Supply Chain
There is significant evidence that supply chains have “normalized.” Delivery times are fast and overall demand is low. Many companies are now looking at “longer-term” supply chain planning and changes. Some of these changes include multi-sourcing and digitizing supply chain operations. Geopolitical events and resulting tariffs/sanctions could quickly change the supply chain landscape, however, so it is more important than ever to be nimble with respect to strategic and tactical planning.
When preparing (hopefully in advance!) to sell your business, it helps to understand what buyers will looking for and asking about. While revenue and financials are well-known areas of due diligence, for companies in the product space the efficiency and riskiness of operations and supply chain are also fair game. Buyers are concerned about a target company’s ability to complete products to satisfy customers and drive revenue. This depends on a robust supply chain and manufacturing strategy. They will consider questions such as: what do you build and buy?; why?; where?; and, what risks are associated with that (geopolitical, tariff, logistical)? While many people know that potential buyers will ask questions about customer concentration, some do not realize that savvy buyers will also ask about supplier concentration in order to better understand the risks of dependency on a few (or one!) suppliers for critical materials needed to generate revenue. In cases where there are limited suppliers available, buyers will want to know how that risk is mitigated. They may be interested in whether you have too few suppliers (creating risk) or too many (leading to high managerial overhead and low influence with each supplier). Supplier relationships and total cost of ownership – payment terms, inventory programs, whether you have been paying your suppliers on time, etc. are all areas that buyers may look into. Buyers are also interested in inventory levels of both finished goods, work-in-progress, and raw materials. This can be a major drain on cash flow. Obsolete inventory (which has been in stock for a long time and has no likely future use) also raises concerns. Inventory accuracy may be a concern – if they think they are buying $2M in inventory but there really only is $1.5M from a physical count, that will lead to some discussions. It is wise to expect a possible inventory count and prepare in advance with your own counts to assess and improve accuracy. It is best to think like a buyer and prepare early to set up supply chains and operations that will impress potential acquirers and not raise red flags. By deliberately thinking through manufacturing and supply chain strategies and addressing potential risks, companies can best situate themselves for successful exits. Please feel free to reach out to Lustig Global Consulting (
Increasing revenue when preparing for a future sale (or pretty much anytime!) is great but an equivalent savings in operational costs, such as supply chain and manufacturing, can provide an even greater increase in company sales price since valuations are often based on multiples of EBITDA. A $1M increase in sales may improve EBITDA by several hundred thousand dollars while a $1M decrease in supply chain and manufacturing costs usually improves EBITDA by almost that full amount. There are a number of ways to tackle optimizing these costs. A first step is to look at the current manufacturing and supply chain strategies and how they align with the company’s overall strategy. Are these areas part of the core competencies that are essential to maintain in-house? Are there other possible operational strategies that are worth considering? With that guidance, companies can then look at their options. Are they buying the right things from the right suppliers (and the right number of suppliers) at the right time (think inventory levels) at the right prices and on the right terms? Do they have the right mix of what they fabricate, assemble, test, package, and distribute themselves vs. through suppliers? Are the in-house process optimized for best cost, inventory, and quality? Assessing these areas provides great potential for increasing the company’s values. For more information please go to
Expense Reduction Analysts (ERA) are looking at numerous ways to help companies save money and improve processes in an inflationary environment. One of ERA’s most successful verticals in assisting companies with their freight costs. Need: Business leaders are looking at unique ways to combat inflation and reduce freight costs. Solution: ERA’s freight specialists put forward 10 unique ideas to combat rising freight costs as a catalyst to initiate a conversation with decision-makers and promote our expertise. Value: Decision makers who utilize ERA’s group of experts will save more than with their internal teams alone. Please take a look a the attached PDF. Reach out if you have any questions or if I can be of help.
Managing Today’s Reality of Excess Inventory: The Domino Effect of Having Out-Dated Software Systems. Not having real time information on the fast-moving products. Not having accurate information of the inventory level in multiple locations. No method of tracking Vendor Reliability of ON-TIME deliveries. What are the Results of Excess Inventory? Late shipments will result in production disruption. Order cancellations will result in excess inventory. Reduction of Profit from reduced sales price to move excess inventory. Cash on hand reduced as funds are tied up in unsold inventory. How to Manage the above issues! Replace the outdated software with real time software needed to: Better manage everything related to sales and inventory The Benefits Resulting from Real Time Software! Understanding inventory turns to maximize inventory at item levels. Knowing Vendor Reliability to achieve better product availability! Understanding the inventory availability when managing multiple locations. For additional information visit our website
A major theme of this edition of ProfitSense was accounting, as host Bill McDermott welcomed two CPAs, Bradley Carroll, CFO of Progressive Lighting, and Gary Clayton, CFO of Superior Business Management. Bradley discussed his move from a CPA firm to in-house practitioner, the significant problems associated with logistics and sourcing products internationally, and more. Topics Gary addressed included enhancing the value of the business, major challenges business owners face today, and why misclassifying employees is so high-risk for such small savings. ProfitSense with Bill McDermott is produced and broadcast by the
With the supply chain and labor shortages caused by the pandemic, the blockage of the Suez Canal (remember that?), and the ongoing war between Russia and Ukraine, prices have gone through the roof. And while the Fed may claim some of it is transitory, many of us know exactly what it is: Inflation! But what exactly is inflation, what does it mean for a business, and what can a business owner do about it? In this article, we’ll define inflation and discuss some strategies for dealing with its ramifications. What is inflation? Inflation is an increase in prices not tied to an increase in quality. Inflation is when food prices go up for no reason at all; if package quantity went up to the same degree as food prices, then the price increases would not be an example of inflation But when we get away from simple things like food, it gets a bit murkier. If a car price goes up because the car is rare, is that inflation? How about putting out better but more expensive models…is that inflation? If cars are hard to come by because of a chip shortage, is that inflation? How about when the price of a commodity goes up because the price of fuel went up? Is that truly inflation? Or is it what the Fed would describe as transitory – something that will reverse itself when the price of oil comes back down? (Incidentally, the question of when the price of oil will come down is up for debate.) Our firm recently held a webinar with an energy analyst who opined that energy prices might stay high for some time (fact check and include link)) But, beyond defining inflation, the real question is – what does this mean for my business? How do I react and keep my business, reputation, and pricing power? Tips for Dealing with Inflation I recently had a conversation with a food service provider. He was facing a dilemma; commodity prices like flower, oil, and onions were up 80-150%. Labor was up significantly too. How can he keep selling food at a price people can handle while continuing to make a profit? Here is some of what I shared (and other things I did not share that may be interesting to a broader audience). Not all products are created equal. The cost for components of one product went up modestly while the cost of ingredients of the other went up much more significantly. Understand your margin by product and you can know where you need to raise and where you can absorb slightly tighter margins. Create efficiencies. If labor costs are up, what can you do to reduce the amount of labor inputs? Maybe hire robots for a piece of the process. Maybe buy certain items ready made from a larger vendor who can get economies of scale. If certain onions are up more than mushrooms, start offering mushroom salad as a standard and charge an extra fee for onion salad. Be thoughtful about inventory. Having extra inventory will cost you more money and you ultimately have to chare the customer more to cover your carrying costs. On the other hand, with prices increasing weekly, you may save significant money by buying things today rather than next month. Loss leaders are an option. Certain products might be unprofitable when viewed individually; however, if they enable you to sell other more profitable products, you might profit on a customer interaction even if you do not profit on each individual component. Consider buying in bulk. If you get a slight discount today and lock in your prices for the next few months, you are probably ahead of the game. Unless of course prices start rapidly falling, in which case you have price stability but are behind the 8-ball. Keep a long-term view while making sure you stay liquid and solvent. If you believe that commodity prices will come down (I do, but unfortunately, I do not know when), realize that there could be an opportunity to build or solidify those long-term relationships today and make the profit tomorrow. Keep an eye on the competition but know your numbers. Know where your business’s “line in the sand” is located. If you go past there, you will end up regretting it. Don’t let your competition entice you to chase unprofitable volume. You may not “make it up in volume…” Compete on things other than price. Provide a better dining experience, off hours delivery, customization, or something else your customers value that doesn’t cost you too much to provide. You will raise prices, but they’ll keep coming back for other reasons. Don’t just focus on margins. If you used to produce product for $5 and sell it for $10 but now it costs you $10 to produce, you can sell it for $15 and while you’ll have a much tighter percent margin (33% vs 50%), you’ll still be making the same number of dollars in profit ($5). Your competition may continue to mark it up 100% (so if the cost is $10, they’ll charge $20). Consider a loyalty program. If you do have to raise prices, consider instituting a loyalty program to “give something back.” While “points” are often left unused, you still build loyalty and if customers do come back for the freebies, you are giving my favorite type of discount – the one you only give when they come back. Monitor closely. If you do choose to operate on tighter margins, be very careful of waste and spillage. With tighter margins, every lost “unit” eats up a bigger piece of your profits. It’s been an interesting decade so far, these 2020s. When we are all grandparents, the kids are not going to believe this, but until then, keep paying attention to what is going on and make sure you are thoughtful about the scenarios in which you find yourself. Be intentional about your business (and life too!) and make sure to have good facts so you can make the right strategic decisions to help you weather this storm. — Gershon Morgulis is the founder and managing partner of Imperial Advisory CFOs. Imperial’s 8-CFO team provides owners and other executives of growing businesses with part-time CFOs and other consulting services which enables businesses to make better and more confident business decisions.
Take Control of Insurance Pricing Premiums continue to increase for certain commercial insurance lines, while coverage terms have become more restrictive. Companies that take a passive approach — simply responding to quotes from underwriters — frequently receive coverage that’s both inadequate and overpriced. Watch this video to learn how organizations can leverage data to proactively drive the insurance placement process, reducing their cost of risk typically by 10% to 25%.
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Feb 7, 2022
Feb 7, 2022
1 min read
From appliances to sofas, Americans aren’t used to empty shelves or waiting weeks for their purchases. But the pandemic continues to disrupt the supply chain, shuttering factories, creating logjams at ports, and exacerbating a truck driver shortage. This event will bring together regional leaders – L.L. Bean CEO Stephen Smith, Massachusetts Port Authority CEO Lisa Wieland, and Boston Public Schools food services executive Laura Benavidez – in a discussion led by Globe business columnist Shirley Leung on how they’re dealing with supply chain woes, the impact on our fragile economic recovery, and whether this is a new normal.
We are hearing and reading a mix of information from economists and suppliers in a wide range of industries. Some state that they expect supply constraints to loosen by the end of the year and prices to plateau. Others tell us that even though some of the commodity indices show price relief, it will still take 6-9 months for those lower prices to work their way down to industrial consumers. The most optimistic outlook is that things will soften a bit by the end of the year, while the pessimists indicate that we may not have relief until late Spring / early Summer of 2022.
Every business owner envisions a growing business, running smoothly without drama and having massive amounts of cash flow and profits. The problem is that with growth comes increasing complexity. Oftentimes, you need to add people and improve processes. Deciding not to add people and processes can create choke points in our business that cause it to become increasingly inefficient or ineffective. It breaks my heart to see businesses not living up to their potential. There’s a fix for those choke points, but sometimes we see them or sometimes we don’t. Or if we do see them, we may not know the right fix.
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As an advisor, your role is to help clients prepare to exit their business, yet many people resist thinking about the future because it involves so many unknowns, decisions, and choices. And emotions typically complicate matters further, sometimes derailing the process altogether. Here are some questions that can help you establish rapport with your clients, learn more about their concerns, and move the conversation forward. How are you feeling about your work/profession/business these days? Which aspects of work are you still enjoying, and which are you ready to leave behind? Do you envision retiring from work at some point, or are you contemplating an encore career? What part of planning for your future feels most challenging? How do you imagine your life in retirement will be different from how it is now? What process are you using to figure out what you’ll do next after you retire? What would you like to see happen with your business long term? What options have you considered for the transfer of your business? What steps have you taken to make your business more attractive to a potential buyer? What are your concerns about transitioning your firm to new ownership? What would be your ideal scenario for transitioning out of your company? What topic(s) have we touched on today that we should put on our agenda to revisit? So, what happens after you pose a few of these questions and your clients open up about emotional matters? Remember, the most helpful thing you can do is to listen attentively. You’ve created a valuable opportunity for them to talk about things they may not share with other advisors. Here are some tips for managing the conversation when clients raise emotionally loaded topics: Don’t try to “fix things” by immediately offering suggestions. Doing so sends the message that you’re uncomfortable hearing their concern. You can offer suggestions but do so later. Don’t say anything that conveys the message that their feeling or concern is unwarranted. “There’s really no need to feel that way” or “I’m sure it will be just fine” may sound reassuring to you but could be experienced as dismissive by your client. Don’t immediately offer a logical counterpoint to your client’s emotion. Remember, feelings don’t have to make sense; they’re “as is”. Put another way, if feelings made sense, they would be thoughts. People report concerns and characterize their feelings differently from one another, so it’s in your best interest to seek amplification and clarification by inquiring as follows . . . “I want to make sure that I understand exactly what you mean by ___. Can you tell me more?” “People sometimes mean slightly different things when they talk about ___. What does ___ mean for you?” “Before I suggest anything, I’d like to learn more about it from your perspective.” It’s possible that during early conversations your client may hint at mixed feelings about exiting their business. That’s perfectly normal, but you need to bring it out into the open. You want to foster an atmosphere such that your client keeps you apprised about where they’re at. If they keep their ambivalence to themselves, it has greater potential to blindside you and complicate the sale. You can say: “In my experience, it’s normal to have some mixed emotions about selling. Those thoughts may not always be top of mind, but when they do pop up let’s be sure to talk about them. Believe it or not, they can help inform our process and alert us to aspects of the sale that are important to you.” You may also find that your client is overly risk averse. If so, consider saying the following: “Our work together won’t be comprehensive if we only plan for what could go wrong. That’s just half the equation. It’s fine to be conservative and err on the side of caution, but to be truly realistic we should also consider a range of possibilities both good and bad.” Author’s Note: The concepts in this article are derived from Robert Leahy’s book, Overcoming Resistance in Cognitive Therapy. New York: Guilford
For five decades, the southern United States has been an attractive location for automakers to open plants thanks to generous tax breaks and cheaper, non-union labor. However, after decades of failing to unionize automakers in the South, the United Auto Workers dealt a serious blow to that model by winning a landslide union victory at Volkswagen. In an effort to fight back, three southern states have gotten creative: they passed laws barring companies from receiving state grants, loans and tax incentives if the company voluntarily recognizes a union or voluntarily provides unions with employee information. The laws also allow the government to claw back incentive payments after they were made. While these laws are very similar, each law has unique nuances. If you are in an impacted state, you should seek local counsel. In 2023, Tennessee was the first state to pass such a law. This year, Georgia and Alabama followed suit. So why this push? In 2023, the American Legislative Exchange Council (“ALEC”), a nonprofit organization of conservative state legislators and private sector representatives who draft and share model legislation for distribution among state governments, adopted Tennessee’s law as model legislation. In fact, the primary sponsor of Tennessee’s bill was recognized as an ALEC Policy Champion in March 2023. ALEC’s push comes as voluntary recognition of unions gains popularity as an alternative to fighting unions. We recently saw this with the high-profile Ben & Jerry’s voluntary recognition. Will this Southern strategy work to push back against growing union successes? Time will tell. Brody and Associates regularly advises its clients on all labor management issues, including union-related matters, and provides union-free training. If we can be of assistance in this area, please contact us at info@brodyandassociates.com or 203.454.0560.
Almost since time began, the nimble small business has been axiomatic. Large corporations are like big ships, the common knowledge goes. They take a long time to change direction.
I once had the thrill of interviewing Jerry West on management. He was “The Logo” for the NBA, although back then they didn’t advertise him as such. Only the Laker followers knew for sure. In 1989 the “Showtime” Lakers were coming off back-to-back championships. Pat Riley was a year away from his first of three Coach of the Year awards.
Can you Offer Too Many SKUs to Your Customers? The short answer is YES! A SKU, or Stock Keeping Unit, defines each different product version that you sell and keep inventory of. There may be different SKUs of the same overall item based on size, color, capacity (think computer or cellphone memory), features, and many other parameters. For build to forecast businesses, that number of variations can quickly explode and become difficult to manage. Your customers are busy and want ordering simplified. Of course, they may need (or want) more than one variation of a product. That is reasonable and a common aspect of business – one size does not fit all! But there is a point where too offering too many SKUs is not value added either for your customer or your business. In his April 30, 2013 article “Successful Retailers Learn That Fewer Choices Trigger More Sales” in Forbes, Carmine Gallo discusses his experience and a study about “choice overload” by other authors. He writes about a retailer that “has discovered that giving a customer more than three choices at one time actually overwhelms customers and makes them frustrated…when the customer is faced with too many choices at once, it leaves the customer confused and less likely to buy from any of the choices!” Choice overload is well-documented in consumer studies but can apply in B2B as well. While customer satisfaction is important, another key concern is the often-hidden costs associated with a business offering and managing a large number of SKUs for a given product type. These costs include holding inventory, S&OP (Sales and Operations Planning) team time, small production runs, and scrapping inventory. Holding inventory takes up space, which may come with a cost or utilize racks that could be used for other products. Scheduled inventory counts take up employee time and may result in blackout periods when the warehouse is not shipping product. The more SKUs there are, including extra SKUS, the greater the potential impact. The Sales team’s forecasting and the Operations team’s purchasing reviews that are part of the S&OP process can occupy more of their valuable time if they need to consider these times. If small orders or forecasts require a new production run, this could be costly and create excess inventory. Whether from this new production or past builds, eventually it will make sense to write off and scrap old inventory, another cost impact to the company. How do you know which SKUs to focus on if you wish to look at reducing your total number of SKUs? Start by examining SKUs that have: Low historic sales over a period of time Small variations between SKUs that customers do not value Older technology or model when newer option SKUs are available This requires a true partnership between Sales and Operations. It starts with educating both teams on the costs involved – neither group may be aware of the money and time impact to the company. Periodic (such as quarterly) reviews of SKUs that meet the above descriptions should become a fixed part of the calendar. A review of the data and other available for sale options should result in the identification of SKUs which may not be needed. At that point, it is helpful to have a customer friendly EOL (End of Life) Notice process by which you inform customers of last time buy requirements for this SKU and alternates available. It is usually best to provide some time for the last time buy in the interest of customer satisfaction, although that may not always be necessary. At a company that designed and sold electronics, a robust SKU rationalization process was implemented to help address these issues. A representative from the Operations team analyzed SKUs that met a version of the above criteria and suggested candidates for the EOL process. Next, a member of the Sales team reviewed them and, where appropriate, issued product change or EOL notices to customers, providing them time for last time buy orders when needed. These steps helped reduce the work involved in maintaining these SKUs while not leading to any customer complaints. A final note – sometimes it makes sense to continue offering low selling SKUs – to support customers buying other items (hopefully in larger quantities). It may be worthwhile to encourage them to keep coming back to you for all of their product needs and this may be a way to accomplish that. But it helps to understand that this is truly the case and not assume that this customer would not be equally happy with another, more popular, SKU. Steven Lustig is founder and CEO of Lustig Global Consulting and an experienced Supply Chain Executive. He is a recognized thought leader in supply chain and risk mitigation, and serves on the Boards of Directors for Loh Medical and Atlanta Technology Angels.
When it comes to careers, business owners are a minority of the population. In conversations this week, I mentioned the statistics several times, and each owner I was discussing it with was surprised that they had so few peers. According to the Small Business Administration (SBA), there are over 33,000,000 businesses in the US. Let’s discount those with zero employees. Many are shell companies or real estate holding entities. Also, those with fewer than 5 employees, true “Mom and Pop” businesses, are hard to distinguish from a job. The North American Industry Classification System (NAICS) Association, lists businesses with 5 to 99 employees at about 3,300,000, and 123,000 have 100 to 500 employees (the SBA’s largest “small business” classification.) Overall, that means about 1% of the country are private employers. Owners are a small minority, a very small minority, of the population. Even if we only count working adults (161,000,000) business owners represent only a little more than 2% of that population. So What? Where am I going with this, and how does it relate to our recent discussions of purpose in business exit planning? It’s an important issue to consider when discussing an owner’s identity after transition. Whether or not individual owners know the statistics of their “rare species” status in society, they instinctively understand that they are different. They are identified with their owner status in every aspect of their business and personal life. At a social event, when asked “What do you do?” they will often respond “I own a business.” It’s an immediate differentiator from describing a job. “I am a carpenter.” or “I work in systems engineering,” describes a function. “I am a business owner” describes a life role. When asked for further information, the owner frequently replies in the Imperial first person plural. “We build multi-family housing,” is never mistaken for a personal role in the company. No one takes that answer to mean that the speaker swings a hammer all day. Owners are a Minority We process much of our information subconsciously. If a man enters a business gathering, for example, and the others in the room are 75% female, he will know instinctively, without consciously counting, that this business meeting or organization is different from others he attends. Similarly, business owners accept their minority status without thinking about it. They expect that the vast majority of the people they meet socially, who attend their church, or who have kids that play sports with theirs, work for someone else. There are places where owners congregate, but otherwise, they don’t expect to meet many other owners in the normal course of daily activity. This can be an issue after they exit the business. You see, telling people “I’m retired” has no distinction. Roughly 98% of the other people who say that never built an organization. They didn’t take the same risks. Others didn’t deal with the same broad variety of issues and challenges. Most didn’t have to personally live with the impact of every daily decision they made, or watch others suffer the consequences of their bad calls. That is why so many former owners suffer from a lack of identity after they leave. Subconsciously, they expect to stand out from the other 98%. “I’m retired” carries no such distinction. This article was originally published by John F. Dini, CBEC, CExP, CEPA on
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