You are the President.  This Isn’t Reality TV.

September 26th, 2017

Virtually every day, I wake up with the hope that this is the day Donald Trump finally figures out he did indeed win and is the President of the United States.  Every day, I’m disappointed.  President Trump seems to think acting like a provocative reality TV star is an effective way to govern.

The latest “Twitter storm” with professional athletes over the National Anthem found a new low.  Do I agree with people kneeling during the National Anthem?  Absolutely not.  I find it offensive to everyone who has served in the military or lost someone who has served in the military.  Do I think players have the right to protest?  Yes.  I also have the right to not buy tickets or merchandise from the teams that choose to protest by kneeling or whatever else they decide to do during the National Anthem.  I have exercised that right.  (Admittedly, the Cleveland Browns’ continued ineptitude makes my decision quite easy.)

The Office of the President has a unique opportunity to act as a uniting force.  FDR did it at the dawn of World War II.  Kennedy inspired a generation with his space speech.  George W. Bush did it in the immediate after math of 9/11.  Thus far, President Trump has demonstrated he is incapable of using his position to inspire people.

I try my best to remain optimistic.  I didn’t want to end my post with a negative thought.  Fortunately, I found an article about a positive leader.  I’ve written about Terry Francona, the Cleveland Indians’ manager before.  I copied part of an article below and included a link.  “Tito” exemplifies a great leader.  Listen, Mr. President, listen!

Mr. President, please read the words of a real leader.  Terry Francona, the Cleveland Indians’ manager, continues to amaze me with his leadership skills.  An excerpt is below with a full link following.

From Cleveland.com:

Manager Terry Francona talked to some of his players – including African Americans Austin Jackson and Greg Allen – before Sunday’s game against the Mariners at Safeco Field to see if they planned on protesting.

“I talked to a couple guys, and I’ve talked to them before,” said Francona. “My point to them was, one, I wanted to listen. But, I just kind of wanted to express that I wasn’t talking to them to dissuade somebody. I just think, if somebody felt strong enough about it, there would be a way as a team to show support, because we do things together.

“It’s easy for me to sit here and say, ‘Well, I think this is the greatest country in the world,’ because I do. But, I also haven’t walked in other peoples’ shoes. So, until I think, not just our country, but our world, until we realize that, hey, people are actually equal — it shouldn’t be a revelation — and that different doesn’t mean less. It’s just different. We’ve got work to do.”

http://www.cleveland.com/tribe/index.ssf/2017/09/post_534.html

Wisconsin vs. China: The Economic War is On

September 18th, 2017

Last week, the state of Wisconsin’s gift to Foxconn came one step closer to reality.  Wisconsin’s  state senate approved a $3 billion incentive package in return for Foxconn’s promise to build a liquid crystal display (LCD) factory in the Badger state.  If you recall, Foxconn created a feeding frenzy among state politicians who competed for the facility to be built in their respective states.  http://host.madison.com/wsj/news/local/govt-and-politics/foxconn-billion-incentive-deal-edges-closer-to-reality-with-state/article_8504babf-6993-5386-b3cc-11e9c5bfd851.html.  This facility will be Foxconn’s first in the United States.  Foxconn is headquartered in Taiwan and most of its facilities are in mainland China.

Wisconsin is the largest paper producing state in the U.S.  It is estimated there are over 15,000 jobs in paper mills in Wisconsin.  That number is down from over 20,000 ten years ago.  (See links below for more data.)  I know, the world is going digital and paper usage is down.  I also know China has built multiple paper mills.  The U.S. paper industry and U.S. politicians have accused the Chinese of subsidizing those mills.  Wisconsin is subsidizing Foxconn to move jobs, or at least potential jobs, from Asia (mostly China) to Wisconsin.  Does anyone else see the irony/hypocrisy/choose your expletive here?

We just elected a guy as President (with the help of the state of Wisconsin) who campaigned about China not playing “fair.”  Did Wisconsin play “fair” against other states and China to land the Foxconn jobs?  Do two wrongs make a right?  Only in politics.  Wisconsin’s politicians can brag about the jobs they supposedly created.  I’m pretty sure they won’t talk about the subsidy per job, which is estimated to be $230,000 to $1 million per job.  That money is coming from somewhere and someone.  Either someone’s taxes are going up or someone’s services will be cut to provide this money to Foxconn.

Would Wisconsin politicians have ever dreamt of giving the paper industry $3 billion in incentives to maintain 5,000 jobs?  Why is a job at Foxconn worth more to the state of Wisconsin than a job at a paper mill?  That’s essentially what Wisconsin politicians decided.

Certainly, there are benefits to being closer to customers for both the paper industry and Foxconn.

I’m all for job creation.  I don’t blame Foxconn for getting the most it could out of the state of Wisconsin.  They played the game our “capitalist” society created. I fear we are entering a new age of corporate welfare in the U.S.  Rather than create a level playing field, our politicians are going to pick and choose winners and losers through subsidies.  As Elon Musk has demonstrated, so-called green jobs and technology jobs are favored by our dear leaders.

Sources/Additional reading

http://archive.jsonline.com/news/opinion/paper-industry-still-strong-in-wisconsin-b9937711z1-212242941.html/

 

https://www.marketplace.org/2017/09/06/world/paper-mill-jobs-meant-comfortable-lifestyle-Wisconsin-before-globalization

 

http://mainemeetsworld.bangordailynews.com/2015/12/14/home/where-the-paper-industry-went/

 

Who is Protecting Your Data?

September 12th, 2017

Earlier this year, my identity was stolen.  When I called to report my problem to one of the credit bureaus, I was encouraged to sign up and pay for a credit monitoring service.  Reluctantly, I agreed to pay the monthly fee to have my personal information monitored by one of the same companies that keeps my personal information.  I’m the one that’s the victim and I get rewarded by spending time and money to protect my personal information.  What a system!

Last week, Equifax, one of the major credit bureaus, announced it had been a victim of a data breach.  Equifax estimates the personal information of 143 million Americans might be at risk.  They are offering a one year membership in their credit monitoring service to potential victims.  The conspiracy theorist in me says this is a great way to create demand for their service.  Yes, Equifax has gotten negative publicity.  The reality is, the big three credit bureaus (Equifax, Transunion, and Experian) have a nice oligopoly going.  If you need credit, and the US economy is built on credit, you need them.

But the entire system is fundamentally flawed.  Credit bureaus collect our personal information.  Financial institutions rely on that information to make credit decisions.  Consumers have to pay to access and monitor their personal information.  (Current laws allow for one free credit report per year per credit bureau.  There are also some protections if you can prove your information was compromised.)   It reminds me of one of my favorite lines from The Simpsons.   Lisa asks Homer, “If you’re the police, who will police the police?”  Homer replies, “I don’t know, coast guard?”  A link to a clip of the show is below.  Be warned: it includes other The Simpsons’ clips.  You can waste an awful lot of time on this link.  https://www.youtube.com/watch?v=Tk4yyqXi8Xc

To be fair, there are credit monitoring companies in the US that are independent of the credit bureaus.  Consumers have to pay for their services as well.  An enterprising financial services executive is going to figure out there is money to be made by protecting his clients’ data.  Firms that build this service into their offerings so customers do not see a cost will win.  Protecting data requires scale, even though scale creates a bigger risk with each potential data breach.  Expect this incident to drive more consolidation in the financial services arena.  Also expect much huffing and puffing from Congress with little action as usual.  (If you want to get really irritated, check out Equifax’s lobbying efforts.)

(Automated) Manufacturing is Alive and Well

September 5th, 2017

I had a conversation with a friend in the packaging equipment business.  His company manufactures equipment for both direct (think consumer packaged goods) and indirect (think shipping) packaging.  The company has never been busier. The company’s backlog is up almost double what it was two years ago.  He spends his days as “chief complaint resolver,” as he put it, trying to figure out ways to get orders out the door faster for his demanding customers.

Yet anyone on the consumable side of the packaging business tells me things are just “OK.”  Most are meandering along with GDP-like growth.  Some are doing much better, some much worse than the 2-3% growth in the overall economy.  But, if I add it up, that’s probably a safe number for consumable growth.  What gives?

In this specific example, a lot of the equipment is going to consumer packaged goods (“CPG”) companies.  Their customers, predominantly major retailers, are getting hammered by the internet and consumer desires for fresh foods, among other things.  Retailers screaming for lower prices, necessitating cost cuts from the CPGs.    I’ve written this before but it bears repeating: despite what the government says about stagnant wage growth, the costs of employees continues to increase.  Health care isn’t getting cheaper.  Workers’ compensation insurance isn’t getting cheaper.  As the costs of labor increase, the cost of capital equipment becomes relatively cheaper.  Equipment also doesn’t call off work.

Automation is a fact of life.  US manufacturing output is at an all-time high.  Manufacturing employment has barely budged since the great recession (see graphs and link below).  If you’re not automating your business, someone else will.  If that happens, your business will have no jobs.

 

http://www.pewresearch.org/fact-tank/2017/07/25/most-americans-unaware-that-as-u-s-manufacturing-jobs-have-disappeared-output-has-grown/ft_17-07-18_manufacturing_decline/

Our Politicians Fiddle While the Healthcare Debacle Marches On

August 29th, 2017

I have a friend with a chronic health condition.  This condition requires treatment once a year over the course of two visits.  It’s an outpatient procedure involving an infusion of a medication.  For the last three years, this treatment has been performed at the exact same facility with the exact same dosage.  The treatment involves setting up an IV, infusing the medication, and having the patient sit there for an hour to ensure no reaction takes place.  In all, a medical professional spends less than 30 minutes with the patient.  Following is what the hospital charged and the out of pocket charge to the patient each year:

2015                                       2016                                       2017

Hospital charge                               $5,744.44                             $6,856.02                             $8,163.04

Due from Patient*                          $955.02                                 $1,258.52                             $2,266.75

*The amount due from the patient reflects insurance adjustments and the patient’s deductible, which increased from $1,500 to $3,000 over the 3 year period.

That’s almost a 20% increase per year in the billed amount and over 50% per year in the amount the patient had to pay!  (Those of us in the label/packaging industry need to take lessons from healthcare about raising prices.)  Again, same place, same procedure.  Another fascinating factoid – the cost of the medicine increased less than 10% over the course of 3 years.  Additional “facility charge fees” from the hospital made up the majority of the cost increases in this example.

I know this is one example; I’m sure there are plenty of examples where our current healthcare system is saving people money.  We were promised Obamacare would “bend the healthcare cost curve.”  The evidence is lacking to support that claim. (https://www.usnews.com/opinion/articles/2016-12-12/the-affordable-care-act-didnt-bend-the-cost-curve)  While all this goes on, we have a political party in power that complained for 7 years about Obamacare.  When they got elected, they had no plan to fix the problem.  And politicians wonder why there’s discontent among the people of this country.  Stop fiddling and start solving problems.

 

Have a Little More Consideration Than Preteen Boys

August 22nd, 2017

We were at our neighborhood pool the other day.  I was within earshot of my son and his friends discussing the eclipse.  They decided they were going to watch it together.  The following conversation occurred:

Preteen Boy 1:  “I can’t wait to watch the eclipse.”

Preteen Boy 2: “I heard we’re not supposed to look at it because you could go blind or something.”

Preteen Boy 3: “How could you go blind?  Isn’t the moon is blocking the sun in an eclipse?”

Preteen Boy 2: “I don’t know.  It sounds stupid to me.”

Preteen Boy 1:  “Why don’t we find someone to look at before we do?  That way, we can see what happens to him.”

Preteen Boy 3: “Yeah!  That sounds like a plan.  But who will we get to do it?”

Preteen Boy 1: “How about your little brother?”

Preteen Boy 2: “Yeah, we can use my little brother.  He’ll do it.”

Fortunately, the eclipse came and went with no one in this group damaging his vision.

After I had a good laugh courtesy of this scene right out of “The Little Rascals,” it made me think about how we act the same way in business.  We get together, discuss what we think is a good idea, and move into execution mode.  The impact on people is an afterthought in the conversation.  Don’t be as shallow as preteen boys.  Put people first and it’s less likely someone gets hurt.

Price Is All That Matters.  Until It Isn’t!

August 14th, 2017

One of our sale people got a call from a customer.  The customer was in a panic and wanted us to match a price on a product we stock.  Our sales person inquired as to why.  The customer responded, “My current supplier (our competitor) can’t ship on time.  I need an order to go out today but I can’t pay more than what they charged me.”  While the honesty was great, the logic was a little lacking.

We all want the best deal.  Too often, we revert to price as the most (or only) factor in the transaction.  An old business axiom says, “You name the price; I’ll set the terms.”  As so often happens, we have a competitor selling on price.  Our customer made the mistake of assuming said competitor would have the item available when it was needed.  Upon further digging, we were told our competitor regularly doesn’t have items available.  Stock outs happen.  Manufacturing issues happen.  But if someone is routinely out of products they supposedly stock, I think that’s their way of setting the terms of the deal.  The low price doesn’t really mean a lot if you can’t get the product.

Customers are very good at throwing out low-ball prices during negotiations.  They never reveal the other costs associated that are often associated with a low price.  The hassles of dealing with stock outs add a significant (although hard to calculate) cost to dealing with the low price.  “Ceteris paribus (all other things equal)”,  as economists like to say, a low price is great.  Quite often, that low price comes with strings attached.  As the Romans said, “Caveat emptor (let the buyer beware)!”

“Of Course It’s Personal!  It’s My $&@*@&() Money!”

August 8th, 2017

I have an acquaintance who spent many years in corporate life.  He had overseas assignments and rose to a very high level on the corporate ladder.  After a family member’s health scare, he decided to take a buyout while relatively young.  I don’t know the particulars, but I’m pretty sure he and his family were more than financially set for life.  After a year of settling down and relaxing, he got bored.  He bought a business in a completely unrelated industry.  He is now about five years into his new venture.

We met about three years ago through a mutual friend.  We talk a few times a year, often trading stories about our businesses.  We had a conversation a few weeks ago that went something like the following:

“Brian, I remember a conversation we had about not taking it personally when you think someone takes advantage of you.  I had a customer promise me ‘the check is in the mail.’  He even sent me a picture of the check.  We’d done business with his company a long time, before me.  We did work for him based on that promise.  Guess what?  The $*#*(#* check never came.  Now, I’m out that money plus the additional stuff we did – the business is gone.  Of course it’s personal!  It’s my $*&$*)(#(  money!  It’s no different than if he held me up at gunpoint and took my wallet.”

Fortunately, the amount of money at stake won’t bankrupt the company; they’ll be just fine.  I’m fairly confident my buddy won’t have a stroke, either.  So this too shall pass.  I did ask him a question: “What would have happened if you were still at XYZ Company?”

He paused a few seconds and said, “Well, I probably wouldn’t have been involved in this decision.  Proportionately, this customer’s issue would have never made it to my desk.  My guess is our credit department wouldn’t have allowed us to ship that second order.”

So I probed a little more: “So there’s a process in place to prevent the company from losing more money?”

He replied, “Yeah, there was.  Why the $*&$*#) don’t I have a process?”

I said, “You do.  You just didn’t follow it.  I was just at a management conference and the key message was, ‘Focus on the process, not the people.  If something goes wrong, fix the process.  Don’t blame the people.’  I then questioned his intelligence for accepting the old “the check is in the mail” line.  I came clean and told him our biggest credit loss ever was a result of me accepting a version of that story from a big customer that went belly up.  I assured him I changed my process after that debacle.

Business is always personal.  Relationships should matter.  However, emotions cloud our judgment when dealing with people.  Adhering to processes can save a lot of heart aches and prevent bad decisions.  We can learn from the process standardization that big companies use.

Pay Attention to the Warning Signs

August 2nd, 2017

We’ve experienced a long, albeit tepid, economic recovery since the Great Recession.  As our president trumpets nearly every day, the stock market is at all-time highs.  Unemployment is near record lows.  All is well in the economic world, right?

Here are a few warning signs that concern me:

  1. The Federal Reserve has begun monetary tightening in earnest. Not only have they raised interest rates and pledged to continue to do so, it has started unwinding its bond purchases.  Over the last 10 years, the Federal Reserve increased its balance sheet from just under $900 billion to $4.4 trillion, meaning it has been purchasing government and government agency debt, helping keep interest rates low. (https://www.federalreserve.gov/monetarypolicy/bst_recenttrends.htm .  I can’t even come close to comprehending those numbers.)   It is going to start unwinding this massive monetary stimulus.  While this is probably the right thing to do and the Fed has indicated it is going to do so very slowly, this action will draw money out of the financial system.
  2. The US has indicated it might issue trade sanctions against China. President Tweet campaigned promising “fair trade” and his administration has threatened trade wars.  Trade wars don’t help economic growth.
  3. Auto sales have slowed. There are only so many 6 and 7 year car loans banks can give out.
  4. Credit card delinquencies are rising.
  5. Anecdotally, I’ve noticed our customers are stretching their payment terms with us. I’ve talked with a few vendors and a few customers.  All have indicated the same trend.

Economic cycles are inevitable.  I don’t know when the cycle will change but it will.  My best guess is within the next 18 – 24 months, we’ll be in a recession.  Monitor cash.  Control your expenses.  Check credit references when new customers knock at your door.  Be prepared to take advantage while others are struggling.  You’ll have the opportunity soon.

Take a Stand, Republicans!

July 25th, 2017

For seven years, Republicans basked in the glory (sarcasm intended) of holding ceremonial votes repealing Obamacare.  Our esteemed legislators (again sarcasm) had nothing to lose during this time.  They didn’t have enough votes in the House or Senate to override a certain presidential veto.  With much fanfare, they voted for repeal time and time again.  (I researched how many times they voted to repeal Obamacare.  The answer is somewhere between 6 and 50, depending on how riders to legislation are counted.)

Now, with majorities in the House and Senate and the presidency, Republicans are acting like the proverbial dog that finally caught the car.  They don’t know what to do now that their vote will actually have an impact.   Help me understand this:  you were elected on a platform that included repealing and replacing Obamacare.  Now you’re afraid you’ll lose elections if you actually do what you put in your campaign platform.  Good luck with that logic.

How about starting by acknowledging the reality most Americans already know?  Obamacare had nothing to do with helping healthcare costs.  All it accomplished was a giant wealth transfer from the working and reasonably healthy to the poor and less healthy part of our population.  On many levels, that’s not a bad thing, especially if you are poor and/or sick.  But if you’re a working class family, you are questioning what Obamacare did for you, other than raise your premiums and deductibles quite dramatically.  Representatives and Senators,  in case you’ve been living under a rock, those are the people that tipped the election to Donald Trump.  If you think recanting on the promise to repeal and replace will ingratiate you to those voters, I’ve got some swampland in Florida for you.  If you think doing nothing will help you with voters that support Obamacare, I’ve got a bridge to nowhere for you.

Leadership involves making difficult decisions.  Republicans, if you’re not comfortable making difficult decisions, you’ll rightfully lose your chance at leadership.