Kevin Price, Host of the Price of Business on Business Talk 1110 AM KTEK (on Bloomberg’s home in Houston) recently interviewed Brad Huff. Here’s that interview.
About the interviewee
Brad Huff is EVP & GM of TAKE Supply Chain and leverages more than twenty years of experience in enterprise supply chain solutions to oversee North American operations. He is responsible for leading the business strategy and the overall growth of customer, partner, and industry relationships. Most recently at TAKE, Mr. Huff served as VP of Sales where he is credited with architecting the expansion of the relationship footprint with the customer base.
In more than ten years of working with mid-market manufacturing companies, he has seen supply chain operations mature from a minor focus to a core business function. At JDE and PeopleSoft, he worked with clients to implement an initial ERP system in order to improve execution inside the four walls. At that time many companies had a few key suppliers they worked with so their main focus was on improving internal operations.
Over time, supply chains have become much more complex through globalization, specialization and outsourcing. With that complexity comes the need for software to help manage, automate and optimize those supply chains to continue to control costs and increase value. He is passionate about TAKE Supply Chain’s mission to help those companies achieve their goals.
Prior to TAKE, Mr. Huff served in progressive management and sales roles with leading enterprise solution providers such as IBM, Sterling Commerce, PeopleSoft, and JD Edwards.
Tell me about your firm (number of employees, location, type of companies you work with, etc.).
TAKE Solutions employs about 1,100 staff worldwide, with offices in the US, India, the UK and the Middle East. Globally, we work with companies in the manufacturing and life sciences sectors. TAKE Supply Chain works primarily with manufacturing and distribution companies across a number of industries including high tech, consumer packaged goods, food & beverage, and industrial/large equipment.
What type and size of companies do you have as clients?
TAKE Supply Chain, which provides supply chain automation solutions for procurement, accounts payable and data collection, works primarily with mid-tier and large manufacturing companies across a number of industries including high tech, consumer packaged goods, food & beverage, and industrial/large equipment. We typically classify mid-tier as $50M-$1bn and large as >$1bn.
What comes to mind when you see this topic?
If you ask mid-market executives, a primary area of persistent focus is margin management. Part of this is left over from the recent recession, but I think part is also a tendency to be a little more conservative in a rapidly changing business world. Because they sit in the middle, they are squeezed on the upper side by larger, more well-funded enterprises with stronger product distribution networks. They are also squeezed on the lower side by more nimble smaller businesses that can often get configured products to market more quickly. It’s a unique position that the other two don’t experience and that’s why it takes a different skill set to run a thriving mid-market company. You have to be pretty good at both.
I talked about the challenge of margin management being partly left over from the recent recession. Many mid-market companies survived, and some of them actually thrived, because they weren’t over leveraged. They made decisions to support a healthy balance sheet and held off on all but critical investments in technology and growth. The challenge, though, is that even though we are entering into more of a recovery phase, and solutions are becoming far more affordable, opening up the checkbook is still an instinctively difficult task. Business is more complex than it used to be, and customers are becoming more value-exchange driven and price sensitive. Brand loyalty remains very important, but it shares more of its space at the table with the actual value delivered. There are more switches to throw to impact margin and less certainty. As a result, knowing where and when to make changes is more complicated.
On top of that, margin erosion can now happen in far more places than ever before. For example: my company delivers supply chain management technology, specifically in workflow automation and processing. We focus quite a bit on areas where manual processes and data inefficiencies can increase cost of goods sold and impact working capital. We try to address issues as far up stream as possible in areas of materials planning/order communication and overall procurement process compliance. Suppliers who order dump, short ship, ship outside the delivery window, ship at the wrong rate or the wrong carrier, or who don’t use the right packaging labels for accurate receiving by the buyer end up costing the buyer’s organization a noteworthy amount in the form of labor and inventory accuracy.
On the other side of the procurement spectrum, we also focus on margin erosion in the area of accounts payable. Many mid-market companies pay staff to spend the majority of their time processing what we call ‘good’ paper—that is, invoices that meet a 3-way or 4-way match criteria and simply need to be processed for payment based on terms. Manual oversight is typically best leveraged for reviewing and expediting problem resolution. Late payment fees and forgone early payment discounts are also areas the erode margin.
On the technology side, margin erosion can happen with legacy systems. I was speaking with a colleague a few weeks ago that had just completed a systems audit. He learned that he was paying more each year to maintain support on some older technology than it would cost him to upgrade to newer technology. He figured he’d spent about $100k more than necessary over the past three years. This doesn’t even take into account the savings that can happen when cloud/SaaS delivery is leveraged in replacement of on premise systems.
There are a few other challenge areas as well facing mid-market businesses, such as technology integration (meaning overall infrastructure and integration between newer technology and legacy systems), responsible growth (US vs. global expansion – how much and how fast), and, perhaps most importantly talent acquisition (assuming the people, process, tools model). Most of these are dependent on margin management in one way or another, however, let me know if you’d like to discuss them.
What are the best practices when it comes to this issue?
I think there are a number of standard financial best practices for margin management. A lot has to do with the type of accounting a business employs. That said, there are some practical areas I can offer up for identifying ways to help slow or halt margin erosion and improve working capital.
Primarily, mid-market companies need to take a more holistic and end-to-end approach to operations. Look at all contributors to margin. This would be individual departments, cross-functional areas, relationships with trading partners, relationships with customers, etc. Each e has hard and soft dollar implications. Measure the impact on margin for each, and then measure it together. Study a couple of different models designed to understand what takes each area’s margin contribution to its high and low thresholds and see what happens. Many companies find that activities that produce a lower margin in one area can trigger a greater margin contribution in another area and overall as well.
Secondarily, during this process, juxtapose existing processes and technologies against current best practices. Like my colleague above, it may be discovered that holding off on improvements, whether process, technology, or both, is having a much greater impact on margin. It may also be impeding the business’s ability to invest in growth initiatives such as product innovation and more aggressive pricing strategies.
When evaluating new solutions, require a short time to value. We’ve all heard stories about twelve to eighteen month ERP implementations that cost seven figures and failed. Fortunately those days are fewer and farther between, but that doesn’t mean every initiative can positively impact your bottom line, and within a prudent timeframe. Define success from the start of the project and only work with vendors/partners that can demonstrate an acceptable timeline for you to begin to realize the payback. Solutions for mid-market companies should be able to deliver tangible, sustainable ROI in two to six months.