Archive for the ‘Brian’s Blog’ Category

Packaging Matters

Tuesday, December 5th, 2017

My wife purchased clothing from what is considered a high-end retailer.  Our local store did not have the item, so the retailer offered to ship it to our house.  The package arrived looking like it had been dropped multiple times.  What was even more disturbing was that there was no primary packaging.  The item was shoved in a corrugated box with no protection whatsoever.  The box that was used was way too large for the contents, which is probably why the box looked so bad.  Fortunately, the article of clothing was not damaged.

What was damaged was the company’s reputation.  Given what are most likely obscene margins on the product, it’s a shame that someone made a decision to skimp on packaging and save a few dollars.  That decision cost the retailer a loyal customer. We will no longer order anything from this retailer.

A quick Google search revealed the phrase “Penny wise and pound foolish” has been around for at least 500 years.  Businesses continually make the same mistakes.  Appearances matter.  In an era where more and more products are sent directly to customers, pay attention to the appearance of your packaging.

Without Profits, There Are No Businesses

Tuesday, November 28th, 2017

 

After a nice holiday break, it’s back to reality.  For the first time in six years, our reality includes price increases.  While no one likes receiving price increases, they are a reality in today’s label and packaging world.  As I’ve written in the past, input prices have risen, resulting in our suppliers having to raise their prices.  To state the obvious, pricing is a critical component of margins.  Without margins, businesses cease to exist.

Two weeks ago, I read an article about a shortage of saline bags in hospitals.  A multitude of factors, including hurricanes, manufacturing issues, and a Department of Justice investigation, have contributed to the shortage.  A link to the full article is below.  I also pulled out a telling statement that applies to every “commoditized” industry:

It’s a crisis that’s been years in the making. Lacking the appeal of the latest $100,000 wonder drug, basic hospital supplies with thin profit margins are low priorities for a consolidating pharma industry that has failed to modernize outmoded factories or ramp up supply. (Emphasis added)

https://finance.yahoo.com/news/simple-lifesaving-liquid-suddenly-short-110015850.html

Remove “hospital” from that statement and this is what is left, “Basic supplies with thin profit margins are low priorities.”  When I read that statement, I thought of the pressure sensitive liner supplier that is exiting the label market and the Chinese leuco dye manufacturer that was temporarily shut down.  Boise wants, needs, and deserves to make money on its investment.  Boise is confident it can make more money in other markets than release liner and is choosing to do so.  Are there really environmental reasons causing the Chinese leuco dye manufacturer to shut down or do its shareholders (or the Chinese government) want to get a return on their investment?  We all want low prices, but price does not matter if the product is not available.

Shame on us for letting our products get “commoditized.”  Think for a moment what would happen to supply chains without labels.  Labels might be a basic supply but they are critical for commerce to occur.  Have conviction in the value of your products and services (unless you supply me of course!).

A Time to Be Grateful

Tuesday, November 21st, 2017

I’m involved with the Julie Billiart Schools (http://www.juliebilliartschool.org/Default.aspx ), a very special place that helps kids with learning needs.  As you can see in the video below, the school excels in providing hope for kids (and parents) that are struggling to find their place in our crazy world.  These children often did not fit in traditional school environments before coming to Julie Billiart.

We had a board meeting at one of the schools last week. It never ceases to amaze me to see the smiles on the kids’ faces as they get to school.  The dedication of JB’s teachers and staff is extraordinary and leads to the kids’ engagement.  The positive attitudes of both the kids and staff are truly inspiring.  Imagine how much better your day would be if everyone showed up smiling!  Try it sometime.

As we kick off the holiday season, take some time to be truly grateful.  Suspend negativity.  Ignore political rancor.  Life is a gift.  Treat it as such.  Happy Thanksgiving.  (Back to reality and price increase fun next week!)

https://www.youtube.com/watch?v=skDaU6JlYxc

 

 

Remove Complexity for Your Customers

Tuesday, November 14th, 2017

I recently made an online purchase from a major retailer that also has a physical store near me.  The items were somewhat bulky.  We (OK, my wife) decided it wasn’t what we (she) wanted.  I had to return the items.  The store offered me the choice of returning the items in the store or shipping them back.  Though the retailer would pay for shipping, it was easier for me to return the items to the local store, even though the local store did not stock the items.  I did just that.  It was a painless process.

The business person in me marveled at the complexity the retailer undertook to make this process easy for me.  The clerk looked up my order with my credit card and processed the return.  I thought about the systems required to track the inventory across stores and distribution centers.  The customer in me was appreciative of how easy the transaction was.  I was in and out of the store in no time and with no hassle.

It’s not enough to have a physical presence or an online presence.  Wal-Mart bought Jet.com for a reason.  Amazon bought Whole Foods for a reason.  Integrating those businesses to make transactions seamless for their customers will be difficult.  But it is necessary for each of those companies to improve customer service

If you aren’t making transactions easy for your customers, someone else will.  Always remember, a business exists to serve its customers.

The Price Increase Fun Begins

Tuesday, November 7th, 2017

Last week, one of our major pressure sensitive material suppliers announced a price increase of 6 to 8% effective December 1, 2017.  Later in the week, another supplier announced an increase of 7% effective December 4, 2017.  On November 6, we received two other price increase announcements from major vendors.

Regular readers know we have not had an industry wide increase in almost six years.  In general, commodity prices stayed flat or even declined from 2012 until 2016.  That trend appears to be reversing.

The graph below shows the Producer Price Index for Pulp, Paper, and Allied Products Wood Pulp from September 1, 2012, to September 1, 2017.  .  While this index is not a perfect proxy to our paper raw materials, it provides a glimpse into the price pressures our suppliers are facing with regard to raw materials.  As you can see, after some gyrations, it is essentially flat over this five year time frame.  Note the spike in 2017.

https://fred.stlouisfed.org/series/WPU0911

 

Below is the identical graph from September 1, 2016, to September 1, 2017.  The index is up 9% this year.  Couple that with paper companies exiting label markets and the supply/demand equation is changing rapidly.

https://fred.stlouisfed.org/series/WPU0911

We are also nearing the end of US consumers (including businesses) benefitting from the Chinese subsidization of manufacturing.  For years, US manufacturers have complained about unfair competition from China, citing environmental and workplace safety rules as a key reason they could not compete with the Chinese.  (Many manufacturers benefitted from imports of cheap components as well.)  From all indications, China is getting serious about cleaning up its environment.  We exist in a global market.  Global prices are going up.

As I wrote two weeks ago, volatility creates opportunity.  We’re going to experience plenty of volatility in the pressure sensitive supply chain in the coming months.  During this crazy time, companies that focus on the long-term will prosper.

Taxes are Only Half of the Equation

Tuesday, October 31st, 2017

Sometime this week, Republicans are expected to announce their plan for major changes to the tax code.  Rumors surrounding corporate tax cuts and changes in deductions have swirled for a while.  President Tweet and Republicans assures us the tax cuts will spur economic growth.  Meanwhile, the Democrats revert back to their “it’s a tax cut for the rich” argument.  (When the top 20% of earners pay 84% of federal income taxes, who else can benefit from tax cuts, Mr. Schumer?)

The entire national dialogue is focused on the tax (revenue) side of the equation.  Sadly, very few of our political leaders want to talk about the other side of the ledger, our government spending problem.

Several years ago, Greg Mankiw, a right-leaning economics professor at Harvard, wrote an article in the New York Times that described how our government spending problem ends.  Please read it.  If you are not concerned after reading Mankiw’s piece, please check your pulse.  http://scholar.harvard.edu/files/mankiw/files/its_2026.pdf.  Our current government, like every government in our modern history, has shown no desire to deal with the spending side of the ledger.

Growth can mask or solve a lot of problems.  To grow our economy, we need more productivity and/or consumers (people).  The premise behind a tax cut is productivity will increase via investment.  Its supporters cite economic growth in the 1980s and 1990s as a direct result of tax cuts.  They fail to admit our population was growing at a faster rate in the 1980s and 1990s than it is today.  (http://www.u-s-history.com/pages/h980.html and https://tradingeconomics.com/united-states/population)  We need immigrants that contribute to our economy!

Don’t get me wrong; like every other American, I’d love to pay less in taxes.  At some point, however, our spending issues must be addressed.  If you think the tax conversation is unpleasant, wait until we get to the spending side.

Volatility Creates Opportunities (and Threats)

Tuesday, October 24th, 2017

As if on cue, Appvion, a major supplier of direct thermal paper, announced a price increase on select DT products a day after I posted my blog last week.  I’m sure it had been planned well in advance of my brilliant missive but the timing made me smile.  I’m regularly told how wrong I am by my son.  It’s nice to have the opportunity to remember I’m not always wrong.

Time will tell if the announced increase gets through and if our suppliers absorb it or pass it on.  Don’t be shocked if our supply chain attempts to implement surcharges instead of an across the board increase.  For some reason, big companies like complexity.  Complexity, such as using a surcharge tied to an index, creates jobs for pricing analysts.

We are clearly heading from years of relative tranquility into a more volatile environment.  In particular, we are heading towards supply and pricing challenges.  Start planning now.  Talk to your suppliers about their plans.  Talk to your customers about forecasting.  Take the opportunity to offer value-added services, such as vendor managed inventory.  Do not bury your head in the sand.  Challenges create opportunities to strengthen relationships.  Seize the opportunity.  If you don’t, someone else will.

Is the Direct Thermal Shortage a Sign of Things to Come?

Tuesday, October 17th, 2017

Over the last few weeks, it has been widely reported that direct thermal (DT) paper manufacturers have put their customers on allocation.  A Chinese company, Connect Chemicals, has shut down its main manufacturing facility due to environmental issues.  (It is unclear whether the stated environmental issues are a result of Connect Chemicals or other companies in its industrial park.)  It is estimated that Connect Chemicals supplied approximately 70% of the leuco dye, a key component in DT paper production, for Europe and Asia.

The DT paper shortage is expected to significantly impact the receipt paper market.  In addition to price increases, most suppliers have put customers on allocation.  Thus far, the DT label business appears to have an adequate supply of DT face stock, but a price increase in the near future wouldn’t surprise me.  Our vendors have assured us that they have an adequate supply of DT paper.

Those of us in the label world lived through a disruption in the thermal transfer ribbon (TTR) market a few years ago, as manufacturers of thin PET film moved capacity from TTR to more lucrative markets.  In many markets, global consolidation has led to one or two suppliers having dominant market share.  A major disruption in the supply chain of one of those firms will have a dramatic impact on the markets they dominate.

We’ve lived through many years of low volatility in our supply chain.  The last announced price increase from our vendors came in 2011!  The years of supply chain tranquility are coming to an end.  To avoid supply disruptions, choose your partners wisely.  Remember, price is irrelevant if your supplier cannot deliver.

You’ve Got to Show Up

Tuesday, October 10th, 2017

I was out with a good friend last week.  He’s in a professional services business.  Over the years, his firm, like many other companies, has embraced the concept of work-life balance.  Many people at his firm take advantage of the flexibility they are afforded and often work from home.  His next comment was telling.  He said, “We’re in a relationship business.  Relationships with colleagues matter.  You don’t develop relationships working in your pajamas from home.  You need to show up in the office once in a while.”

Earlier this year, IBM announced it was reducing the flexibility of many of its internal technology and marketing people, citing a desire for more in person collaboration among its staff.  IBM was a leader in the work from home movement.  Previously, IBM had said its work from home policies helped increase productivity and reduced its real estate and operating costs.

It is ironic that the more connected technology makes us, the less we invest in developing true relationships.  Relationships take effort.  If you want to stand out in your company or with your customers, take the time to meet in person.  We’re social creatures and the best way to socialize is in person.  As Woodie Allen supposedly quipped, “Eighty percent of success is showing up.”

The Bureaucracy Runs Wild

Tuesday, October 3rd, 2017

This is a real headline in today’s Wall Street Journal:

Big Tobacco to Spend Millions on Self-Critical Ads in U.S.

Makers of Marlboro, Camel to buy prime-time TV spots, newspaper ads with ‘corrective’ messages, as part of settlement in long-running legal case

The US Department of Justice, part of our extremely efficient and consumer-focused government, “settled” with the large tobacco companies by forcing them to run ads in prime time that say things including, “Altria, R.J. Reynolds Tobacco, Lorillard, and Philip Morris USA intentionally designed cigarettes to make them more addictive,” one ad will say. Another reads: “More people die every year from smoking than from murder, AIDS, suicide, drugs, car crashes, and alcohol, combined.”

Who does this help other than media companies and a few attorneys?  Does anyone at the DOJ remember the phrase, “There’s no such thing as bad publicity?”  Do the people who watch prime time TV not know cigarettes are bad for you?  Does the DOJ really think it accomplished something with this settlement?

We live in a world with real problems that a functional government could help solve.  Instead, our elected and unelected officials continue to fight yesterday’s problems.  For years, the federal government bowed to pressure from tobacco producing states and did not regulate cigarettes.  If the government wants to stop people from smoking, how about creating an Obamacare exchange that is the only place smokers can get health insurance?  “Punish” the tobacco companies by having them subsidize the healthcare costs of smokers!

To succeed in capitalism, you need to solve today’s problems or, better yet, help people avoid future problems.  Bureaucracies have a tendency to look backwards.  That’s the major reason businesses and governments clash.

A full link to the article is below.  It might require a WSJ subscription.

https://www.wsj.com/articles/big-tobacco-to-spend-millions-on-self-critical-ads-in-u-s-1507024801