Jim Gloriod has 19 years of experience working in insurance, 12 of which have been with Aon. He currently serves as the resident managing director of the St. Louis office of Aon Risk Services. Gloriod specializes in helping companies in the energy and construction industries manage their risks.
Q. How will managing risk help your bottom line?
It’s important when it comes to managing risk and buying insurance to make informed decisions like you make any other decision in your organization as far as capital allocation goes. If you’re making informed decisions, which provide you with coverage for losses when they occur, that will help protect your balance sheet and income statements whether it’s from a first-party loss, such as a fire, or a third-party loss, such as a products liability claim.
Q. Are companies facing different risks today, and what are those risks?
Absolutely companies are facing risks that appeared remote just a couple of years ago. Some of the risks are lack of credit, reduced consumer spending and the counter-party risks that they may face. I think that the other important thing is that many of our clients or many organizations are under pressure to reduce spending and they have less resources within their organization, so it’s a balance of how do you properly protect your balance sheet and your income statement while having less resources and spending less money.
Q. Are companies cutting the amount of insurance they buy, and what should companies be covered under today?
People are buying the insurance differently than they were before. Companies are analyzing the retention that they take, the amount of limits that they buy and what coverages are absolutely necessary to have. They need to make sure that they are meeting their statutory requirements as well as loan covenants. But in addition to that, companies need to really look at what risks they are facing and make individual decisions on how critical those risks are to their organization and where should they buy insurance versus where do they have the ability to cut back.
Even in this economic climate, intellectual property and technology transactions are growing areas.
“Technology transactions cover a very broad area and are getting more and more sophisticated,” says Spencer Garland, practice group manager for intellectual property and technology transactions at Greensfelder, Hemker & Gale, P.C. “To have a successful technology transaction, all parties must do a lot of homework to determine exactly what is being granted or transferred, the limitations involved, and the protection, if any, that is available.”
Smart Business spoke with Garland about how to approach technology transactions and how to ensure that you have the proper protections in place when licensing intellectual property.
What is a technology transaction?
Basically, it is a business transaction in which technology or intellectual property is an important element. As a result, a wide variety of transactions are included in the field, not just licensing or transfer of intellectual property such as patents, trademarks, copyrights and trade secrets.
Other types of transactions include acquisitions and sales of technology businesses, software development and distribution, Internet and Internet hosting applications, data processing, telecommunications, outsourcing, and information security and privacy. Sometimes the transactions are a combination of many of these.
How do you protect your intellectual property for a technology transaction?
Each situation is different. Much depends on the intellectual property involved and the type of transaction. Say you run a company that has invented a device, and you believe it has commercial value. Let’s assume that the invention is patentable and its highest value is not in your core business, so you want to license it.
To protect it, you can apply for a patent, keep it as a trade secret or file for a copyright on the software. If the device can be copied easily, a patent may be the best protection because if the patent is issued, you generally can exclude others from making or selling the device for the term of the patent.
If it can’t be copied easily, then maintaining it as a trade secret might be best. If software is involved, there are copyright considerations, as well. This is just one example, and it requires a lot of investigation to determine what protection can or should be obtained.
You also protect the value of your invention by strategically crafting a licensing strategy. There are many considerations and moving parts. For instance, should the license be exclusive or nonexclusive, broad or limited, or include sublicensing rights? The answers can depend on a good analysis of the applicable markets for the invention. The issues are complex, and knowledgeable professionals in this field will help you a great deal.
What’s the difference if you are a licensor or licensee?
Licensor and licensee interests in a license agreement are very different, but there is at least one common goal — both licensor and licensee want to make money. There are the usual financial issues regarding license fees and royalties, but a license agreement is also about allocating risks, costs and rights between the licensor and licensee. These include infringement risk and indemnity responsibility, allocation of development responsibility, product liability risk, minimum royalty requirements and limitations on liability, among many others.
Many of these issues are resolved based on the relative investment each party makes and the financial reward each party stands to gain from the commercialization of the licensed property. Bargaining power is also a critical factor. These license agreements can be very simple or extremely complex.
How do electronic information security and privacy affect technology transactions?
We read frequently about entity theft and theft of sensitive and personal information — for instance, account numbers, Social Security numbers, health records, credit card numbers and the like. Many laws require the protection of this personal information, for instance HIPAA for health care information and institutions, and the Gramm-Leach-Bliley Act for financial institutions.
Also, the new ‘Red Flag Rules,’ scheduled to be effective Nov. 1, published by the Federal Trade Commission and other U.S. government agencies, require financial institutions and a wide variety of other businesses that grant credit to develop and implement identity theft prevention measures. Think online banking, credit card processing, health insurance and the like. These issues affect technology transactions because agreements that permit access to or storage of such information must provide for its protection.
As a result, businesses and institutions that use or store sensitive personal information must investigate and understand which laws affect them and how to implement appropriate protection.
What are the consequences of failing to do due diligence?
There can be significant consequences for all types of technology arrangements. As an example, let’s say you’ve invested heavily creating a business to make and sell widgets based on a patent you have obtained. Just before you start manufacturing, you get a cease-and-desist letter saying you are infringing a third party’s patent and must cease operations.
To your chagrin, you discover this is true. You may then have to enter into an onerous license with X or even close your new business. By thoroughly researching your right to use your patent to make widgets in advance, you might have dealt with this problem before you made a big investment.
Spencer Garland is the practice group manager for intellectual property and technology transactions at Greensfelder, Hemker & Gale, P.C. Reach him at (314) 516-2613 or firstname.lastname@example.org.
When the Casino Queen moved locations in 2007, it quickly became apparent to General Manager Tom Monaghan that some customers weren’t happy with the new space. And so, a $2.1 million entertainment venue will soon open to feed customer satisfaction.
But getting from Point A to Point B isn’t quite that easy. Step one and step two — realizing there’s a problem and talking with customers to understand its root — boil down to communication. And multiple forms at that.
To really communicate and understand your customers’ needs, you have to reach out to them in multiple ways, Monaghan says. Casino Queen, which brought in revenue of $160 million in 2008, uses three forms of focus groups and reaches customers through mail and strategically placed feedback boxes.
Listening is just the beginning, though. The most important aspect is the follow up, Monaghan says.
Smart Business spoke with Monaghan about how to effectively communicate with customers.
Make sure you’re gathering information from a range of customers. (The best way to communicate is) by being engaged with them. We do focus groups on an ongoing basis.
You get a group of people together, (let’s say about) 30, and you let them express their thoughts, their concerns verbally in the sense that you have controlled questions: What are your likes; what are your dislikes?
But you limit it to a smaller amount of questions that pertain to the company overall, and you give them the opportunity to speak.
When I’m doing it, if I’m doing it myself, I usually have somebody with me that’s recording their response.
A lot of the times you will secure the groups within your best players for their input because obviously they’re the most important to you.
That’s one format. The other way we’ve approached it here is by using an outside firm, (which) was randomly selecting groups of people off the floor in larger amounts, as much as 50, and direct questions would be answered and asked. The way they did this, it was a lot easier to compile the information. You would give them grading of excellent, poor, good, and they would only respond to the question in that format. There was not a verbal update, and … this was a computerized version so all the grading on the property or the product was instantaneous.
Maintain strong one-on-one communication with customers. One of the most important things is when you’re on your floor, you’re engaged with your customers, you’re talking to your customers.
When we talk about me being on the floor, indirectly that is a focus group because you’re listening to your guests on a one-on-one basis. I don’t necessarily solicit them with a list of questions; it’s usually just a, ‘Hi, how are you? How is everything going? Are they treating you right?’ And the guests will immediately take that opportunity to either (say) everything is fine, or if there’s some other things on their mind, they’ll share it with me.
You can call it whatever you want, you can call it quality time, sometimes it’s just as simple as your recognition to them as a regular customer. It’s really not that they’re giving you information a lot of times; a lot of times it’s just that you’re recognizing them.
Provide options for feedback. In our direct mail pieces that go out to our rated players, there is a direct e-mail address to me that is inclusive of it. So if you’re one of our players and you get the direct mail piece and you either want to compliment about something that went on or you have a complaint about something that went on, they have a direct contact to me.
It works very well for me in the sense that if there is some customer dissatisfaction, and I don’t care if it involves multiple departments, I can follow up on it immediately. And usually it’s less than a 24-hour time frame, I’m getting back to my guests letting them know what I found out about the problem, how we’re correcting the problem and resolving any issues they may have.
Follow up. Communication is the key but, more importantly, the follow up. So if someone expresses they had a wonderful experience, you have to be sure you go back and thank the employees that were named in part of making that experience great, or if there’s a problem, you find out what created the problem, communicate back with the guest and inform them of the changes that will take place in the future that will prevent it from happening to them again.
It really doesn’t matter if it’s the employees and/or the customers, the communication part of it is a lot of times people make many suggestions, but for one reason or another, it’s something that you can’t accomplish, you can’t just let it go. You have to explain to the employee and or the guest. Like all of this input that we got on the showroom, if for some reason, financially, we were unable to do it, it’s my responsibility to explain to them why, but that it’s not something we’re going to give up on, and we’ll proceed with it if we can.
And so there’s always follow-up. We have direct mail pieces that go out monthly. So anything new that’s going on, on the property, it can be updated to the guests monthly besides internal signage.
A good example (of follow up) is when we start construction on this new room, as the construction walls go up before the demo starts, our marketing team will wrap the outside of the drywall so our guests will know what this new room is going to look like from an exterior elevation as well as a blueprint or footprint of what the room will look like internally. It’s kind of like you asked for it, you got it, here it is.
How to reach: Casino Queen, (800) 777-0777 or www.casinoqueen.com
Torkel Rhenman saw a lot of promise and opportunity in his new company when he took over as CEO at The Solae Co. in March 2008.
The company studies the benefits of soy protein and helps companies produce and market soy-based products. Rhenman felt like the time was right for the company to make a big move with people looking for healthy food ingredients.
He spent his first month doing a lot more listening than talking.
“I listened to as many employees and leaders as possible to really get a feel for the situation and the circumstances that we’re in,” Rhenman says. “It’s developing your own sort of view of all the things that we’re working on. What kind of personal change and touch do I want to make to the direction we’re going as a company?”
But as he looked deeper into the company’s makeup, Rhenman felt like the foundational core values that any company needs in order to be successful were not clearly identified at Solae.
“I look at core values as being foundational, noncompromising values that we all have to live with and agree to,” Rhenman says. “It’s sort of the guiding light for all the decisions that we make. Are we living by our core values? Some of that was not clearly there. My experience has been that when I look at companies that have been in the media, many of them have gotten into trouble and been on the front page with bad news because they haven’t defined their core values.”
Rhenman believed that a firm set of core values would provide direction for employees and ensure that the $1 billion company and its 3,500 employees would avoid the fate of others who strayed from their foundation and later paid the price for doing so.
“It is helping to define what people view as gray areas,” Rhenman says of the reasoning behind core values. “You ask people to use good judgment, but everybody’s good judgment might be different. What you need to do then is to define and help people work through, ‘OK, here are the things that we view as foundational for us in our company that we will not compromise on. It helps tie everybody together.”
It was through this early dialogue that Rhenman came up with the four values that would serve as Solae’s foundation: safety and health, ethical behavior, respect for people, and environmental stewardship.
“Many of the companies we work with, they share similar core values,” Rhenman says. “It fits both internally as well as externally. It’s something the leadership team has to work through in terms of what makes sense for us as our core values. What’s going to bind us together?”
Recognizing the need for core values was the easy part. Getting people to accept them as part of their everyday work was where the real challenge began.Use external examples
The need to implement a list of core values struck some people at Solae as unnecessary or the equivalent of attempting to fix something that wasn’t broken. So Rhenman had to prove to his people that this was in fact a needed move and something that would benefit the organization.
“That is a challenge,” Rhenman says. “You have to make it personal. You have to really try to take examples that people connect with and say, ‘Yeah, that could have happened to us.’ It has to start from the top. I have to be a role model for it, and I have to ask the same from all my leaders to be role models and champions for our core values.”
Rhenman used case histories and put together presentations using stories of situations that happened outside of the Solae world to drive home his message.
“We take examples of things that happen in the external world and then we discuss it and say, ‘If we face something like this, what would we do?’” Rhenman says. “It really gets people to understand our thinking and helps get us aligned.”
As the process moved along, Rhenman also put some of his employees in the position of conducting some of the training sessions.
“The best way to really understand what we mean is to be put in charge of the training,” Rhenman says. “If you have to teach it to others, you really have to understand it. We do a lot of that.”
The expectation is that everyone will eventually take their turn in getting up and talking to their peers.
“It’s getting people to think it through themselves,” Rhenman says. “It’s not only that other people hear from their peers, but it’s themselves getting involved and getting into it. Hearing from others creates this expectation that, yeah, everybody is living this and everybody brings up examples that they saw themselves. What caused that? What was the behavior that caused it? What can you do to prevent it?”
The core values became ubiquitous, appearing throughout the company and on the agenda at regular meetings. The first part of each meeting would now be dedicated to talking about one of the company’s core values and its importance to the organization.
“It could be an external event that we have seen, or it could be just a reminder of something to get people in the forefront of thinking about it,” Rhenman says.
The intent was to show the importance of core values to an organization. But Rhenman didn’t want employees to think that just because you have core values, all of your problems are solved.
“It’s something every company needs to have,” Rhenman says. “But that alone is not what makes a great company. If you don’t have it, it’s hard, in my personal view, to have a sustainable and great company, and you put it at risk.”Use internal examples
When it comes to driving changes through an organization, don’t forget that leading by example is often the most effective means of getting people on board.
For example, two of Rhenman’s core values are ethical behavior and respect for people. In attempting to convey how important these ideals were, Rhenman had to be honest in admitting that he did not have all the answers.
“One of the things I do very openly is talk about my own development gaps,” Rhenman says. “I talk about my own experience in my development gaps and how I worked on it throughout my career. I have my own leadership team go through and talk about their leadership gaps. In terms of self-awareness, it’s OK to share your gaps. If you want to work on closing gaps or improving those areas, most people want to help you. Hiding your gaps is not of interest, either for yourself or for the company.
“Being more transparent and open and honest is going to help both the individual leader and the company.”
Rhenman wanted his employees to know that while he preached the importance of these core values in the way Solae did business, it didn’t mean that he was without flaws.
“You have to have that willingness to learn,” Rhenman says. “You can pick many leaders that are fantastic role models and are very successful in their industry, but for every such leader, you can probably find one or two things they have as a development gap. You don’t have to be great in everything. But you have to have a combination of strengths and knowledge of gaps and know, ‘How do I compensate for those gaps?’”
Revealing your own weaknesses is a great way to show employees you are not above them or better than them in terms of needing improvement.
“I’m a driver and very results-oriented, and my natural tendency was always to solve as many problems as possible,” Rhenman says. “I’m very aware of this, and I’ve learned that I need to spend as much time today on coaching and people development and employee engagement as I do on business issues. My balance has really shifted.”
By being open about your own faults, you further encourage your employees to look inwardly at their skills and to feel more comfortable bringing up concerns they might have and to endorse your core values.
“They know they can come in and ask questions and who the right people are to ask for advice to make sure we stay inside our core values,” Rhenman says. “They get to the same calibrated thinking of what good judgment means.”
When Rhenman looks at his company today, he sees an organization in which people have a better understanding of the company’s foundation and how that supports what they do on the job each and every day.
“As a leader, it makes your life so much easier knowing you have the foundation to stand on and you can focus on driving business results,” Rhenman says. “Core values are important for employees. And it’s important for me as the leader of the company because it makes me feel proud of what we are and what we stand for. People will look for companies they respect in terms of the core values that they have.”
How to reach: The Solae Co., www.solae.com or (314) 659-3000
Roger Maclean is the executive director of the Office of Educational Outreach at Southern Illinois University Edwardsville and has worked 20 years in the field of continuing education. Maclean, who has a doctorate in adult education, previously held multiple titles at the University of Wisconsin-Madison, including associate dean for academic affairs in the Division of Continuing Studies and associate dean for executive education in the School of Business.
Q. How can a company find effective training techniques to maximize their spending?
First of all, you need to diagnose what you’re looking for. What is the issue, the problem, the opportunity that you’re trying to address? Have the sense of what it is you ideally want to accomplish. This may come from discussions with your customers; it may come from discussions with your staff or your management staff saying, ‘OK, here’s where we see gaps or weaknesses. Here’s something new that has been presented to us, and we don’t have a skill set to do it.’
Q. How do you know training is the solution?
I think sometimes it’s organizations being realistic. Training can be effective if, in fact, first of all, the organization has defined the issue, but secondly, the people that are going into the training, are they motivated to be there, do they sense the issue, and are they looking at this training opportunity as a positive growth or are they looking at it as punitive.
Q. How do you get employees to buy in to training?
This is a challenge in every organization, but it’s a matter of communication. It’s a matter of the manager or the training supervisor, whoever is leading the initiative, sitting down with the individuals that have been identified for the training and having an honest discussion. Say, ‘Look, here’s what we’re trying to achieve, do you agree?’ Asking for their input, do they see this as being an issue? It’s very basic two-way communication between management and the individuals to say, ‘OK, is this a good thing, or are we just wasting money?’
In this economy, companies are conscious of cutting costs in every possible area. Many, however, may be throwing away money and not even know it.
Duplicate payments, unused vendor credits and revenue leakage are just a few of the areas where companies lose money, but lost revenue and excess costs can ultimately be recovered if you know how to do it.
“The amount recovered will vary, depending on the controls,” says Jan Beckmann, ACL certified trainer, manager of risk services and data analysis practice leader at Brown Smith Wallace LLC. “If you don’t identify and correct areas of vulnerability, you’re putting all that work in and not getting the money you should. But if you engage a specialist to recover costs and prevent future problems, you’re going to identify overall improvements for your company.”
Smart Business spoke with Beckmann about the areas in which companies typically find recoverable costs, how to identify and quantify errors, how to prevent them from happening again and what to look for in a good service provider.
What is the likelihood that a company has recoverable costs?
The probability that a company has recoverable money depends on the control environment and systems in place. Companies that have gone through layoffs and restructuring during this economic downturn have a higher probability that controls are not as tight as they used to be, or were not tight to begin with, making them more likely to have recoverable costs.
The control environment is the deciding factor, not industry or company size. A company with a tight control environment and fully integrated systems, or a single system, is less likely to identify a high dollar amount of recoverable costs.
What are some typical areas where businesses see recoverable costs?
It depends on your industry and individual risk factors, but some typical areas are duplicate payments, missed vendor discounts, unused vendor credits, invalid charges on construction projects, duplicate employee reimbursements, inappropriate corporate credit card transactions and invalid employee benefits.
You should focus on the areas where there’s the greatest chance of recovery. First, do an assessment of all the areas where you think there may be recoverable costs. The identified areas most likely will have disparate systems or the weakest controls.
How does revenue leakage factor in?
Usually, you find some large-dollar recoverable costs by completing an assessment, but preventing future revenue losses is equally important. Revenue leakage sometimes gets missed because leakage is often not evaluated in the same way as cost.
You may find a few duplicate payments that were issued, but if you can find a revenue stream that did not have strong controls around it, your dollar amount is going to be higher, and you’ll have a much greater long-term benefit.
Often, when you’re looking for revenue leakage, you’re only looking at the main revenue stream, not all streams. Frequently, the main revenue stream is reasonably controlled, but there is leakage in one of the smaller streams.
For example, someone may have given out an excessive amount of free trials or samples to the same company because there are not good monitoring controls around the trial program.
How do you identify and quantify errors, and then prevent them from happening in the future?
You need to look at 100 percent of the data. Sampling is not a reasonable approach to cost recovery because you will not be able to find all of your dollars. One tool used for fraud detection and prevention is data analysis software, such as ACL, which allows you to pull all of the data together and identify the errors within it. Using that information, you can then quantify dollar amounts and pinpoint how much you should receive back from the vendor or customer.
The next step is to identify the root of the problem. Improving controls in your system can prevent future errors, but a lot of companies don’t choose to go that route because it can be expensive and time-consuming. Another possibility is to implement a continuous monitoring system, which is usually less costly and time-consuming.
Data analysis software can be programmed as a continuous monitoring system to perform highly specialized tests as required based on the cost recovery items identified for your company.
What should you look for in a service provider to help with cost recovery?
Look for a provider who will partner with you so that you’re not just recovering costs, but rather clamping down to ensure more money is not lost in the future. You need a provider who has both business knowledge and data analysis expertise.
It is essential to understand the source of the problem to prevent future losses; otherwise, you’ll wind up doing cost recovery every couple of years. By partnering with a trusted provider, you can implement lasting change.
A partner will have a continued presence working with you, helping you to determine what system controls need to be changed and what continuous monitoring systems you can implement.
Jan Beckmann is an ACL certified trainer, manager of risk services and data analysis practice leader at Brown Smith Wallace LLC. Reach her at (314) 983-1254 or email@example.com.
During this recession, business owners are concerned with decreasing cash flows. As a result, many are scrutinizing their retirement plans to ensure that they’re spending wisely.
This is an opportunity for plan sponsors to revisit their retirement plan to see if it still meets the original goals and whether any specific goals should change.
“There’s a fiscal focus and an educational component of keeping people aware of their finances to make sure they have proper asset allocation and investment diversity,” says Patrick Shelton, managing member of BSW Benefit Plans Plus LLC, an affiliate of Brown Smith Wallace LLC. “You want to make sure your plan is working well and you’re getting the best value for your money.”
Smart Business spoke with Shelton and Robert Higgins, a Benefit Plans Plus LLC senior consultant, about how to design your retirement plan for maximum benefits and how to make sure your plan is in compliance.
How can you design your retirement plan to get the maximum value?
Review your retirement plan from a total cost standpoint. Work with your advisers to determine not only plan investment and administrative fees, but also employer and employee contributions and any soft-dollar costs for running the plan through human resources.
Total after-tax costs should be the benchmark. For example, if the business is privately held, owners may defer their income through the plan and deduct employer contributions made on their behalf, as well as plan expenses, significantly reducing their taxes. Be sure your plan accomplishes its basic purpose in a tax-efficient manner.
How can companies make sure their plans are in compliance?
Benefit Plans Plus LLC has designed a Fiduciary Health Check to help clients ensure their plans are properly administered. The first step in this analysis is to identify all plan fiduciaries. At least one plan fiduciary is named in the plan document, but other individuals are deemed ‘functional fiduciaries’ due to their plan duties. These unnamed parties are often unaware of their fiduciary status and responsibilities.
Step two is to compare plan procedures with plan document requirements to verify that the plan sponsor properly manages the plan, provides quality materials, satisfies compliance testing requirements and submits timely tax filings.
You should also review communications to make sure employees receive the proper notification. Lastly, review insurance for proper plan coverage through a required fidelity bond and supplemental fiduciary liability insurance, if necessary. This type of analysis ensures that the plan is spending dollars wisely and continues to provide a plan that helps employees prepare for retirement. It also minimizes risks to participants and the plan sponsor.
How is compliance testing different from a fiduciary check?
Government-mandated compliance testing is much more specific. Failing your annual compliance testing is an indicator of design flaw. There are ways to avoid such failures, for example, through enhancing matching contributions or promoting employee participation in the plan.
A compliance review may uncover other errors requiring a technical correction. Without frequent review, plan sponsors are often unaware that they’re doing something incorrectly or not filing the proper reports. The government provides several self-correcting programs that permit plan sponsors to go back and fix operational errors. Because of the complexity of the rules involved in these situations, a sponsor should seek assistance from experienced professionals.
What is a third-party administrator, and how can using one help with your benefits plan?
A TPA is a local, smaller business that provides a closer level of service. Instead of having to call an 800 number, you have direct contact with a local person who can physically meet with you.
TPAs tend to be specialists and can often provide insight into complex retirement plan regulations. You can outsource some financial functions to TPAs, who can also troubleshoot if you have questions or issues. Using TPAs leads to better-run plans. Within any given marketplace, there can be a large number of TPAs but only a handful with a quality reputation.
You need to find a firm that not only has technical expertise, but is also professional and communicates well. Ask a trusted business adviser, like your accountant or attorney, for a referral. TPAs can also be found online at sites such as www.nipa.org, www.401khelpcenter.com or www.asppa.org.
How can employees maximize the benefits of their employer’s plan?
Employees must educate themselves about their plan. It’s your money; use the plan and investment information provided and ask plenty of questions. Use resources such as financial items on a provider’s Web site, newsletters, media articles and peers.
There’s a misconception that people can’t afford to participate in a retirement plan. Contributing only a little bit each pay period helps. This is a long-term investment but, if you persist, the dollars will grow. At a minimum, participate up to the level that your employer provides a match. If you can get free money, you get an automatic return. It’s a good investment to make.
Focus on the long term, and make sure you have proper asset allocation and incorporate your 401(k) into your overall financial planning. Be sure the plan best serves your needs relative to growth and retirement.
Patrick Shelton is managing member of BSW Benefit Plans Plus LLC, an affiliate of Brown Smith Wallace LLC. Reach him at (314) 983-1212 or firstname.lastname@example.org. Robert higgins is a senior consultant at BSW Benefit Plans Plus LLC. Reach him at (314) 983-1358 or email@example.com.
The transportation industry has taken a hit in the past couple of years — first pummeled by fuel costs, now endangered because of lack of product demand. Even though the economic forecast may be grim, this is a prime time to evaluate your current network to find wasted money and inefficiencies that may be hurting your customer service.
Delivery delays and poor packing and routing methods can all cost your company money.
The good news is that there are software solutions out there that can help you fix your problems with a minimal investment and lower your logistics and transportation costs by 8 to 15 percent.
“Companies that rely on humans to control all aspects of the shipping process can seriously be hurt without the use of technology,” says Don Fitchett, president of Business Industrial Network, an industrial training company and author of the e-book “The True Cost of Downtime.” “Software will help streamline the process and eliminate the need for additional employees. Technology assists in all aspects of the business. Some available software will eliminate the need for paperwork because it will be handled digitally. The use of technology will also reveal bottlenecks in the process and help create a more efficient flow.”
Software programs are available to assist companies from the time an order is placed through the successful delivery of the order. Many executives view their transportation department as a cost center, but through successful management, it can be another way to earn money.
Why logistics software is important
The addition of software to your logistics department will optimize daily and long-term transportation plans and scheduling, carrier selection, route planning, inventory management and small parcel shipping, which can reduce costs.
While a software investment may cost at least $10,000, improving your shipping processes will allow you to serve more customers and increase profits in the long run.
“Executives view transportation logistics as a cost center and don’t communicate with the logistics team to see how software can save the company money,” says Daniel L. Rust, assistant director of the Center for Transportation Studies, University of Missouri-St. Louis. “But the companies that are acknowledging software benefits see that it speeds up the process through efficient planning and actually adds money to the business’s bottom line.”
A common transportation management issue has businesses keeping more inventory on hand than necessary. This typically happens when stock is manually cataloged instead of tracked with software. This means more of your money is sitting in warehouses instead of in your pocket.
“Some companies want to focus on their core competencies and outsource to a third-party logistics firm,” Rust says. “This is a great way to gain visibility of your goods and operation. You need to create a flow chart detailing the current glitches and how software will improve them, then determining if in-house workers or an external company would work best for you.”
Human error is a big part of what can go wrong in logistics. Depending on the volume of orders you are receiving, this can add up. The use of software can eliminate these errors and make your inventory and tracking easier to manage. Software can also determine the best carrier for a particular type of shipment and contractual agreements.
“Efficiency means better customer service,” says Jamison Day, professor, University of Houston, C.T. Bauer College of Business. “Software helps you move through the process better, faster and cheaper. If you don’t have the capabilities to purchase all of the necessary software, but your company relies heavily on shipping, you should consider a third-party logistics firm.”
What you need to know
Before making a software purchase, you need to assess what areas of your process are in greatest need of assistance. While some companies package their software options, others individualize the programs for specific areas of interest such as shipping and loading.
To figure out where you need help, you will need to perform an audit that tracks products from production to delivery.
Start by making a checklist. Are your shipments on time? Are your trucks traveling with full loads? What are your current fuel expenditures? Are you utilizing the best routes? What rates are you paying carriers? Are you paying your employees overtime? Are your orders accurate? If you don’t know how to obtain this information or you’re finding inconsistencies, software can probably help you reduce errors and delays.
“There are a fair amount of laws that must be obeyed in shipping, as well,” Day says. “Software will keep you abreast of what is necessary when sending out loads. You will, of course, have to keep upgrading your software, but this cost is much lower than fees and penalties that can be accrued when you don’t have paperwork in order. This delay will also make your customers unhappy.”
After you’ve determined the area you need the most help with, choose a software company you feel comfortable working with. Find a company that will be accessible when you need them. If you decide handling everything in-house is too expensive, find a third-party logistics firm that handles the details while you focus on your core competencies.
“Computers tend to find ways that reduce driving time and improve loading of shipments,” Day says. “The technology doesn’t replace the humans; it augments them, making everything more efficient. Depending on the industry, a third-party logistics firm will be a must. Calculate the rate to bring this service in-house compared to that of a logistics firm. Make sure that you find the right company to fit your needs. Don’t partner with the first guy holding a hammer looking for something to hammer even if it’s not the right tool. Look for a tool-independent firm.”
Today’s economic climate may be tough, but by looking for savings in every area of your business — including transportation — you can find money that can be better used elsewhere in your organization.
“Anything that can be done digitally and anything that gives you faster and better visibility to your stock will make you more efficient,” Fitchett says. “Taking as many things out of human hands as possible will eliminate errors and free up human workers for the jobs software can’t do yet. Barcode technology, which can also be produced through software, will also eliminate the need for forklifts by using conveyor technology that delivers the product all the way to the truck for loading — already labeled for their destination.”
Born: El Paso, Texas. I grew up in Oklahoma.
Education: Bachelor of science in math, Northwestern Oklahoma State University
Whom do you admire most in business and why?
For a role model, it’s not so much in business, but it’s my dad. He was a schoolteacher and principal all his life. It’s just the way he treated people and the teachers that worked for him that probably made the biggest impact on my life.
What is the best business advice you’ve ever received?
One of my predecessors, Jerry McElhatton, he said, ‘You never get an omelet without breaking a few eggs.’ His thing was it was OK when something didn’t work right, as long as you learn from it. When a failure happens, you learn from it and put structure in place to make sure it never happens again.
What was your very first job?
Working out on my grandparents’ farm, typically in the hayfields. It made me realize I never wanted to be a farmer. The main thing is you can’t be afraid to get your hands dirty at times.
What would be the first thing on your bucket list?
To play golf with Jack Nicklaus. I’m sure it would be much more fun for me than him.
Lease renewals are not always conducted on a level playing field. After all, the landlord is in the real estate business and the tenant is not. By planning in advance and having professional assistance, tenants can increase the probability of negotiating a discount when renewing.
“Companies should plan ahead to allow ample time to complete a renewal,” says Rick Messey, CCIM, vice president, Colliers Turley Martin Tucker. “Companies that fail to do this lose considerable leverage as landlords see the tenants’ options dwindle.”
Smart Business spoke with Messey about the lease renewal process, the importance of starting early and what qualities to look for in a real estate broker.
How does the lease renewal process work?
An important clause found in most leases is the renewal option, which allows tenants to extend their leases for a predetermined amount of time (usually three or five years) by giving their landlords six to 12 months written notice. Renewal options specify rental rates, concessions, tenant improvements and whether a new base year for operating expenses will be granted. These options are sometimes fixed amounts or subject to the fair market value conditions.
What are some common mistakes that companies make during the process?
One of the most common mistakes companies make is negotiating without the help of a commercial real estate professional. Companies believe they can save money by not using a broker, but to benefit in real estate, you need leverage. Landlords are in the real estate business and negotiate with professional guidance, so why not level the playing field? Savings received from using a broker exceed the cost of commissions.
Another mistake companies make when entering into a lease renegotiation is being unfamiliar with their current lease terms. Prior to contacting their landlord about renewing, every company should be well aware of every option and deadline within their lease. As mentioned, most leases contain options that must be exercised within a specific time period, typically nine to 12 months prior to their lease expiration. If, a tenant allows said time period to pass, they risk losing all rights outlined in the option.
What type of cost savings can be extracted during the renewal?
Tenants in a bear market can receive significant cost savings. As the economy weakens, companies continue to lay off and downsize their work forces. Landlords will be feeling the pinch and will offer aggressive concessions and more attractive lease terms to lure new tenants or maintain current ones. Now more than ever, a qualified commercial real estate broker can assist companies in reducing overall occupancy costs and improving profitability. The savings will depend on the availability of competitive vacancies, the efficiencies of the buildings, the market knowledge of the broker and the broker’s ability to negotiate business points and reduce overall exposure. Some of these risks are often found in the operating expense and expansion/contraction options in the lease.
When should a company start the process?
As a rule of thumb, the larger the tenant, the greater amount of time needed to finalize and leverage a renewal transaction. Larger tenants should consider their options several years in advance so that all viable existing and new properties may be considered. New developments or speculative properties often attract larger tenants. These new developments could receive financial incentives, like tax abatements, or federal and state incentives that could be passed along to the tenants. In addition, newer buildings often provide larger tenants more efficient floor plates and advanced mechanical systems that use less energy than their older counterparts. These occupancy savings can all be quantified and compared to the existing renewals on an apples-to-apples basis.
Smaller tenants should consider the renewal process 12 to 18 months in advance of their lease expiration, regardless of what their renewal option dictates. This is recommended so that the tenant can consider and compare all relocation options in the market. Secondly, tenants should begin negotiating any relocation options before their lease options expire. Tenants who miss their lease options incur more risk, as landlords often treat them differently. Landlords view this as an opportunity to push rents higher as the window of opportunity to relocate closes. If tenants holdover, they often see penalties of 150 to 200 percent of their last month’s rent and could also incur consequential damages if they holdover without permission.
In what ways can a company benefit from engaging a quality real estate professional?
Real estate costs account for a significant portion of a company’s overhead. Real estate professionals can provide the guidance needed to minimize costs associated with occupying commercial space. A good broker will possess the following qualities and tools: upto-date market knowledge, expertise in negotiating leases, the ability to provide a detailed financial analysis on a comparable basis and construction expertise. Brokers help companies achieve both short- and long-term goals by asking the right questions. They save companies time and money by being intimately familiar within a specialized market. This, in turn, reduces the tenant’s overall occupancy costs, increases profitability, mitigates lease risks and minimizes time.
RICK MESSEY, CCIM, is the vice president of Colliers Turley Martin Tucker. Reach him at (314) 746-0318 or firstname.lastname@example.org.