As we enter the New Year, 2003, and despite the optimism for renewing the double-digit growth cycle our industry has traditionally enjoyed, and that the New Millennium took away, clouds loom on the horizon. Those who experienced the oil-caused turmoil of the early 70’s will recall the spiraling effect of escalating oil prices on contraction of the plastics economy and the
renewal of inflation. This time we have a potential war providing a dampening effect on the long waited "recovery." Although defense spending on plastics should accelerate, several traditional growth industries, such as information technology and telecommunications, seem mired in a low or no-growth state.
All eyes should be on the price of oil, headed for record highs at the time of this writing, and what it will do to plastic shapes prices - despite deflationary trends in many economies. However, prudent managers in our industry should be planning for expansion, since cost controls have mostly been executed in preparation for another slow
year. Also distributors should be looking for opportunities for new locations and acquiring value-added fabrication companies. Manufacturers should be looking at new alliances, more selective distribution, fee-for-service and e-commerce reincarnation.
Another emerging opportunity is the windfall, albeit one time, large contract (especially in the defense industry) -here, distributor/fabricator companies are frequently required to bid for new types of contracts which may require a special piece of equipment they will not need beyond the contract period. Usage, not ownership, has become a requirement for businesses! How to avoid debt financing? Consider leasing equipment, which offers improved cash flow, protection from obsolete equipment and operation flexibility, as well as helping to manage and assist the balance sheet. Furthermore leasing packages can provide the most cost-effective procurement policy. At the end of the lease period, the business can continue using the equipment, purchase the equipment for its fair market value or return the asset to the financing provider. Flexibility is the keyword.
Other key issues facing the new year are:
1. Since the Paretto Principle - 20% of your customers produce 80% of your revenue - applies to most of us, you need a strategy and planning, especially a review of your pricing models and who executes them.
How to Protect Your Good Accounts from Competition
- How to Reactivate Old Accounts
- Know Which Customers to Pursue and How to Close Them
2. We all have files, manila, hard drive or post-it notes, with inactive accounts - decide whether it pays to pursue these or concentrate on loyal, long-term accounts. Once again develop a plan and execute it.
3. Profitability over the long term should be the criteria, and fee-for-service needs to be addressed as a means for "affording" the customer.
4. Separate warehouse transaction costs from the total.
5. Reduce number of deliveries, switch to faster moving inventory.
Some of the thinking and execution of the ideas outlined above should form the basis of your New Year’s Resolutions. We’ll review these in January 2004 and see how we did.
For more information, click on the Author Biography link at the top of this page.