A recent study conducted by The Receivables Exchange identifies significant concerns for small and medium sized businesses (i.e., businesses with annual revenues between $2 and $200 million). The study involved top business challenges, including working capital and cash flow issues. Over 670 companies across 15 different industries responded to the survey.
Among the highlights of the study are the following cash flow challenges for C-level management of these firms:
- Securing reliable working capital in sufficient quantities is the number one challenge.
- Nearly 70% of respondents wish they had a more significant "cash cushion" to fall back on.
- Restricted capital stands in the way of business growth.
- Restricted cash flow can have ripple effects all along a company's supply chain.
Decision Paralysis and the Recession Years
This report got us thinking about a common dilemma we have experienced over the past three recession years (2009 to the present). Many business executives have what we have termed "decision paralysis," which is the failure of corporate management to make bold business decisions, move away from the status quo and challenge the company's current operations.
Many corporate executives feel that "if it ain't broke, don't fix it." The problem is that many of these corporate executives have not performed any assessments to see if their logistics and supply chain operations are in fact broken and need to be fixed. Remember the old saying, "you can't control what you can't measure." Many of these businesses just continued doing what they were doing without, at the very least, benchmarking their current operations to see if there are ways to optimize.
During the past three years it has become quite clear that most companies could not improve their bottom line by selling more products, primarily because fewer people were buying. Even scarier, several companies could not continue to drop their price points low enough to generate additional sales because the margins were so thin already. As a result, many companies went out of business and unfortunately more companies will do so in the future.
One of the metrics used in logistics management to gauge business growth is to track the movement of goods from the manufacturer, through the various distribution networks and ultimately to the consumer. We can tell you for a fact that over the past three years freight capacity has been weak overall. Yes, we certainly have seen some blips on the radar screen indicating improvement, but overall inventories are down and re-orders are scarce. Many of the freight carriers we spoke to told us that the fourth quarter of 2011 showed some real promise, but that "the bottom fell out" when we turned the calendar to 2012.
Reduce Expenses Without Reducing Workers
So what does all this mean? If you can't increase your sales to improve your financial position, you must reduce your expenses. Many companies did just that by reducing workforce, and while that is a decision that isn't made lightly, we believe there are far better solutions. Corporate executives at all levels should be continually looking for opportunities to improve efficiencies and reduce their expenses (other than payroll) that would have an immediate and positive impact on their bottom lines.
There are many examples of real success stories from forward-thinking business owners and top management executives of similar sized companies who have taken steps to improve their bottom lines because they took the time to listen and evaluate what services might be available to help them achieve greater operational flexibility and overall financial success. Following are a few of those success stories.
- A non-profit organization with over 400 employees was looking to consolidate various operations into a single location. Before doing so, however, they contracted with a company specializing in improving profitability through sustainability. The result: the Strategic Technology and Energy Plan developed for this company convinced the non-profit that through certain technology improvements, including teleconferencing, better utilization of space, re-engineering of certain business processes, telecommuting and workplace sharing, the organization would completely eliminate the need for the company to move to larger quarters. The net result was over $1 million in savings the first year.
- A consumer goods manufacturer was about to sign a new parcel carrier agreement. The company decided that their core business was not managing or optimizing parcel carrier contracts and decided to seek advice from a parcel carrier contract specialist who had the ability to benchmark parcel carrier contracts, rates and services. This specialty is not usually available within most companies due to the high level of expertise required. The parcel carrier expert added $1.8 million to the company's bottom line, which is money the consumer goods distributor was about to leave on the table.
- A global manufacturer and distributor of security equipment decided that the company that audited and processed their freight bills for payment was in the best position to help them establish logistics best practices, even though they had a staff of seasoned logistics professionals. The freight audit and payment vendor was able to perform various business analytics studies to show the company not only where they were spending the bulk of their transportation and logistics budgets, but where those costs were outside the norm for most businesses in their sector. The process is now in the early stages of implementation, but the prospect for millions of dollars of savings is significant. In addition, the pre-audit and payment vendor already uncovered and avoided payment of over $400,000 in freight bill overcharges and $1.2 million in duplicate invoices submitted by their client's freight carriers.
These three examples illustrate that "thinking outside the box" executives -- those who are not afraid to have a company come in and look over their shoulder to help them become better at what they do -- are true business leaders. After all, would any business file their income taxes without seeking advice from a seasoned accountant? Would any business tackle a major legal problem on their own without seeking expert advice from their legal counsel? The obvious answer to both of these questions is no. So why then do many business owners and top-line executives close their eyes to other opportunities to work with experts in specific fields for other critical aspects of their businesses? Are they afraid of what might actually be uncovered?
It's time for the business executives struggling with "decision paralysis" to take that step outside the box and leave their egos at the door. Take the initiative to do what is best for their company, and everyone within the organization will benefit in the long run.
Anthony N. Nuzio is president and CEO of ICC Logistics Services Inc., a transportation and logistics consulting firm with headquarters in Hicksville, NY. The firm is dedicated to helping its customers increase their bottom line through strategic logistics practices and comprehensive auditing services. He is also the publisher and editor-in-chief of a monthly newsletter entitled "Logistics Strategies" which provides information on what's new in transportation and logistics, as well as strategies for improving operational efficiencies and freight cost reductions.