Why warehouse operators need a strategy
Tuesday, July 22, 2014
Your people — especially your senior management team — will be motivated if they understand where the company is going. While opportunism can be a strategy, Lewis Carroll's warning in "Alice in Wonderland" should be considered as a good argument for strategic planning: "If you don't know where you are going, then any road will take you there."
Nobody wants to work for Alice in Wonderland. The absence of a long-range plan may create doubt about the future of the company. Your customers will be more comfortable working with a company that has a plan, and the same is true of your major suppliers.
Strategic planning can be just as important for small warehouse companies as large ones.
Personal strategy and corporate strategy
It is not reasonable, and sometimes not possible to separate the owner's personal strategies from the corporate strategy. Personal strategy starts with exit planning.
None of us is immortal, and everyone also faces the risk that a leader will be unexpectedly crippled by illness or accident. Furthermore, biology will terminate every career, even if nothing else does. The best long-range planning involves the ability to answer a key question: If you fell under a bus today, who is ready to replace you?
Lack of management succession is the prime cause of failure for small business, but it can also cause a disaster in a large company. When the chief executive of a major multicity warehousing firm retired, the owners replaced him with a golfing crony. By the time they realized that the new CEO could not perform, the company had lost several important clients. Clearly the succession plan — if they had one — was not effective.
Sometimes the exit strategy for the owner must remain confidential. Some owners feel that the best plan is to position the company for sale, but publication of this strategy would cause damage. Some corporate directors reach a decision that liquidation is the most profitable strategy. Others look upon partial liquidation, just as a farmer manages an orchard. Sick or dead branches are pruned in order to improve the health of the trees.
The special challenges of family business
Many warehousing companies are family-owned, and many of these are also family-managed.
Exit strategy and succession planning are especially critical in a family-owned corporation. In the 21st century, the family business may not function as well as it did in earlier years. The younger generation has more choices today, and it is not unusual to find that none of the children wants to work in the family business.
Sometimes family conflict will make succession planning difficult. One does not have to look outside the warehousing industry to discover cases where disagreement among family members created serious damage.
You can treat your company either as a dynasty or an asset. If it is a dynasty, your strategy is to provide employment for every family member who wants to work in the business. If the company is treated as an asset, every piece of the business is for sale.
Any offer to buy all or part of the corporation would be considered, if the offer is attractive. Older warehouse properties are sold, and the cash may be used to develop newer buildings. Unprofitable operations are sold or liquidated, just as withering branches are removed from a tree.
A family-owned business need not be family managed. We have seen more than one warehousing business move from family to professional management. Sometimes one family member stays on the team, but the senior staff are not owners.
Perhaps the most important ingredient to enhance the stability of a family business is an advisory board. That board should be primarily outsiders, trusted advisors who neither work in or have ownership in the business.
Unlike corporate directors, advisory board members have no liability. In recruiting an advisory board, it is wise to exclude clients, major suppliers and close personal friends. Terms of board members should be short, no more than two years. Then if performance of a board member is disappointing, he or she is excused at the end of the term.
The board should serve as the mediator if there is family conflict, as well as an unbiased advisor on implementation of management succession.
How will we grow?
Not every strategic plan calls for growth. Some managers may plan to maximize earnings and improve stability without making the company bigger. Others may want to limit expansion to a certain geography — perhaps a radius of 100 miles from the head office.
Those who do plan to grow have the choice of mergers or organic growth. When they expand, they have the choice of buying or renting existing buildings, or constructing new space.
If they want to expand, they may wish to follow existing clients by serving them in new cities, or they may get new clients through an acquisition. Some managers want to do more business with a smaller number of clients. Many are concerned about dependency, and they might resolve that the largest customer will never have more than 15 percent of their total revenue.
Should we be specialists or generalists?
Some warehouses specialize in single commodities, such as chemicals or consumer-packaged goods (CPG). They emphasize their wide experience in handling a particular type of warehousing.
Others are generalists, primarily because they want to avoid the risk that their specialty falls into serious decline. For example, in the last century some warehouse firms specialized in tobacco distribution. Nearly all of these recognized the need to diversify as that industry fell into decline.
Strategies can change. Within the warehousing industry, we find specialists who have become generalists, and vice versa.
Should we integrate vertically or horizontally?
Ford Motor Company is a prime example of vertical integration. Henry Ford built a factory that included a steel mill, and tried to build nearly every part of the Model T. Competitive auto makers were horizontal, and they purchased many of the parts that were assembled.
A vertical warehousing firm would own its real estate, and it might provide much of its own transportation. At the horizontal extreme, one logistics service provider offers storage and delivery services even though it does not own a single warehouse or truck. This provider purchases services from warehousing and trucking firms, but he owns the information system and closely guards his relationship with clients.
Four strategic questions
1. How will we survive? This is the most important question. If the CEO is unexpectedly removed, is there sufficient bench strength to allow the company to successfully serve its clients?
2. Who is our preferred customer? If we are specialists, the list is a short one. If we are generalists, the best customer might be a company in an emerging field that we have never served before.
3. What business are we really in? This is a favorite for strategists. Sometimes the answer is not obvious. A trucker may enter the warehousing business primarily to fill the needs of an important client, and the reverse may also happen for the same reason.
4. What is our special magic? This question can be as critical as survival. In an industry that is in danger of being commoditized, the ability to be something special has enormous value. If your senior management team does not have the vision of special magic, then the only thing you have to sell is price. A typical special magic statement is: "Nobody can match us in our ability to handle and rapidly deliver replacement parts."
Why not start creating a plan today?
Strategic planning is intimidating for many business leaders, but it should not be. Not all strategic decisions should be publicized. For example, announcing plans to liquidate or sell your company would have a negative impact on customers as well as employees.
When you publish at least a portion of your corporate strategy, those people who connect with your company will be happy to know where you are going, and how you expect to get there.
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