The 2020 Mid-Year Economic Update_long

Day: October 10, 2010

Facing the Perfect Storm

The precarious position of companies serving residential construction markets was made even worse in late 2008 by the turmoil in the financial markets. For Western Tool Supply, a distributor, and STO Industries, a fastener importer, it meant having to file for Ch. 11 bankruptcy protection so they could meet their obligations and restructure. In this article, the companies tell their stories. MDM also examines bankruptcy trends and the impact of bankruptcies on the distribution channel.

For Kevin Kiker, closing down or even selling the company he founded more than two decades ago was not an option.

When the housing market crashed, and the credit crisis hit, Kiker had little choice but to file for Ch. 11 bankruptcy protection last year to save what he could of Salem, OR-based Western Tool Supply, a tool and fastener distributor. “It never crossed my mind to give up,” he says.

The task would be no small feat. At its peak, his company had grown to 75 branches in the U.S. and Canada. But due to the credit crisis and weak cash flow, bills were coming due from landlords, banks, and other vendors.

Kiker knew he had to restructure the business, or the business would not make it. “It was excruciating,” he says.

Interview: Factors that Contribute to Success in Ch. 11 Bankruptcy

MDM spoke with Howard Levine, partner at Sussman Shank LLC in Portland, OR, and attorney for Western Tool Supply in its reorganization through Ch. 11 bankruptcy. He spoke about the process and what factors make success more probable.

MDM: Provide an overview of what it means when a company files for Ch. 11 bankruptcy protection.

Howard Levine: The bankruptcy code is simply a tool that’s available to companies in financial distress that empowers the company with certain provisions of the law to change agreements that it has with its creditors. In its simplest form that is what bankruptcy is. What Ch. 11 does to a large extent is changes the leverage between the debtor and its creditors.

In Ch. 11 the idea is that the creditor and debtor are supposed to get together and figure out a business solution to their problems. In my view, it’s a shared problem.

Commentary: A Case for Contingency Planning

If your company has no room for improvement in either benchmarking or contingency planning, then read no further. You have your priorities defined and are well-positioned to negotiate the next few years of volatility. I’m oversimplifying of course, but I believe the next 12-24 months will reshape many distribution sectors and markets. Here are a few reasons why.

As industry groups dive back into the fall meeting schedule, there is a sense of optimism not seen the past few years. But the pattern is tracking pretty closely to what we’ve heard from economist Dr. Adam Fein and others who track industrial markets closely. The rebound is sluggish and has the potential to stay so for a few years. A weak recovery doesn’t feel very good, as we all are finding out, but it beats what just happened.

MDM Interview: Common Pitfalls with VMI

The weak economy has led to more companies looking for new ways to improve their bottom lines. Vendor Managed Inventory has been growing in popularity, but according to Thomas A. Kozak, president of Pan-Pro LLC, it is also easy to do wrong. Kozak spoke with MDM about how to avoid the common pitfalls.

Kozak recently presented “10 Ways to Not Benefit from VMI Programs” at the 2010 IDEA E-Biz Forum, sharing lessons from his 36 years in supply channel optimization.

MDM: How do you explain VMI in practical, concrete terms?

Thomas A. Kozak: VMI is defined as everything from putting a supplier’s employee in place at a customer to write orders to moving ERP calculations from the distributor to the supplier or an outsourced cloud, all the way to advanced Supply Channel Optimization (SCO).

In my presentation at IDEA, I defined VMI with a beautifully crafted message where every word has significant meaning, and it tells Pan-Pro’s approach to Supply Channel Optimization.

But in practical, concrete terms, VMI is eliminating work, not automating it.