Each responded in its own way to the recession. All companies are making plans relative to:
With the current balance of power in Washington, Mr. Brumleve says that he is “cautiously optimistic” about future expansion of business for 2011. He’s not alone. The Memphis Business Journal reported that manufacturing revenues for 2011 are expected to rise approximately 7.5% and capital investments are expected to tick upwards 18% in 2011. In addition, operating capacities are running at 85% — the highest level since 2006.
“So why is anyone worried?” I asked. Mr. Brumleve went on to explain that even though employment rates are increasing, there are still many unanswered questions about the costs of operating a business in the U.S. and many of those questions stem from Washington.
“We don’t know the full impact of the health care law changes,” explained Mr. Brumleve. He continues: “The real costs of a new hire have increased 15 to 20 percent, and uncertainty of costs stifles employment growth for me and for my customers.” He cited the financial industry as another cog in the wheel of growth that needs to get some grease as well. “Credit is easing a bit, and customers are able to get some financing”, he says. “But it’s nothing like it was in 2008, when a customer looked for the equipment they needed and then obtained financing. It’s the other way around these days. Now customers have to determine how much credit they can procure, then find the equipment configuration that best meets that amount.”
This has led to another trend: an uptick in the practice of renting equipment to own it. By renting the equipment, no financing or borrowing takes place, and a percent of the monthly rental payment applies to the eventual ownership. This allows a company to grow as needed right now, without the burden of credit looming over it. It improves cash flow and retains a greater portion of credit available for other growth activities.
Some of Mr. Brumleve’s customers are foregoing their own warehousing and distribution and relying on Third Party Logistics companies like UPS Logistics, APL and Excel Logistics. “This allows smaller companies to distribute their products efficiently and effectively, without the great capital expenditures required for a full-fledged distribution operation,” he says. “It allows smaller firms to compete with much larger companies that distribute their products themselves, without adding debt—which is key in any economic time,” He believes this trend will continue, even after the economy fully recovers, as it is simply a more prudent business model for small to mid-sized companies.
Cardinal Integrated is Cardinal Carryor’s warehouse design and engineering arm. This division is led by Keith Heustis, President. Mr. Heustis says: “The recession gave companies something they had not had in years—time to re-think their material handling process…what they did with this time is try to find a way to maximize the Return on Investment (R.O.I) on their material handling operation.” Earlier in this decade, business was booming; shutting down or slowing down to add on was not something easily undertaken. And the easiest route was to knock out a wall and expand outward. Now, companies are using Cardinal Integrated’s engineering and design team to completely re-think, re-tool and re-design their warehouses. They’re giving a lot more thought to expanding upwards, how they handle their materials, and what is the best mix of equipment and space to maximize R.O.I.
With regards to employment, Mr. Heustis has found that companies are looking for ways to increase productivity while avoiding payroll expenses pre-dating the 2008 recession. “Most companies are doing more, with fewer employees, and this trend will continue throughout the recovery” Mr. Huestis added. He sees more companies inquiring for true assistance in streamlining than ever before to accommodate their business growth. Prior to the recession people would inquire about options, now they are leaning towards solutions to improve profits.
In terms of business climate, Mr. Heustis observes that a lot of projects quoted in the past are being brought back up for implementation—but with scaled back designs or other means to reduce costs of implementation. Nevertheless, he concurred with Mike Brumleve in that his customers are “cautiously optimistic.” His customers have told him that tight fiscal policy requires more critical examinations of their own business models and renewed need for ideas on how to increase productivity, improve through-put, and reduce costs.
Both Mr. Heustis and Mr. Brumleve share a positive outlook for the Louisville economy in general. They agree that if there are no more economic hurdles, and if credit continues to improve, then all the other economic indicators point to a slow but steady rebound. They’re confident that their customers are ready to expand and, that as soon as nerves settle, we will see more companies investing in “intelligent expansion” of their materials handling operations.]]>