Preempting a Turnaround – Or Worse

Storm Warnings

A Cautious New Year, the first post to this blog in 2016, was posted over the New Year weekend. When 2016 opened for business after that weekend, the stock market began to drop. Now, two months into 2016, the need for caution appears to be accelerating. Here in the U.S., economic indicators suggesting possible recession are becoming stronger and more frequent. Globally, economic slowdown appears to be the general rule. Recession is a cyclic phenomenon, where a return to “normal” can be expected. This global slowdown, however, may well be a serious indication of fundamental changes in the global economy.

It is not this blog’s purpose to wallow in doom and gloom. However, when credible reasons for economic caution are present, a pragmatist takes appropriate actions. Which actions are appropriate, however, are unique to each business unit and circumstance.

When adverse economic conditions do exist, “appropriate actions” become increasing difficult to actually execute, as many will recall from 2008 and the years following. Better to heed the warning signs and to act preemptively. That means plan now.

To turn a manufacturing business around is always tough. But the mechanics of a turnaround do provide a useful source for preemptive planning. The Painful Art of the Turnaround, a set of three earlier posts to this blog, will help identify the “appropriate actions” for today’s national and global economic and business situation. Part 1: Confronting Reality is reprised below. Part 2 and Part 3, with updates and comments, will follow over the coming weeks. — C.H.


The Painful Art of the Turnaround – Part 1: Confronting Reality

From July 11, 2013

This post is the first of three on turning around a smaller manufacturing business unit. For present purposes, the term “turnaround” may apply when a business unit is either generating financial losses, or is displaying a persisting trend of deteriorating financial performance. “Persisting trend” means a trend that can be distinguished from cyclic downturns, such as recession or fluctuations in the price of petroleum.

Turnaround is arguably the most demanding of management tasks.

A Tough Situation

The opening years of the 21st century have been difficult for manufacturers, especially those in developed countries. In the U.S. alone, something like 50,000 manufacturing facilities have closed — net of new factories opened — since this century began. The table labeled “Size Distribution of Factories” [1] indicates that the carnage is spread across factories of all sizes. Measured by the number of factories closed, smaller factories led the way. In percentage terms, the bigger they were, the harder they fell. Since smaller firms often supply, and buy from, larger firms, there is no good news for anyone. And that’s just the more recent portion of a factory closings trend that dates back about three decades.

Size Distribution of FactoriesThe global realities that have produced this melt-down aren’t likely to go away. The resulting turmoil could affect the stability of any firm. Since the unexpected can occur at any firm, all managers need be aware of what is involved in turning a business around.

Confronting Reality

Once a persisting pattern of deteriorating operational and financial performance becomes clear, its potential consequences will be recognized by many. Others, especially managers, may well be in denial. A crisis in organizational confidence isn’t unlikely. It is necessary to take specific actions to maintain — or regain — the viability of the business.

>> A turnaround leader must be designated. This may be the existing senior manager, or it may be somebody else [2]. In either case, the turnaround leader must have full authority, subject only to the board chairperson (or other designated representative of the ownership). The turnaround leader will need both business acumen and strong leadership skills. The ownership’s expectations of the turnaround leader need be clearly and explicitly spelled out up front. There is nothing honorary about the role of turnaround leader — it is nitty-gritty, hands-on, often painful and more than full time.

>> The turnaround leader will need access to — and must be willing to listen to — input from a cadre of experienced people, especially those with previous turnaround experience.

>> The firm’s cash position must be calculated and projected forward at least weekly, if not more often. The turnaround leader must always know when the firm will run out of cash. The cash projection sets the deadline for returning the business to a net cash positive position.

>> The turnaround leader’s initial task is to prohibit any cash expenditure without the leader’s explicit approval. Then the leader needs to find additional access to cash. Perhaps the ownership will provide more cash. Perhaps credit lines are available. Accounts receivable need be worked. Expenses need be deferred. Profitability by product must be re-examined. Terms with suppliers may be renegotiated. The list goes on. A substantial (and painful) retrenchment may well be necessary.

>> Once the firm’s future cash prospects are reasonably clear, the turnaround leader needs to ask the ownership to decide on a course of action: (a) improve the prospects of the business in order to operate the firm indefinitely; (b) prepare the business to be sold or merged into another business; or (c) prepare the business for liquidation.

Make a New Plan, Stan

Boone Pickens tells this about his dad: He said, “Son, a fool with a plan can beat a genius with no plan. Your mother and I are concerned because you might be a fool with no plan.” [3]

Assuming that the ownership decides to operate the business, they will likely do so contingent on a sound plan for renaissance. I use the term “renaissance” because returning the firm to its former state isn’t enough. After turnaround, the firm must be in a position to compete successfully within today’s (and tomorrow’s) rapidly changing global business realities. That is, positioned to thrive in perpetuity.[4]

The plan for renaissance starts with a fresh business model (value proposition + a system for delivering the proposed value to targeted customers) [5]. A transition map follows. The transition map outlines the actions necessary to move the organization from its current state to a condition where the new business model is actually functioning. The transition may proceed through several stages of restructuring, stabilization and revival. The interests of all stakeholders (owners, creditors, customers, employees, suppliers and more) must be recognized.

The transition map is used to generate specific action plans [6], each with responsibilities, timeline, and cash costs limits defined. A no-nonsense reporting routine is established and executed rigorously. A sustained sequence of vigorous actions with corresponding evidences of progress will go far to reduce fear and improve the morale of all involved.

Caveat: All business situations are different. Although most successful turnaround plans have much in common, there is no one-size-fits-all turnaround plan.


Chuck & Joan in ParisThoughtful comments and experience reports are always appreciated.

…  Chuck Harrington (Chuck@JeraSustainableDevelopment.com)

P.S: Contact me when your organization is serious about prospering in the globalized 21st century … CH

This blog and associated website (www.JeraSustainableDevelopment.com) are intended as a resource for smaller manufacturers in the pursuit of Sustainability. While editorial focus is on smaller manufacturers, all interested readers are welcome. New blog posts are published weekly.


[1] The chart labeled “Size Distribution of Factories” is from Job Creation in the Manufacturing Revival, a Congressional Research Report for Congress, 19 June 2013, available at: http://www.fas.org/sgp/crs/misc/R41898.pdf

[2] In general, it is preferable to appoint an outside person, who needs not contend with matters of blame. For larger firms, where ownership and management are usually separated, this is almost always the case. In smaller firms, the ownership often is the management. The owner – manager often has personally endorsed many of the firm’s obligations. That makes a tough call. However, is unlikely that the firm will have more than one opportunity to turn around the business, short of bankruptcy.

[3] From Boone Pickens’ blog, The Daily Pickens, 8 July 2013.  http://www.pickensplan.com/news/2013/07/08/dallasnews-opinion-america%E2%80%99s-energy-picture-is-brighter-but-we-still-need-a-plan/

[4] Adam Werbach defines a sustainable business as one that is positioned to thrive in perpetuity. From Adam’s book, Strategy for Sustainability, Harvard Business Press, Boston (2009), page 9.

[5] For more on business models, see Business Model Innovation, this blog: http://blog.jerasustainabledevelopment.com/2013/03/27/business-model-innovation/

[6] Sandy Steinman’s new book, The Small Business Turnaround Guide, Morgan James Publishing, New York (2013), presents very practical insights as well as information on specific actions.

 

 

Appreciating the Theory of Constraints

The Theory of Constraints (ToC) offers manufacturers one of the most powerful tools available for systematic improvement of their business. ToC’s power lies in its use of what Nobel Prize winner Daniel Kahneman [1] calls “slow” thinking – deliberate, logical thought from first principles – and in ToC’s holistic systems approach to manufacturing. Systems and Constraints, an essay from almost two years ago, provides an introduction to ToC and its thought systems. – C.H.

Systems and Constraints – from 26 September 2013

The Theory of Constraints

In 1984, Israeli physicist Eliyahu Goldratt surprised the manufacturing world with The Goal, [2] a business novel that offered a different approach to continual improvement and to attaining operational excellence. That approach, which Goldratt later called the Theory of Constraints (ToC), amounts to an application of systems thinking [3][4] to plant floor manufacturing.

ToC takes exception to much of the basic thinking behind costs-and-efficiencies based management. This includes taking exception to accounting ideas such as producing “profits” by rolling costs into work in process and finished goods inventories. It also includes taking exception to operating ideas like striving for 100% on-line, at rate performance for all of the production equipment, all of the time. Instead, ToC emphasizes throughput (revenues, not inventory accumulation), investment (inventories, equipment and facilities) and operating expenses. Performance improves when throughput increases while investment and operating expenses decrease, in an absolute sense or in proportion to the increase in throughput. Emphasis on improving throughput trumps emphasis on reducing costs because costs cannot be reduced to less than zero, while throughput, in principle, can be increased without apparent upper bound.

ToC regards a manufacturing facility as a system consisting of interacting and interdependent processes. Those processes are not all equally important to increasing throughput. A few, usually one, process limits — constrains — the system. ToC focuses on identifying the limiting process and addressing that limitation. “Addressing that limitation” means increasing the capacity of that process, such that it no longer bottlenecks the facility. In addition, ToC uses a buffer before the constrained resource and a raw materials release system to prevent overproduction at non-constrained resources. Once a constraint is addressed and throughput increases, another constraint will be revealed — otherwise, throughput would be unbounded. So, ToC is an ongoing process of identifying and addressing constraints.

As production capacity increases, the constraint to increasing revenues eventually moves from the factory to the market. Often, improved lead times provide an advantage on attaining new business. Moreover, Goldratt noticed, through actual ToC implementations, that the “improvements in operations not only open new opportunities but actually provide the company with a decisive competitive edge”.[5] Goldratt’s later business novel, It Isn’t Luck, [6] provides examples of businesses with a decisive competitive edge. It Isn’t Luck also describes the thinking processes involved.

“A decisive competitive edge is gained only when a company satisfies a significant market need to an extent that none of its significant competitors can.” — E. Goldratt

For Smaller Manufacturers

The Theory of Constraints is very powerful because the systems thinking behind it is very powerful. As one would expect with a system, a full implementation of ToC almost always needs to be holistic (across the entire business unit), rather than piecemeal. A full implementation also needs the support of somebody with extensive training in ToC and its implementation. The thinking behind ToC is so different that implementations during periods of duress may be easier than implementations during good times, because of less staff and corporate resistance to the necessary changes.

That said, managers of manufacturing concerns can learn quite a lot by reading Goldratt’s business novels and studying Goldratt’s thinking process. It was once said that Goldratt’s personal objective was nothing less than to teach managers how to think.


In Monet's GardenThoughtful comments and experience reports are always appreciated.

…  Chuck Harrington (Chuck@JeraSustainableDevelopment.com)

P.S: Contact me when your organization is serious about pursuing Sustainability … CH

This blog and associated website (www.JeraSustainableDevelopment.com) are intended as a resource for smaller manufacturers in the pursuit of Sustainability. While editorial focus is on smaller manufacturers, all interested readers are welcome. New blog posts are published weekly.


[1] Daniel Kahneman, Thinking Fast and Slow, Farr, Straus and Giroux (2011)

[2] Goldratt, E. and Cox, J. The Goal, A Process of Ongoing Improvement, Third Revised Edition, North River Press (2004)

[3] For more on systems and systems thinking, see: More on Processes and Systems, this blog (16 May 2013): http://blog.jerasustainabledevelopment.com/2013/05/15/more-on-processes-and-systems/

[4] Dettmer, William, Goldratt’s Theory of Constraints, A Systems Approach to Continuous Improvement, ASQ Quality Press (1997). As his title suggests, Dettmer does a good job of formalizing the process aspects of Goldratt’s business novels.

[5] From Goldratt’s introductory chapter in Cox and Schleirer (editors), Theory of Constraints Handbook, Introduction by Eliyahu Goldratt, McGraw Hill (2010). The Handbook is a tool for those actually involved in ToC implementations. It is rather pricey. However, Goldratt’s introductory chapter itself is available in Kindle format from Amazon for a few dollars. It is well worth reading.

[6] Goldratt, E. It’s Not Luck, North River Press (1994)

 

We’re Not in the 20th Century Anymore, Toto

The 200th Essay

An Emerging View of Manufacturing in the 21st Century

Capture - BLS Manufacturing Firms 2001 - 2012The Industrial Age in America – a time in which the mass production of goods provided the economic focus of the country – declined during the final decades of the 20th century and swooned as the 21st century began. This isn’t a cyclic matter: 20th century manufacturing isn’t going to come back. Instead, the end of the Industrial Age in America is part of a transformation that is as sweeping as the Industrial Revolution was, when industry replaced agriculture as this nation’s economic focus.

Keep in mind that, in 1870, 70% – 80% of America’s working population was employed in agriculture. As of 2008, less than 2% was directly employed in agriculture. [1] Never the less, America’s farms today produce much more than ever before. America will continue to manufacture tangible products – lots of them. The way that America manufactures those products will change as dramatically as farming has changed.

“… right now we are going through a once-in-a-century transformation in business that is throwing out all of the existing rules.” [2]

This transformation is powered by a confluence of potent change agents, which might be loosely grouped as Globalization, Sustainability, Technology and Demographics & Trends. Globalization, Sustainability and Demographics & Trends provide insights as to the rapidly expanding context within which even quite small manufacturers must operate. Technology provides the means for transformation.

A few thoughts on the globalized context within 21st century manufacturers must operate:

>> Competition – Competitors and potential competitors exist worldwide, with more coming every day. So do suppliers and potential suppliers. Likewise, customers and potential customers. And these competitors / suppliers / customers are quickly becoming increasingly sophisticated in all aspects of globalized business.

>> Population – Since the advent of truly viable birth control, birth rates have dropped significantly, especially in economically developed nations. As a result, populations are aging. At the same time, the participation on women in all aspects of commerce has increased dramatically. Per capita GDP is increasing, notably in developing countries, resulting in more global middle class buying power.

>> Commerce is global / Politics are local – While competition is global, governments everywhere have incentive to favor their own. Issues including jobs, access to resources, taxation, entitlements and property rights continue to be contentious.

>> Financial System – The global financial system, as it exists today, is a hodge-podge of remnants from the Bretton Woods accords, socialist notions from the soviet era as well as from western nations, fiat (rather than hard) currencies, instantaneous globalized trading in currencies and financial derivatives, not to mention a diverse array of banking institutions. All of this is hardly a recipe for international financial stability.

Some thoughts on 21st century manufacturing operations:

Dreamstime - Crystal BallAtomic physicist Niels Bohr once said that “prediction is very difficult, especially about the future”.  Actually, it’s the being correct part that is difficult. The following are extrapolations from American manufacturing’s current situation. We’ll all see what actually happens as the 21st century unfolds.

>> Products: To beg the obvious, labor related costs in economically developed countries are much higher than in less developed countries. To be globally competitive, products manufactured in developed countries will require significantly greater intangible aspects, as opposed to the simply tangible. Above all, products need be clearly differentiable.

>> Emphasis on Return on Capital Employed (RoCE): Manufacturing is capital intensive, especially concerning fixed assets, when compared to other modes of enterprise. Accordingly, financial viability depends on sustainable RoCE, taken across the business cycle, rather than on profits per se. This change in point of view fosters longer term thinking in many respects. Organizational structure and financing are not least of these.

>> The Electro-Mechanical Spectrum: A recent essay [3] discussed a trend in machinery from the mechanical to the electronic. The Tesla automobile serves as a familiar example. Unmanned space vehicles offer another. The more electronic machines offer obvious advantages, including reliability and Moore’s Law initial costs. Perhaps the most important advantage is that electronic machines have a significant software component. For this reason, machines can be improved, or even retasked, through software changes. Such machines can actually improve over time, rather than just depreciate.

>> Innovation: There is nothing static about the future. 21st century manufacturers must consistently offer differentiable products that please customers while generating satisfactory returns. This requires continuous and systematic innovation in products, operating processes and, especially, business models. A prior essay looks at all three of these modes of innovation. [4]


There is a lot more to manufacturing in the 21st century than a single essay can even hint at. The changes involved in this “once-in-a-century transformation” are of almost seismic magnitude. And change will beget more change, even more rapidly. Stand by.

Chuck - Blue SweaterThoughtful comments and experience reports are always appreciated.

…  Chuck Harrington

(Chuck@JeraSustainableDevelopment.com)

P.S: Contact me when your organization is serious about pursuing Sustainability … CH

This blog and associated website (www.JeraSustainableDevelopment.com) are intended as a resource for smaller manufacturers in the pursuit of Sustainability. While editorial focus is on smaller manufacturers, all interested readers are welcome. New blog posts are published on weekly.

Photo Credit: © Shutter999 | Dreamstime.comCrystal Ball With A Bar Chart Photo


[1] Figures from Wikipedia, http://en.wikipedia.org/wiki/Agriculture_in_the_United_States

[2] Tien Tzuo, CEO of Zuora, quoted in Fortune magazine. http://fortune.com/2015/04/27/tien-tzuo-starting-your-own-business/. Zuora is a start-up business that is pioneering subscription based business models. For more on Zuora, see www.Zuora.com.

[3] http://jerasustainabledevelopment.com/2014/11/15/the-electro-mechanical-spectrum/

[4] http://jerasustainabledevelopment.com/2014/11/29/three-modes-of-innovation/

 

 

Goal Setting for a Sustainable Future

Last week’s post, On Goals and Objectives, [i] suggested that a manufacturer’s financial goal reflect financial sustainability by emphasizing an adequate return on capital employed, taken across the business cycle. A business that is not sustainable in a financial sense ceases to exist, so it can’t be sustainable in any other sense either.

However, to be sustainable in a financial sense requires more than a stated goal, regardless of how well formulated that goal may be. For a firm to be sustainable in a financial sense – or any other sense – requires a sustainable environment in which it can operate. “Environment”, as used here, doesn’t just refer to the natural world. Rather, “environment” also includes a multiplicity of human aspects, such as the increasingly globalized economy, political factors such as regulation and taxation, educational resources and much, much more.

Triple Bottom Line – Jera Style

Sustainability guru John Elkington’s concept of a Triple Bottom Line provides the most frequently used framework for discussing Sustainability. Elkington’s core idea is that firms should foster return on environmental assets employed and return on social / cultural assets employed on an equal basis with fostering return on financial assets.

3P Diagram with captionThe graphic to the right presents the Triple Bottom Line somewhat differently. In this view, industry (manufacturing, along with agriculture and mining – businesses that produce tangible goods) is in symbiotic relationship with the natural world and with humanity. Industry draws resources from nature and uses nature as a sink for wastes. Industry draws talent, creativity and physical efforts from humanity, while humanity relies on industry for the “stuff” of sustenance and affluence, and for the ability to pay for it. Industry is in the middle, charged with interfacing and reconciling the other two. [ii]

It is clear that the natural world is under great pressure due to an increasing human population and from an increasing per capita affluence, both facilitated through industry. Manufacturing CEO Ray Anderson provides a remarkable insight (or, more properly, an epiphany):

“ According to Hawken, not only was business and industry the principle instrument of global destruction, it was also the only institution large enough, wealthy enough and pervasive and powerful enough to lead humankind out of the mess we were making.” [iii]

Mess indeed. But symbiosis works both ways. As a report from consulting firm McKinsey & Company’s global Sustainability & Resource Productivity practice [iv] points out, leading humanity out of the mess offers an extraordinary business opportunity. According to McKinsey, that opportunity includes  “by the mid – 2020s, there could be a dozen or more US$100+ billion global markets scaling up around the combination of resource productivity and clean tech.” Of course, each of those new global markets will have value chains stretching upstream and down, meaning opportunities for many, many businesses.

Back to Goals

On first thought, the Triple Bottom Line idea seems to suggest that at least three primary business goals are needed – one concerning the financial sustainability of the firm, a second regarding the firm’s relationship with the natural world, and a third pertaining to the firm’s interactions with humanity.

However, the symbiotic relationships among the components of the Triple Bottom Line suggest that it is practicable to formulate a single goal that embraces all three aspects of Sustainability.  A single clear, coherent goal, deployed throughout the organization through well aligned objectives can provide the focus needed to keep a complex system, which a manufacturing business is, operating effectively.

In 1995, Ray Anderson established such a goal for his billion dollar global carpet manufacturing firm. That goal was to prosper as a company while eliminating all waste discharges to landfill, eliminating pollution to air or water and taking nothing from the earth that the earth cannot renew rapidly and naturally – and to do so by 2020.

What happened? — Anderson put it this way:

“Here’s the thing: Sustainability has given my company a competitive edge in more ways than one. It has proven to be the most powerful market differentiator I have known in my long career. Our costs are down, our profits are up, and our products are the best they’ve ever been. It has rewarded us with more positive visibility and goodwill among our customers than the slickest, most expensive advertising campaign could possibly have generated. And a strong environmental ethic has no equal for attracting good people, galvanizing them around a shared higher purpose, and giving them powerful reason to join and to stay.” [v]

For Manufacturers of all Sizes

We have all learned that Quality is not a cost – consistent product quality reduces costs while retaining or even increasing revenues. Quality is not optional in today’s world. We have all learned that Safety is not a cost – remaining accident free reduces costs and frees human beings from painful injuries. Safety is not optional in today’s world. We all need to learn that Sustainability is not a cost – Sustainability is a better way to do business. A business that isn’t Sustainable simply doesn’t have a future.

Chuck - Red Rocks3Thoughtful comments and experience reports are always appreciated.

 

…  Chuck Harrington (Chuck@JeraSustainableDevelopment.com)

 

P.S: Contact me when your organization is serious about prospering in the 21st century … CH

 

This blog and associated website (www.JeraSustainableDevelopment.com) are intended as a resource for smaller manufacturers in the pursuit of Sustainability. While editorial focus is on smaller manufacturers, all interested readers are welcome. New blog posts are published weekly.


[i] On Goals and Objectives, this blog, http://jerasustainabledevelopment.com/2015/03/28/on-goals-and-objectives-2/

[ii] For more on the Triple Bottom Line, see Double Take on the Triple Bottom Line, this blog, http://jerasustainabledevelopment.com/2012/10/04/double-take-on-the-triple-bottom-line/

[iii] Ray Anderson, Confessions of a Radical Industrialist, St. Martin’s Press (2009), page 14. Anderson refers to Paul Hawken, The Ecology of Commerce, originally published in 1993, revised edition in 2010. Note: These two books, both written by entrepreneurial business CEOs, should be required reading for anyone interested in sustainable business.

[iv] Jeremy Oppenheim, How to make Green Growth the new normal, McKinsey & Company, Sustainability & Resource Productivity Practice (May 2013). Available at: http://mckinseyonsociety.com/make-green-growth-new-normal/

[v] Ray Anderson, Confessions of a Radical Industrialist, op cit, page 5

 

A Holiday Surprise

Image

Cashing in at the Gasoline Pump

Capture - Crude Oil Prices - 2014Santa came early this year, bringing a welcome boost in personal disposable income and a turbocharger for the U.S. economy. Last June, the world price for crude oil topped out around $114 per barrel, just in time for the usual summer driving season. Then prices began to decline. Then the decline turned into a rout. As you can see from the chart, the world price for crude oil has dropped by just about half since mid year.[i]

Rather reluctantly, gasoline prices at the pump are following crude prices. Where I live, gas is about a dollar a gallon less today than it was last June. For an average Joe who drives 1,000 miles a month at 20 miles per gallon, that is $50 a month, cash money in the pocket. That same average Joe’s paycheck has been stagnant (at best) since the Great Recession began. And nobody explained to Kroger or Safeway that there hasn’t been any inflation. Fifty bucks a month isn’t a fortune, but it will sure help a lot of people. Multiplying that $50 a month by the number of cars on the road results in a figure that even a congressman will notice.

What Happened?

The global supply / demand balance for crude oil reached a tipping point. Prices have been going up – up – up, riding a seller’s market. Now, supply exceeds demand, buyers are in control, and prices are falling like snowflakes in Vail. There are strong reasons for this from both the supply side and the demand side.

>> Fracking – The combination of hydraulic fracturing and horizontal drilling – fracking –has resulted in an enormous increase in crude oil production here in the U.S. As a result, much of the oil that America used to import is now produced at home.

Additionally, fracking has produced a big increase in natural gas production. Low priced natural gas has displaced petroleum products in many heating and steam generation applications, as well as in the production of chemical and plastics feedstocks. To make matters even worse for countries that rely on crude oil exports as a primary driver of their economy, access to fracking technology allows formerly inaccessible crude oil and natural gas deposits to be developed in many parts of the world. Global petroleum reserves and potential for production are going to continue to increase.

>> Negawatts – “Negawatts” is a rather wry term for energy not consumed, thanks to conservation measures. Think higher gas mileage cars and high SEER rated home heating and air conditioning. Arguably, “negawatts” have had a greater effect on America’s crude oil import rate than fracking has. Appreciating Negawatts,[ii] a recent post to this blog, elaborates on “negawatts”.

In any case, crude oil imports have suffered a one – two punch, from the supply side and from the demand side. Just now, global crude oil prices are on the ropes. Of course, as crude prices decrease, high production cost wells will be mothballed and fewer new wells will be drilled. So, prices will recover over the coming months. However, I don’t expect crude oil prices to reach last June’s level any time soon.

For Smaller Manufacturers

About 73% of the petroleum consumed in the U.S. is as fuel for transportation: gasoline, diesel fuel and jet fuel. Much of the remainder is used in industry – think steam generation and process heating. Lower transportation fuel cost means lower shipping costs, in-bound and out-bound. Lower fuel oil cost means lower steam generation or process heating costs – lower, but not as low as natural gas, now and for the foreseeable future. Costs for travel on company business should also improve.

Along with fuel cost savings, there should be indirect benefits. For one, lower energy costs makes U.S. manufacturers more competitive globally. Additionally, since cash that would have gone to crude oil exporters abroad is staying at home, the rate at which money circulates domestically increases, effectively multiplying itself across the economy. Further, as the U.S. balance of trade improves through more export sales and fewer dollars spent on importing crude oil, the U.S. GDP improves. When GDP improves, lots of good things happen.

This current situation regarding petroleum as it affects smaller manufacturers is changing very quickly just now. This post hardly scratches the surface. Look for a considerably more detailed Commentary on petroleum in the coming weeks.

Chuck - Blue Sweater 2Thoughtful comments and experience reports are always appreciated.

 

…  Chuck Harrington

(Chuck@JeraSustainableDevelopment.com)

P.S: Contact me when your organization is serious about pursuing Sustainability … CH

This blog and associated website (www.JeraSustainableDevelopment.com) are intended as a resource for smaller manufacturers in the pursuit of Sustainability. While editorial focus is on smaller manufacturers, all interested readers are welcome. New blog posts are published weekly.

[i] Crude oil prices are from the U.S. Energy Information Administration. See: http://www.eia.gov/dnav/pet/pet_pri_spt_s1_d.htm

[ii] See Appreciating Negawatts, this blog: http://jerasustainabledevelopment.com/2014/11/22/appreciating-negawatts/

 

BMW – A Case Study in Sustainability

A Mammoth Woolly

Sustainability has been termed a “woolly” matter – “woolly” meaning “confused, vague or lacking focus”.[1]  This is especially true for those who are tasked with actually building a Sustainable business. The increase in the scope of management awareness necessary to interpret and implement Sustainability as a set of actions applicable to a specific business is surely a mammoth woolly.

This post is continues a series of Case Studies that discuss how some firms have become widely recognized for their success in interpreting and implementing Sustainability. The actions taken by firms like BMW, the subject of this post, can provide useful insights for smaller manufacturing firms. Actually, larger firms like BMW provide more than just some sort of role model. The BMWs of the world have suppliers, and their suppliers have suppliers. The pursuit of Sustainability at the top of the food chain entails actions all the way down the food chain. If your firm is a supplier to – or wants to be eligible to be a supplier to – a global Sustainability leader like BMW…

Dow Jones Sustainability Index (DJSI World)

Everybody knows the Dow Jones 30 Industrials stock index. However, Dow Jones publishes a number of other investors’ indices, including a Global Sustainability index. In the indexing process, information on over 3,000 companies is divided into 24 categories, then each is ranked in nine aspects of Sustainability (examples include supply chain management, operational eco-efficiency and climate strategy).[2]

As of last report (September 2014), BMW ranked #1 over-all and #1 in 7 of the 9 aspects mentioned above, in the Automotive and Components category. They blew away the pack for the eighth year in a row. Dow Jones’ rating methodology offers useful insight into how the financial industry looks at Sustainability.

Sustainable Value

BMW also publishes an annual Sustainable Value Report that explains the company’s top – down Sustainability program, its structure and implementation. It also reports on objectives and progress toward achieving them. The current report (for 2013) is 231 pages long – but it is easy to follow.[3]

The Sustainable Value Report is organized as 6 six sections, each of which contains 3 to 6 subsections. The sections are:

>> Sustainability Management (sub-sections include risk management and compliance matters).

>> Product Responsibility (includes product safety and resource efficiency)

>> Group – wide Environmental Protection (includes energy consumption, materials utilization, water usage and biodiversity)

>> Supplier Management

>> Employees (includes occupational safety and health, training and diversity)

>> Corporate Citizenship

The BMW i3

BMW i3 Press Kit PhotoEarlier this year, BMW introduced a new class of automobile.[4] The new car, the BMW i3, was designed from the ground up with the whole woolly lot of Sustainability in mind. The BMW i3 is about the size of other BMW 3 – series cars. That, and the fact that the new car is clearly and obviously a BMW, is where comparison with the ordinary ends.

>> The BMW i3 is purpose built for urban electric driving. It sports 170 hp, accelerates from 0 to 60 mph in about 7 seconds and has a real – world range of 70 to 110 miles of city driving between battery charges.

>> The battery is mounted below the floor (like Tesla’s) and weight is distributed 50:50 front and rear. The low center of gravity, along with balanced weight distribution promise nimble handling in traffic. The car’s performance is such that even the car fanatics at Car & Driver magazine like the i3.

>> The frame is almost entirely aluminum and the passenger compartment makes extensive use of carbon fiber. As a result, the 170 horses have only about 2,900 pounds to power around. So fuel economy equates to about 138 mpge in the city and 111 mpge in highway driving.

>> The car makes extensive use of recycled materials, especially in the car’s interior. And BMW knows how the components of the i3 will be handled at the end of each vehicle’s useful life – cradle to cradle design!

For Smaller Manufacturers

The Case Studies posts are intended to provide examples for smaller manufacturers who are attempting to wring the wool out of Sustainability – that is, to create an operational definition of Sustainability that fits for them. Firms like BMW obviously are not smaller manufacturers. They do, however, condition market expectations as to what it means to be a Sustainable manufacturer, larger or smaller.

The BMW case offers three useful examples:

>> The Dow Jones Sustainability Index provides insight from the financial world on what Sustainability consists of, as seen from Wall Street. The index, its components and how firms are evaluated are worth serious study.

>> The BMW Sustainable Values Report describes how one manufacturer interprets and measures its own approaches to Sustainability. Information on BMW’s program is especially useful when studied in context of the Dow Jones framework.

>> The new BMW i3 automobile provides a “show me”, rather than a “tell me” example. The i3 is an exercise in applied Sustainability. Study of the new car provides practical insights as to Green product design, materials selection, manufacturing processes, Green product positioning, and on and on.


Chuck - Vancouver3Thoughtful comments and experience reports are always encouraged.

Chuck Harrington

(Chuck@JeraSustainableDevelopment.com)

P.S. Contact me when your firm confronts Sustainability.

BMW i3 photo is from the BMW i3 Press Kit.


[1] Definition of “woolly” from Encarta dictionary, which pops up from Microsoft Word.

[2] See http://www.sustainability-indices.com/review/industry-group-leaders-2014.jsp and  http://www.sustainability-indices.com/images/Industry_Group_Leader_DJSI2014_Bayerische-Motoren-Werke-AG.pdf

[3] http://www.bmwgroup.com/com/en/_common/_pdf/BMW_Group_SVR2013_EN.pdf

[4] See the BMW i3 brochure: http://www.bmwusa.com/standard/content/Zmag.aspx?id=f8280d2f-0731-42d1-8156-7d3062bdbe39

Sustainability – A View from the Boardroom

Recently, I came across a draft post from early 2011. That draft discusses The Board’s Sustainability Handbook, published by A. D. Little, a venerable international consulting firm. The purpose of the Handbook is to acquaint corporate directors with Sustainability and its relevance at the Board of Directors level of management. This post draws on and updates the draft from 2011.  – C.H.


 To begin, what exactly is Sustainability?

“Sustainability” refers to an organizational condition to be attained. “Sustainable Development” refers to systematic actions taken over time intended in pursuit of Sustainability. The two terms are often used interchangeably. “Sustainable Development” (hence Sustainability) was originally defined as:

“Development that meets the needs of the present without compromising the ability of future generations to meet theirs” (from the UN’s Bruntland Commission, 1987).

Sounds easy enough, until one considers the scope of concerns that “… without compromising the ability of future generations…” entails:

“It doesn’t matter what size your business is. Sustainability requires you to be aware of the whole picture in which the business sits: from one end of the supply chain to the other; the short term and the long term; the complete lifecycle of your products; and the full gamut of risks and opportunities that face your business – not just financial and reputational risks, but competitive, legal and regulatory as well as societal, community and environmental ones.” (A D Little, The Board’s Sustainability Handbook).

So why would any manufacturer want to get involved in all that?

Why? Because the rapidly changing 21st century business realities of globalization, internet communications, litigation, regulation and activism require diligent systems thinking to manage today’s business risks, and to be positioned to seize the remarkable array of business opportunities that the current pace of change presents. Sustainability is the framework for doing that. Sustainability is good business, at the Board level and every level.

Good business requires a sound business case. The business case for Sustainable Development, of course, varies from business unit to business unit. In general, most revolve around some or all of these factors:

  • Cost advantage due to reduced energy costs per unit production
  • Cost advantage from reduced material consumption per unit production
  • Competitive advantage from differentiable Green products
  • Improved competitive posture in the marketplace
  • Responsiveness to customer requirements for sustainable practices
  • Anticipating regulatory measures
  • Reduced risk of litigation
  • Reduced risk of activist pressures

“(W)e are convinced that in a more globalized, interconnected and competitive world the way that environmental, social and corporate governance issues are managed is part of companies’ overall management quality needed to compete successfully. Companies that perform better with regard to these issues can increase shareholder value by, for example, properly managing risks, anticipating regulatory action or accessing new markets, at the same time contributing to the sustainable development of the societies in which they operate. Moreover, these issues can have a strong impact on reputations and brands, an important part of company value.”  (A D Little: The Board’s Sustainability Handbook, again).

Some real world examples:

>> Dow Chemical announced that it reduced the energy intensity of its operations by 38% between 1990 and 2009, and intends to reduce energy intensity by an additional 25% by 2015. “Energy intensity” refers to energy consumption per unit of production. Dow’s energy intensity reductions during the 1994 – 2009 period saved enough energy to power all of the houses in California for a year and a half. Those savings amounted to $9.4 billion. That $9.4 billion is at the rates Dow Chemical paid for power at the time – not what you or I would have paid, and not what Dow pays today. Additionally, Dow’s 1,800 trillion BTU energy intensity reductions prevented 95 million tons of greenhouse gas (CO2) emissions to the atmosphere.

>> In 2005, General Electric introduced its Ecomagination green products initiative. “Green products” means products that offer significant benefits for customers that are due to ecological characteristics of the products. In 2009, there were over 90 products in GE’s Ecomagination portfolio. These innovative products generated $18 billion in revenues for GE in 2009 alone, and revenues from Ecomagination products continue to grow at twice the rate as GE’s total corporate revenues. Innovative products command strong margins, so Ecomagination’s contribution to net revenues is even stronger. (Update: Through 2013, GE’s Ecomagination portfolio is credited with $160 billion in revenues, against R&D investment of $12 billion).

>> The United Nations Global Compact has now been signed by 8,700 corporate participants and other stakeholders in 130 countries. The Global Compact commits businesses to align their strategy and operations with ten universally acceptable principles in the areas of human rights, labor practices, environment and anti-corruption. (Update: As of August 2014, over 12,000 corporate participants in 145 countries)

In the end, the Handbook puts it rather succinctly: 

“In 20 years time, no one is likely to be talking about ‘sustainable’ or  ‘unsustainable’ businesses, because the unsustainable ones will have gone to the wall.” 

That was in 2011. The clock is running.

Chuck - France 2012-4Thoughtful comments and experience reports are always appreciated.

…  Chuck Harrington (Chuck@JeraSustainableDevelopment.com)

P.S: Contact me when your organization is serious about thriving in the 21st century … CH

This blog and associated website (www.JeraSustainableDevelopment.com) are intended as a resource for smaller manufacturers in the pursuit of Sustainability. While editorial focus is on smaller manufacturers, all interested readers are welcome. New blog posts are published on Wednesday evenings.


The Board’s Sustainability Handbook is available for download as a .pdf at: http://www.lulu.com/shop/arthur-d-little/the-boards-sustainability-handbook/ebook/product-17363302.html. It is a $1.05 well spent (no kidding — one dollar + one nickel).

 

A Year in the Sun

 Going Solar

Last year, Joan and I had solar power generation equipment installed at our home. Early in June of 2013, the new system was placed in service. Both the solar system provider [1] and the local power utility [2] have provided timely and reasonably detailed information on the solar power system’s performance. This post reports on actual performance during the first full operating year (July 2013 through June 2014).

 Sunny Arizona

We live in the high desert of north central Arizona, about 3,400 feet above sea level and about as far north as Los Angeles or Atlanta. Like the rest of Arizona, we enjoy sunshine much of the time. Temperatures here are rarely below freezing except overnight in mid winter. In the summer, temperatures often exceed 110o F during the day, sometimes for days or even weeks. Our home is a single story structure oriented roughly north to south — almost ideal for solar panels.

Capturing Photons

Capture - Power Consumption by Month

Refer to the chart labeled “Power Consumption by Month”. The blue curve indicates the total amount of electric power consumed (kilowatt hours), by month. The red line indicates the amount of that power provided by the solar panels and the green line indicates the amount supplied by the power utility.

Power consumption is quite seasonal due to air conditioning in the summer and electric heating in the jaws of winter. Power consumption ranged by almost a factor of three, from a low of 877 kwh in May and a high of 2,416 kwh in December. Solar power generation ranged from 674 kwh in the short days of November to 1,258 kwh in June.

Capture - Solar Power Generated

The chart labeled “Solar Power Generated / Total Power Consumed” indicates how much of the power consumed in each month was provided by the solar panels. For the year as a whole, the solar panels provided 70% of total consumption, as designed.  However, the high consumption winter months are also low generation months — during December, solar provided only 29% of the power consumed. On the other hand, in three months the panels generated more power than was consumed, reaching 143% of consumption in May. In those three months, the electric meter effectively ran backwards as the surplus power was delivered to the power grid.

Capture - Monthly Power Bill

The chart labeled “Monthly Power Bill” compares a year with solar (July 2013 – June 2014) with the same months a year earlier, before the solar system became active. As you can see, midwinter power bills changed little, while the other ten months improved markedly. Overall, our average daily power bill decreased by 67% — about as expected, since solar provided, on average, 70% of the power consumed. Most of the remaining 3% can be attributed to fees and taxes on monthly power bills that are not rigidly proportional to the power provided.

Obviously, those big reductions in monthly power bill payments need be balanced against the cost of installing the solar panels and related equipment.

View from the Power Utility

Widespread installation of distributed solar power generation capacity affects utility companies in negative and positive ways. On one hand, distributed solar installations like mine reduce peak demand loads at the most advantageous time — during long, hot summer days with high air conditioning loads. Similarly, when solar generation exceeds consumption, the utility receives clean, green solar power without capital investment on their part, effectively in exchange for base load power, usually delivered during times of low demand (at night, for example) from existing facilities.

On the other hand, the utility loses most of the revenues they are used to receiving from me and installations like mine. However, the utility’s power generation and power transmission facilities, for the most part, already exist. Their variable cost of generating power does decline, but their fixed costs and overheads don’t. As you can see from the green line on chart titled “Power Consumption by Month”, the utility provides (and bills) an average of about 500 kwh per month. However, they are obligated to be equipped to provide more than three times that much power in mid winter.

For Smaller Manufacturers

There are two reasons to consider solar power generation. The first is to reduce your power cost today and to hold that cost constant in the future, regardless what dramas befall fuel costs. The second is to provide your business, your customers and humanity generally with cleaner air to breathe. Both reasons matter.

That said, the economics of solar panels are likely to be most attractive for office facilities and light industry. In any case, manufacturers should be in regular contact with the service engineers at their local power supplier. They can, and will, help you evaluate installing solar generation. At the same time, they may suggest other avenues to lower your power costs, depending on the specifics of your facility and your power requirements.

Chuck - Vancouver 2Thoughtful comments and experience reports are always appreciated.

…  Chuck Harrington (Chuck@JeraSustainableDevelopment.com)

P.S: Contact me when your organization is serious about pursuing Sustainability … CH

This blog and associated website (www.JeraSustainableDevelopment.com) are intended as a resource for smaller manufacturers in the pursuit of Sustainability. While editorial focus is on smaller manufacturers, all interested readers are welcome. New blog posts are published on Wednesday evenings.


 

[1] Our solar power generation system was designed, installed and leased through Solar City. They did a good, hassle-free job.

[2] The utility is Arizona Public Service (APS), www.aps.com

Note: The charts in this post were created from data provided by APS and from Solar City.

Creating and Capturing Value

 

26 July 2014

Profit from Slywotzky

Adrian Slywotzky is one of my favorite business writers. Why? Because he writes about profitability. Almost no one else does. He explains how profitability does — and doesn’t — happen. To beg the obvious, a business must consistently be sufficiently profitable in order to continue to exist, let alone to thrive in perpetuity. Profitability, unlike taxes, doesn’t just happen. It needs to be understood and cultivated.

No-Profit Zones

Consider the value stream of a manufactured product, from the origins of raw materials through a sequence of value adding steps, culminating in delivery to an end user. Each of those value-adding steps can be viewed as an individual business that receives inputs from upstream, adds cost and (hopefully) value, then passes the product-in-process downstream. At each step, the incremental and the rolled-up cost can be calculated. The value, however, is determined by market forces, including supply, demand and competitive offerings.

So, for some steps (again, thinking of each step as an individual business), the market’s assessment of the value added may substantially exceed the incremental cost. For others, the situation may be very different. For some steps, the market may allow a generous profit. Other steps may well be no-profit zones, or even negative-profit zones.[1]

Take the automobile industry, for example. Automobile manufacturers buy in large quantities from suppliers that are, in most cases, considerably smaller than themselves. Automobile manufacturers buy very well, so profit opportunities for suppliers are limited, at best. Automobile manufacturers enjoy great economies of scale, so conversion of parts and materials to finished automobiles is quite efficient. Still, for each manufacturer, a few models generate most of the profits — others may be outright losers. Consider that Volkswagen’s Audi division generates half of the profits, while, at Ford, pick-up truck sales drive the profits. For automobile dealers, sales of new vehicles generate very little profit. Sales of used vehicles, maintenance and financing generate the profits.

Slywotzky points out that situations where suppliers all offer comparable products (in the customers’ opinion) and compete for business primarily on the basis of price are likely to be (or soon become) no-profit zones. This is especially true when “no profit” is taken to mean a level of profitability that is insufficient to justify the resources employed.

In short, the value created across a value stream is not necessarily captured where or by whom it is created.

Capturing Value 

The Art of ProfitabilityWarren Buffett, along with most competent securities analysts, doesn’t simply extrapolate from historical data. Rather, he seeks an understanding of how a business makes a profit and, more importantly, of why those profits should continue into the future. Sustainable profitability requires a mechanism by which sufficient value is reliably captured. No kidding… a mechanism. Slywotzky describes twenty three of them, although there are likely many more. Better yet, one of Slywotzky’s books amounts to an engaging self-study short course in recognizing and applying those twenty three mechanisms.[2]

For Smaller Manufacturers

Slywotzky teaches that value capture is at least as important as value creation, and that value capture, hence profitability, results from business design. This applies to businesses of all sizes and descriptions. For smaller manufacturing firms, however, there are some additional considerations.

>> Smaller firms must, of necessity, focus. Larger firms may enjoy the luxury of some degree of diversification.

>> Manufacturing firms, big or small, are generally fixed asset intensive. Task-specific fixed assets limit agility.

>> Slywotzky’s books were published before the full impact of both globalization and the Great Recession on manufacturing became apparent.

None of this changes the need to design your business to capture value. However, the global business environment changes increasingly rapidly now. When that happens, even the best value capture mechanism may become moot, perhaps suddenly. So, your present value capture mechanism is important, but so is your next.

This means every manufacturer needs a method for maintaining a zoomed out view of entire business world and its relentless changes. It also implies new forms of cooperation among manufacturers, in view of globalized business realities. Start with your trade organization and re-examine its functions for the 21st century.

Chuck - France 2012-4Thoughtful comments and experience reports are always appreciated.

…  Chuck Harrington (Chuck@JeraSustainableDevelopment.com)

P.S: Contact me when your organization is serious about pursuing Sustainability … CH

This blog and associated website (www.JeraSustainableDevelopment.com) are intended as a resource for smaller manufacturers in the pursuit of Sustainability. While editorial focus is on smaller manufacturers, all interested readers are welcome. New blog posts are published on Wednesday evenings.


[1] For more on profit zones and no-profit zones, see:  Adrian Slywotzky and David Morrison, The Profit Zone, Three Rivers Press (1997, 2002)

[2] Adrian Slywotzky, The Art of Profitability, Warner Business Books (2002)

 

 

 

Accessing Capital

10 April 2014
Access to Capital: Money to Mainstreet®
[1]


To beg the obvious, money is the lifeblood of business. And money from external sources is almost always necessary for start-up (beyond the kitchen table or garage stage), for growth, or for recovery from setbacks (such as the Great Recession). This is especially so for capital intensive enterprises like manufacturing.


Recently, Dunn & Bradstreet Credibility Corporation presented a workshop on sources of capital for small businesses. I found it interesting, useful and thought provoking. Presenters at the workshop included traditional bankers, along with representatives from several alternative funding sources. This post combines information from D&B’s workshop with information from other sources and from personal experience.


Banking on the Bank?


Businesses with several years of history, demonstrated profitability and a sound balance sheet usually find bankers willing to lend for growth initiatives (“growth”, in my view, means growth in net revenues: that is, increased gross revenues, improved margins, or both). Bank funding for start-ups or for recoveries is usually tough to find.


Of course, every business should be constantly nurturing banking relationships through checking accounts, credit card processing and building a business credit record, as well as through personal banking services. However, it is useful to remember several facts:


(1) A generation ago, banks were independent local institutions — today, most banks are part of large, if not global organizations. Banking, speaking generally, is less personal than it once was, hence personal banking relationships are more difficult to establish and maintain.

Very few bankers today have the personal authority to approve loans outside of an institutional underwriting structure. Also, federal regulations on loan underwriting processes have tightened substantially in the aftermath of the Great Recession and the banking system meltdown that precipitated it.


(2) Banks focus on surety of timely repayment. Bankers emphasize balance sheets much more than most business people do. Banks want collateral assets, and they want guarantees. As a business owner, don’t let a banker’s request for your personal guaranty — and for leans against your personal assets — offend you.


(3) As mentioned above, underwriting a bank loan today requires adherence to a rather bureaucratic procedure, which takes time and costs money. The cost of the underwriting process is roughly the same for a larger loan as for a smaller one. So, banks usually have minimums on the size of business loans they will even consider. The minimums may surprise you, so best to ask up front.


Fortunately, Alternatives Do Exist


>> Small Business Development Centers: For most small businesses, an SBDC is the first stop for finding capital. The SBDCs are local entities (often associated with universities or community colleges), affiliated with the U.S. Government’s Small Business Administration. There are about 900 SBDC offices across the U.S. They provide a number of useful services at little or no cost. Most importantly, they help small businesses access SBA’s loan guaranty program. With Uncle Sam as a co-signer, lenders are better positioned to provide capital. The SBDCs understand the SBA loan guaranty program and can offer real help in coping with the attendant paperwork. Further, the SBDC know which local lenders like SBA guaranteed loans and which lenders would “fit” best for your business. [2]


The SBA, a government agency, has a number of preferences and set-asides for groups such as veterans, women and minorities. There may also be preferred types of projects — clean energy projects, for example. Your local SBDC staff can advise you as to current availability and your eligibility.


>> Non-traditional Lenders: There are funding sources that are not regulated as banks are. Because these lenders are not banks, eligibility, collateral and application procedures may be very different. Here are some examples:

> Community Development Financial Institutions —  A CDFI is a financial institution that: “has a primary mission of community development, serves a target market, is a financing entity, provides development services, remains accountable to its community, and is a non-governmental entity.” There are roughly 1,000 CDFIs in the U.S. most are quite local. [3]

Accion is an example that does business in several states. Accion is “a non-profit organization that increases access to business credit, makes loans and provides training, which enable entrepreneurs to realize their dreams and be catalysts for positive economic and social change.” Accion offers business loans from $200 to $300,000 and business lines of credit from $20,000 to $100,000.[4]

> Factors — Factors lend against commercial invoices. Usually, as a business mails invoices to its customers, the Factor receives copies. The invoices specify that payment be sent directly to the Factor’s lock box. When the Factor receives copies of these invoices, the Factor credits the amount of each invoice to the sender’s account (less a fee, of course). In this manner, a business can offer payment terms to its customers without tying up working capital in accounts receivable. This form of working capital financing relies on the credit worthiness of the customer, rather than that of the seller.

In the past, there was a taboo against factoring in many industries. Today, however, factoring is both discrete and generally acceptable. After all, accepting credit cards as a means of payment is one form of factoring.

> Revenues Based Financing — I am aware of one lender that will advance funds against future credit card revenue streams. My understanding is that the credit card processor directs payments for credit card purchases to the lender. The lender subtracts an agreed payment, then remits the balance to the business that made the sale. This is a new form of cash advance financing that may prove to be of interest to businesses with substantial, demonstrated streams of credit card revenues. [5]

> Capital Equipment Lending and Leasing — Capital equipment vendors will often arrange financing, secured by the equipment purchased. Payments on the financing are (hopefully) more than offset by incremental margin dollars generated by the new equipment.

 ====================

 
Of course, every business and every business situation is different. There is no one size fits all for financing. That’s why access to a knowledgeable financial advisor is essential. The financing sources listed here are intended as a mind – opening examples only. In no case should mention of any financial source be regarded as a recommendation. Disclosure: Neither I nor Jera Sustainable Development has any financial interest in nor compensation from any of the entities discussed in this post.


There are a lot more ways to find funding, including guerrilla tactics. Future posts to this blog and additions to the Jera Sustainable Development website will present more on financing.


Chuck - Austrian AlpsThoughtful comments and experience reports are always appreciated. Readers are especially encouraged to share successful innovative financing experiences. E-mail to me:


…  Chuck Harrington
(Chuck@JeraSustainableDevelopment.com) 


P.S
: Contact me when your organization is serious about pursuing Sustainability … CH


This blog and associated website (
www.JeraSustainableDevelopment.com) are intended as a resource for smaller manufacturers in the pursuit of Sustainability. While editorial focus is on smaller manufacturers, all interested readers are welcome. New blog posts are published on Wednesday evenings.


[1] “Access to Capital: Money to Mainstreet”, a registered trademark, is the name of the financial workshop discussed in this paragraph. The workshop was presented in Phoenix AZ by Dunn & Bradstreet Credibility Corporation. My understanding is that a similar workshop will be offered in San Diego in June 2014. For more information, see: http://accesstocapital.com/