2015: Be Prepared for Freight Disruptions  

December 17th, 2014

One thing we all take for granted in the US is the incredible transportation and logistics infrastructure we have.  We can order something from virtually anywhere on the continent and know when it will be delivered to our door.  As a result, we can practice just in time inventory and improve our working capital positions.  Well, unless you’re willing to pay more for guaranteed deliveries, you better build some slack into your JIT and prepare for shipments not to arrive when scheduled.  We have already had several issues in the past few weeks, both inbound and outbound, with product not arriving as expected.  In classic “the power pendulum has swung our way” behavior, the freight carriers that were involved shrugged their shoulders and said, “Next time, pay for guaranteed delivery.”  Estimated delivery dates were assumed to be the real delivery date for years.  Not anymore.  It’s not fun telling a customer the shipment that was supposed to arrive 2 days ago will get there tomorrow.  It’s even less fun not being able to run a job because the material is still in a freight terminal somewhere.

Despite the recent drop in oil prices, freight rates are going up.  Regulatory changes, driver shortages, and consolidation all play a role in freight costs increasing.  UPS has announce a 4.9% increase effective December 29.  By sheer coincidence, Fed Ex has also announced a 4.9% increase, effective January 5, 2015.  If this isn’t classic duopoly behavior, I don’t know what is.  Additionally, both are also introducing dimensional weight (DIM weight) pricing.  If you haven’t paid attention to this stealth price increase, please read:  http://www.ups.com/content/us/en/resources/ship/packaging/dim_weight.html?WT.mc_id=VAN701060.  While DIM Weight won’t have a huge impact on labels, it will raise rates on lighter packaging products.  Be ready.

In the past, we’ve usually had a rogue freight company that wanted to pick up market share and did so via aggressive pricing.  On the parcel side, we’ve basically got a duopoly.  DHL’s decision to pull out has left few alternatives.  On the LTL and truckload side, consolidation has removed a lot of the aggressive players.  Additionally, the economy continues to get better, raising demand.  Add it all up and we are going to enter an inflationary environment for freight costs.  The dollars involved will be real but the “soft” costs of adjusting inventory and ordering patterns and stock outs will be where the real pain is.  Start talking to your customers now about managed inventory programs and other things you can do that your competitors can’t.  You don’t want to wait until your customer calls you.

Words of Wisdom: “You Can’t Discount Your Way to Profitability”  

December 10th, 2014

 

I had dinner with a good friend and trusted business partner last week.  While we’re in different industries, his industry and mine share some common traits.  Both are highly fragmented and starting to see consolidation.  Both are being impacted by technology.  Both are often thought of as an expense by their customers instead of a value-add solution.

We spent some time on fragmentation and consolidation and how those trends are impacting our businesses.  We both lamented the situation we’re both in: we see intense price competition from “the hangers on” as he put it.  The hangers on are the firms that haven’t invested (see last week’s blog) or have adapted to changing customer needs.  Their only way to compete is a lower price.  Too often, they don’t understand their cost structure and lack of profitability.  As he said so candidly, “You can’t discount your way to profitability.  How these guys think they can just shows how clueless they are.”  In the long run, they’ll go away – either out of business or acquired.  In the short run, they make life challenging for everyone.

Customers are quick to throw a ridiculous price in our faces.  Like lemmings, we often jump off the cliff to match it before investigating where that ridiculous price came from.  Usually, it’s from someone that can’t deliver what the customer wants, either quality wise, delivery date, or some other critical component the customer needs.  That’s why they’re calling us – they want our service/quality/whatever with the low price.  We marginalize the value we bring by matching prices.

It’s certainly not easy but it pays to take a deep breath before matching a competitive price.  Make sure your customer is providing an apples to apples comparison.  Don’t be afraid to ask, “Why are you calling me if you’ve got such a great deal from my competitor?”  (To all my great vendors: I know you’re going to have great comments for me on this one.  Send them to our purchasing department!  Their job is to get us a better deal!  Remember, being price competitive is a given.  That doesn’t mean you have to match every price but if you’re high on everything, you better bring some great other value to the table.  Otherwise, your customers won’t be competitive.)

Are Good Times Ahead in 2015?  For Those Who Planned, Yes.

December 2nd, 2014

I’ve spent the last several weeks planning for 2015.  Fortunately, members of our team started planning a while ago.  We’ve seen growth in a couple of product lines that require dedicated equipment.  Some of that equipment had lead times of 16 – 20 weeks.  If we just started planning now, we’d be looking at delivery in Q2 2015 and likely miss out on a lot of business.  Due to good planning,  our equipment will be in service before the end of the year.

Curiosity got the best of me yet again, so I had to check if it’s just our vendors that has long equipment lead times.  It’s not.  I’ve had conversations with people in several industries who have told me equipment lead times are the longest they’ve ever seen.  Certainly, part of the increased lead times is related to capacity that went away during the recession.  Another factor is pent up demand – people cut way back on capital expenditures during the recession and need to upgrade now.  But I’m confident the biggest reason for long lead times for new equipment is new demand.  That’s a good thing for the economy.  New demand is what drives growth.  Despite what you might read, the US economy is growing.

One of the biggest challenges business leaders face is knowing when to invest.  As I’ve written in the past, one of the legacies of the Great Recession is we’ve become skittish and scared to make decisions.  Another legacy is visibility into the future is much less than it used to be.  Put those two together and you have a lot of people and businesses afraid to make decisions and certainly afraid to allocate capital.  That’s a recipe for disaster.  Unfortunately, meeting customer demands generally requires an upfront investment.  If you didn’t make that investment and someone else did, you will lose your customer.  “Creative destruction” is the fancy economics term used for this characteristic of capitalism.  Time and time again, it has been proven that those that invest win.  Those that don’t lose. If you haven’t invested yet, you’re probably going to lose in 2015.  It’s too late.  Those that have invested will enjoy a prosperous 2015.  If your company isn’t investing, it might be time to move on.  We’re going to start to see a separation between those companies that invest to meet their customers’ needs and those that have hung on simply because the economy recovered.  Again, another win for those that invest.

The More Things Change, the More They Stay The Same

November 25th, 2014

As you celebrate with family and friends, take a few minutes to read Abraham Lincoln’s Proclamation creating Thanksgiving.  (Prior to Lincoln’s proclamation, Thanksgiving was celebrated by different states at different times.  The history is very interesting – link is below.)

Whatever your religious beliefs might (or might not) be, take a moment to ponder the peril the United States faced in 1863.  As talking heads tell us the world has never been a more dangerous place and our standard of living in the US is declining, ask yourself if you’d rather be alive in 1863 or 2014.  I don’t think that’s a hard choice.

Enjoy your time off, enjoy your company, and make someone’s day by thanking him or her for being in your life.

http://www.abrahamlincolnonline.org/lincoln/speeches/thanks.htm

Washington, D.C.
October 3, 1863

By the President of the United States of America.

A Proclamation.

The year that is drawing towards its close, has been filled with the blessings of fruitful fields and healthful skies. To these bounties, which are so constantly enjoyed that we are prone to forget the source from which they come, others have been added, which are of so extraordinary a nature, that they cannot fail to penetrate and soften even the heart which is habitually insensible to the ever watchful providence of Almighty God. In the midst of a civil war of unequaled magnitude and severity, which has sometimes seemed to foreign States to invite and to provoke their aggression, peace has been preserved with all nations, order has been maintained, the laws have been respected and obeyed, and harmony has prevailed everywhere except in the theatre of military conflict; while that theatre has been greatly contracted by the advancing armies and navies of the Union. Needful diversions of wealth and of strength from the fields of peaceful industry to the national defence, have not arrested the plough, the shuttle or the ship; the axe has enlarged the borders of our settlements, and the mines, as well of iron and coal as of the precious metals, have yielded even more abundantly than heretofore. Population has steadily increased, notwithstanding the waste that has been made in the camp, the siege and the battle-field; and the country, rejoicing in the consciousness of augmented strength and vigor, is permitted to expect continuance of years with large increase of freedom. No human counsel hath devised nor hath any mortal hand worked out these great things. They are the gracious gifts of the Most High God, who, while dealing with us in anger for our sins, hath nevertheless remembered mercy. It has seemed to me fit and proper that they should be solemnly, reverently and gratefully acknowledged as with one heart and one voice by the whole American People. I do therefore invite my fellow citizens in every part of the United States, and also those who are at sea and those who are sojourning in foreign lands, to set apart and observe the last Thursday of November next, as a day of Thanksgiving and Praise to our beneficent Father who dwelleth in the Heavens. And I recommend to them that while offering up the ascriptions justly due to Him for such singular deliverances and blessings, they do also, with humble penitence for our national perverseness and disobedience, commend to His tender care all those who have become widows, orphans, mourners or sufferers in the lamentable civil strife in which we are unavoidably engaged, and fervently implore the interposition of the Almighty Hand to heal the wounds of the nation and to restore it as soon as may be consistent with the Divine purposes to the full enjoyment of peace, harmony, tranquility and Union.

In testimony whereof, I have hereunto set my hand and caused the Seal of the United States to be affixed.

Done at the City of Washington, this Third day of October, in the year of our Lord one thousand eight hundred and sixty-three, and of the Independence of the Unites States the Eighty-eighth.

By the President: Abraham Lincoln

William H. Seward,

Secretary of State

College Game Day at Harvard-Yale: A Great Business Lesson

November 19th, 2014

ESPN’s venerable (Since I’m writing about Harvard-Yale, I have to use big words.  It’s the law.) College Game Day program is broadcasting live from beautiful Cambridge, MA, this Saturday.  For those of you unfamiliar with the program, ESPN sends its Saturday pregame program to an important game to broadcast live.  As someone that played football at Harvard for a few years, I’m fired up that they decided the Game, which will decide if Harvard is the outright Ivy League champion or shares the title with Yale, is the most important game this week.

Of course, the major college football schedule has changed, moving a lot of rivalry games to the weekend after Thanksgiving.  Traditionally, most of those games, like Harvard-Yale, were played the weekend before Thanksgiving.  Playing an extra week generates a lot of revenue.  I’m not naïve enough to think that’s not an important driver of why ESPN chose this game. Of course, there are a few people like me that care about the Ivy League championship.  And that’s the lesson behind ESPN’s decision to broadcast Game Day from Harvard.

We’ve had efficiency hammered into our brains over the last few decades.  Consultants have made billions touting the 80-20 rule: 80% of your business comes from 20% of your customers, so spend your time on those 20%.  I have to admit – I’m a believer.  It is critical to spend your time where you get your biggest bang for your buck.  I’m only a believer to a point, however.  We all have lots of “small” customers that we most likely don’t know a lot about.  They’re too small for a sales force visit.  They get our email marketing but that’s about the extent we interact with them.  They occasionally place orders with us and we’re happy to fill them as efficiently as we can.  Maybe we can entice them to buy online and not bother us at all – that’d be even better!

The fastest and most efficient way to grow your business is with your existing customer base.  Yes, when you look at it logically, the optimum part of your customer base to grow with are your big customers.  We can all learn a little from our smaller customers as well.  I’m very confident saying everyone one of us has a lot of potential in the rest of our customer base.  Pick up the phone and call them.  Even better, hop on a plane and go visit a few.  You might be surprised at how it helps your business.  One last thing – Go Crimson!

    Technology and the Print Industry:  Adapt or Perish  

November 11th, 2014

I enjoy reading missives by John Mauldin, an economist/investment strategist.  A recent newsletter referenced the print industry.  A link is below to the full article (warning: it is quite long and addictive if you are a nerd like me).  I cut and pasted the part pertinent to the printing industry (emphasis added by me):

http://www.mauldineconomics.com/outsidethebox

I just turned 11 years old, and it was Christmas morning. I’d retrieved a few toys out from under the tree and was looking forward to going out to play with friends. But my dad said that first I had a project to do. He had just bought all the equipment to open a small printing shop in Bridgeport, Texas. This was 1959 (we had just left the Stone Age), and printing was still done with hand-set type and on letter presses. The small press that was invented in the early 1900s was now powered by an electric motor.

My dad had brought home a type case full of 12-point Franklin Gothic lead type. He turned the case upside down on the kitchen table and said, “Put all the type back and then you can go out and play.” There was nothing else to do but sit and look at each small piece of type, figuring out what each character was and putting in its respective small box. It took forever, but I eventually finished and got up to leave. My dad said “Wait a minute.”

He asked me to come over and look at another case where he hadn’t labeled all those individual little compartments with the letters that belonged in them. He pointed to one and asked me which letter belonged in there. I didn’t know. Then he asked me a second one. I didn’t know that one either. He went back over to the kitchen table and turned that type case  – much like the one you see in the picture above – upside down. “Do it again.”

I’m only a little slow. When I finished and Dad started asking questions, I knew the answers. It was the start of a decades-long process love-hate affair with the printing business. I actually made money in college going around to the print shops and offering to clean up their “hell boxes,” which were the boxes and buckets full of type that had gotten jumbled and that no senior printer wanted to take the time to put back. So what do you find in hell? You find a printer’s devil, which is the young apprentice who does all the dirty work. And it was dirty. But by the late 1960s printing with actual type was on its way out, and then there were no young apprentices. Business was good, but within a few years all that knowledge was simply arcane trivia, of no use in the real world.

I’m sure there are many printers that can relate to this story in a very personal way.  While I’ve never set type, I’ve seen technology change our industry.  At my first Label Expo, I stopped by a flex die booth.  A passionate Swiss man with a heavy accent told me in no uncertain terms flex dies were the future.  Being relatively new to the industry, I had no background on flex dies.  I came back to our shop and said we were going to try flex dies.  I got laughed at and heard they’re junk, they don’t work, etc.  Guess what?  70% of the dies we buy today are flex dies. (PS Thank you, Markus.)

 

It can be hard to let go of something that works.  Flexo works.  Linered labels work.  Desktop printing works.  So do inkjet, linerless labels, and mobile printing.  Times change.  If you don’t change with them, you’ll be irrelevant.

Meet Your New Congress, Same As Your Old Congress

November 5th, 2014

As I watched the election results, the Who song, “Won’t Get Fooled Again” kept popping in my mind.  If only it were true.  Matt Bai wrote the following about the yesterday’s election:

Lost in all the headlines about a Republican takeover this morning is a single salient fact about where we are as a country politically: Barack Obama will now become the third consecutive president to come into office with governing majorities in both houses of Congress and leave office having fumbled away control of both of them. http://news.yahoo.com/what-obama-s-loss-of-congress-means-for-2016-candidates-043807682.html

So Clinton, Bush, and Obama all had “mandates” to govern with their party in control of Congress.  Somewhere along the way, the public got fed up with what the party in control did and went back to a divided government (executive/legislative branches controlled by different parties).  Every time we do this, more and more money is spent on elections.  Does anything really change?  One definition of insanity is doing the same thing over and over and expecting a different result.  By that definition, Americans are insane.  The optimist in me takes a different view.  Americans are hopeful by nature.  We buy into the rhetoric put out by both political parties.  “Compassionate conservatism” and “Hope and Change” sound great.  We believe (or at least a majority believes) – for a while.  Then reality sets in.  What we were led to believe isn’t quite true.  The governing party overreaches and irritates a majority of the people.  We can’t throw a president out after 2 years but we can throw out Congress.  That’s what we do.

Hopefully, both parties realize that despite our differences, most Americans generally agree on big issues.  To further complicate things, politicians have to run on extreme platforms to get elected (mobilizing their bases to use the trite political term) but need to govern in the center to stay elected.  Compromise is part of daily life.  I hope our elected officials understand that.  Otherwise, expect more of the same – a flip flop of Congress in 2 years.

Did the Great Recession Permanently Scar Us?

October 29th, 2014

I had a great conversation with a friend at the recent TLMI Annual Meeting.  Of course, the “how’s business” question enters into the conversation relatively soon.  “Brian, we’re having a good year.  But it doesn’t feel like it.  Everyone’s on edge, everyone’s nervous, and no one’s happy.”  I responded, “You nailed it – things aren’t fantastic but they’re not bad either.  But everyone thinks things are bad.”  We continued our banter and it really got me thinking.  We’re all worried about what’s around the corner.  As I’ve written in the past, visibility has decreased dramatically in most industries.  The lack of visibility certainly has its challenges.  But are things that bad?  We’ve had price stability for the last 3 years or so.  Yes, I know there have been some raw material challenges and operating costs (especially health care costs) have risen.  But the last increase that made it through the value chain was in 2011.  That’s the longest we’ve gone in my time in the industry.  (Suppliers – don’t get any ideas just yet.  I know you “need” increases due to raw material cost increases.  It’s still a challenge due to my next point.)  Growth is not robust, but we have growth.  It’s certainly not 2009 out there.  Yet if you talk to the average person, he’d say we’re still in a recession.  Our government is dysfunctional but that is probably a good thing.  Look back in history – our most prosperous economic times come with a divided government in which neither party advances its agenda.  Yes, there is discord in the world but there’s always discord in the world – we just hear about it a lot more.

I’m not a Pollyanna.  As I wrote, things aren’t all rosy.  We do have to prepare for inflation – it’s coming.  I’m reading a great book – thank you @MattHlavin – titled “The Hard Thing about Hard Things: Building a Business When There are No Easy Answers” by Ben Horowitz (http://www.amazon.com/Hard-Thing-About-Things-Building/dp/0062273205/ref=sr_1_1?s=books&ie=UTF8&qid=1414583875&sr=1-1&keywords=ben+horowitz) (Note to IDI Team: this will be on the reading list soon.)  Ben takes a different approach to Jim Collins’ truism that part of a leader’s mission is to confront the brutal reality.  Ben thinks leaders tend to be too optimistic.  In general, I think he’s right.  But, as in the political arena and most of life, the pendulum swings too far one way or the other.  Take a step back and talk about the good things that have happened.  Not every meeting has to be about what went wrong and what you’re doing to fix it.  Have a meeting about the good things once in a while. I think the experiences of 2008 and 2009 have made everyone a little skittish and reluctant to acknowledge reality in a positive way.  You owe it to yourself and your team to confront reality.  Right now, reality isn’t all that bad.

 

Packaging Part II: We Need to Tell Our Story

October 22nd, 2014

Based on comments and feedback on last week’s post, it’s obvious I hit a nerve in discussing how packaging creates sustainability in other ways than just reducing packaging mass.  It’s somewhat timely.  I attended TLMI’s annual meeting last week.  Coincidentally (or prescient thanks to the conference chair and great business leader, Ingrid Brase), the conference centered around marketing.  One of the speakers asked the audience to rank our industry from 1 – 10 on marketing.  I think the consensus came out around a 3.  The good news is we’re honest about being horrible marketers.  The bad news is we are horrible marketers.  As Peter Drucker said and I’ve written before, there are two ways to grow a business:  marketing and innovating.  We’re pretty good as an industry in innovating.  We’re not good at telling the story.

I’ve been scratching my head at how we better tell our story.  I give our industry association, TLMI, credit for forming L.I.F.E. (Label Initiative For the Environment).  I.D. Images is L.I.F.E. certified.  We feel good about it and try to market it.  When I Google Project L.I.F.E, labels don’t show up on at least the first 3 pages – I gave up after that.  Obviously, the label industry isn’t doing a good job marketing what we’re doing.  (This is not an indictment on TLMI or TLMI’s marketing committee – there’s only so much that can be done by one organization that is driven by volunteer members. )  There’s FSC, SFI, SPC, and a whole laundry list of acronyms printers and packagers like to talk about.  Guess what?  They matter to us, not our customers and certainly not in the consumer world.  We need to try something different.  I think as an industry we can.

My friend, Rosalyn Bandy, Avery Dennison’s sustainability manager, responded to my blog last week.  Part of her comments were: “Recently, Coke, Colgate, Keurig – GMCR, J&J, P&G, Pepsi, Unilever, and Walmart all put money into a pool of funds called the Closed Loop Fund. This fund will provide no-interest loans to municipalities (up to $20MM) looking to increase/improve recycling infrastructure.  These companies are hitting the problem where it counts.  Our job in the label industry is to understand the impacts on recycling of the films, papers, labels and adhesives we produce and do our part to make these leading CPGs and retailers successful in their efforts. There is already enough plastic in the world for all time. We just need to recycle it.”  Note how traditional rivals are banding together to tell their story.
How about we do a similar thing and band together to MARKET the great things we’ve done for sustainability?  We need to keep in mind sustainability isn’t just reducing basis weight or recycling card board.  It’s reducing freight, reducing food waste, etc.    Of course, we’ll need to come up with a catchy acronym to name ourselves (sarcasm intended).  I think there’s an opportunity to band together and tell our story as an industry.  Collectively, we’ve done and continue to do great things.  We need to let people know.  If you are interested in joining me on this quest, let me know.  We’ll figure it out.

Don’t Be Fooled By Conventional Wisdom: Packaging is Growing (in Certain Areas)

October 15th, 2014

 

Here are 3 “facts” about packaging that have been beaten in our heads over the last few years:

  1. Consumers want less packaging.  They see packaging as wasteful.
  2. Corporations have environmental initiatives and want less packaging as well.
  3. E commerce is changing how goods are marketed and distributed and will result in less packaging.

Wrong, wrong, and wrong.  Do people want to pay less for packaging and throw less in a landfill? Of course.  Is it reality?  No.  I will use my applesauce example.  Our son likes applesauce.  We used to buy a jar of applesauce, he’d eat a few bites, we’d stick it in the refrigerator, and throw it out a few months later after it got shuffled around and forgotten about.  He discovered portable applesauce.  We now buy boxes of portable applesauce with individual sized servings in pouches.  We don’t waste applesauce anymore.  Oh, and guess what – we pay about 8 times more per ounce of applesauce in the portable pouch versus the rigid jar.  Do you think the CPG that makes the applesauce and the retailer that sells me that applesauce want less packaging?  Do you think it’s cheaper to pack and ship a box of portable applesauce in a nice rectangular box or an awkward shaped jar that requires packaging fill so it doesn’t roll around in a box if I order it online and have it shipped to my house?  Does my cost end up being about the same if I use the right measurement to compare, which is what I paid for the applesauce that is actually eaten?  It might not get to parity, but I know the jar always had a lot left when we finally disposed of it.  I would also submit the individualized and recyclable pouch is more environmentally friendly than we think: no dish to wash, no spoon to wash, and no shirt with applesauce all over it to wash after he’s done eating.

Of course, the guy selling the rigid container (plastic or glass) and the label to the applesauce manufacturer has a problem.  The guy that makes barrier films and the printer are quite happy.  The contract packager that fills those pouches is quite happy.  The trend towards individualized portions are changing the types of packaging used.  But packaging will always be necessary for marketing and product protection.  That’s not changing anytime soon.