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What Should Manufacturers Be Thinking with Potential Tax Changes?

December 11th, 2017

There has certainly been a lot of conversation about the potential tax law changes!

 Michael Kouyoumdjian, managing shareholder of RP&B CPAs, did a great job of going through the potential changes and impacts to manufacturers and distributors in a discussion with trusted advisers who work with them everyday.  Of course the issue is that there is no way to know what will happen.  But, if we look at what is most likely to occur (that is part of the House and Senate bills), we can start thinking about down-the-line impacts.

 

 

Decreasing Tax Rates and Accelerating Expenses
The bottom line is that the tax rates for manufacturers and distributors will go down overall.  It has passed as a flat tax of 20% thus far.  However, it certainly has the potential to creep up.  It also appears that there will be an increase in the ability to expense asset purchases.  Of course, as one would expect, there are exceptions and offsets that will change this simplistic picture but these trends appear likely.  Are you thinking about what impacts these likely changes will have on your business?

What Should We Consider and/or What Impacts Could Arise?
As Michael said (and I completely concur), we should never run our businesses based on tax consequences. Instead, we should make good business decisions.  That doesn’t mean we shouldn’t be thinking about likely impacts so that we are ready to take advantage of opportunities and redeploy resources as makes sense to maximize growth and profitability.  As a general rule, it is likely businesses will increase their investments, so let’s start there.

Investing in Automation
Since there is also a BIG push on automation and robotics to maximize performance to increase profitability and locate manufacturing closer to the customer, it seems likely that one of the areas of investment will be in automation equipment.  Additionally, in order to maximize performance, we are seeing additional investment in systems and technologies to increase efficiencies, automate processes and collaborate with supply chain partners.  Thus, ERP, CRM, MRP, barcoding, artificial intelligence, IoT, and data analytics are likely to continue to surge in terms of interest and investment.  Also, if businesses can minimize the labor component and locate manufacturing closer to the customer, it wouldn’t be surprising if we saw an increase in re-shoring and U.S. manufacturing.  What will that do to your supply base, workforce etc.?

Have you begun planning for the impact of tax changes?



Are You Leveraging ERP Fully?

December 10th, 2017

LMA Consulting Group elevates business performance.80% of our clients only utilize 20% of their ERP system, and they are not alone.  So, if this is common across typical companies, why do so many of them call to throw out their current system and find one that will resolve their challenges?  It’s a good question!   

Changing Systems and Keeping Service Levels
When clients call with this dilemma, we make sure pursuing a new ERP system makes sense.  It is NO easy initiative to change systems and keep customer service levels intact.  It requires a significant outlay of funds to not only purchase the system but also to implement.  Contrary to popular belief, the software cost is SMALL in comparison to the implementation cost.  Thus it pays to take a second look at whether it would make sense to more fully leverage your ERP system.

There are some situations that dictate an upgraded ERP system.  For example, a few include the following: a recent merger or acquisition; an outdated, unsupported system; a highly customized system that isn’t scalable (and/or dependent on key resources); a system such as QuickBooks that easy to outgrow…  It pays to take another look regardless, but especially at the rest of the scenarios that arise.  Are there ways to leverage your ERP system more fully?  Most importantly, can you leverage the system to support your customer and profit differentiators?  What could you learn from the user group community?  LinkedIn can provide some answers.  

Is it time to take another look at your ERP system?
In our consulting practice, we have seen a few examples of ERP systems that were “hard to imagine” in terms of being outdated and non-functional in terms of basic business tenets.  Even in these situations, there were opportunities to further leverage the ERP system to achieve business outcomes while pursuing an upgrade.  Why not take a second look?  Even if you are above average, you likely have 50-70% opportunity to expand functionality.

Improvement in service levels alone can make a second look well worthwhile.



Is Your Supply Chain Ready for Growth?

December 9th, 2017

Recently, we worked with a large, complex organization to provide an external assessment of the supply chain organization and how well it was prepared to support scalable growth.  It reminded us of the value of taking an outside view every now and then.  Whether you take yourself outside of your organization, hire a consultant or ask an executive from another division or trusted customer to take a deep dive into your organization, you’ll likely wind up with a few ideas – or, at a minimum, a confirmation that your i’s are dotted and t’s are crossed and ready for growth.

Growth has many challenges
It is MUCH easier to downsize than it is to grow successfully.  NOT more pleasant but it is simpler to cut back.  Unfortunately, we are all too familiar with this exercise.  Yet growth has many of the same challenges:

Cash is a constant challenge – by virtue of growing rapidly, you spend money in advance of shipping and receiving payment.  The quicker you grow, the tougher it can be without a line of credit especially for a smaller organization.

  • Are your people ready for growth?  What “used to work” might no longer be sufficient.  Have you prepared for these needs?
  • Can your operations keep up?  Do you have the resources, equipment, and support resources?
  • Suppliers are likely to be ill prepared unless they are in lock step with your growth plans.  Regardless of the preparedness of your team, nothing will occur unless your supply chain is aligned.
  • If caught by surprise, you can certainly throw resources at the issue but to achieve scalable growth, you should have thought about your processes, systems, metrics and more.  For example, determining that you’ve outgrown your ERP system as you “hit the wall” is too late.  It will take time to select the best system for your needs AND it will take between 6 months to 18 months to implement, depending on your size, complexity, ERP partner, scope etc.

Growth is a hot topic.  For example, according to our recent Supply Chain Briefing, McKinsey predicts 20% manufacturing growth by 2025.  However, regardless of your industry, if your company isn’t growing, it is dying.  We have NEVER seen an organization “stand still” and “maintain” successfully.  Have you?  Thus, growth is core to success.  

Plan or After-Thought
The key is whether it is a plan or an after-thought.  Which is it for you and your organization?

 



Keep a Strategic Eye

December 8th, 2017

observation

 

The verdict is in – those executives that keep a continual eye on strategy outperform the rest.

Certainly, after spending a week in Fiji thinking about strategy, I am focused on the power of keeping a strategic eye at all times.  It is undoubtedly what our most successful clients do. We have learned to keep an eye on what “works” across organization sizes, industry types, and more. 

Recently, we were in a final project review meeting with a large, complex organization’s CEO, and he continually kept an eye on strategy. As much as he appreciated the tactical results, the strategic conversation was top of mind. It was a night and day difference to another client review meeting we participated in recently. There is no doubt which organization would make the better investment – not just in terms of cash but also in terms of referrals of resources. Top talent is attracted to top talent with an eye to the future.

We also met with a potential client recently who is vastly smaller in size than both of the above examples yet he had an eye to strategy and was willing to invest in the “right” talent to ensure his strategy translated into reality. This conversation engaged our interest in collaborating with him because we know the focus would be on outcomes that tie to strategy instead of deliverables that might have no relation to a result.

Are you engaging your employees, customers, suppliers and trusted advisers with an eye to strategy?

 



Who Should You Follow?

December 7th, 2017

Strong leadership will guide you to choose wisely
Several situations have arisen recently that leads us to plead “choose wisely”.  Examples abound on both sides of this topic.  Strong leaders attract top talent.  Weak and command and control leaders keep the weak and those close to retirement (in name only).  That is one of the things we love about being consultants – we have a wide view, across many organizations with vastly different personalities; thus, strong leadership is as obvious as a purple cow (to use a Seth Godin reference).

Pay attention to your employees
To your employees, leadership effectiveness is as obvious as a purple cow, even if it doesn’t stand out to anyone else.  Pay attention to how your employees react to their leaders.  Are they energized or beaten down?  One good question is as follows – if the phone rings at 5:05pm, would they pick it up, thinking it might be a customer with a question?  Or will they ignore it and instead put their efforts into a CYA type activity?  

Who will you go to for top notch service ?
In today’s Amazon-impacted marketplace, customers appreciate suppliers and advisers who will go the extra mile to provide that above and beyond service.  Just put yourself in their shoes.  Who would you rather go to for products and service – whether or not the ‘boss’ is there to make sure you receive top notch service?  Someone you know will help you regardless of what it does for their career or someone who is out for their self-interest?  

Remember, people work for and buy from people – not companies.