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Business Practices for a Down Economy

What are you doing to prepare and respond to the forecasted economic conditions?
                                                                        
– Scott George, Rental Manager
                                                                                     Toyota Forklifts of Atlanta (Scottdale, GA)

Jack Phelan: Take a look at your product mix. Some product offerings are more profitable than others, and greater focus on these more profitable offerings can increase your company’s overall gross margins. With less capital available for purchases, also look at what opportunities are created by harder economic times. For example, a company that might not be able to purchase a lift truck could fill its needs by renting one. These times should create more parts and service business as well, since companies will be holding onto existing equipment a little bit longer.

Duncan Murphy: Whenever media pessimism is everywhere, a dealer friend wears a T-shirt that says, “We refuse to participate in this recession.” Too much of what is covered is macro and does not pertain to an individual marketplace. You need to have metrics you can review that will provide indicators of what is happening in your back yard. Specifically in rental, measure your dollar utilization and see which way it is trending. A good range is 75 percent to 85 percent. If you think your market is slipping, keep your fleet sized accordingly. If utilization is moving up, add a few. If you are uncertain, keep your acquisition costs and depreciation down by holding units longer or adding used units, not new. (Now I am in trouble with the truck manufacturers!) To develop new markets, look for users who are recession-proof or who grow faster than the market on the upswing. The bottom line is, know your market, watch your metrics, think and then act. Do not sit still and let the story unfold, leaving you behind the curve.

Chuck Frank: We are monitoring economic conditions and talking to several of our customers to fully understand the economy’s impact on their businesses and how it has affected their short-term and long-term plans. We remain focused on transforming our organization to offer more of the services our clients need to remain competitive in tough times, with a focus on minimizing their capital expenditures and emphases on ROI and justification. We are monitoring our opportunity pipeline with visibility out 12 months. We have ongoing discussions with our business partners, seeking a pulse on their perspective of the industry and global trends. We continue to monitor our team’s strength, asking our team members to do more, focus on continuing education and, as important, taking advantage of technology allowing us to do more with less. We are conducting in-depth conversations with our customers, doing all we can to qualify each opportunity, educating them as to the resources we will assign to their project along with forecasted financial commitments to provide the solutions and results they expect and deserve. In return, we ask them to assist us in setting the probability and feasibility of the project moving to implementation, which allows us to better forecast our resource requirements and ultimately control our fixed expenses.

Richard Donnelly: We first review the economic indicators and determine what affect they have on the four major areas of our business—sales, rentals, parts and service. We put together different budgets by department based on those economical assumptions. For example, what is your budget if sales decrease 10%, 15% or 20%? We review these budgets and determine what adjustments we need to make. Prior to making any changes, we evaluate the short-term versus long-term impact on the company. For example, if you reduce your sales force, what effect will it have when the economy recovers? If you reduce your rental fleet, what sources do you have for future used equipment sales?

You need to establish what is critical to the success of your company, short term and long term, and take the necessary steps. Look at your expenses to determine what can be reduced or eliminated. Ask for input from your associates for ways to improve processes and reduce expenses. Analyze the aging of your machine and parts inventory and reduce any old stock. Determine what the financial utilization by size should be for your rental fleet and reduce the inventory to meet those numbers. Before adding to your rental fleet, consider re-renting from an adjacent dealer who represents the same product. Review the performance of your associates and eliminate any marginal or poor performers.

The last action you want to take is to reduce pay to your associates. If you feel you need to reduce salaries, you might consider establishing a profit objective. If you exceed the objective, you would share the excess with the employees. This establishes a common goal for everyone and each shares in the rewards if the company performs better than forecasted.

Kevin Katona: Since our customer base is largely food processing, which is fairly resistant to economic slowdowns, we are not planning any major changes. That customer base will reduce capital spending in slow times, but not nearly as much as other industries. We are always looking for ways to make operations leaner, though we do not anticipate work force or inventory reductions. The training time for most employees is too significant and the psychological effects on the remaining employees can be extremely demoralizing. We are evaluating our inventory for slow-turn items but do not plan to reduce stock levels for most products. Having stock on the floor allows us to get orders that might otherwise be lost to competitors. In most cases, the potential lost sale outweighs the cost of holding the inventory. We are planning for more training of our employees in sales, customer service and technology. Business will be available for those companies that can show customers how to increase production or cut costs through smart investments. Great customer service creates opportunities for growth and we are always working on ways to improve. Our employees need education and training to do this.

We always try to keep our employees informed on any changes we make so that morale is not shaken. During the post-9/11 period, our employees helped to brainstorm ways to overcome the down cycle. We plan to keep in close contact with customers, too. Reducing the overhead expense of sales calls may be tempting, but staying close to customers and understanding their needs clearly may be the very thing that keeps our business healthy. We are discussing possible opportunities that may arise from a downturn. This could include purchasing a competitor or hiring outstanding employees that may become available. Stay positive and be flexible in what the marketplace brings your way.

Dave Reder: We are expecting 2008 to be flat compared to 2007, so we are not making any dramatic adjustments to our plan. If we see a real change for the worse in business conditions in 2008, then we will have some contingency plans that will focus on cost controls, which is the only real area we can directly control.

Ken Shaw: It is up to management to keep the troops motivated and forging ahead. We have communicated to our employees that we will not let ourselves become victims of the economy. We may not get any lucky breaks over the next few months, so we need to work that much harder and smarter to increase our odds of securing as much business as possible. It is important that we focus on the basics and not be distracted with the “doom and gloom” communicated by the media. It has become a habit to monitor expenses and keep them in line with the volume of business that is in the pipeline, but we need to make sure that we don’t cut too deeply and undo the fundamental “Sales 101” tasks that keep opportunities flowing in. We also leverage technology tools to identify industries or market segments that may not be as affected by the downturn as others are. There is no magic bullet to beat the economy, so dig in and make sure you focus on what is important for your business to succeed.

Jerry Weidmann: To prepare for a downturn, we reduce expenses, match staffing to revenues and establish marketing programs to increase market share in parts, service, rental, allied lines, and new and used trucks to offset declines in our core business. We monitor economic conditions and forecasts on a monthly basis. At our monthly corporate staff meeting, we review our financial performance and compare it to forecasted economic conditions, enabling us in a downturn to constrain capital investments, reduce inventories and modify staffing levels in the face of falling demand.

At the beginning of 2nd Quarter 2007, we advised our managers to be conservative in the face of a predicted slowdown in demand. We reduced our equipment inventory targets for new and used equipment and established a hiring freeze on administrative positions. We reviewed our criteria for capital investments and reduced the payback period. In 3rd Quarter 2007, we established an administrative overtime reduction program whereby our HR department reviews all administrative overtime on a weekly basis and managers are required to justify administrative overtime.

Our rental demand has recently softened. We are reducing our rental fleet size such that we will attain 70 percent utilization for 2008. The 2008 ITA forecast for our market is expected to be lower. We adjusted our sales staff to match the coverage standard of 250 units per capital equipment salesperson. 

We established marketing programs intended to increase sales regardless of economic conditions. We introduced incentive pay programs to our customer service reps that will increase their pay for equipment surveys, scheduled maintenance agreements, fork sales and tire sales. We introduced an online customer-specific allied line catalog to drive allied line sales from our major accounts. We introduced an online parts ordering system for key target accounts. We hired a specialist in wholesale used equipment to make sure we wholesale equipment we do not wish to retail in a timely manner, keeping our inventory low. He will source used trucks for our sales staff to retail. During a downturn, used truck sales can increase and make up for reduced gross margins on new equipment.

Material Handling Equipment Distributors Association

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