12/04/2022 - 14:30 pm

The Wild West

People must tear up the script and rethink the plot more often than ever before—and that’s not all bad, says Doug Stitt, president and CEO at The Caldwell Group Inc.

 

One of my favourite movies is the western, Tombstone. In it, Doc Holliday asks Wyatt Earp, “What did you ever want?”

“Just to live a normal life,” Wyatt says.

“There’s no normal life, Wyatt, it’s just life. Get on with it.”

Doc’s response has never been more relevant.

We used to talk about life-changing events in terms of them happening once in a generation. The Great Depression (1929 to 1939) and the Spanish flu (or Great Influenza; 1918) are examples. We used to reel from financial disasters too, but with confidence that the next one would be in the distant future. Now it seems that we’re dealing with seismic shocks (lightning strikes I called them in an earlier article) on a more regular basis. As Covid-19, soaring costs, skills shortages, shipping bottlenecks, and Russia’s invasion of Ukraine prove, we’re now dealing with multiple ‘once in a lifetime’ moments at the same time.

Some of us might have experienced one, two, or possibly even three of these game-changers but nobody knows how to synthesise all these events simultaneously. Charlie Pullin, our CFO, had worked in Brazil during some of their past hyper-inflationary periods, and that perspective is helpful, but the overall picture is unique. It’s like being in a disaster movie. And it’s got to the point where, “…it’s just life. Get on with it,” as Doc says. It means we’ve got to be more dynamic than ever.

Forget about getting fair warning that a big change is coming and having a whole career to deal with it. Now you need to be able to observe, assess, act, and modify course every week. But it’s not all bad news. Honestly. A sub-plot to all this craziness is that businesses have had to continually evolve and adapt. It’s like Wyatt also says in Tombstone, “You gonna do somethin’ or just stand there and bleed?” If you don’t do somethin’, you’ll bleed out. As a result, I know of many companies that have totally reinvented themselves. You could too.

All that said, while everything is happening to the backdrop of climate change and a gravitational pull towards renewable energy sources, so too are the constants that customers are ultimately still looking for the same things: quality, responsiveness, lifting solutions, etc. There hasn’t been a plot twist there. So how can we tackle the major issues of the day amid such chaos? Let’s look again at a few of them.

 

The Great Resignation

The interesting thing about the labour crisis is that it would be happening even without the pandemic, so The Great Resignation, as I’ve seen it called, where 47 million workers quit their jobs last year, certainly hasn’t helped. Labour participation in industrial markets has been stagnant or dropping in many industries, specifically in key trades, like machining and welding.

Programmes to attract millennials – people born between 1981 and 1996 – are still scarce here in the US, just as they are in many other countries. Identifying ways to connect with and motivate this group of people, now aged between 26 and 40, is clearly a challenge. There’s now a younger generation too – those leaving education and starting careers. Interestingly, the Lifting Equipment Engineers Association’s (LEEA) Level 3 Lifting Equipment Technician apprenticeship standard is now available across the whole of England, but the framework can be applied globally. I know it is being looked at in Australia and New Zealand, and Ross Moloney, the association’s CEO, has written to the Scottish Government to discuss how to take the apprenticeship forward there. I applaud these efforts—but there should be more of them.

Things can change quickly, as global supply chains prove. Last time I wrote in these pages, I speculated that supply would not return to normal until 2023. There are some aspects of that foresight that were correct and certain elements that were too gloomy. Pandemic supply chains have had the opportunity to start to work themselves out, while certain countries have become better than others at reacting as virus variants or outbreaks hit. We might slow, but we don’t stop, as was the causation of many of the issues we’re still experiencing.

However, a continued zero-Covid policy in a significant exporter such as China would make future supply chain interruptions very sensitive to future breakouts. The war in Ukraine will have an impact too. Russia’s invasion has the potential to do further harm to transportation in general due to oil and gas costs that fuel our supply chains. Moreover, as numerous countries turn away from Russian products, some minerals may become scarcer as their goods are ignored. Specific aspects of the food supply chain are likely to be harmed given that the impacted regions are essentially the world’s grain barn.

Also impacted by the war (what isn’t?) are increasing material costs. It’s an interesting time in this cycle, as these costs had shown signs of stabilising, only for the invasion to cause a level of concern about supply chains. This sent markets back into an inflationary mode. Many people felt the tea leaves for 2022 indicated some level of stability and predictability but the situation in Ukraine has put us right back into a position of worrying about material cost and availability.

 

Take a hike

Separate from Russia, Ukraine, and materials, we’re all still facing increases on everything from labour, power, healthcare, etc. Countries like the US had indicated (are indicating) numerous rate hikes because they felt they understood the economic conditions and now the landscape has been changed again. As we established at the top of the article, the only thing we can be certain of is continued change.

Something Charlie and I have discussed at length is how to handle this reality. Many of us have never seen inflation like it, and we’re coming out of a decade where inflation has been low, and companies have paid little attention to price rises and passing costs onto customers. In cases where significant inputs did change, businesses looked to protect their customer relationships by absorbing some of these cost escalations. When prices started to rise last year, most decision makers didn’t know the extent of what we were going to see, so the initial reaction was likely a mix of how much can we absorb and how much do we pass along. In some cases, there were probably a lot of companies that thought, let’s ride this out until costs go back down and limit the impact on our customers.

As we all know, this didn’t turn out to be a small ripple but more a tidal wave. As the wave got bigger and moved farther, once the realisation hit, the chase was on to try to catch prices back up to reflect the level of material inflation. Therefore, for most, there was no absorbing it. One of the big questions today then is, will material prices go back down and by how much? Certainly, prices will recede at some point but likely not to previous levels.

As Charlie agrees, the subject of pricing thusly requires constant and significant analysis. Despite what’s on the news every day, it appears that there are still many people who don’t understand, firstly, how much materials have gone up and, secondly, until the end of the year, how much this may have impacted the bottom line. I’ll explain. We’ve had many conversations with companies that produce many of the materials that have seen significant increases in the price of their materials. But when buying equipment that uses their materials, they seem surprised at why costs have gone where they have. This, of course, creates the need for additional dialogue.

To my point about not understanding the impact on the bottom line, it’s not surprising that many small-to-medium-sized companies don’t always have a great understanding of their costs. We have seen several examples where their price increases during 2021 seemed very modest but the speculation is that once they closed the year and looked at the numbers, they were likely surprised at what happened to their margins. This has resulted in several very large increases to start 2022 as they appear to just be figuring this out. This certainly isn’t a criticism; this is a difficult time to manage, and companies that didn’t have a good understanding of their costs probably struggled under these unique circumstances.

From a forecasting standpoint, you want to estimate demand as best as you can. This has obviously been a massive challenge in this environment. First, we saw demand destruction and then we saw demand go off the charts. Those are unpredictable events but sometimes it’s not just about producing what’s in demand. It’s also about not producing what’s not.

For us, it was about ensuring that we have not been using valuable capacity-producing items that are not as in demand versus those products that are. Sometimes that means you even must choose certain products over others when capacity is limited, and demand is strong. We’ve all seen this in grocery stores during Covid: mainstay products such as 7 Up have been plentiful, while others like Cherry 7 Up have had much more limited availability. In this environment, this isn’t a process you can perfect, but it forces you to improve.

The analogy is doubly relevant because consumers travelling to the DIY and grocery stores no longer just assume that the stuff they buy magically appears but is rather part of a well-choreographed process to get those goods to market. Initially the reality dawned that masks, drugs, and other healthcare related items weren’t readily available locally. Then came consciousness that it’s everything else that consumers around the world buy. This will perhaps be the shock (like we needed another one) that moves countries and governments to truly push for more to be produced domestically. Of course, there’s a chance that this will be like past oil shocks where there is an initial shout for oil and gas alternatives only to have markets and consumers slide back into the comfortability of past patterns.

 

Autopilot

Unless you are selling something unique and bespoke, automation must be part of a company’s strategy. And that means more than just manufacturing. Automation of data, reporting, design functions, service, and all aspects of a business must be considered. If labour is a constraint going forward, automation and technology need to help fill that gap. More specifically, if there are a limited number of machinists in the future, businesses need to identify ways to incorporate automation and technology to be more efficient and productive.

I enjoy talking to peers about how their businesses have been adapting and sharing our own ideas. Caldwell’s SmartSpec custom product configurator, for instance, allows distributors to configure custom lifting solutions digitally, 24-hours-a-day. In a time where companies have had to institute multiple price increases quickly, you need your systems to be able to support that. We’ve done a lot to beef up SmartSpec’s backend, allowing for more dynamic updates of the data and infrastructure that powers it.

Evolving demographics mean different types of customers are looking for different ways to interact with a company—some preferring the human interaction and others enjoying an online experience. Our distributor portal allows those customers favouring the online experience the opportunity to order product, check the status of orders, get pricing, etc. Our goal is to provide our customers the best lifting solutions and there are different ways to use technology to do that.

So many people are speculating on so many things right now. What we’re trying to do is drown out some of the news, particularly at a macro level, and focus on getting better by continuing to invest in our business so we can evolve as needed. That means investing in our operation, people, processes, and equipment. You should be doing the same. And remember to enjoy the ride. If nothing else, this is a chapter of humanity that you’ll tell your grandkids about. It’s like another exchange from Tombstone:

Wyatt Earp: “You could have been busted up back there, or killed.”

Josephine Marcus: “Fun, though, wasn’t it?”


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LHI September 2022

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