Improve Your Bottom Line In Tough Times
Ask yourself these questions as you pursue opportunities to increase revenue and control expenses and inventory.
October 12, 2011
The nursery industry has been hit with a 1-2-3 punch over the last five years. First, the advent of pay-by-scan, in which growers got paid when the consumer bought instead of when the store bought, created immediate losses on plants that died in the stores. Then the recession hit, driving down consumer demand for plants and shrubs. Finally, the weather this year created one of the most challenging growing seasons ever.
Each of these events has forced growers to focus more intently on controlling cash and inventory. For many growers, techniques to increase top-line revenue have also become a central focus. In this article, we will focus on the key opportunity areas for growers to increase revenue and control expenses and inventory.
The adage that it is easier to keep and expand an existing customer than create a new customer has never been more relevant than it is today. However, with the expectation that a significant number of growers may not survive the post-growing season, there will be opportunities for new accounts. Sales-force management will be critical to maintaining and expanding a grower’s customer base.
There are a number of key questions that must be answered as a foundation for a successful sales effort.
1 Do your salespeople know what you consider A-level performance? It is frequently the case that the expectations for and responsibilities of a salesperson are not well defined. Salespeople know they are supposed to keep the customer happy and keep sales at least at current levels, but activity expectations and precise targets are nebulous. If there is no goal set, it is frequently the case that far less is accomplished.
2 Do you have a sales plan that defines targets for each salesperson? In most industries, sales forces are guided by sales pipelines, which identify prospects, targets, hot targets and wins/losses for each salesperson. Because many salespeople in our industry are also account managers, pipelines are rarely used. However, sales pipelines are a valuable mechanism to drive new sales, even for existing customers.
3 Do you have a sales plan that defines and targets product sales based on margin, surplus inventory concerns and other factors? Again, while most industries target the sales the sales force makes based on optimal profitability, our industry traditionally has had a “pull” rather than “push” mentality. While it is vital to listen to customers and let them dictate what product they want (the customer “pull”), salespeople need to push product that optimizes profitability, particularly with pay-by-scan and the challenging economic environment. For example, the store may favor some products that tend to “die on the shelves,” but the salesperson is paid to sell product that brings the optimal profitability to the grower while keeping the customer happy.
4 Are your managers and salespeople getting enough face time with the customer? Salespeople do not always give the buyer the attention they deserve, and managers can also be guilty of forgetting the fact that store management really does want to have open and frequent access to and attention from them. Many customers have been lost simply due to an assumption that ”everything is fine” when problems can be nipped in the bud through more face time with the customer.
5 Can outside professionals help? There are consultants who can help, in particular, with access to the big box stores. Retention of such professionals may be useful for certain growers.
In general, however, sales management techniques are simple to teach. Assistance can be easily provided to growers who want to learn how to improve their sales.
There has never been a greater need for growers to have their arms strongly around cash and keep them that way. If cash is particularly tight, the standard 13-week cash flow should be used in a highly disciplined manner. A 13-week cash flow analysis projects expected “cash in” (i.e. payment on invoices and other receipts), as well as expected “cash out” (invoices and other payments that need to be made). When the analysis is tied to expected available cash on a line of credit as well as “float,” it allows a business owner or manager to know in advance when there will be a cash shortfall or excess cash.
Knowing when there will be a cash shortfall is, of course, critical. Equally important is knowing how to manage cash in the short term or increase cash in the longer term. Every grower should be focused on how the company is doing on a cash basis and concerned about EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) or earnings at this time.
There are several keys to increasing cash:
1 Connecting the sales plan to the production plan. In most industries, this connection is solid and unbreakable, but among growers there is often a disconnect between the two plans – if either of them exist at all. A grower does not need some fancy software to create and connect these plans. Templates can be created on Excel spreadsheets.
These plans need to be connected so the company grows the right product to meet its needs to optimize profitability and the store-level needs based on its customers’ demands. The grower must really begin to think and act like a retailer – what are sales per square foot, turns, product generating excess inventory, etc.? The production plan must be based on real sales data, not what a manager “likes to grow.”
2 Transportation costs. Obviously, in this era of high fuel prices, significant attention must be paid to transportation costs. Is this function centralized? How are shipping efficiencies being measured? Is there a plan to decrease transportation costs and how are you monitoring that it is being carried out? Often, the mere act of setting a goal and then understanding why it is not met can mean significant improvement to the bottom-line.
3 Raw Materials. Growers do not use a lot of raw material, but recycling materials and limiting use of soils, fertilizers and pots can make a big difference in profitability. For example, if the size of a pot can be reduced 10 percent, the savings can be significant on soils, fertilizers and plastic. In addition, centralization of the buying function and the leverage it creates can result in significant cost savings. At times, in-sourcing certain functions, such as soil mixing or propagation can result in savings.
4 Labor. Labor is the most significant cost for most growers, and controlling labor costs can have a great impact on profitability. There are several keys to decreasing labor costs. The starting point for reducing labor cost is a focus on creating a culture of continuous improvement that will vastly reduce labor needs. That culture is created by a respect for the worker and his knowledge of how jobs may be done more efficiently. This type of open culture creates more energized, efficient workers, which decreases needs for additional labor.
Once performance improvement techniques are identified, a clear map of the roles and responsibilities of each worker is needed. We are always amazed at how many workers are doing what they like to do the way they like to do it instead of what the company needs them to do.
Finally, once efficiencies are gained – and only when efficiencies are gained – should the company look at overtime and headcount reduction goals.
Virtually every grower is faced with a frustrating amount of excess inventory. With unexpected reductions in sales volumes, growers naturally have too much product and have the daunting task to avoid getting overwhelmed with slow-moving and obsolete inventory.
One of the best ways to reduce inventory is a weekly supply and demand report. This report shows how inventory will be drawn down each week and informs the production plan, as well as a specific selling plan, for aging inventory. After all, if you have not clearly identified the problem (i.e. what you need to sell) it is awfully difficult to fix it.
On a proactive basis, potential future excess inventory needs to be managed. What types of plants and shrubs are ending up in excess inventory? Why? What can be changed in production planning so that excess inventory is minimized?
The challenges on growers in today’s market are enormous. There is not one magic bullet to fix the problem. However, a growers’ cash position and profitability can be improved very quickly if he is given the tools and processes that will allow improvement in expense reductions and sales increases.
By addressing the issues set out in this article and ensuring blocking and tackling every day to achieve key company objectives, a grower can move from a position of distress to an industry leader who will benefit, instead of suffer, from the difficult economic climate.
Rob Steinberg is the director of TurnPoint Advisors, a consulting firm providing operational, financial and strategic guidance to companies facing operational and financial issues, restructuring and merger integration. Steinberg can be reached at email@example.com or 202-536-9083.