The Mheda Journal

Dr. Bart Basi

In my previous blog posts this week, I neglected to mention that I attended Dr. Bart Basi’s Convention seminar on “How Changes in the Tax Laws Are Affecting the Business Owner,” and I must say, kudos to Dr. Basi for making sense of some pretty convoluted information. And I say that as someone who knows next to nothing about taxes, I’m embarrassed to admit. It’s just one of those topics that no matter how clearly it’s explained, I usually can’t decipher it. Dr. Basi, the senior advisor at the Center for Finanacial, Legal and Tax Planning, presented some really insightful information that will go a long way to helping those in attendance take advantage of the most recent changes in the tax laws.

It’s no wonder why, every year, small business owners talk about the tax burden as one of the biggest challenges they face in their businesses. The laws are too hard to figure out. Even Dr. Basi himself admitted that, while the changes are good for keeping accountants and attorneys busy, they’re too complicated for everyone else. In fact, he began his presentation by saying that he no longer is going to make printouts of his presentations because he is wasting paper by constantly making changes and printing out new versions so frequently.

One of the most compelling discussions involved how companies can qualify for a manufacturing tax credit. Even companies that aren’t logically considered a manufacturer can qualify for the credit based on how the law is worded. Apparently, any company that takes a good and significantly alters it to create a new product can be classified as a manufacturer for tax purposes. Starbucks, for example, classifies as a manufacturer under this definition. It takes a good (coffee beans) and significantly alters it (grinds them up) to create a new product (double mocha Frappucino, etc.) Doing so entitles them to a significant tax advantage. (I’m not going to attempt to explain it for fear I won’t do it justice, but call Dr. Basi and he’ll explain it to you.) He also said that many material handling distributors, particularly those involved in installation or assembly, could take advantage of this rule because they are technically altering the product.

I found that really interesting…just one of the many tidbits of information that you glean from a week at the MHEDA Convention.

2011 MHEDA Golf Tournament Champs

Once again this year, the golf tournament will go down as one of the highlights of the MHEDA Convention. More than 100 golfers teed off on the Palmer Course at the hotel’s Wildfire Golf Club. It got a little competitive out there, but most of all, participants seemed to be enjoying the networking and the company of other material handlers. They were treated to a gorgeous day and sightings of all kinds of desert wildlife. I saw several signs warning about rattlesnakes, though I didn’t actually see one. (To be honest, I can’t decide if I wanted to actually see one or not.) When all was said and done, the team of Steve Johnson of Nashville Wire Products, Richard Andrews of Conveyer & Caster – Equipment for Industry, Neil Dixon of 3D Storage Systems Limited and Customer Panel Contributor John Costa of AutoZone, scratched out a score of 62 to take top honors, just ahead of four teams in second place.

Everyone looked to be having a good time, but it was more than just fun and games. Lots of industry business was being discussed out there, as well as within the confines of the hotel. A lot of that industry business revolves around what most attendees believe is an economy that’s finally on the rise. Granted, not everyone is convinced, as hiring at end-user companies is still sluggish. Lead times are also being impacted because suppliers are hesitant to add the personnel to fulfill orders, which remains an issue. 

Still, the material handling industry is full of renewed optimism. (We’ll see if economist Barry Asmus agrees in tomorrow’s keynote speech). In addition to improved attendance at the Convention (estimates put the final numbers at nearly 200 more than last year), talk of recovery is all around. Nate Andrews of Morse Manufacturing Company said that his company just completed the second-best month in the history of the 88-year-old company. He suggested that it was a sign that the economy is definitely rebounding, but he says there are still some concerns out there as companies are still reluctant to hire personnel. It was a sentiment echoed by Patrick Evans of Eagle Pneuamtic, who says the economy has definitely turned around and is looking forward to getting some confirmation of that from the distributors he speaks with at the Exhibitors’ Showcase tomorrow.

Speaking of the Showcase, I had a few minutes to peek my head into the room where it will be held (the Grand Canyon Ballroom) and it’s definitely starting to take shape. I saw at least one constructed mezzanine and a full-size lift truck on display. I’m looking forward to seeing what else is in there tomorrow.

For tonight though, we still have the Newcomers’ Reception and Opening Party. Check back later for updates from those always-popular events!

I had the opportunity to speak with a different kind of MHEDA distributor this week, at least different than what I’m used to. I spoke to Vince Sullivan, president of Southern Acquisitions in Dallas, Texas, a distributor of loading dock equipment and overhead doors. No forklifts, no conveyors, no racking. Just dock and doors. It’s a fascinating company, with 10 locations spread from Texas to New York. There’ll be more explanation in The MHEDA Journal’s third quarter issue, but I wanted to talk about one thing in particular that Mr. Sullivan mentioned. It goes along with the whole theme of customer service that MHEDA is focusing on at its Convention next week. (Only 3 days away…how’d that happen?!)

“Every week, we say to our people: ‘I didn’t see too many people lining up on our doorstep today to give us a lot of orders, so I guess that means we have to go out and hustle to find them.’” What a great way to motivate people. If customers aren’t coming to you, then you need to go find them and serve them the best you can.

During the downturn, one thing MHEDA members talked a lot about was how it was a wake-up call to a lot of poor tactics and gave them a chance to streamline their operations. But the question, they said at the time, was how long it would take to revert to bad habits when things picked up again. It’s easy to be diligent when times are rough, but if sales are coming more easily, it’s hard to motivate yourself to do the little things. However, with motivational tools like the one above, at least one MHEDA distributor is fighting to make sure those bad habits don’t creep back in.

What are some other ways to ensure good habits? I realize that many of us aren’t yet back to what can be termed “good times” just yet, but if we don’t pay attention to the little things now, they’ll be harder to correct later. So, what do you think?

I was going through some built-up e-mail today when I came across my New York Times e-newsletter from Friday. Nevermind that I’m likely going to have to pay for it if I want to continue to receive it each day, this one contained an interesting editorial. Since the Supreme Court ruled in 1992 that retailers could be required to collect sales tax only in states where they had some physical presence, many businesses, particularly online retailers like Amazon.com, have not charged sales tax to consumers. Not only does this lower out-of-pocket cost for customers, it also keeps the states and municipalities in which it does business from collecting tax revenue. The point of the article is that in times when many states are in fiscal disarray, this rule makes no sense.

I tend to agree with that, but that’s not the issue I want to focus on. What got me thinking was that this rule, which I was unaware of, seems to put small businesses at a clear disadvantage. Most small businesses, including most MHEDA members, don’t have a physical presence in more than one state. That means that they are required to charge sales tax in their state, which online competitors based somewhere else wouldn’t have to do. Even if the small business in question transacted the sale over a website or e-store, it still would have a harder time competing with an out-of-state online competitor on price  because of its physical location tax requirement.

In this day and age when businesses are doing more search engine optimization to get their websites and businesses noticed outside their traditional geographic footprint, this is an issue that is often being overlooked. The Times article in question mentions several lawsuits in play regarding this rule. Several states have passed laws requiring sales tax be collected, so this situation will certainly come to a head soon. What do you think? Is this an issue that should be talked about more often? What does it mean for distributors going forward?

Before the new year gets too far along to still call it the “new year” (did we pass that point yet?) I wanted to address a major talking point that we at The MHEDA Journal spent a year addressing. As one of the main purposes of MHEDA membership is getting advice from industry peers, it’s important to reflect back on what, for many, was one of the most difficult years in recent memory. But there’s silver lining in every dark cloud, and we can take heart in knowing that there was a lot of learning to be done from the trials of 2010. What did you learn in 2010? The answers are many.

• Efficiency. While distributors hated to cut personnel, they often found themselves surprised at how productive they were able to remain even with fewer people. Some took the opportunity to upgrade internal computer systems to help employees perform. “Doing more with less” is a bit of a cliché, but it sums up how distributors are approached 2010 and will continue to operate in 2011. However, many cautioned that they must remain strict about their procedures and processes, even when the economy rebounds, to avoid the excess personnel issues that were a problem during the downturn.
• The importance of training. Distributors found that by having better educated personnel, they were able to meet customers’ needs more completely. Customers were asking more questions than ever, so a better trained workforce was needed to respond. Also, as staffs got smaller, it was important to cross-train employees to fill knowledge gaps and be able to achieve the productivity and efficiency gains mentioned above.
• Marketing/social media. Competition is fierce, and the companies that customers know the best are the ones they will call on. More often than I can remember, distributors are looking at improved marketing techniques, dedicated website redevelopment, e-commerce, social media tools, etc.
• Customers want more for less. While distributors are cutting back, their customers are doing the same thing. They want to cut costs anywhere possible, thus there was a big push to electric trucks to cut energy costs and lower cost-of-ownership products. Distributors are diversifying their services to be able to provide more for customers, including consulting, installation, maintenance and contractor services.

How about you? What did you learn?

I received a press release today titled, “’Tis the Season for P#ss@d off Customers.” (I did not change any characters. It actually was written that way.) How could I not read that?

The press release was a promotion for a new book focused on retailers, but it actually had some interesting customer service tips that will work for any business—at all times of year. Here’s the list:

• Learn to recognize (and truly understand) your customers’ situations.
• Make sure you always follow through.
• Be very specific with customers. (Vagueness is a sure path to lost business.)
• Extend a peace offering.
• Have a standard service protocol, and some key “recovery phrases,” at the ready.
• Give frontline employees more power.
• Look for ways to reward employees for saying “yes.”
• Don’t assume your customers will give you a second chance.
• Remember, your clients can be your best (or your worst!) marketing tool.
• Ask for feedback.

Each one has a more lengthy explanation, but they’re pretty self-explanatory. As the year comes to a close, be mindful that while people look forward to the holidays, it’s also a very stressful time of year. As the release says, “It’s that special season again: the season of crowded stores, whiny kids, irritable customers, and stressed-out employees. If you’re a business owner, the holidays are a precarious time. When fuses are short and wallets are shrinking, customers expect great service. Fail to provide it, or fail to instantly implement a recovery plan on those occasions when you do drop the ball, and you may find yourself experiencing a not-so-merry 2011. People have higher expectations and a lower tolerance for mistakes. Without a good service recovery plan, you can easily lose the disgruntled customer, everyone she knows, and possibly a lot of people she doesn’t know if she takes her tale to cyberspace.”

Seems like good advice to reiterate. Best of luck and happy holidays!

While I was getting ready for work this morning, I happened upon The Early Show on CBS. Their correspondent was in a FedEx distribution center with boxes whipping by on conveyors in the background. It’s rare that I remember statistics from stories like this, particularly at 7:30 in the morning, but for some reason the particulars of this story stuck with me.

Today is Monday, December 13. It is the Monday before the last weekend before Christmas, which historically is the day of the year on which more packages are shipped than on any other day. This year, according to The Early Show reporter, 16 million packages are expected to be shipped today, a 12% increase above last year. (I tried to find a video clip to make sure my groggy mind remembered these numbers correctly, but I was unable to find it.)

This is good news for material handlers for two reasons. One, if you supply or integrate for logistics companies like FedEx, UPS, the postal service, or basically any retailer, it’s going to be a busy couple of weeks. You may want to make yourself available as downtime will come at a high cost to such companies. Quick response and availability will go a long way to solidifying your relationships with such customers.

Two, the increase over last year seems to indicate a return of consumer spending and consumer confidence. Those are good signs for general economic recovery, something that we all can support and are all looking forward to.  I already touched on this subject in an earlier blog entry, but it seems worth noting again, particularly in light of the economic doldrums that we’ve all suffered through for the last few years. Any chance to point out good news, I’m taking the bait. Happy holidays, everyone!

Over the weekend, I did most of my Christmas shopping. This is significant for two reasons. One, it means that for the first time ever, I’m not going to be scrambling at the mall on that last weekend before Christmas. Two, and more important for you, is that I wasn’t the only one out there. It was already pretty busy at the stores I was at, and early indicators say that increasing retail sales for this year are a good sign for the economy.

According to an NAW SmartBrief article, consumer purchasing accounts for almost 70% of economic activity in the United States. In November, the country saw a 6% year-over-year increase in retail sales, primarily boosted by holiday shopping. “This is a sign of recovering consumer confidence in the U.S. Such optimism could breathe life into the struggling economic recovery. The strong result surprised analysts, who had expected a 3.6% increase,” the article says.

When talking to distributors for this year’s Industry Forecast, which will be coming out in the print version of The MHEDA Journal in January, many people pointed to an uncertain economy as one of their biggest challenges for 2011. Well, if the retail spending, and the full parking lots here in Syracuse, are indeed an indication, then the economy is well on its way to recovery. Let’s hope it continues!

Have you seen anything that leads you to believe the economy is recovering? Or still floundering?

Amid all the talk about health insurance costs and the expense of steel and raw materials in our industry, another rising cost is quietly lurking. This one is certainly not a new concern. In fact, some MHEDA members say it’s not a concern at all. I’m talking about fuel prices.

A recent newspaper article here in Syracuse mentioned that the average price for a gallon of unleaded gasoline locally hit $3.10 about a week ago. So I posted a query in MHEDA’s LinkedIn group to find out what the prices were like around the country and how big a concern the rising prices pose.

The results were actually more varied than I thought. Prices range from about $2.65 in Texas to $2.85 in Baltimore, to around $3 in the Allentown/Philadelphia area. In Canada, prices were even higher, all the way up to about $3.25 per gallon (85 cents per liter) in Alberta and $4 per gallon (about $1.07 per liter) in Ontario. I expected to hear that the rising costs were a major concern and one more problem to worry about. Some people did, in fact, say that. One Maryland-based distributor says, “We have 12 company vans for service and it is a major concern.” Another group member said, “Higher fuel prices are always a concern.”

However, I was surprised to find those companies in the minority. Most people simply shrug off the higher costs as just a cost of doing business. One manufacturer says the cost is not yet a major concern. “Until we have a better alternative, we need it,” he says. “Even if fuel increases by 20 cents per gallon, we are spending about an extra $500 per year.” (120 miles a day, six days per week, 52 weeks a year at 15 miles per gallon equals  $499). “It does not compare to the increasing costs of other expenses such as labor, materials and taxes.”

When it’s broken down like that, it makes sense. I’d still love to hear some more opinions on this matter. Leave a comment here or in MHEDA’s LinkedIn group to share your feedback.

I know the “What Are You Thankful For” column is a bit of a cliché this time of year, but I think this year especially, it’s worth asking the question. Before I get too far into it, though, let me say thank you to all of the MHEDA member distributors and suppliers who took time out of their schedules to help us out with all of our publications this year. Special thanks to the MHEDA Board, particularly 2010 President Greg Morrison, and the MHEDA staff for taking more time than most to make MHEDA Media a success in 2010.

But enough about us. What are you thankful for this Thanksgiving? I didn’t do a formal survey or ask this question to members directly, but based on responses I received to the 2011 Industry Forecast (look for it in the next issue of The MHEDA Journal!), I was able to cobble together a list of things that distributors are saying “Thank You” for. 

1. A rebounding economy. Optimism has returned to material handling for the first time in a couple of years. 
2. Loyal customers. Obviously, loyal customers are important in any economic cycle. More than one distributor, however, said that purchases from one or two specific customers saved their cash flow and got them through the downturn.
3. Quality employees. Again, always a good asset to have, but amplified even more now. People are being asked to do more with less, and it’s a tribute to their work ethic and capabilities that companies are still able to compete.
4. Niche markets. Even during the downturn, there are certain markets (food, beverage and pharmaceuticals seemed to be the most often-cited) that were still spending. Concentration on such markets helped several members survive losses elsewhere.
5. Industry partnerships. Relationships with quality vendors, industry peers and organizations like MHEDA have distributors confident in the industry’s ability to return to the output of a few years ago.

I’m sure there’s plenty more out there that I missed. So, I’ll ask you: What are you thankful for this Thanksgiving? Enjoy your holiday, everyone!