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Commentary: Cash is King. Control Expense. Focus.

The above is shaping up to be the theme for 2009. It's also the message so far from a strong response to a profitability survey MDM is conducting (see end of article for link if you haven't filled it out). We will have a full survey report (with participants' getting the first executive summary) in February, but I'd like to share a few early indicators, coupled with feedback on what we're hearing from distributors.

This first full week of 2009 brought more bad news for manufacturing globally. In the U.S., wage and hiring freezes are starting to go into effect for 2009. Many distributors are targeting cost reduction of 5-10 percent this year, including headcount, to match anticipated revenue drops. With shaky indicators starting off the year, many distributors expect this quarter to be a tough one. For many, sales held up until early December, then tapered off. In some sectors the phone stopped ringing in December.
The main hope this week is that this quarter is the trough and there will be some traction by the end of the quarter to start clawing back. I have not heard the bold prediction from anyone where that traction will materialize, except through harder work to strengthen efforts.
This part of the cycle is distinctly different than the recession six years ago. Today, the financial pipeline that helped fuel the freest flowing markets is frozen and tougher to thaw than most thought. One day the new global economy is the answer; the next it's the cause. Nearly every conversation includes a comment that this is an unprecedented time, filled with uncertainty and volatility.
So with these tough conditions, it would seem natural to find the biggest bunker mentality seen in a lifetime among distribution executives. But that's too easy. Based on initial survey response, there is an unprecedented focus on process improvement in many forms - improve inventory management, upgrade employee capabilities, weed out underperformers, increase technology investment, increase product/service development, increase outside sales, and many more.
Distributors are taking the traditional cash management and cost control steps to survive. But I think this cycle is developing a new generation of wholesale distribution management, seasoned by recent memory to recognize the opportunities to gain market share in the next two years. Degree of focus will likely separate winners and losers.

Your input is important. Please complete our Profitability Survey if you have not already by going to this link.

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