Inflation, chain supply interruptions, rising interest rates and even talk of the dreaded ‘R’ word – recession.
These are once-in-a-generation market forces at play that could wreak havoc on even the most established business, let alone new operations or young people entering the business world for the first time.
So where to begin navigating this level of uncertainty?
According to Manning Elliott partner David Diebolt, it starts with two simple words. It’s as much a personal ethos as it is a calling card for any business venture.
“It starts by knowing your business – what your business can and cannot afford,” Diebolt says. “You have to have your metrics pretty dialed in as far as markers you look for or change in the industry. It comes down to understanding your business metrics, researching trends and having strong budgeting processes.”
Take the cycling industry as one example.
Bike sales and demand for bikes skyrocketed between 2019 and 2021 as supply chain issues became unpredictably tenuous. The companies without material or inventory on their shelves were stuck with back-ordered inventory. Business owners who carefully watched their leading indicators – sales, inventory supply chains and price points – won the day.
“The companies that didn’t have material or inventory on the shelves were dead in the water because people were just going to get them somewhere else,” Diebolt says. “Those who were strategizing their purchasing decisions and looking at leading indicators around market demand, were able to order product in time to meet the demand. The after-math of chain supply shortfalls left many businesses struggling to find product to sell. Some businesses were forced to pay higher costs, such as shipping, just to get the product to market,” Diebolt says.
Predicting those sales and trends is a salient point to get ahead of the game; lean on your sales reps or talk to your suppliers to understand where those future gains will be found.
“You need to tap into those resources, be proactive and reach out: ask how things are going out there in the marketplaces,” Diebolt says. “The sales reps are a great resource because they get to see what the other business people are doing when it comes to selling the same/similar product. And you need to have robust point-of-sales system and a robust reporting system that allows you to track and better interpret trends.”
When it comes to inventory, receivables and supply, businesses need to be agile. An acute and constant eye on inventory levels is key. Counting inventory once a year, for example, simply won’t work in most cases. Many growing businesses are capital constrained. Having paid deposits on back-ordered product overseas can cripple their ability to manage the growth.
“That business would have no idea what’s still there or how old it is, they don’t know where product is,” Diebolt says. “You’ve got to keep your inventory young and you have to turn it over, which means you have to have some strong inventory controls and creative ways of getting your inventory to market.”
Diebolt points to an example comparing two building supply companies: one allows you to pick through lumber at your leisure, while the other gets everything for you. The latter will almost always know exactly how much stock is on hand and where to find it, while the former could inevitably run into trouble.
“Weak inventory controls don’t let you understand how to manage your business,” Diebolt says.
In the event you’ve accumulated too much inventory and need it gone quickly, it’s likely time for a full-court press in the sales and advertising department - capitalize on the fact that big sales and big savings haven’t been the norm in recent years.
“You need to attract people to your store, you have to be a market leader, you have to advertise and,” Diebolt says. “Up until recently, people had not seen sales on the shelves in years.”
The issue of supply chain interruptions has been front and centre for two-plus years: stories of a couch taking a year to arrive on Vancouver Island from a warehouse in Quebec are no longer the exception to the rule, but an everyday reality.
Businesses that can afford to can choose to vertically integrate and potentially mitigate certain chain supply interruptions. Being able to design, manufacture and sell a product leaves you beholden to next to no one, and your risk is exponentially reduced.
“Or on the other hand, let’s say you forge relationships with good manufacturing businesses back east, to the extent you don’t have to invest a bunch of money to do it yourself, that’s a great alternative,” Diebolt says. “Ultimately, you need to have great systems and great processes.”
To learn more about Manning Elliott services, visit www.manningelliott.com.
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