The era of the mega-ships

 

The world’s largest cargo carrier the MSC’s “Oscar” is now in full service. It has the capacity to carry 19,224 standard 20 foot containers. Thirty years ago no vessel was able to carry more than 5000.

Manufacturers of electronics and mobile phones are shipping cargo by sea because competition was eroding their profit margins focussing their attention on cutting delivery costs.

 

Each 20 foot container can hold 13,000 smart phones with a transportation cost from China to Europe of 7 pence per unit and a transit time of approximately 25 days.

 

Currently there are over 6000 container vessels operating with a significant number engaged in the East to West trade routes.

 

China’s economic success remains export driven as illustrated by the cost of shipping a container. Inward from China to Europe costs around US$1500 with the reverse journey only commanding a rate of around US$700.

 

As evidenced by the Japanese shipping company MOL commissioning 6 vessels capable of carrying 20,000 standard containers traffic will continue to moving onto the water.

 

The alternative moving goods by air is very energy-intensive and the high cost of jet fuel makes air freight too expensive.

 

 

A regular review of the company’s business plan is a necessary discipline

 

As business practices change and external factors come into play a regular review of the company’s business plan will ensure that the company stays ahead of the game.

 

The review if done correctly should result a realistic, objective and clinical appraisal of the business.

 

Following an analysis of the business plan it should be easier to communicate objectives and strategies to those funding the operation and also to the company’s employees.

 

The review will serve as a reference point when determining the effects of alternative courses of action on business operations.

 

A clear assessment of current working practices should highlight areas where the company may require outside assistance.

 

An analysis of the current inventory levels and receivables will provide the answer to the future growth and capital requirements of the business.

 

Achieving better sales performance

 

There are some basic tactics which you can employ to increase your sales.

 

Companies that are increasing their sales turnover usually have an attractive staff incentive programme in place.

 

Make sure you keep track of what type of “carrot” your competitors are offering to their sales force.

 

Upselling is a cost effective way to boost bottom line returns.

 

Essentially, upselling involves adding related products and/or services to your sales portfolio and making it convenient and necessary for customer to buy them. Crucially when upselling the customer has to be persuaded of the benefit.

 

Give your customers the inside track.

 

Try to stay ahead of the competition by having up to date brand and market information combined with technical back-up. For example if a new product launch is imminent it is better to keep the customer’s interest “warm” rather than push them into a purchase which they shortly will become dissatisfied with.

 

Differentiate your customers.

 

There should be a clear and obvious difference between your regular customers and others – a difference that your regular customers perceive as showing that you recognise and appreciate their value.

 

Repeat business is the life blood of any sales force.

 

Loyalty cuts both ways and becomes meaningless if all customers are treated as “someone off the street”.

 

 

Beefing up credit control

It must be a priority that all businesses ensure that their customers are settling invoices on time.



With slim operating margins the norm, very few companies can afford the spectre of significant bad debts.



The following are some procedures which companies can employ to increase the efficiency of credit control.



Set credit limits for each customer and review these regularly.



Be concise in trading terms for example it is better to specify 30 days from date of invoice rather than 30 days from end of month.



Issue monthly statements detailing invoices paid and those outstanding.



Score your customers and set a collection policy accordingly.



Do not let overdue payments go unchallenged.



Evaluate aged debtors on a weekly basis.



Prioritise collections and press for settlement of the highest values first.



Have a plan of action if payment is not forthcoming within a set date.

Evaluate the efficiency of the Credit Control function, the best measure is Days Sales Outstanding (D.S.O).

DSO is important because the speed at which a company collects cash is important to its efficiency and overall profitability. The faster a company collects cash, the faster it can reinvest that cash to make more sales.

 

A relatively low DSO indicates that a company collects its receivables quickly, and a high DSO indicates the opposite.

 

Here is an example:

Total receivables - £4,600,000

Total Credit Sales - £9,000,000

Number of days in period 90

(4,600,000/ 9,000,000) x 90 = 46 days

 

In this example it takes 46 days (on the average) to collect the receivables.

The industry standard is for DSO to be no more than 10-15 days longer than the company’s standard terms of sale. So, if the standard terms are net 30 then the target for DSO is approx. 45 days or less.

Before the alarm bells ring

 

Complacency has resulted in the demise of many companies who were supposedly being well managed. However there are usually some tell-tale indicators that a crisis is looming.

 

The following is a basic check list which should help to determine whether the problems are of a temporary nature or have more serious implications for the future of the company:



The most important element in any business is maintaining a healthy cash flow. It is imperative that a strict control is maintained on all outstanding invoiced amounts.



The value of an efficient credit control system cannot be over emphasised.

 

Do not focus on generating sales with little margin in the belief that over time things will improve. Being the “cheapest supplier” will not provide an automatic route to more satisfactory profits in the long term. It is often better to keep your powder dry.



If you are constantly in danger of breaching your credit arrangements with the banks or suppliers this is a clear indication that the company is not trading satisfactorily.



As conditions deteriorate more and more time is spent focussing on the problems and not enough on to how to position the business for the future.

Particularly for owners of SME’s it is not easy to take the necessary remedial actions and very often this is where an outsider can be of assistance in repositioning the business before it is too late.

 

Sound management principles

 

In order to achieve success all organisations must have effective leadership. It is the responsibility of management to lay down a set of ideas and objectives that are articulated, understood and supported by the workforce .Good people do not like working for organisations whose values are muddled.

 

Managers have to take difficult and unpleasant decisions. These often need to be made swiftly balanced against conflicting demands. It is not always possible to access cast-iron evidence to support the decision making process. This is one of the tests of strong management.

 

A clear and defined vision are essential requirements. Managing a large company, and dealing swiftly with a variety of challenges and issues is a complex task.

 

The desire to succeed which provides the drive and focus on excellence is one of the hallmarks of a good manager.

 

The workforce is the company’s most precious asset. Accordingly the ability to judge people and value their contribution is an essential prerequisite for any manager.

 

To build a talented team requires working with people who may be better at their job than you are at yours, and to guide and motivate them. People learn far more about the art of leadership from a good mentor than from any course or training exercise.

 

The ability to respond quickly will prove invaluable when things go wrong. Surviving a reverse and changing direction is the utmost test of resilience and flexibility.

Asleep at the wheel

 

Recent events have underscored how vital it is that senior management set clear defined operational and reporting procedures.

 

In many companies the Directors simply do not have the understanding of the mechanics or the day to day activities of the business which they purport to run.

 

HSBC executives have been accused by MPs of incompetence for saying they were unaware of tax evasion activities in their Swiss private bank. Chris Meares, the ex-head of HSBC's private banking division, said he didn't know what staff "were up to".

 

This is not a new phenomenon for example I have worked in trading environments where totally unrealistic profit targets have been passed from Board level to trading departments. No cognisance having been given to the disproportionate risks which need to be taken to achieve these targets.

 

Some of the most spectacular financial disasters have followed a period of ostensibly highly successful trading. In their desire to recognise these “profits” no thought were given as to how they were being made. In such times it would be well to take note of the old adage that is something looks to be too good it usually is! It is a truism that recessions catch what the auditors miss