December 4th, 2013
We are inundated by the media and talking heads about there being no “good” jobs available. The left wingers blame the greedy corporations keeping profit levels at all time highs. The right wingers blame Obamacare and the regulatory burdens businesses face. In the last 2 days, I have gotten two of the most unbelievable emails I’ve ever received. Two temp agencies we have used in the past sent emails saying they are LOOKING FOR PEOPLE. They don’t have enough candidates to fill spots. Normally, I get solicitations from these agencies trying to send me people. Most of these are temp to perm jobs that pay significantly above minimum wage. While some are entry level jobs, many require skilled people. I talked with a friend of mine who owns a temp agency. He said he hasn’t seen it this tough to find people in his career and the business has been around for 40 years! My friends that own machine shops are dying for CNC operators. We are hiring and it is more difficult to hire now than it was in 2003-2006 when the economy was “booming.” Now, temp agencies can’t even send us qualified people.
A business that is hiring doesn’t warrant media coverage. But protesters (who are paid most of the time by the way) demonstrating against low wages at retailers and fast food restaurants does. Only in America!
If you know people looking for jobs, tell them to check around. There are good jobs available. The left is pushing more government intervention so they don’t want to talk about jobs being out there. The right is trying to stop government growth so they can’t accept the fact that jobs are out there. We’d all be better off if both sides just shut up and let the job creators do what they do – create jobs.
November 26th, 2013
The other day, our soon to be eight year old son was getting dressed for school. (One of the wisest quotations about parenting says, “The days and nights are long but the years fly by,” certainly rings true in our household.) He got all excited because he “lost” a belt loop – he is growing and he had to move his belt out a loop and he was thankful. Recently, we pulled our winter clothes down from the attic. With much trepidation, I tried on a pair of corduroy pants. Thankfully, while a little snug, they still fit! I didn’t lose a belt loop and I was thankful. It’s amazing what joy life’s little victories bring!
Two people, same activity, different results, but the same thankful perspective. Whatever your perspective might be, take some time to be thankful and express gratitude this week. Happy Thanksgiving! PS I will be wearing pants with an elastic waist band on Thanksgiving Day. Whoever invented those is a genius.
November 20th, 2013
One of the great things about year-end is the RFP process and contract process swings into full gear. We recently got a response from a proposal we submitted to a customer. Here is the key point from the customer’s response:
“We are requesting a 20% discount in exchange for a longer-term agreement with fixed pricing. Please advise if you would be able to meet this request.”
Here’s what I would love to respond. (I think these up during sleepless nights.)
Let me respond to each of your points:
1. 20% discount. The economics of labels really aren’t conducive to 20% discounts. Rather than give you a 20% discount, I would lose less money by sending you a check in the mail so you can buy your labels elsewhere.
2. “In exchange” are your words. In exchange? What is being exchanged? The chance to absorb inflation? We’re taking that risk and you are offering nothing in return. The discount? You are offering nothing in exchange. Do you learn not to exchange anything in purchasing school? Don’t you remember trading things at school? Usually, it’s just that: a trade. I give you some Doritos and you give me some Oreo cookies. You want my entire lunch for nothing! To use the term du jour, you are bullying me! I’m telling my Mom!
3. Longer term agreement. You are letting me lose money for a longer period of time. I also know your promise of a longer-term agreement isn’t worth the paper it’s printed on. You will either move on and the new buyer will say the contract isn’t valid or you will bid it out next year, knowing we don’t want to litigate with a customer.
4. Fixed pricing. In most normal worlds, a fixed price implies you pay a little bit more upfront for the security of a fixed price – bank loans are a good example (especially in normal interest rate environments). But you want a discount and for me to provide fixed pricing. Again, I go back to point #2 – I don’t know what you are exchanging.
5. We are advising that we are unable to meet your request. If you find someone that does, please have them call me as I will have that firm produce all of our labels too until they go out of business.
6. We know you are under pressure to cut costs; we all are. Maybe your approach will work with someone. If it does, be careful of what you wish for. More than likely, the “winner” of your bid will either figure out they aren’t making money and stop supplying you or go out of business before they figure it out. Either way, you will be left with a headache. When, not if, one of those situations occurs, please consider us. We promise we won’t say, “We told you so.”
Of course, I’d never send this response. It is as unprofessional as the request we received.
November 12th, 2013
I am reading, “The Everything Store: Jeff Bezos and the Age of Amazon” written by my fellow Cleveland native, Brad Stone. While there is controversy about some of the stories (Bezos’ wife, MacKenzie, posted a review on Amazon.com, along with other key executives, disputing information Stone calls facts.), it is a must read for the business lessons. One thing Bezos figured out early on: you have a choice to be customer focused or competitor focused. Amazon chose to focus on its customers and basically ignore what competitors were doing early on in its history.
It is really easy to get wrapped up in what your competitors are doing; it’s certainly happened to us at I.D. Images. “Should we match what X is doing? How is X doing that?” are questions we’ve pondered. I’ve given that philosophy a lot of thought lately. If you obsess with your competitors, who is obsessing over your customers? Probably those same competitors. You are then in serious trouble. If you obsess with being marginally better than your competitors, you’ll never get there. The great thing about markets is no one stands still; things move fast. Your competitor is improving every day. What made you marginally better yesterday won’t cut it today. I don’t want to be marginally better; I want to differentiate our business. Bezos figured that out early on and that has given Amazon a huge competitive advantage.
Of course, it is easy for your customers to compare you to your competitors. We all know the easiest thing to compare is price. That’s how you get led down the “being marginally better than competitor X is a winning strategy” path. Don’t misunderstand; competitive markets require competitive prices. As I’ve written many times, price is a given. My point is take the focus off price by focusing on your customers’ true needs that you can differentiate with. They know and you know a competitive price is needed to win business. Find out what else your customers need to win their loyalty. Only then will you create a business that will be tough to marginalize.
November 6th, 2013
Consider some of the economic data we’ve seen in the last few weeks:
• The Institute for Supply Chain Management’s (ISM) Purchasing Managers’ Index (PMI) indicates expansion in the economy. Based on their data, GDP should be growing at a 4.4% annualized rate. And I’m Santa Claus.
• The Cass Freight Index showed a dramatic slowdown in shipments in October. How is that consistent with the PMI data for the last 2 months? Are people really carrying more inventory? Who?
• The government keeps insisting we have no inflation. I wish our supply chain understood this!
• Job growth and wage growth remain stagnant at best.
• Consumer confidence is at multi-year lows.
Certainly, the government shut down did not do wonders for consumer confidence or the overall economy. I’m sure that plays a part in the numbers. The reality is the shutdown is a blip and just adds noise to an already confusing situation. As I talk to customers and vendors and even look at our own business, I see what I’ve seen for a while: inconsistency remains. Pockets of strength are surrounded by pockets of weakness. Here are some quotations from the recent PMI release:
WHAT RESPONDENTS ARE SAYING …
? “New business is booming.” (Textile Mills)
? “The government shutting down and threatening to go into a default position is causing all kinds of concerns in our markets.” (Fabricated Metal Products)
? “The government shutdown has not had any impact on our business that I can determine, nor has it impacted any supplier shipments.” (Chemical Products)
? “Government spending continues to be slow in defense and military. The government shutdown and debt ceiling crisis did not affect business.” (Transportation Equipment)
? “Telecom market — wireless and VOIP — appear to be spiking. We are very busy; busier than we have ever been.” (Computer & Electronic Products)
? “Seasonal demand has not decreased at the typical pace. Market showing resiliency in the residential market.” (Primary Metals)
? “Business continues to improve every month for the past nine months.” (Furniture & Related Products)
? “Big Box Store discounting providing increased sales bump short term.” (Food, Beverage & Tobacco Products)
? “Our customers continue to be cautious and are closely managing their purchases. Business continues to be flat to slightly down.” (Machinery)
? “Outlook on general appliance market continues in a positive direction. Uncertainty, however, looms with unclear government direction pending.” (Electrical Equipment, Appliances & Components)
Note the extreme differences in sectors. We will continue to see certain sectors do well and others not so well. Make sure you don’t have all your eggs in one basket!
October 30th, 2013
During a sleepless night, I made the mistake of turning the TV on and watching a talking head pontificate about the economy. He lamented the fact that in 1900, almost half the population in the US lived and worked on farms. Today, less than 1% of the population works on farms. All those jobs were lost, according to his commentary. He then went on about the substitution of capital for labor and blamed a favorite scapegoat, corporate greed. “The family farm is dead” eventually came out of his mouth.
Were those jobs really lost? Or did they just evolve? How many Americans worked in restaurants in 1900? I’m confident a lot less than work in restaurants today. One can argue those aren’t great jobs, but I’m quite certain most US farms in 1900 weren’t confused with Utopia. When capitalism is allowed to work, yes, jobs and industries go away. But the jobs and industries that go away are quickly replaced. Is it painful for those impacted? Yes. Is it good for society? Yes. The family farm isn’t dead; it has evolved.
Perhaps there is some merit to going back to a “simpler” life style. Maybe we are too removed from some basic human activities today. But do we want to go back to the living conditions of 1900? The average life expectancy of someone born in 1900 was under 48 years; today it is over 74. Going backwards in life expectancy might help cure the budget deficit, but I don’t think it’s good for society. Progress is good; embrace it. Just like the family farm evolved, so too must the family label converter.
October 23rd, 2013
Recently, major paper suppliers announced price increases. As I mentioned a few posts ago, International Paper announced it is closing a major mill. Once the other players heard supply was being reduced, they quickly announced plans to raise prices. What I found interesting in the price increase letters we received was no reasoning was provided. Normally we get language about rising raw material costs, supply imbalances, or some other rationale as the reason(s) prices are going up. These were the briefest price increase letters I’ve ever received!
If you look at the returns paper companies generate, there’s no question they need to do something to improve profitability. Raising prices is certainly a major lever in the endeavor to improve profitability. While the closure of a mill will help improve the supply/demand balance in the North American market, the reality is paper is part of a global market. Global demand is still mediocre. It’s challenging to raise prices with mediocre demand.
We do need paper companies to be profitable – it’s good for everyone to have a stable, profitable supply chain that is able to reinvest and create new and innovative products. Without profits or the prospect of profits, it is tough to justify further investment in an industry. I just question if now is the right time to try to improve profitability via price increases. While this increase might stick, I think it is going to be challenging given global market conditions and it will be even more challenging for the increase to be passed on through the entire supply chain. I know my good friends in the paper industry don’t want to hear this, but reality is reality. Worldwide demand is still tepid.
It will be tough for this increase to stick, but given the loose money available courtesy of the Federal Reserve, inflation is on the horizon. If global demand picks up, expect prices to rise significantly. As the great economist, Milton Friedman said, “Inflation is always and everywhere a monetary phenomenon in the sense that it is and can be produced only by a more rapid increase in the quantity of money than in output.” We have certainly seen the money supply increase a lot more than output in the last few years. Start preparing. This is the first of what will be many increase letters that will be circulating over the next year or two.
October 15th, 2013
Between 1995 and 2013, the number of commercial printers in the US dropped by half. Think about that statement: in less than 20 years, half of an industry’s players has closed or been merged into another company. (Link to a very thought provoking article with the data: http://whattheythink.com/articles/65712-change-choice-leadership/)
While not a perfect proxy to the label industry, I believe we have more in common with our commercial print brethren than we’d like to think. During the 1980s and 1990s and even into the 2000s, we benefited from economic expansion and new technologies. We grew as our customers grew. While all this happened, the world dramatically changed. Customers consolidated. The internet took off. New packaging technologies emerged. For the most part, our industry played along, happy with the status quo.
A few visionaries (the “crazy” ones) in the label world saw change on the horizon. They merged and created larger entities, better able to serve the larger customers. They invested in new technologies and can provide multiple products to their customers. In a nutshell, they took risk. I find it somewhat ironic that companies become successful because they are willing to take risk when they have little to lose (start up mode) but become risk averse when they have something to lose (a successful business). That unwillingness to take risk is what leads to companies disappearing. In business, there is no summit to reach and head back down from. It’s a continual climb.
I had dinner last night with a friend in the metal fabrication business. He told me that since the recession, they have averaged reinvesting almost 15% of their revenue annually in new equipment and new technology. After he saved me from choking, he enlightened me. He said, “We saw a bunch of our competitors go out of business in 2007 and 2008. I decided if we were going to go out of business, it wasn’t because I ignored reality. I can’t control the market, but I can control what we do. We decided we would lead and not follow. Part of leading is sticking your neck out.”
As I write and say regularly, the world is changing quite rapidly. Make changes or risk being left behind.
October 10th, 2013
The general consensus from everyone I talk with is we are meandering along. There is some economic growth, but overall, things aren’t great. The headlines scream problems: lunacy in Washington D.C., the impending doom of Obamacare, a stagnant job market. No wonder no one is excited. Couple these factors with the initial excitement that 2013 was going to be the big recovery year and it didn’t happen, you have a recipe for malaise. (To be fair, as I write, there are rumors that some of the lunacy in Washington D.C. is going to end, or at least be delayed. It’s kind of like a circus – there’s the warm up act, the first set, an intermission so you can fill the kids with sugar, and then the second act. It looks like we’re heading to the intermission of our very expensive and dysfunctional circus that is our federal government. Instead of filling kids with sugar, we’ll get six weeks of pontificating from our esteemed political class.)
But, quietly, it appears things are changing. Lead times from our suppliers have increased a little. Orders from our customers are getting a little larger. Equipment vendors tell me they are busy and their quoting activity is picking up. Nothing earth shattering, but the anecdotal data tells me things are getting better. Are we headed to 5% GDP growth next year? I doubt it. Is unemployment going to magically drop? Not likely. It is likely, however, that the next surprises are likely to be positive instead of negative.
So, instead of complaining, figure out how you can prosper. Position yourself for the coming growth. There will definitely be bumps in the road – we never have linear trajectories for improvement, but the trends are our friend.
October 2nd, 2013
You Can’t Make This Stuff Up
Since I couldn’t summarize the lunacy in Washington D.C. any better, I am using the summary of Dr. Ken Mayland, Clearview Economics. Thank you, Dr. Mayland.
“We have House Repubs passing a budget that defunds ObamaCare, but will not survive a Senate vote (or a veto by the President). We have Dems and a President who are standing fast on the implementation of ObamaCare for individuals despite postponing its enactment for business, granting waivers for specially favored groups, and with mounting evidence that it is hurting job formation and disrupting the existing health insurance arrangement of individuals. And we have a President, who as a Senator voted against a debt ceiling, but claims the Repubs are practicing extortion, holding the budget hostage over ObamaCare, while at the same time, claiming that lifting the debt ceiling does not result in greater federal indebtedness. Meanwhile, the President’s bacon was saved from an embarrassing Congressional “no-go” vote on Syria by Russian President Vladimir Putin! Finally, after months of encouraging discussions about “tapering,” with the Market already pricing it in (“a free pass”), the FOMC decided to continue ballooning its balance sheet at the same $85B per month pace.”
If Congress were the management team of a company, they’d all be fired. If Obama were the CEO, he’d be fired. The good news is, we can fire them by voting against incumbents in the next election. In the immortal words of Popeye, it’s time for the American people to collectively say, “That’s all I can stands, cuz I can’t stands n’more!” Let’s face reality: economic growth is the lowest ever coming out of a recession. While there are more factors than the buffoons in Washington D.C. causing the low growth, they are contributing to the malaise. It’s time to let them know we’re not going to take it anymore (Twisted Sister, baby!).