A recent survey by Gallup/Wells Fargo points to the rising age of retirement for small business owners. Not only is the age of retirement going up, but increasingly, owners say they may never retire—at least not until forced to do so for health reasons. Forty-seven percent of those surveyed responded as such, up from relatively steady numbers of 38 and 40 percent in 2005 and 2007 respectively.

For those who do plan to retire, the numbers speak for themselves: 69 percent of respondents said they don’t expect to retire before 65, a significant increase from 2005, when only 41 percent planned to stick around as long. And the “older” in “65 and older” may be going up as well. According to the Social Security Administration, only those born before 1938 can receive full social security benefits at age 65. The normal retirement age is 66 for anyone born between 1943 and 1954, and progresses to 67 for those born after 1960. Earlier this year, the Senate debated raising the retirement age even further.

A Shortage of Workers

As the economy forces many employees to stick around longer than they originally planned, the material handling industry faces a challenge. The industry faces a worker shortage, and during the down economy, there was an increased emphasis on having a lean staff. With companies working at full capacity with a reduced staff, it becomes impractical or impossible for an owner to retire without jeopardizing the business. In “The Art of Material Handling Leadership,” Dr. Shankar Basu, president and CEO of Toyota-Lift of Los Angeles (Santa Fe Springs, CA), says, “As Baby Boomers approach retirement age, there is a severe shortage of qualified people in our businesses. This places extreme importance on succession planning. Unfortunately, this topic remains grossly neglected by material handling distributors.”

Can’t Buy Me Love

The economy has caused many business owners to change their retirement plans—60 percent of those polled, according to Gallup/Wells Fargo. There are many obstacles making it harder to retire, ranging from social security and lost investments to being understaffed. But when owners were asked what they would do if money were no object, 51 percent said they would continue working, and another 18 percent said they would start another business. As Howard Bernstein says in “The Man In The Straw Hat Steps Down,” “I considered retirement when I turned 65, but I just wasn’t interested in playing golf and bridge. Interacting with customers, suppliers, MHEDA members—all of those things were just more interesting to me than being retired.” When it comes down to it, there are many reasons to keep working—but perhaps none is better than loving what you do.

In the article, “Lift Truck Industry On The Road To Recovery,” Jeff Rufener, president of the Industrial Truck Association (ITA), writes, “The shift to electric products from internal combustion lift trucks that has occurred over the last several years is typical of recessionary periods. However, it has never been so pronounced, with electrics moving from roughly 55 percent of orders in 2006 to nearly 70 percent in 2009.” The 2009 ITA member company poll predicted that IC forklifts will never again account for more than 40 percent of the total volume.

Why has the industry begun to adopt electrics so heavily? In the material handling industry, as with nearly every industry, there has been an increased emphasis on green technology.  “The generation of leaders coming up behind is are much more environmentally conscious than the current generation of decision makers,” says Mark Milovich, president of Lift Atlanta (Decatur, GA). “They care about things like used oils and caustic emissions.”

Comparable Performance

The shift to electrics in the industry cannot be entirely attributed to a green philosophy. Jeff Long, vice president of sales and service at EnerSys, says, “People are moving to electrics because the productivity on those trucks is better than it has ever been. Performance on electrics is almost equivalent to IC trucks now.” Milovich agrees, saying, “Electric truck performance is right along with an IC truck now, particularly with 80-volt trucks. People are interested in converting to electric from IC because they get longer run time and can use the electrics in a typical outdoor IC application.”

More Economical

Electric trucks come with a higher upfront cost than most internal combustion trucks. However, Milovich argues that over the life of the truck, electrics are actually cheaper to own. “The customer has to understand that by buying a battery, they are buying five years’ worth of fuel up front. It would be like buying five years of diesel fuel at the same time,” says Milovich. “With the increase in fuel prices, it is more economical for many customers to recharge a battery than to fill up a fuel tank.” Electrics traditionally require less maintenance than IC trucks as well. “An electric truck does not have preventative maintenance as often and the maintenance isn’t as detailed,” Milovich notes. “Distributors don’t have to worry about disposing of hazardous materials like antifreeze and oil. Those costs get passed down to the end-user.”

Will Electrics Ever Replace ICs?

As electrics continue to improve, will they ever fully replace ICs? “Electric market share will never get to 100 percent,” says Long. “The 80-volt electrics are pretty strong workhorses, but I don’t think you’ll see big electric trucks that can handle applications like the big IC pneumatic trucks at shipyards or lumberyards.” Long also notes that it is typical to see electrics gain more market share during recessions. “The IC Truck user is a smaller user and in the down economy they weren’t buying. If you go to a big food chain they are using electrics. When the economy is down, people are still buying food. The typical IC user is a smaller fleet size user than somebody who uses electrics. People who are buying IC trucks are stepping up now and buying them because the economy is coming back.” Milovich agrees with Long that electric trucks will never reach 100 percent market share. “I don’t think IC trucks will ever truly go away,” he says. “There may be a time, like gasoline trucks now, where only a handful of manufacturers produce them.”

What do readers think? Will IC trucks ever regain the market share that they once held? Are electrics going to be the dominant force going forward? Share your thoughts in the comments section below.

To read more about the breakdown of forklift power sources in the industry and see what kind of trucks end-users prefer, read the 3rd Quarter issue of The MHEDA Journal.

Every year, the government sets aside a portion of federal contracting dollars for small businesses as a way of encouraging job growth. Many MHEDA members rely on these small business contracts to level the playing field for federal contracts. To qualify for these dollars, a business must qualify as small under the procurement guidelines. The Small Business Act defines a small business as one that is “independently owned and operated, not dominant in its field, and whose size falls within the size standards established by the Small Business Administration.” So why, then, would Lockheed Martin, General Electric, AT&T and other Fortune 500 companies appear among those receiving small business dollars?

Two Sides to Every Story

The Small Business Administration (SBA) recently reported that $97.95 billion in federal contracts went to small businesses in Fiscal Year 2010. According to the SBA, this represents a 22.7 percent share of eligible government contracting dollars, just shy of its 23 percent goal, but up significantly over the 21.9 percent mark set in 2009.

However, if you ask the American Small Business League, the real number is closer to 5 percent. “The ASBL maintains the Obama Administration has dramatically inflated the percentage of contracts awarded to small businesses by under-reporting the actual federal acquisition budget, and by including billions of dollars in contracts awarded to large businesses,” says an ASBL press release. “The ASBL maintains, the actual federal acquisition budget for foreign, domestic, classified and unclassified projects is roughly $1 trillion.” This is a far cry from the roughly $432 billion claimed by the SBA.

ASBL’s data analysis concludes that 61 of the top 100 recipients of federal small business contracts for Fiscal Year 2010 were large firms, accounting for $8.8 billion in contracts. “The SBA’s most recent claims are just more misleading smoke and mirrors,” says ASBL President Lloyd Chapman.

This is not an isolated incident, nor is it a recent phenomenon. For six consecutive years, the SBA office of the Inspector General has indicated that the diversion of small business contracts to large corporations is one of the greatest challenges facing the SBA. Before that, the General Accounting Office (GAO) released an investigation of 2001 contracting numbers, which identified 5,341 firms receiving government contracts as small businesses and as large businesses. Those firms received $13.8 billion in small business dollars, almost 28 percent of the $50 billion awarded to small businesses in 2001.

Even after all this, the SBA stated in a release, “Large businesses taking contracts that have been set aside for small business isn’t a real factor.”

How Is This Happening?

The SBA explains that the misreporting of contracting goals is a result of businesses growing from small to large over the life of a contract. “Small companies that get long-term contracts are profiting by those contracts and growing into large businesses,” states the SBA release. “Also, large companies are acquiring small companies that hold long-term federal contracts, which can last for up to 20 years. In fact, many large, multinational corporations have acquisition strategies based on acquiring small companies with long-term federal contracts.”

The GAO report of 2001 contracting transgressions offers the same explanation as the SBA, but admits that “In addition, agencies relied on various databases containing inaccurate information on current business size.”

A distributor in Baltimore, MD, who has extensive experience with small business contracts, has another explanation: “The rules are largely self-enforced,” the distributor explains. “A procurement officer does not need to investigate whether the successful awardee on a small business set-aside is actually small unless he has a reason to suspect that it’s not. It is up to contractors to know the regulations and point out any possible violations.” Protesting a competing bidder’s size status can require additional time and resources that small businesses do not have.

Whatever the reason, it is clear that actions taken thus far to avoid miscoding and misrepresentation of government contracts have not prevented large businesses from continuing to divert small business dollars.

What do you think: Should large businesses be allowed to win small business contracts so long as it’s within the procurement guidelines? What should be done to protect small businesses?

If sales, margin and expenses follow the pattern of previous recessions, most firms will be okay by the end of the year. The typical MHEDA member will be far removed from the massive challenges of the past two years. On the other hand, they may be equally far removed from optimal profitability. The challenge is that in the euphoria of getting back to good, many firms will miss the opportunity to make it all the way to great.

Business as Usual
The first column of numbers in Exhibit 1 provides a projection of overall financial results for the typical MHEDA member in 2011. Clearly, there is a lot of 2011 left and a lot of uncertainty still in the economy. However, it is possible to make a reasonable assumption about how the year will end up given (1) current sales trends and (2) an analysis of performance following previous recessions.

As can be seen, the typical firm is anticipated to have sales of around $25 million at a gross margin of 30.0%. This should produce a pre-tax profit of $500,000, or 2.0% of sales. This is adequate performance, but not outstanding.

This means the profit results for the typical firm are expected to look a lot like they did before the recession hit. The reality, though, is that the pre-recession numbers were somewhat unexciting. Certainly, they are better than the depressed results seen during the depths of the recession. However, they do not represent the profitability that firms deserve.

It can be argued that the long-term profit results for MHEDA members are in something of a rut. Actual results rise and fall in tandem with economic conditions. However, across the business cycle, results always revert back to the norm. That norm has been in place for an agonizingly long time.

Interestingly, profit levels have remained somewhat constant despite the fact that firms in all industries, including MHEDA, have become more sophisticated. For example, 20 years ago, most inventory control systems were run on index cards. Today, most firms have sophisticated inventory management systems.

Increased sophistication has not led to better results for one reason. Firms continue to make the same mistakes at the same exact points in the business cycle over and over. This is not a criticism of management. Instead, it is an inevitable aspect of human behavior.

However, improving profitability—now or at any other point in time—must involve overcoming those normal behavioral tendencies. Management must overcome the pressures that lead to business as usual.

Making the Future Better
The remainder of Exhibit 1 examines how the firm could produce even more profit in 2011 by better managing the Critical Profit Variables (CPVs). These are the factors that have the most power to drive profit in the firm. The three most important are sales, gross margin and expenses.

Every firm is already managing the CPVs as effectively as they can, of course. The reality is that in the recovery phase of the economic cycle, firms look at the CPVs in a very different light than they do in the down phase of the cycle. This change in perspective limits the profit potential associated with recovery.

As markets stabilize following a sharp recession two things inevitably occur. First, expenses demonstrate a relentless tendency to increase. More infrastructure is needed, employees need wage increases to “catch up” and the like. Second, pricing challenges arise. This is because the excitement inherent in sales increases automatically reduces the attention paid to pricing that is essential for desired profit performance.

It is important to note that these pressures have already been accounted for in the first column of numbers in the exhibit. That is, the exhibit assumes that human beings will continue to act as human beings. Not so much a failing as a reality of life.

The remaining columns examine the impact of maintaining greater diligence in the face of the sheer relief that the recession has ended. The two areas of focus explored in the exhibit are pricing and employee compensation. In both areas, a 2.0% improvement factor is used.

The 2.0% figure is not arbitrary. The better-performing firms across a wide range of industries tend to do about 2.0% better than the typical firm each year. The 2.0% differences add up to a dramatic improvement in overall profitability.

Pricing remains the Achilles’ heel of every recovery. As sales rise due to improving economic conditions, there is a natural tendency to want to recover sales volume at an even faster pace. This invariably leads to a diminished level of price monitoring.

In the Margin Control column in Exhibit 1, the firm generates 2.0% more gross margin dollars. The cost of goods remains constant, so the entire 2.0% increase is the result of improved pricing. The net effect is that profit increases by 30.0%.

The Payroll Control column reflects the human tendency towards fairness. When sales growth returns, the pressures on payroll become enormous. Employees naturally want a share of the good times just as they shared in the pain of the down market. If the payroll increase can be moderated so that it is 2.0% less than might otherwise occur, profit would increase by 16.5%. Sharing is fine, controlled sharing is much better.

The real payoff, of course, comes from doing both things simultaneously. The final column of numbers demonstrates how the firm would look if both gross margin and payroll were controlled more systematically. The 46.5% improvement changes the entire profit profile of the firm.

Moving Forward
After a brutal economic recession, there is a tendency to dramatically underperform compared to the potential profit that could be generated. There are two serious challenges that must be overcome. First, the firm should think in terms of producing a strong profit increase rather than accepting any improvement as being good enough. Second, the firm must be on guard for the factors that eat up the profit improvement that comes with higher sales. The firm must be especially mindful of ill-conceived expense increases and price reductions.

Meet the Author Albert D. Bates, Ph.D., is president of Profit Planning Group, located in Boulder, Colorado, and on the Web at www.profitplanninggroup.com.

If you are unable to view the video above, you can watch it here.

What do you think? Are business cards on the way out, or are they here to stay? Weigh in by leaving a comment below.

There were 162 male respondents (83 percent) and 33 female respondents (17 percent) with an average age of 45.27 years old. How did users in the material handling industry compare to LinkedIn users as a whole? According to a Pew Research Center study called “Social Networking Sites and Our Lives,” the average age of adults using LinkedIn is 40 years old and 63 percent of those LinkedIn users are men.

The results of the poll indicate that the average material handling user on LinkedIn is older than a typical LinkedIn user, and that there are disproportionately more men using the service than women. While the survey was successful in determining the age and sex of a large number of respondents, it probably is not enough to draw conclusions about the industry’s presence on social media platforms. For example, one respondent said, “I am 65 but I am an infrequent social media user at best.” This brings up an interesting debate. Should there be a distinction between a person who has a LinkedIn account but lets it lie dormant vs. an active user who updates their content daily? According to the Pew Research study, only 6 percent of LinkedIn accounts update their profile at least once per day. There is also no distinction between people who use their LinkedIn accounts for business purposes vs. those who have “personal” LinkedIn accounts.

Another thing that the survey fails to consider is the average age of workers in the material handling industry, compared to the general workforce. While the respondents to the poll are, on average, older than the average LinkedIn user, the poll fails to account for the fact that workers in the industry as a whole may be older than what data shows as the statistically “average” American worker.

Finally, while LinkedIn is widely considered the most “professional” social network, it is comparatively small compared to Facebook. According to the Pew results, 92 percent of social networking users are using Facebook, as compared to only 18 percent on LinkedIn. So, it would be unwise to draw a conclusion about the material handling industry’s presence on social media sites based solely on the demographics of LinkedIn users.

The Pew Research study indicates that the number of adults using social networking sites has doubled since 2008. It is probably fair to say that professionals in the material handling industry are better represented on these sites now than they ever have been before.

What do you think about the results of this survey? What percentage of your company uses social networking sites? How can these sites be used for business?

“It boils down to application. What is the particular facility? If it’s strictly manufacturing, as in a machine shop or assembly plant, then propane would probably be the way to go. For food production, the risk of odor contamination makes electric the preferred power source.”

 – Rory Stubbs, Sales and Acquisitions at Advantage Forklift Ltd.

“Propane! It is a clean-burning fuel, so it is safe even indoors. And there is added safety in being able to hear a propane-burning engine. If you run out of fuel, it’s much easier and quicker to bring a full tank to the forklift than push it to a charging station.”

 – Chad B. (Trey) Gledhill, CPIM, APICS-certified Distribution Manager

“A significant number of users do not know what alternatives are available to them and what the compromises are. That is where the materials handling profession comes in and provides the consultation and the recommendation. This is part of the reason why some of us believe this industry will never grow away entirely from the need for a ‘hands-on’ touch.”

 – Bill Ryan, Vice President and General Manager at LiftOne, a division of Carolina Tractor & Equipment

“If you can stomach the additional battery and charger on the front end, then the battery refill cost is almost nothing through its whole life. In other words, you pay for most of the fuel up front and a couple of dollars to fill the battery instead of $40 or more to fill an LP tank. And the battery truck chassis cost a lot less to maintain.”

 – Dana Johnson, Capital Equipment Sales at Herc-U-Lift

“If you calculate the total ownership cost, the battery-operated forklift is always cheaper. The initial cost is high, but with today’s AC systems the downtime is much less.”

 – Dhanaji Sawant, Managing Director at MHE Next Engineering Pvt. Ltd.

“For a forklift driver, the real end-user, driving inside as well as outside, hybrids are very promising. At low speeds, they are quiet but still have enough torque. At higher speeds and when hydraulic power is really needed, the diesel or LPG engine jumps in. No fuss with empty batteries, and reduced fuel consumption means longer stints between refueling.”

 - Arnoud-Jan Schut, Product Data Specialist at MCFE BV

“For outdoor applications, the cost analysis I have done always favors diesel by a bunch over propane. Also, diesel storage is much less expensive to install and dispensing is less dangerous/explosive than propane. Many municipalities require propane to be stored 100 feet or more from any occupied buildings, which can also rule it out based on the space available.”

 – Michael Shamrell, Director Warehousing/Distribution Optimization at Supply Chain Edge

 The Advantages of Fuel Cells

There are many advantages that come with using hydrogen forklifts. They are environmentally friendly and have very low to zero emissions. “Aside from environmental advantages, hydrogen fuel cells provide an ergonomic advantage. With the fuel cells, employees no longer have to change batteries on the trucks. That frees up warehouse space for storing the batteries but also reduces accidents and back injuries,” says Bill Ryan, vice president and general manager of LiftOne (Charlotte, NC). “We have also had operators tell us that when operating a fuel cell forklift, they didn’t feel heat coming through the seat like they do on a battery-powered truck.”

Refueling a fuel cell is a much quicker process than recharging electric forklifts. “With electrics, operators have to worry about where and when to recharge. Do you have to run the truck all the way down and then charge it all the way up? With fuel cells you don’t have to worry about that. You can refuel at 9 a.m., then again at noon and then again at 2 p.m. and it doesn’t slow anything down. The charging time is taken out of the equation and that’s a productivity gain for employees,” says Ryan.

Challenges Facing Fuel Cells

Fuel cells are not without their challenges, however. The technology is very expensive and without government subsidies can be cost-prohibitive for end-users. One of the biggest challenges is the issue of availability. While hydrogen is one of Earth’s most abundant resources, harnessing and distributing it is still difficult. “For implementing fuel cell forklifts to be cost-effective, customers would have to have a huge fleet,” says Ryan. “They would need something like 50 forklifts running three shifts per day, seven days per week. A fleet that big can offset the considerable cost associated with trucking fuel in or converting the hydrogen from a gas to a liquid.”

Mark Milovich, president of Lift Atlanta (Decatur, GA) agrees. “The main issue with fuel cells is hydrogen fuel infrastructure. It’s very expensive to get hydrogen into a plant to fuel up the trucks.” Milovich says hydrogen is also a very volatile gas. “Employees have to be specially trained to deal with hydrogen because any kind of static electricity can cause a spark.”

Hydrogen In The Future

Will hydrogen ever be the market force it was predicted to be? “If fuel cells were to attain a dominant market share, it would be because of the automotive industry. If the automotive industry can figure out a way to make hydrogen fuel available in a cost-justified manner, then the forklift industry could benefit,” says Ryan. “But if there isn’t a big vehicle population that subscribes to hydrogen, then the opportunity for forklifts to continue using hydrogen will be limited.” Milovich agrees. “The fuel cell is a great idea, but it’s at least another six to ten years away before it becomes a real viable option.”

What do you think? Will hydrogen fuel cells ever be more than a fringe player in the forklift market? Let us hear your thoughts in the comments section below.

Read more about the advantages and disadvantages of hydrogen fuel cells here.

“The biggest customer in the world is the United States federal government,” Mid Middleton, president of Carolina Material Handling (Greensboro, NC) says of the entity that buys goods and service in excess of $425 billion per year. Among those purchases are training, service and goods that MHEDA members provide. To ensure a level playing field when bidding for contracts, the government offers many procurement opportunities exclusively to small businesses. Federal agencies are required by law to set contracting goals, with at least 23 percent of buying being targeted at small companies. The problem is that, to many businesspeople, what constitutes “small” seems to be a moving target.

In examination of size standards, SBA is revising the North American Industry Classification System (NAICS) codes, which ascribe a maximum limit, either by number of employees or average annual receipts, for qualifying small businesses. (See the SBA’s Table of Small Business Size Standards). The SBA review encompasses every private sector in the U.S., calculated based on data from the 2007 County Business Patterns and the 2007 Economic Census. The most recent proposed adjustments, which would affect the professional, technical and scientific services sectors, saw many requirements double—or more.

“One of the great mysteries of life is what constitutes a small business,” says Richard Sinclair, president and CEO of Jefferds Corporation (St. Albans, WV) who does GSA work in the state of Virginia. “It’s like the tide. It’s constantly moving and changing.” Sinclair has done business with Uncle Sam for many years and has found himself in a unique position. “From a federal perspective, I don’t qualify as a small business. However, under the provisions of the Virginia purchasing authority, on a state level, I am small. It’s almost unexplainable.”

With government contracts being a lucrative and ultra-competitive area of business, a review of size standards could send shock waves through the material handling industry. “There is no question that small businesses have an advantage,” Sinclair says. “If a project is set aside for small businesses and you don’t qualify, you’re out of the hunt. That’s not to say that if you do qualify you’re going to get it, but you’ll have a chance to get up to bat. If I get up to bat, I might get a hit. If I never get up to bat, I’ll never get a hit. If I were reclassified as a small business by federal standards, that would be a boon for our business.”

Middleton, however, disagrees that a reclassification will make a significant difference. “In addition to being a small business, we’re also a Service Disabled Veteran Owned company,” he says. “Theoretically that should put us at an advantage. But it is certainly not the end-all. The government, as with any customer, is about relationships. What is your track record? Are you going to do what you say you’re going to do? It’s about what you have done and what you can provide far more than how big or small you are.” He adds, “Even though a certain percentage is set aside for small businesses, the customer is still going to price shop. They aren’t going to pay an extra five percent just to check off that box that says small business.”

Where the SBA will draw the line for what is considered small remains to be seen. What will the SBA reexamination mean for MHEDA distributors? Share your thoughts in the comments section below.

To learn more about working with the U.S. government, read “Doing Business With Uncle Sam.”