When China wakes up, the world will shake

The above quotation which is attributed to Napoleon during his exile at St Helena is almost 200 years old. It was an extremely prescient view and certainly resonates today.

During the last decade we all saw the results of the dynamic Chinese export programme as goods poured into the US and EU markets.

There has been a marked step up in acquisition of assets following the recent economic problems particularly in the US.

However there is another factor emerging as China steps up its demand for raw materials particularly agri commodities.

The burgeoning Chinese middle class will continue to demand products which traditionally consumed in the Western world.

As dietary patterns change this will lead to upward price pressure in all sectors of the food industry.

This demand will only continue to grow and it will surely become a case in the Western world of “wake up and smell the Coffee – whilst you can”.

 

You can only win it if you’re in it

 

Some years ago whilst working for an international corporation I attended one of the bi-annual strategic reviews for senior Group executives. Each executive was required to give a presentation in respect of his/her business unit. One colleague addressed the audience with his one word objective namely “survival”.

 

At the time this was met with a fairly frosty response but current events show that it is probably a suitable watchword for the present time. As the machinations continue in the Euro zone and the commentaries become even more emotional with phrases such as “disintegration” and “meltdown” then to survive these times would seem to be a very laudable objective.

So many factors are coming into play over which individual companies can do little to protect their interests other than ensure that they react appropriately.

However the one certainty is that the global economies will survive and business will continue. In the coming months there will undoubtedly be casualties but by adopting a controlled and rational response to these challenges businesses can ride out these difficult times.

 

The true cost of cheap food

As the fall-out from the horse meat scandal continues it has brought into focus the whole background to so called “cheap food”.

Notwithstanding the fact that passing off of horse meat as beef is basically a criminal act of fraud, it highlights the vulnerability of a market where prices are squeezed to the absolute and in order to protect margins suspect practices and questionable ethics will inevitably come to the fore.

The CEO of the Iceland Frozen Food chain has cited the purchasing policies of local councils blaming them for driving down food quality with cheap food contracts for schools and hospitals.

Independent butchers (an endangered species in themselves) are making capital out of the current crisis by citing their credentials as reliable suppliers who have complete traceability of their product. However the collapse in the number of independent retailers in face of the competition from the all powerful supermarkets means that this is likely to be a last hurrah rather than a return to the golden age of the British High Street.

In the UK overall household spending has failed to increase over the last year. This suggests that higher inflation and slow wage growth are squeezing household incomes and that is being felt in the UK's shops.

The current economic reality will underpin the demand for cheap food but in satisfying this demand as we are now seeing there will be accompanying risks.

 

 

Who's getting a free ride?

 

In this current climate more and more Customers are actively delaying payment to Suppliers. Slow payers monopolise profits and starve creditors of much needed cash. Accordingly policing of receivables is critical. 

When a Customer exceeds the agreed payment terms, they are in reality using the Supplier as an alternate (unsecured overdraft). I have seen this situation spiral out of control so that in a worst case scenario the Supplier is forced to keep “supporting” the errant Customer for fear of realising a bad debt. Think of the parallel to the Greek bail out situation – it is a slippery path. 

Take a long hard look at your accounts receivable – are you happy to see 30 days drift into 60 and beyond? Have you considered the damage that is being done to your company’s financial position? 

Ask yourself “who is getting a free ride?”  

It may well be that you conclude that an overall appraisal of your business is overdue - this is where I can help. 

Why not get in touch with me at gordon.blackburn1@btinternet.com and I’ll help you get back in control.

 

Customers - love 'em or lose 'em

 The old adage the Customer is always right has come in for a fair amount of criticism recently and there are many times when plainly the Customer is in the wrong.

Notwithstanding it is of paramount importance to the sustained growth of any business that the Customer is kept onside.

The key requirement that any Customer wants is to feel that his/her business is valued and appreciated.

In business securing the deal is only the start of the process and the repeat order very often stands or falls with the after sales service (or lack thereof).

Simple but effective measures such as ensuring all contracts are performed efficiently and within due time and that any complaints are handled promptly and with courtesy will go a long way to building and maintaining long lasting relationships.

We have all encountered the difficult Customer with whom it would be easier not to deal. However, in these difficult times there are many who would willingly take this “problem” and revenue off of your hands.

Food price inflation - no let up for the foreseeable future

The Bank of England has issued a warning that it is unlikely to achieve its 2% inflation target citing the rising costs of oil and food as contributing to upward pressure.

Livestock and milk related products are primed to rise further in accordance with the higher costs of grain based feedstuffs.

Food manufacturers are caught in a vice; the buying pattern for many has been “just in time” reflecting the need to keep inventories as low as possible.

However without the safeguard of a “buffer stock” they are now more than ever exposed to the harsh reality of having to “pay up” in order to secure the raw materials to keep their facilities in production.

At the same time Suppliers will continue to face the problems of operating in the current economic background with buyers seeking to delay payment, renegotiate contracts etc.

The era of cheap food has long passed and with consumers still having to closely watch their expenditure companies will now more than ever be required to ensure they are operating at optimum efficiency.

 

Trust –the defining business requisite

As economic conditions remain tough more than ever the question of trust is of paramount importance.

Operating margins are being squeezed and people are looking for ways to protect their bottom lines. As we are seeing with the latest furore over horse meat contamination in “Beef products” there will always be those who disregard regulations or flout the law in the belief that they will get away with it.

As the UK Environment Minister stated "People should have absolute confidence in what they are buying. The responsibility for that lies with the retailers, who need to be absolutely sure that what they're selling is what they think it is."

It boils down to the integrity of the supplier, no matter how many factory audits are conducted or how many QA questionnaires are completed it is essentially an issue of trust and reliability.

The same can be said of the Buyer, if goods are delivered on a credit basis this should mean that the Supplier has every right to expect that the agreed settlement terms are adhered to.

A good relationship / reputation takes time and effort to build and sustain, once damaged it is hard sometimes impossible to restore.