Do More in 2009

As many of you know, I teach At the Illinois Institute of Technology.  Here’s a quote from Dr. Keith McKee, head of the Industrial Technology and Management Department, in his year end newsletter:

“The normal response to an economic crisis is to do less – drive less, consume less, …spend less, etc.  From a professional point of view, that is exactly the wrong action.  As the economy becomes more challenging, you will be best served by doing more.”

Most companies have spent the 4th quarter focused on reducing expenses and headcount.  I do not know of any company that has managed to shrink to greatness.  Here are some purchasing and inventory suggestions on how your company can DO MORE in the first quarter that will positively impact profitability:

  • Commodity prices have fallen dramatically.  There is excess capacity in many industries.  These represent big opportunities for Purchasing.  Has your company reviewed your raw material, component, and service prices to be sure all “escalators” have been removed? 
  • Some of your key suppliers might be at risk.  Have you met with their management to discuss their current business status (and yours) with the idea of collaborating more in 2009 to reduce total cost?
  • Have you had service or cost issues with any of your suppliers?  Now is an ideal time to seek out and develop business relationships with new companies.
  • Did you do a year-end physical inventory?  Perhaps it satisfied the auditors, but it did nothing to improve inventory accuracy.  Start cycle counting in the first quarter so you can avoid the cost of next year’s physical and really improve inventory accuracy.
  • How much excess and obsolete inventory did your company have at year-end?  It will cost at least 25% to carry that inventory through 2009.  There are several tactics that can be used to turn it into cash.
  • Have you reviewed the sales forecast with purchasing, inventory, and key suppliers?  What actions should be taken to avoid future excess inventory?

I have assisted many companies in acting upon these ideas and improving profitability as a result.  Yes, there is a cost to do that, but there is also a much larger cost to do nothing.  If you are concerned about your organization’s capability to deal with these topics, give me a call.  Let’s DO SOMETHING in 2009.

Please pass this newsletter on to others within or outside of your company who might find it useful.  If you do not want to receive future newsletters, reply accordingly.

Thanks for your interest.

Herb Shields

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