August has been a hot month. And I’m not just talking about the heat and humidity here in Raleigh, North Carolina. I’m also referring to the talk about economic recovery and all the predictions of when the recession will finally end. Here’s a quick recap of the summer, as well as some tools to figure out when your industry’s comeback will occur.

In May, there were improvements in various areas of the economy, including CEO confidence. June saw a rise in durable goods orders, which is continuing. July saw reports that housing and automotive were becoming more stable. August (as the month winds down) is a little different, as I think patience is starting to wear thin. The U.S. government stimulus hasn’t played out as planned, and consumers and investors are still a bit unsure.

As September begins, we are asking ourselves: What is the reality of the situation now, and what can companies that are currently in the midst of budget planning for 2010 expect for the future? In a podcast series that I recently finished, I decipher all of the news and the facts about the recession and establish a foundation for business leaders to plan for their return to recovery, prosperity and growth (i.e.,The Great Comeback).

Economists being quoted in the news today are reporting what is happening within the entire macro economy. But how the macro economy is performing is not nearly as relevant as the bottoming-out and recovery that your company’s industry will experience. The question is not, "When will the economy recover?" Instead, it is, "When will my industry recover?" The question is also not, "What shape will the recovery take – a U, a V or a W? No, it is "What shape will the recovery of my industry take?" One size does not fit all in this Great Comeback.

Download these podcasts and listen on your ride in to work or on your mp3 player at the gym and get a jump on your company’s Comeback Planning. Or if you prefer, text transcripts are also available.

The Great Comeback, Part One: Responding to the Recession
http://www.tompkinsinc.com/podcast/transcripts/7-7-09_podcast22_great_comeback1.asp

The Great Comeback, Part Two: Five Steps to Recovery and Growth
http://www.tompkinsinc.com/podcast/transcripts/7-21-09_podcast23_great_comeback2.asp

The Great Comeback, Part Three: Your Recession Recovery Timeframe
http://www.tompkinsinc.com/podcast/transcripts/8-4-09_podcast24_great_comeback3.asp

The Great Comeback, Part Four: An Economic Update
http://www.tompkinsinc.com/podcast/transcripts/8-18-09_podcast25_greatcomeback4.asp

GO!GO!GO!

Jim

That old saying "All bets are off" seems to apply in more than a few situations these days, especially when it comes to predicting anything with any certainty in business. Due to the recession's effects on most all industries, inventory management is like walking the razor's edge.

Demand is a concept that even the most seasoned supply chain managers must guess at in many circumstances. In part, this is due to consumers' unpredictable purchasing habits and the US government's economic stimulus getting placed into savings accounts instead of being used for purchases as intended.

Inventory costs money to have on hand. As a way of managing those inventory costs, some companies slashed inventory as the recession's impact grew deeper and deeper in the past two quarters of this year and late last year.

For suppliers during this recession, having enough raw material, works in progress, or finished products on hand to fill customer orders has been difficult and potentially costly, especially as demand was tougher than ever to predict. Buyers who purchase inventory from suppliers found that there wasn't enough available to stock their retail shelves.

Sectors that are starting to recover from the recession – such as necessities like pharmaceuticals, food and beverage, and inexpensive consumer electronics – are finding that although customers are coming in the door, their inventories and the inventories of the partners they buy from don't support the demand due to its unpredictability. And often, what consumers are finding is that the shelf is empty when they are ready to buy.

Now as signs are pointing to an economic recovery, I wonder if it's not time for a refresher on inventory management? Every once in a while in this blog, I choose a piece of jargon we use in our lives every day and look at its true meaning, which can get lost from over-use and misuse over time. "Inventory management" is my pick this month.

Examining the meaning of the phrase 'inventory management' might be revealing of the state this economic mess has left some companies' inventories in and what can be done to plan ahead for even more changes that are on the way. We know what the phrase means now, but how is the meaning going to change as the unpredictable markets affect demand planning?

In the immediate past, the recession created a situation where "inventory management" seemed to be spelled "cut, cut, cut." Cutting costs, through the reduction of inventory and other means, was being done across the board without enough forethought.

In the face of the economic downturn, the advice we gave our clients was to maintain talent, maintain business strategy, and cut all other costs. Doing so strengthens the company and helps with recovery, along with growth and prosperity once the recession ends. In terms of inventory cost reduction, we recommended that companies consider selling inventory sooner, holding less of it, owning less of what is being held, reducing inventory holding costs, planning demand more effectively, measuring all progress, and as a final effort, liquidating if needed.

Stocks are running low, and some companies are in a place to increase inventory now. As you plan inventory levels, consider that the question isn't, "When will the economy recover?" Instead, ask, "When will my industry recover?" Certain sectors are set to recover or are recovering now from the recession. Your inventory management techniques will be affected by the bottoming out of your industry. See the table below on when certain sectors will recover:

Inventory management will also be affected by the nature of the post-recession consumer. The consumer today is significantly changed and still uncertain. Reports show that people are putting more money into savings than they have since 1993.

Consumer confidence is still unsteady. Even the markets themselves are worried and distrustful of news of that the economy is rebounding, so you can imagine how the consumer feels. But this is not true of all sectors, as the table above shows, where the buying is already starting and where it’s set to start up in upcoming quarters.

Apply a fresh perspective to inventory management best practices and consider the new forces that will affect it. After all, it’ll be the holidays soon, and the last thing anyone wants then, consumers included, is the dreaded stock-out.

How is your company managing inventory differently these days? What are your plans in the near future?

It's no secret that the recession has frozen private equity firms' urges to launch the mega-deals that they were doing less than a year ago. Even with improvements in the stock market and economic indicators, these firms are still paying less attention to acquiring companies and more attention to improving the companies that they took over in the boom years.

A survey earlier this year by the Association for Corporate Growth, a buyout industry group for consultants, found that 89% of private-equity executives said they were planning on spending a lot more time than before focusing on their portfolio companies. So supply chains have moved from a supporting role to a starring role in the minds of private equity executives.

Is this a bad thing? Definitely not! This is really a good thing for the companies under the firms' umbrellas, and ultimately for the private equity firms. They are beginning to look closely at the supply chains of the companies they hold – asking critical questions such as, how can we streamline operations, how can we pool supplier orders and cut costs, and how can we add value by outsourcing non-core activities?

Some of the main areas firms should consider when answering supply chain questions include:

Inventory optimization

Distribution center optimization

Logistics network optimization

Customer service and value analysis

Transportation optimization

Strategic operations planning

Strategic sourcing and procurement

Equipment selection, integration, and installation

System selection and implementation

Global sourcing and security

Logistics service partner selection

New market penetration strategies

Validation and regulatory compliance

Green initiatives

Before the economic downturn, the majority of private equity firms discouraged anything more than tactical cost reductions among their portfolio companies. Now, they are throwing away the scissors and picking up the stethoscope and scalpel to diagnose, and then operate on supply chains within their organizations. From this perspective, the Great Recession has contributed significantly to the understanding and impact of the supply chain.

Private equity firms are realizing that supply chain excellence equals added value and a better return on investment. They should keep this thought in mind during the good times as well as the bad times, as should we all.

GO! GO! GO!

What’s the first thing you think about when someone says the word "core"? Maybe you think about an apple core. Maybe you think about the core of the Earth. Or, maybe you think about the core of your body, which sometimes bulges and could use some work in the gym.

Well, keep that last thought in mind when you are thinking about supply chain core benchmarks. Just as it is important to exercise the core of your body, it is also important to shape up the core processes of your supply chain.

However, as most doctors and nutrition experts say, "it’s not just about trimming the excess fat; it’s about being healthy." As a supply chain expert, I say the same thing. You have to know the best [strategic] plan and [action] routine that fits you. That’s what core supply chain benchmarks are all about.

The Supply Chain Consortium recently published its annual members-only report, which focuses on the benchmarks and best practices of core supply chain practices and processes – financial, supply chain planning, sourcing, transportation, distribution, manufacturing and technology. Click here to learn more about joining for free and other membership opportunities.

What the Consortium found was no big surprise – supply chain costs are steadily increasing over time, despite concerted efforts by companies to hold the line. All companies surveyed had varying views about how important the metric of supply chain cost as a percentage of revenue is to performance, but all agree that it must take some priority. See how various industries rate supply chain cost in the chart below.

As Bruce Tompkins, Executive Director of the Consortium says in the report, "The point of benchmarking is to use data to help identify specific, actionable tactics for improvements which align with your company’s goals."

So true! That is, you first need to know your company’s goals. Then, you need to know where your company stands compared to others in the same industry. You can accomplish this by using benchmark data to help you discover which areas need improvement and learning what practices top-performing companies are utilizing to be successful. Once you have all this in place, implement a plan that best fits the needs of your company.

It all starts with the basics. Think of core benchmarks as being at the center of your supply chain universe. Embrace these critically important measures of success and watch what happens with your "waste" line. You will likely find some areas of your supply chain where you can cut costs and improve performance.

So make sure your supply chain is fit and healthy. Now I think I will go to the gym and try to work on my own core.

Go!Go!Go!

Jim

My niece Sandy, who graduated in June, told you about her job search a few months ago and what she was learning from it all. I’ve asked her to update us on her progress and plans for the future. Even though economic recovery is happening now in the form of the Great Comeback, the job situation is still really tough out there. For now, Sandy is interning at Tompkins Associates and gaining some valuable experience.

- Jim

The beginning of August has always signaled to me the need to prepare for school. You know, time to shop for pens, paper, books and new clothes. It’s been the same routine for the last 16 years of my life. But this year is different. I have finished with school and now should be starting a full-time job.

No more summers off or long vacations around the winter holiday. I’ve always loved those wonderful breaks from the hustle and bustle of school life, but I am ready to give them up and start my career. This is the thrill of victory – graduating and on the verge of starting a fulfilling career.

My previous post described how my career search became a job hunt. I graduated from North Carolina State University in June with a degree in Business Management (operations concentration) and have been searching job websites and sending out resumes like crazy. Unfortunately, jobs are very hard to find these days. I’ve found that I have the education but not the experience to land a good job. This is the agony of defeat – not being able to launch my career as I feel I should be able to do at this point.

So what are my options?

I can continue my seemingly fruitless job search or try a different route. My thinking is that I can avoid the job market until it has more fully recovered from the current recession. Where can I go to escape the dismal job market? That’s easy. Back To School. I’m considering going back to school for an MBA.

Problem solved, right? Not completely. There are few things standing in my way. My lack of work experience may hinder my ability to get into a good MBA program. Many programs require that applicants work for a couple of years before applying.

I also have to decide what program and concentration I want to pursue. What about an online program? I’m not sure how online degrees are viewed by organizations. Are they as good as the more traditional programs? What do you think about online programs? If they are accredited, are they accepted as readily as more traditional campus programs, or do you think they have a stigma attached where online degrees aren't perceived as being on the same level as a traditional program?

For now I’m studying to take the GMAT and researching the different programs. If I hurry I can apply for the spring semester. Wish me luck as I explore a different route toward my career goals! And if you have any advice, please pass it on to me.

I asked Steve Simonson, a partner with Tompkins Associates and an expert in food logistics, to talk about the upsurge in private label brands. Here is his take.

--- Jim 

Every week, there are news reports and blog chatterings about how consumers are "trading down" to private brands in this difficult economy. The growth of private labels has been interesting to watch. Just look at Costco, Target, Wal-Mart, Kroger, Albertsons, Safeway, Food Lion, Trader Joe's, Central Market, Wegmans, Wild Oats . . . and this is just a sampling.

It is true that the recession has tightened household budgets and American consumers are increasingly choosing private labels over major brands. Shoppers worried by job insecurity, decimated retirement plans and the downturn in the housing market are growing increasingly price sensitive. But shoppers – including upper-income consumers who are buying private brand grocery products – may not feel as if they are "trading down" at all, but instead believe they are buying smarter.

I think that this recession will change the way consumers shop long after the recovery’s impact has spread. Private label sales have historically increased at a greater rate during a recession than they decline in a recovery. The perceived value and quality of private label products is a major factor in influencing consumers to switch from major brands to private labels. And the comparison of private label products to brand products is a very important part of buying smarter. When consumers find little quality difference between private label and major brand products, there is a reduced necessity to return to former brands once the economy recovers.

Unlike other recessionary periods, the private label products now on offer are not just cheap imitations of familiar brands. Store brands are striving not only to keep up with, but also to surpass, their branded rivals in terms of innovation, bringing a new focus on ingredients for health and wellness in particular.

Apart from private label products competing on the health and wellness ingredients front, the economic uncertainty has had a big effect on other forms of innovation in the food and beverage sector. This is not simply because shoppers are "trading down" from their favorite brands, but because they are buying more premium in-home meals as they cut down on eating out. It has also been shown that folks are buying more lunch products, such as private label soups, for eating in the office instead of eating lunch out.

Responding to this trend, private label is increasingly providing upscale products that promise quality ingredients. Since the 1970s, private label products have increased in quality to a level that many consumers find acceptable. So although 75% to 85% of grocery sales still come from branded products, private label has increased their presence in the past year and gained a greater share of the consumer’s confidence.

What does the future hold? Although it is clear that "The Great Comeback," as we call it around here, has already begun, we can expect continued growth in the private label sales of the grocery industry for 2009 and for the foreseeable future. According to a recent news release, Kroger Co., the largest U.S. grocery-store chain, said that it generates 27 percent of its sales revenue from its exclusive Kroger brands. And according to an industry spokesperson, U.S. sales of private-label food rose 10% in 2008, while branded products squeaked out a sales gain of 2.8%. That’s a big difference any way you slice it!

Government estimates released last week show that the economy shrank by only 1 percent in the three months that ended in June — a much smaller decline than the 6.4 percent plunge in the previous quarter. I know … whoever thought that we’d be excited about a negative number? But this really is good news, and most agree that the worst is behind us. Of course, we need for this recovery to be supported by sustained consumer spending.

As I was reading this good news, I thought about the most enlightening conversation that I had with a taxi driver in Washington, DC, last week. This gentleman certainly had a lot of wisdom and experience when it comes to the economy and what really makes it tick. Simple but true words.

I was leaving the Department of Treasury and heading over to the Ronald Regan building. As soon as I slid into the taxi, the man said in a booming voice, "Good afternoon! How are you doing young man?" Well, I was of course surprised that he would be calling me "young," but I quickly replied, "I am doing well, thanks, but am running late. How long will it take you to get me to the Ronald Regan building at 1300 Pennsylvania Avenue?" I noticed that he was a big man, well- dressed and maybe even older then me. I also felt the warmth of the man in his bigger than life smile and in his eyes that gave insight into a life of hard work, but also one of satisfaction and harmony with the world. I looked to his taxi medallion to try to see his name, but it was covered with pictures of three cute young children. I guess his name was "Grandpa."

He then went on a conversational path that made really good sense, and even more so as I write this today. Grandpa cheerfully proclaimed, "I am glad that you are running late because that means you are busy, and busy is good." About 10 minutes later, we were stopped at a red light and he turned around and looked at me and said, "You know, it’s good that you are busy and that others are busy, because this means I stay busy … and if we are all busy, then we will end the problems with this economic mess."

I was hooked now and decided to probe his mind further on this "economic mess." Grandpa told me that a few months ago, his taxi business was really slow; in fact, it was the slowest he had ever seen in 32 years of driving a DC taxi. "But now, things are getting back to normal." He went on to explain: This means more people are spending money and when more people spend money, then more folks have money to spend in general. This spending gives people more jobs, which allows businessmen like me to spend the money and time to be in Washington to take his taxi in order to go about creating more jobs. When I use his taxi, he then has more money to spend, and so the economy gets stronger and better for us all.

At this point, I was thinking, Wow, Grandpa really gets it! I wish he could go worldwide on all the cable channels and explain this to those naysayers who are forever wringing their hands and hiding in bunkers, just waiting for the next sharp-toed economic shoe to drop on their heads.

I appreciated Grandpa’s wisdom and candor, and I told him so. He then said, "Well, of course I get it, young man. I have a lot of time with this job to think about things and I get to talk to a lot of people, and I should hope that you will tell all your friends and business people you deal with that they need to spend money to get us out of this mess!"

See – Grandpa rightly understands that the recession is over and the recovery is underway, and that this recovery is riding on the backs of consumers. Of course, the Great Comeback is not going to happen overnight, but we are moving in a positive direction, which needs to be reflected in our business strategies and actions.

If you’d like to learn more about handling the Great Comeback and how to develop a plan, listen to this freshly-minted Global Supply Chain podcast. I talk about the timing of economic recovery and the realities that your industry and your company will face in the coming months.

I am fully on board with Grandpa: Let’s fuel this taxi up and head toward recovery, growth, and prosperity.