will serve you in this economic climate. Sure, everyone was busy and working hard several years ago but it would be a grave -- and maybe fatal -- mistake to think you should keep doing anything simply because it is what worked during the boom years. All processes, policies, procedures, services, locations, product lines and staffing needs to be reassessed to ensure that you have the best recipe for the current business climate.

If you are losing money, stop. Do not pass go, do not collect $200
Get your business configured to make money. Over the past 18 years, I have never had a wholesaler tell me that he had "cut too deeply" when working to get his business adjusted and sized for the level of revenue they were producing. I have had several tell me that they have regretted making shallow cuts while hoping that their situation would magically change.

Continuing to lose money should never be accepted casually. Plans that involve a lengthy implementation are suspect. I know that implementation can take time, but there must be an absolute urgency within the business to get it on a profitable footing. For many seasonal wholesalers, May is when their business starts to produce the good to great profits that offset the slower winter months. If this description fits you and you are not making those good to great profits, you must pause and determine if it is time to make some tough decisions.

Stay focused on customers
During down times and as you are adjusting your company, it is easy to lose your customer focus. Even with the high fuel costs, I think it is important to keep your outside sales team facing the customers you serve. In many cases, it is this person-to-person relationship that provides your company with an edge over your competition.

Of course, this is not always the case because some salespeople are ineffective and, at times, even a negative. But those salespeople should be reformed or replaced as a separate activity. In our industry a lot of the trade customers buy from people they know and like, whenever possible.

Continue your marketing activities
In my opinion, now is not the time to disappear from sight. You must stay in front of all customers through your marketing activities. This is especially important for those customers who do not have an assigned salesperson.

I think the tone and substance of marketing must be adjusted to the economic climate. This might not be the time for flashy, slick campaigns to your trade customers. Many of your trade customers are really struggling, and when you appear flashy they might think you are gouging them, being arrogant or flaunting your success. Reminding your customers of what you sell and how you can help them should always be an appropriate message.

Get focused on the 'hat trick' of priority activities
For now, everyone in your company should be working on activities that:

• Increase sales profitability.
• Decrease costs. Always a good activity but something that can get forgotten during the fast-moving up market periods. Start with any expenses that are up from last year. Make sure that the expenses are in line with your new revised sales forecast. Look at every expense line in detail to find the buried costs that are no longer a priority.
• Materially change the market's perception of your firm in a way that facilitates #1 (increases sales profitability).

All other activities your staff is involved in should be a lower priority.

Seldom is technology the answer
Your "killer" website will not take the place of your sales team and your marketing efforts. I think a web presence is critical these days to stay in the hunt but it will probably not be your savior.

Someone asked me recently if he should upgrade his website and get rid of his outside sales team. I think he was joking but my answer was a loud, "Absolutely not."

I fully support technology that helps your customers to be more successful. I am against any technology initiative that results in an inward focus for your team that results in reduced customer focus.

Management must stay connected
The management team has to stay connected with your customers and the team. When the going gets tough, both customers and associates want to see the company leaders. Taking time to ask customers what you can do to help them and to deserve more of their business matters in any economy. In a down economy, it matters even more. Talking to your team about your company's situation and how they can contribute to the company's success is critical.

Evaluate your team and look where you should make some adjustments
During very busy times, wholesalers often hire people who are not promotable (said another way: substandard). Things are moving fast, customers are screaming, so hiring a warm body quickly is more important than hiring a great, promotable person. As you look to the future, sometimes these are not the people you would choose for your team and are probably not the people to carry the company through this economy.

Consider centralization of some functions
I think customer-touch activities are always done better as close to the customer as possible but many other functions can be accomplished efficiently by a centralized group. Administrative functions are often done better and more reliably when centralized. Some areas where centralized experts might do a better job:

• Purchasing/inventory management -- The branch team seldom has time or takes the time to get really good at inventory management. To many at the branch, replenishment is a necessary evil required to running a branch. For others, it is a bunch of numbers and formulas that have nothing to do with keeping the bins full. A central group that really understands inventory management and your computer system can often reduce inventory levels while increasing service levels.
• Pricing -- Some field people think they are managing prices when they react to the daily price challenges by customers. There is very little strategy to it; you simply reset the customer's price to a new, lower level that becomes the starting point for next week's price discussion. The only direction is downward. Central pricing experts can create market-based pricing and, at the same time, encourage some upward pressure on your pricing.
• Delivery -- Where once it was silly to run trucks all over creation to at a customer's whim, it is now just dumb. Current fuel costs require that deliveries be optimized and managed to reduce your delivery costs.
• Credit and collections -- Good credit and collections involve accurate and detailed record keeping as well as rigorous follow-up with customers. Many branch managers do this poorly. Some branch people find it uncomfortable to discuss a customer's account one minute and then be his buddy in the next minute. Customers often share this discomfort, so having a separate central group can allow good relationships while holding the customer's feet to the fire to get paid.
• Marketing -- Again, branch people seldom have or take the time to create marketing programs beyond handing out hats and planning hot-dog days. In my experience, real marketing happens at the corporate level, then is executed at the company level, by the sales team or pushed out to the branches.
• Quotations -- Expert bidding and quoting is a real skill. When delegated to the branches or to salespeople it often is done expediently but not expertly with a bias toward sharpening the pencil to give away margin. Plus if you have five locations and each does its own quotations, each person doing a quote has one-fifth of the data and feedback that your, properly run, central quotations team should have.
  
  

Whenever I discuss centralization, I always stress several components that are required for it to be successful:

• Any centralized function must be managed to provide better service than the branch team could provide. More expert. More consistent. More efficient.
• Centralized services must be provided with the proper sense of urgency. When the branch team makes a promise to deliver product or a quotation to the customer, it is critical that the central group delivers as promised. Sometimes the central group gets insulated in a way that causes them to feel disconnected from the promises that were made and thus less committed to delivering as promised.
• A high service-level mindset is absolutely required by the people who you chosen for these roles.
• Central support roles are jobs for the best and brightest in their area of expertise. At its best, the branch team will call your central experts for advice and ideas based upon their knowledge. Central staff must never be allowed to become a dumping ground for the duds in the company.
• The central team must always remember that their customers are both the company's end-customers and the branch team.

It isn't a train wreck
As I write this, there are some areas where the economy has been truly decimated but in other areas, business is -- pretty much -- where it was several years ago prior to the rocket-like increases and record years. Many companies made good profits in those years and most of those ought to be able to make money in our current economy. Some companies can probably pull out their plans from those years and use them as a template for their 2009 plan. That assumes that the company made money in those years. If not, then a whole new plan is in order.