Drive Quality, Cost, and Delivery for a Happier 2012

Happy New Year to all. May 2012 be a year of health and prosperity to you and yours. May it also be a year of health and prosperity for our businesses.

As has been the case in the past few years, we like to reflect on the past year and provide a business theme for the coming year.

As we end 2011 and begin 2012, we note a few observations and news items form the past month that have shaped how we are looking at the new year:

As we were doing our holiday shopping we noticed that every single store, except The Apple Store, advertised discounts across the board. We were seeing a few such signs in early December when we were reading about the retailers being optimistic about the holiday season. Also the stores were open all kinds of hours opening at 6 am and closing at midnight. Retailers were aggressively vying for consumer traffic and dollars. They also wanted to move as much of their inventory as possible before the holiday and thus not have to discount it even more.

What were the results?

Early reports from the National Retail Federation say that 2011 holiday sales were 3.8% above the same in 2010. The increase in sales from 2009 to 2010 was 5.2%. The ten year average of year to year sales change is 2.6% 

A passion of ours is football both pro and college. Needless to say we have been in football heaven the past few weeks. In watching the games, we noticed something in the many automobile commercials aired during these games. Every company was offering either zero or .9% financing for either five or six years.

What were the results in year over year?

Needless to say, at 10.4 million, 2009 was the worst year of auto sales in the US since the early 1980s. Sales increased to 11.5 million in 2010 and are projected to be 12.7 million in 2011. 

The stock market ended the year about where it began a year ago. The market was not flat the whole year. It plunged in the summer due to two factors. First the US Congress was unable to approve increasing the Federal Debt. This was followed by the crisis in Greece which quickly became a crisis in all of Europe. The market slid because of a dearth of confidence in the US Government and a fear that Europe would drag the world back into recession. The market recovered in the last four or five months of the year.

What does all this mean for 2012?

Consumer confidence in the economy is still tenuous. There are articles in the press quoting experts saying just that. Yet, these consumers were enticed to buy more holiday gifts and autos. We also read that value investors led by the famous Oracle of Omaha, Warren Buffet, are buying. There are enough values to make them bullish about the market. It has been noted that consumer confidence is the last measure to turn in a recovery. There are also rumbles that the China juggernaut might be the next economy to suffer. It would not surprise us if it is decided that they have, of late, been in a real estate bubble. It that is true and the bubble bursts this year, what will that mean for our businesses? Will they have to revalue their currency? The trend has been for import prices to increase.

From the US Bureau of Labor Statistics, we learned that from November 2009 to November 2010, import prices for non-fuel products increase 3%. In the past year, the increase was 3.8%. The increase in imported fuel products has been more dramatic: 8% from November 2009 to November 2010 and a whopping 31% from November of 2010 to November of 2011.

For us, at Cadent Resources, we are optimistic for continued growth. The recovery is not robust, it is not go-go like previous recoveries have been. The new-new we have been blogging about for two years definitely seems like the norm now. The US is now a nation with a much smaller middle class and thus a country with less spending money. Consumers will spend but they must feel they are getting value if not a real bargain. This sentiment is this is the business environment we all must operate in going forward. Growth is possible but the growth comes like the retailers and auto companies have done. We have to scrape and fight to gain new sales. We have to offer low prices and high service. This means 2012 has to be a year of focusing even more on improving productivity and customer service.

This means we have to seriously look at and improve our supply chains.

1. Improve Customer Service: We must aggressively focus on improving our service to retain current customer, get current customers to increase their spend with us, and to attract new customers. 


2. Improve Planning and Inventory Management: If you do not have Sales & Operations Planning, or something akin, working effectively. Your supply chain is inefficient. You have the wrong size and mix of inventory. If you are managing an international supply chain, and really most of us are, this is critical. This is an on-going continuous improvement process. 


3. Reduce lead times: American industry in general has been reducing costs by off-shoring for at least the past decade. Reduced costs came at the expense of increased lead times. For the first time, we are suggesting to look for and qualify sources closer to your markets. If the total delivered cost can be maintained or reduced and the lead times significantly reduced, that will help immensely in the above two points: Improving Customer Service and Planning/Inventory Management. Of course, this strategy is dependent on what happens to fuel prices and, even more so, what happens to the Chinese economy. 

It is all about Quality, Cost, and Delivery (QCD). If you can be equal to your competitors in two of the three and surpass them in the third, you have a leverage point to entice customers. If you are superior to your competition in two of the three or all three, even better. We all want the same thing. We want to be the Apple Store in the mall:

• The store with the most traffic. 


• The company that has such a high level of Quality and Service that discounts to drive business are unnecessary. 

Make 2012 the year to work on QCD. Continually improve S&OP and reduce lead times so you can attract new customers and improve the loyalty of existing customers.

Best regards,

Ara Surenian
Mark Gavoor