supply chain

As Artificial Intelligence (AI) ushers in the era of Industry 5.0, transforming every industry and every size of business, it’s impact will be most keenly felt in the realm of workflow efficiency as businesses adopt AI for productivity. Repetitive tasks, long the domain of human workers, are now being automated by machine learning driving large language learning models (LLMs) and intelligent machines, leading to significant time-savings and quality improvements. From jump-starting marketing and messaging to streamlining customer service to optimizing production lines, AI is revolutionizing how businesses operate. No matter what size of business you have, you  can do more with less and focus on higher-level work by incorporating AI in your technology stack. The result? Cost reductions, increased productivity, and stronger competitive performance.

AI for Marketing

AI can be a powerful tool in your sales and marketing toolbox. So far, much of the discussion about AI … at least in the small  business sector … focuses on AI as a content generator. Given how much has been written on this aspect already, I’m going to focus on other areas of sales and marketing benefits. (edit 2024/4/8: I recently did a short talk on AI for content generation, which you can watch here). 

Lead Generation and Qualification

AI can also transform your lead generation and qualification efforts by transforming vast amounts of data into insights you sales team can quickly put to use. Tools already exist that can crawl blogs, social media posts, and online forums to identify users interested in specific topics. It can analyze demographics and past behavior to further refine lead pools, and it can produce lead scores based on interactions with your website, email, and social media presence. This type of work would take sales and marketing teams an extraordinary amount of time, but AI tools can achieve similar results in days or even hours.

Predictive Analytics for Campaign Development

AI can also help you target marketing  campaigns by moving beyond simple demographics and past behavior. It can analyze massive customer datasets to identify hidden patterns and correlations … connections that only the most skilled and experienced data analysts would otherwise pick up on. AI tools can predict which customers are most likely to churn, which are prime for upselling, and which customers will respond best to specific types of promotions or messages. 

Wouldn’t you love to know which customers were least likely to repurchase before offering a discount? Would you love to know the best time to send a re-engagement communication to a past purchaser? These are things AI can facilitate for you.

Sales Forecasting

Forecasting is always going to be part art, part science, but AI tools can make the science aspect of forecasting much, much (much) more accurate. This is  because AI tools can factor in far more variables than traditional approaches like spreadsheets with human interpreters or even business intelligence (BI) tools like Power BI or Qlik.

AI algorithms can analyze historical sales data, market trends, customer behavior, seasonality, and even external factors like economic indicators, local weather, and local or regional politics. The tools can pinpoint subtle patterns and correlations that untrained (or even skilled) data analysts might miss. Even better? AI tools can also pull in data regarding competitor product launches, industry adoption rates, and your own lead generation data. All this adds up to better prediction of potential sales activities. 

Why do you need this type of forecasting? Because better visibility to future changes in sales will help you eliminate pipeline bottlenecks, get ahead of production opportunities, and rebalance your offerings and inventory to reflect changes in demand. 

Beyond Marketing

But now let’s look beyond sales and marketing, to topics that are being discussed extensively at the Fortune 500 level, but aren’t being given enough attention for small and medium sized businesses … even though the tools for many of the things I’m about to describe are already available and affordable for smaller businesses.

AI for Productivity in Operations and Logistics

AI tools can help you optimize and streamline your inventory, improve demand forecasting (see Sales Forecasting above), and improve your route planning, again, b y analyzing complex data. AI can take the historical sales pattern data you are probably using right now to plan your inventory, provide a more nuanced view of seasonality, add in lead times and external factors like weather and politics to predict what stock is needed and when. All this leads to better inventory and production decision-making.

For route-planning, AI can integrate with your warehouse management system, add in constantly changing real-time factors such as traffic conditions, weather, construction, and delivery time windows, and update routes automatically. 

This is already useful data for large logistics companies like UPS and FedEx. But imagine what it can do for your local delivery team or regional distribution efforts.

Data Analytics

One of the things most small and medium-sized enterprises (SMEs) struggle with is numeracy (edit 2024/4/8: Check out this snippet from my presentation on numeracy in manufacturing). Even though businesses of every size are swimming in vast quantities of data today, very few companies employ … or truly know how to use … sophisticated data analysts.

Even with excellent BI tools, most companies fail to optimize their data insights for better decision-making, because the typical IT, accounting, or even marketing team member doesn’t really know how to structure the data models that will give them better insights.

AI tools can help with this. AI excels at extracting valuable insights from massive datasets. Machine learning algorithms wade through all that data to uncover the patterns, trends, and correlations that help you make better decisions. Even better, AI data tools can convert those insights into effective graphics to help your management team “see” the data similarly and get on the same page.

These tools can also assist with fraud and anomaly detection. By establishing baselines for typical behavior within your data, AI can flag deviations and suspicious activity. 

This same anomaly detection is useful for manufacturers, which can use AI to analyze sensor data from machines, detect subtle anomalies in vibration or temperature patterns, and signal equipment malfunctions before they cause costly breakdowns or isolate quality problems before you throw more labor at them.

Administrative Automation

How much time and money does your company waste in administrative tasks? From duplicative data entry to unnecessary printing to missed opportunities, admin is an area ripe for disruption.

AI accelerates document processing, automates routine tasks, and minimizes the tedium of data entry. Using tools like Optical Character Recognition (OCR), AI-powered tools can extract text from images or PDFs, making them searchable, editable, and indexable. AI can then classify documents based on content, route those documents to the right people or departments, or trigger specific activities.

In email management AI can draft responses to common inquiries and free up time for other, more valuable tasks. It can even interpret the intent of emails to suggest meeting times (and share a meeting link to keep you out of the “what time is good for you” back-and-forth), dropping those meetings right into your calendar for you. 

In data entry you can use AI tools to analyze forms, invoices, or receipts, extract information from them, and directly populate your databases or spreadsheets.

Of course, accessing these AI tools assumes that you have at least begun the work of modernizing your tech stack (need help with that? Book a consult now to find out how StrategyWerx can help). 

Competitiveness in 2024 and beyond will hinge on your ability to automate more of your business processes. We are nowhere near the peak of effectiveness for AI-powered software yet, but the tools you can use to begin this process are already available and affordable. If there’s one thing that SMEs should be thinking about right now, it’s how to automate processes beyond marketing. Implement any one of the ideas in this article, and you’ll increase your competitiveness immediately.

First of all, thanks to all my email pals who checked in with me to see if I was OK, and more to the point, where was my blog? I'm afraid customer travel/conferences got the best of me and I got behind. I'll get back on track now.

In a presentation earlier this week, I spoke with a jewelry industry group about a cost-tracking strategy. The format of the forum was a lot of fun. It was a panel presentation offering 75 Business Ideas in 75 Minutes. The downside was that if I went over a minute per business idea a normally mannerly fellow named Rich Youmans would honk a loud bicycle horn at me. Though I am not generally very rule-bound, that horn was a true behavior modifier. I knew this concept was hard to describe effectively, and I knew Rich would be holding a bike horn, so I had spent a bit of time prior to the panel getting it down to one paragraph. Now I’d like to give it a little more attention.

Here’s the tip:

Compare your company's cost curve with the industry's price curve. Costs and prices usually decline (looking at inflation-adjusted numbers). By comparing your cost curve with the industry's price curve, you can tell if your costs are declining at the rate necessary for your company to remain competitive. This doesn't mean you have to drop your prices – it just means you've maintained enough operating, supply chain, and management efficiency to do so if challenged. Keep your margin as long as you can, but don't price yourself out of the market simply because you have no other option. If your costs are declining faster than the industry price curve is declining, make sure you understand why! It's not unusual for a company to achieve a competitive advantage that they do not understand, and therefore, do not exploit.

Now that I have more than a minute, let’s break this down a bit:

“Compare your company’s cost curve with the industry’s price curve.” It is next to impossible to learn about competitors’ costs, but it is not hard to watch their selling prices. Anyone can monitor overall price trends in a spreadsheet and create a graph. The best way to do this is to select specific products and group them into product categories. If you and your competitors sell hundreds of products, you may want to monitor key products or products that are representative of groups of products. Conduct a competitor selling price analysis quarterly or twice annually, and plug in the selling price for each of the items you are tracking. Don't get caught up in trying to figure out what price your competitors charge for bulk sales. That information is important for your own sales negotiations. But for this analysis discount strategies lack value and can keep you from achieving your purpose.

Once you have collected competitor selling prices, do the same analysis for your own products, only this time, you're plugging in your product costs (not selling prices). Track only variable costs for this exercise. Yes, marketing, operations, and shipping all play a role in your product cost. But your purpose for doing this project is to see if your cost trends are mirroring industry price trends, to make sure you are managing your variable costs commensurate with the industry. If you are adamant about seeing freight costs, do a separate freight cost analysis rather than combining freight costs with variable product costs. Freight costs follow their own trends and can skew your understanding of your variable cost management. Variable costs include costs of raw materials, direct labor costs, and packaging costs.

Now here comes the hard part. You don't get any gratification out of this exercise unless you 1) go back in time and recreate all the information for previous quarters, or 2) wait until you have collected several quarters of data. Most people opt to start collecting data and do their first trend analysis at some point 1-2 years down the road. For those of you who think "That's crazy, why do it at all then?" . . . hey, the time is going to go by anyway.

To compare your cost trend with the price trend of the industry, calculate the average cost of your products and the average selling price of your competitors' products. If you are tracking a few dozen (or less) directly comparable products, you can compare product to product. What is more likely is that you are tracking generally comparable products. In that case, lump the competitor products and your own products into comparable product categories, then calculate the average for each category. Finally, create charts out of the average selling prices and costs. Your final analysis will look something like this:

What you are measuring is whether or not your cost trend mirrors the industry pricing trend. In the example shown, the trendlines for the baby doll category are roughly equivalent, suggesting that costs are not decreasing at a slower rate than competitive pricing. However, the trendline for the dollhouse category indicates that costs are decreasing disproportionately to competitor selling prices, indicating a need for deeper analysis.

One last possibility, not shown in the graph, is that your costs are declining more rapidly than competitive pricing. This would indicate an opportunity to exploit a competitive advantage through lower pricing, or even better, to rake in additional margin while the getting is good. I would only consider dropping selling prices if the product or product category was one that would lead to considerably greater market share and sales growth on related products for the effort. Too often, companies drop their selling prices and simply shrink revenue as a result.

It is not uncommon to be retained by a company to dig into why they are no longer competitive, and upon doing the analysis, find out that their cost-erosion problem began years ago. This simple method requires a few hours once every quarter or twice a year. When combined with other prudent cost management strategies, it will point out cost erosion rapidly and can set you on a path to correcting problems before they become devastating.

(c) 2008. Andrea M. Hill

The first time I struck out on my own, in the 1980s, I was completely unprepared for the realities of budgets and financial management.  I earned a fair amount of money for someone so young, but it never failed - I always reached the end of one paycheck before I received the next. I  did not treat myself to expensive things but I had no idea how much things cost, so I was constantly underestimating how much money I needed and running out when I needed it.

It may seem surprising, but small manufacturing business owners often do not know how much it costs to produce their products.  Not knowing how much things cost, they are left with disappointing results at the end of each accounting period and in need of cash to finance upcoming projects. The two biggest costs most companies incur are the costs of production and the costs of labor, so lack of clarity and control in these areas can be devastating.

The key to knowing product costs is to use a sound costing method. There is no magically easy way to manage costing - it is a demanding task that requires intelligence and discipline. But if you manage costing effectively, you will find profits increasing within a year as you refine your production, merchandising, pricing, and marketing strategies based on the insights you gain.

Your goal in costing is to understand both the overall profit of the company and also the individual profitability of items. As a business manager you must do bottom up and top down analysis at all times. In this case, the top down (macro) analysis is the overall corporate profitability, and the bottom up (micro) analysis is the performance of individual items. Imagine for a moment that you are experiencing a 1% decline in your profit margin. How do you begin to understand what is causing it? If you only understand your profit margin at a macro level, you will not have the insight you need to tweak profit margin at the micro level.

The simplest way to set product costs is to average overhead and salaries by adding them together and then dividing to come up with a production-cost-per-minute. You then multiply this cost by the amount of time required to produce a particular item. This is a fairly common approach, particularly for companies new to manufacturing, but it is fraught with risk. This approach will only work if:

1. All the people in your production environment have the same skills and productivity
2. All the people in your production environment are paid the same amount of money (now and in the future)
3. You are not doing any process batching that can be performed by lower-salaried laborers

If all three of the above conditions exist, then presumably each minute of production time for each product is worth the same thing. In that case, a production labor rate that is averaged across all production workers will work for you.

If, on the other hand, you have variability in pay, skill, and type of process, you must approach costing in a more sophisticated manner. The approach I am about to describe is a derivative of Activity Based Costing (ABC). It's important to note that it's a derivative, because if you study ABC you will discover a nearly molecular approach to costing that is time consuming and suffers badly from point-of-diminishing-returns. This derivative approach takes into account variability in skills, pay, and tasks without the expensive granularity.

Let's use a jewelry example to illustrate. Imagine that you are making two rings, both of 18k gold, both requiring setting three stones. But Ring #1 involves very careful finishing to preserve detail in the band, and it requires channel setting. Ring #2 has a simple band and does not require special attention in the finishing step, and the stones are prong-set. Does Ring #1 take longer to make than Ring #2? Obviously. But what isn't so obvious if labor costs are being averaged and divided by the minute is that Ring #1 may require a $70,000/year production worker for 90% of its minutes, and Ring #2 may require a $35,000/year production worker for 100% of its minutes. In this case the averaging of production time over minutes no longer works, because it understates the cost of Ring #1 and overstates the costs of Ring #2.

The way to manage costing in this environment is to benchmark and test. The benchmark is set at the beginning of production for a given item. Not the first time it's made or even the second - those production times will always be longer and are likely set by a much higher paid person proving the production approach for a new design. You will keep careful track of the total (not elapsed) time of production for new items, and up to the point that an item is released for actual production, you can allocate those times to R&D rather than cost of goods. Do you have to do that? Not necessarily. Companies that are doing a lot of new production that is very similar to previous production may opt not to do that just because they have standardized and minimized the amount of time spent proving a new item. But companies that spend a lot of time in the pre-release-for-production phase may want to consider this.

Once the item is released for production, a cost estimate (based on pre-production activities) is set in the system for the first run. You will likely run slow on the first production run, but you need a cost in the system. Then, on the second run of the new item, you carefully benchmark the time spent  - the time spent in production and the cost of labor for the various steps of the process. That becomes the standard cost for the item. After this, you don't measure each time you run the item (this is where the departure from ABC comes in - ABC would require careful measurement every time. But the time spent doing this costs more than its ultimate value in knowledge). Rather, you set each item to be re-benchmarked on a 2X or 1X annual basis. When you run the re-benchmark, you will typically find some improvement in the production time, but sometimes you will discover drift in process, shift upward in salaries, or shifting of labor types, and these changes will either be reflected in the new cost of the item or will give you the opportunity to correct undesirable drifts and shifts. The only time you should have to analyze items off their typical 1X - 2X/year schedule is if something major occurs, such as when an urban manufacturing  company's entire production group fled to a competitor and he had to start from scratch with new employees.

The downside of this approach is that it requires careful management of costs. When you are benchmarking a new item, you need to consider the averaged salaries of the type of potential labor at each step, you must remember to schedule each item for periodic review, and you must remember to do the scheduled reviews. The other downside is that it is not perfect, but neither is averaging all salaries across minutes. The only near-perfect approach is ABC, and like I said, that involves so much extra work that the knowledge gained isn't important enough to justify the cost of gaining it.

The upside of this approach is that it gives you excellent visibility to the actual productivity of your line. When you are trying to solve a problem, you can drill down into items and groups of items and see where your profitability is slipping. You may realize that you want to raise the price on just one category or subcategory of products, or that you can modify the design of an item or small group of items to reduce the cost, or that you can afford to hire a few more $35k/year employees and shift tasks into batches, or (the list goes on). Using this approach, small manufacturers gain insight into very interesting things. Some of the things my clients have been able to see using this approach include:

1. One client found that customers had a distinct preference for the more complex items in his line. The more complex items weren't always obvious from the price point, but they were obvious in the costing. So he selectively raised prices on the complex items to increase margin, because the lower margin of those items - plus their comparatively higher volume - was having a disproportionate negative effect on profitability.
2. One client needed to reduce her price points but had to be very careful how she did it because she had just started seeing the profitability she needed and didn't want to reverse it. By analyzing costs, she saw that she had the opportunity to put her lowest price production workers on a whole category of items that enjoyed good sales. She reduced those product costs and selling prices proportionately - thereby maintaining the overall margin (though not the dollars, of course), and was able to promote this new lower-priced line to counter the competitive pressure she was feeling.

These are just two examples, but they illustrate the type of knowledge this approach can bring. I rarely see conditions (no variability) that would make averaging all production salaries the most prudent approach to costing. The benchmark and test approach is the one I prefer, because even though it requires more work to accomplish, it is one of the most important functions of business. The resulting knowledge will help you manage not only the pricing of your line, but also generate better design and development ideas for future products and the evolution of the company.

(c) 2010. Andrea M. Hill

 Transcript not available yet.

When you're seated at a restaurant, hungry, enthusiastic about eating, you don't turn away the wait staff, right? You might ask for a few minutes to decide, but you don't put them off indefinitely.

When you go to the salon for a haircut or a blow-out, and they call your
name, you don't tell them to wait a while so you can finish a few tasks on your phone, do you?

When your pipes have burst and you've been waiting for the plumber for 36 hours, and he finally shows up at the door, do you send him away because you were just getting ready to serve dinner? No. You welcome him in.

Know Your Needs

Of course each of these examples is obvious. When we have a strong need, we don't ignore, put off, or avoid the provider of the goods or services who will fulfill that need. We schedule the time, we keep the appointment, or we clear the schedule to make sure these needs are met.

By definition, a retailer is a merchant who sells goods at retail.  Unless that retailer makes all the goods he sells, he needs to acquire them from somewhere. One can not merchandise with nothing, right? Of course, the retailer also must have someone to sell those goods to; the consumer. What I have observed is that most retailers in the jewelry specialty retail space are far more focused on who they sell the goods to than on from whom they acquire goods, and this leads to a serious lack of balance in the business.

The partnership between retailer and manufacturer/designer/distributor is one of the most important partnerships a retailer can have. Together the retailer and supplier create opportunities for the retailer to merchandise goods that consumers want to buy. Furthermore, the retailer should always be cultivating relationships and opportunities to learn about new, different, unique goods, because that is how the retailer can differentiate himself from other retailers and create ongoing excitement for his customers.

In too many situations, the retailer views the supplier as a nuisance, an interruption, or even an adversary, and not as the partner the supplier can and should be. There is a tendency to think in terms of "managing" vendor relationships and not "cultivating" vendor relationships.  But the best retailers - the most effective merchants with the most devoted clientele and the strongest growth trajectories - are building strong vendor relationships with current suppliers and actively seeking new vendors. When a vendor shows up unannounced, these successful retailers take at least a few minutes to see what is on offer. The small risk is wasting the 10 minutes it takes to recognize the products don't fit with the retailer's Merchandising Point of View. The huge risk is missing out on a merchandise opportunity that could have been dynamite.

Weak retailers feel relieved when merchandise sells, simply glad that it is gone. Successful retailers remain in contact with their vendors, placing immediate reorders to replace sold goods, but also responding to inquiries about current inventory positions and collaborating with their vendor partners to keep the merchandise offering fresh and balanced.

We all understand that the designers and manufacturers of jewelry need the retailers to carry the lion's share of the consumer sales. But I'm not sure we're all as clear that the retailers need the vendors just as much.  When the vendor relationship is undervalued, the result is the same as sending the waiter away instead of ordering, sitting in the waiting room of the salon instead of heading to the stylist's station, or sending the plumber away when he finally arrives.

Take a moment to evaluate your relationships with your vendors. If they are not as strong as they could be, invest in them personally or - if they're not the right partners to work with - find vendors with whom you can have a more productive, more profitable relationship. Stronger vendor relationships will help you meet the product needs of your business. This is vital, because those needs are very real and will ultimately determine your success.

I received a lot of email on the supply chain article from last week (click here to see previous article), nearly all of it positive (except for one seemingly misunderstood soul who felt the need to inform me that they did not mind the term supply chain management, they just didn't like the fact that I was so focused on it). Well. Anyway, I received a few questions regarding target pricing and negotiating tactics, and that presents an opportunity to discuss a very important topic given our current economic climate.

In an ideal world, every professional buyer would be a technical expert on all of the products they purchase. If a buyer is responsible for buying a handful of products in extremely large volumes, they should certainly step up to that ideal. But in most cases, buyers are responsible for a broad spectrum of products, and technical expertise on all of them is something to strive for but perhaps unattainable. For the latter type of buyer, how does one know which products absolutely demand his or her technical expertise, and which products can be more entrusted to the vendor (assuming one has done the work of building trustworthy vendor relationships – a different article entirely)?

Buyers have particular responsibility related to high volume/high profit potential products. If any product is responsible for a significant percentage of the firm or division's profitability, it is not enough to make sure the product or its components arrive on time and are of acceptable quality. It is also important to understand the manufacturing process related to that product, the market conditions affecting the components of that product, and the vendor's ability to manage those manufacturing and market conditions.

Beyond those obvious high-focus products, where is the next best place for a buyer to focus their attention? On products where the labor cost is a high percentage of total cost. Why is this so important? Because your opportunities to work on productivity improvements with vendors are very high on these products.

Let's say you negotiate with a manufacturer to produce a product for you, and their quoted cost is $60.00 per unit. If the labor costs associated with the product are $30 and the material costs are $30, figure the manufacturer's profit is 10% of material and labor, or $6.00. The manufacturer sees this as $54.00 cost and $6.00 profit. The manufacturer's material costs are difficult to negotiate (though you should always try), but there is opportunity in the labor cost. If the manufacturer can be motivated to reduce their labor costs through productivity improvements related to better work flow, improved use of technology, or process innovation, they could pass a portion of those savings along to you – or all of it if you present a compelling enough business argument. If the manufacturer can reduce their costs by 15%, that's another $4.50 per unit that is available for negotiation. Given how often a concerted effort at efficiency improvement leads to 15%+ gains, it is reasonable to expect that type of result.

If you don't know how much labor goes into your manufacturer's cost quote, you don't know how much negotiating room you have. Will manufacturers always quote labor costs? It depends on what type of products you are buying and what type of relationship you have with them. If the manufacturer is producing a contract good for you, then a labor quote should always be part of the manufacturer's price. If your purchasing represents a significant percentage of your manufacturer's business, or if the product you are purchasing represents a high-volume opportunity for the manufacturer, they should be willing to break down their costs for you. Alternatively, if you are staying on top of industry and market trends you can back out the costs of materials for yourself to see if there is additional opportunity for negotiation.

It is somewhat shocking to me how often purchasers have not visited vendor manufacturing facilities, and how few purchasers would understand what they are looking at once they actually arrived at those facilities. If you don’t know whether or not your manufacturer is an efficient producer, you don't know whether or not there are opportunities to work together to improve the cost.

Here are a few things to look for when assessing the efficiency of your manufacturer:

• Does your manufacturer use disciplines to build quality into the system? An operation that inspects for quality at the end, rather than incorporating quality into their process, is spending unnecessary money. Once unqualified products reach the end of the production cycle they have already expended materials and labor, and the policing process will prevent those products from getting to customers, but they won't save the manufacturer from incurring the costs again. Some disciplines that build quality into the system include Lean Manufacturing, Six Sigma, and TQM.
• Does your manufacturer use visual productivity tools? If you can't see anything in the work environment creating a focus on metrics, they probably aren't doing a good job of measuring efficiency. Look for visual tools in each work area that communicate piece or part production goals, efficiency and production targets, and performance reports. Of course, it's possible that a manufacturer will remove those types of visual cues from the walls before taking an important customer on a tour (though it doesn't make much sense – it's difficult to deduce anything about the financial size or health of a company from local production metrics), so if you don't see anything, you might ask. If the manufacturer can't speak to their productivity programs, you've either got a tremendous opportunity to work with them for reduced costs, a reason to worry, or both.
• Is the environment clean? This may seem like a small detail, but it has been observed over and over again that clean manufacturing environments are generally more efficient manufacturing environments.
• Ask about productivity improvements over the past five years. If your manufacturer has been focusing on being more efficient, they will be able to speak to those efforts.
• This last tip goes back to the comments at the beginning of this article related to the extent to which purchasers can be technical experts on all of their products. It helps to understand the manufacturing processes used to produce your products. If you understand manufacturing best practices, you can assess whether or not your manufacturer is using them.

Of course, you also must take into account how many layers there are between you and the manufacturer. If you are dependent on distributors, you want to make sure that the distributors from which you purchase are sound operators that constantly negotiate with the manufacturers on your behalf. The distributors are dependent on you to stay in business, so they need to keep their prices reined in to keep you in business. The distributor takes on the burden of carrying inventory and possibly some value-add activities, and there are costs associated with that.  But you can still demand that your distributor use its muscle to keep manufacturers' costs under control as a condition of your loyalty.

In these times of threatened inflation combined with likely recession, a business must do everything in its power to reduce costs. Please note – that may not (probably should not) mean that you will choose to reduce prices! I am not a fan of selling cheap to gain business, because it rarely works. If you have the operational efficiencies of a Wal-Mart you can afford to compete on price. But if you don't have that kind of muscle – the kind of muscle that enables you to put your competitors out of business – you can't afford to sell cheaply as a strategy.

Rather, your reasoning behind controlling costs is to enable you to keep as much of a lid on price inflation as possible. If your competitor's prices are increasing and your prices are able to hold steady or increase at a slower rate, you may be able to claim competitive advantage. Because you don't want to do this at the expense of profit margin, you need to create efficiencies in your supply chain. Hence our focus on reducing labor costs.

Difficult economic climates call for increased skills in strategic areas, and supply chain management is certainly the big one. Of course, it's always good business to maintain a very lean and efficient supply chain operation. But if you don't think you've been doing as great a job of supply chain management as you should, now is the time to correct it.

(c) 2008. Andrea M. Hill

Sometimes I listen to parents complain bitterly about things their toddlers – or teenagers – are doing; things which are totally age-appropriate. If you’re like me, you think to yourself, “as long as you're a parent, you would have a better time if you learned about the developmental stages of children.”

I had a friend who once decided to ride his bike from Albuquerque to Santa Fe – a 65-mile trip. Half way through his journey – and in the middle of nowhere – his bike broke down and he didn’t know how to fix it. If you’re just riding your bike around the neighborhood, you can get away with not knowing any repair skills. But if you’re going to start making long treks in sparsely populated areas, you need to learn how to fix your bike and own the proper tools.

There are probably many things you wouldn’t do without learning a lot about them and practicing first: true wilderness camping without survival skills, throwing a huge self-cooked dinner party without cooking skills, sailing a boat in the ocean without navigational and boating skills.

Are you running a small business without small business success skills? If you are, it’s going to cost you.

As a small business – or even a micro-business – owner, you must do all the things the CEO of any company does; decide what to sell and how to sell it, whether and when to hire help, manage customer service, operations, and finances, make decisions. Even if you don’t have formal investors, you are managing a huge investment – your own. Your investment is the time you spend, the money you put in, and the profits you roll back in. You are responsible for all the same things as any CEO, but without the qualified support staff to fill in the gaps in your knowledge.

I was the CEO/President of several corporations over the past 30 years, from a $2million/year marketing agency to a $100million+ jewelry company and a $600million+ apparel company, and now I own a multi-brand consulting agency. The skills I needed between the $2 million level and the $600+million level were remarkably similar. I didn’t need to “be” an accountant, but I had to know how to discuss finances intelligently with my accountants. I didn’t need to “be” a production manager, but I needed to understand what my production managers were doing and how to help them be more successful. I didn’t need to “be” the computer network manager, but I needed to be competent enough to weigh the suggestions my network managers made and make good decisions.

When I first took over the apparel company, I realized that my accounting skills were lacking to do the analysis at that level. Did I go back to school to become an accountant? Absolutely not. But I did go take a class called “Financial Management for Non-Financial Managers” offered at a local community college. That, plus a lot of attention and practice, turned me into a strong financial manager capable of not driving my accounting staff crazy, and more importantly, of being the CEO my company deserved. Every year of my career I have added more business skills to my portfolio, and I continue to do so today. You must do this too.

You probably already know how to make and/or acquire the products and services you sell. This is the starting point for most entrepreneurs. But there are several business skills you must cultivate in order to ensure the survival and profitability of your company. These small business success skills include:

• Basic understanding of financials and financial management. You don’t need to become an accountant (in fact, paying a good accountant is one of the most important things any small business owner can do). But you must understand your role in financial matters, how to work with your accountant, and how to steer your company in the right direction.
• How to not just make a strategic business plan, but use it for ongoing business development and improvement.
• How to express your business strategy as a Brand, and how to imbue your whole organization – from product idea to post-sales satisfaction – with Brand elements that stick with customers and keep them coming back for more.
• How to hire, train, discipline, fire, and motivate employees. Even if you have only one employee, you need these skills. Otherwise, you risk paying someone to work for you without getting the full value of that pay.
• How to set up the necessary business systems to manage your customers, sales, inventory, marketing, operations, and accounting. By systems I don’t necessarily mean expensive computer software – the solutions can be anything from KanBan cards to computers. But you need to know which systems you need and how to set them up.
• How to manage your inventory to ensure high service levels, solid margins, happy customers, and no excess taxes. Inventory is about way more than just buying goods and making them. You must understand the role inventory plays in your company, and how to manage that role carefully.
• How to create and manage a sales and marketing plan.
• How to set up sales and customer service programs that drive volume and profits, whether you’re selling to business clients, through retail stores, or directly to end consumers (or any combination thereof).
• How to not only create and sell products, but manage product and product line profitability.
• How to prospect for new customers –from finding new potential sources for sales to keeping them interested, and learning how long it takes to convert a prospect to a loyal customer.
• How to decide which operations to keep in-house, which to outsource, and how to manage both types.

Being a business owner is a big task, and I’m not going to pretend that list is a quick or easy thing to master. But if you start learning these skills right away and keep picking them off one-by-one, you’ll become a better CEO from the moment you start . . . and the time is going to go by either way.

This is a link to a chart of these skills. It is structured as a pledge; a pledge to yourself to pursue and cultivate the skills you need to succeed. I encourage you to print it out, post it in a highly (and daily) visible spot, and check each one off as you tackle it. And here’s to you, on the road to becoming a highly competent – and vastly more satisfied – CEO.

I just returned from a trade show in New York, and I have to say, neither exhibitors nor retailers were maximizing the incredible value that trade events have to offer. The entire affair (a colocated retail show and supplier show) was just lackluster.

But it didn’t have to be.

My first observation was that a lot of trade show basics were missing. Exhibitors that didn’t consider their presence as a marketing tool. Booths that were completely lacking in compelling signage or any sort of draw to attract attendees to them from across the room. Salespeople unprepared with an offer other than, “what are you looking for? Let me show you my new collection.” And a lot of just failure to follow the basic rules of exhibiting at trade shows, which I’ve already addressed in these articles:

• 10 Rules for Successful Trade Shows
• Improve Your RTS (Return on Trade Show)

B2B buyers of all ages want experiences, and exhibitors who make an effort to turn their booth into something more compelling than the flyer-distributors on the strip in Las Vegas benefit the most from shows. If you sell tools, equipment, or technology, your products are exciting and can do the work of creating experiences for you if you treat exhibits as an opportunity to demonstrate rather than discuss. If you sell finished goods, turning your booth into the equivalent of an all-day-long HSN or QVC pitch experience, with clear offers and product sharing, will bring attendees to your booth. Show shoppers can find it intimidating to walk up to a booth and engage the seller, and they feel a level of obligation when they do. But it’s easy to walk up to a booth when a pitch is in motion … the psychological distance is comfortable, because the show “shopper” can tell that the pitch isn’t for them … it’s for everyone.

I could go on and on about how to improve trade show presence for exhibitors. But for the moment, I’ll just invite you to our next webinar, “B2B Marketing Playbook: Your No-Nonsense Guide to Winning Without Wasting.” Catch it live (Wednesday, March 27 at 12:00 PM Central) or watch the replay here for free. Free B2B Marketing Webinar

But what about retailers? I also notice that retailers are increasingly treating trade shows as buying shows, prioritizing time with existing suppliers to discuss things like buying more inventory and stock balancing. But buying and stock balancing are supposed to be the daily, ongoing work of being a merchant. Buying and stock balancing can be done over email, the phone, or a Zoom call, and should be looked at weekly.

On the other hand, there are a lot of things to be done at trade shows that cannot be done over the phone or in Zoom meetings or using email. So what are these things?

Before a retailer gets to the trade show, they should take time to review their merchandising strategy. Analyze their numbers to see what's selling and what's not, analyze competitors and customer feedback to understand what they’re not offering that they could be. Thinking about how they can differentiate their business from their competitors. If every retailer is selling the same or incredibly similar product mixes, then the only thing they end up competing on is price, and that’s a dead-end game, particularly in the luxury verticals I work in most frequently. Retailers often think they're competing on service, but good service is a minimum standard necessary to compete. Assuming that their service is good, what  are they competing on? Are they offering products that nobody else offers? Are they offering experiences that nobody else offers? How do they differentiate? These are the things retail buyers should be thinking about before they ever get to a trade show, because supplier partners should be an important part of that equation. Thinking about this ahead of time allows trade show shoppers to focus on those questions when they are at the show.

On the show floor, it's time to explore and say, “I have these needs. Maybe it’s a bulleted list of five things the buyer would like to accomplish that differentiate their business from both the individual product and overall product experience standpoints. This approach compels a buyer to explore a trade show in a different way, not for specific products they like, or which are similar to things they already carry, but for product experiences help them create better, differentiated experiences for their customers. Retailers will look at the show floor differently if they approach trade shows that way.

The other thing retailers should do at trade shows is learn about what's going on in the industry. The smartest merchants are asking everyone — whether exhibitors or retail peers or consultants — asking everyone, “What's going on? What's going on in your market? What's going on with your customers? What do you see that you think is unusual? What do you see that's concerning?” A trade show gathers an entire community of experts in one place, and the smartest retailers mine that environment for insight.

Another thing retailers should do at trade shows is ask a lot of why. Figure out who the producers are that do a good job of offering something new and different, who really listen to end consumers. Even if those products are not something retailers think would work in their store or market, they should pay attention, and take the opportunity to ask, “Why? Why did you decide to offer this at this time? Why are you the only ones offering this? What are you thinking about this product or this product category? What are you seeing that made you think this product or product category was needed?”

Perhaps the supplier won’t have a good answer because either the salesperson doesn't know or the company is just making things that are interesting to them. But some of them will offer useful insight about why a particular product is being offered, and retailers can learn from that. So asking why about new products is important.

Trade shows provide the opportunity for meaningful comparisons between brands, and retailers should use that concentrated supplier environment to gather information for comparative analysis.

This is the opportunity to ask suppliers about their trade policies, service approach, terms, and stock balancing. Do they support advertising? Do they participate in events? The answers to these questions enable retailers to ask themselves, “Are there opportunities to do a better job than the suppliers I'm working with right now? Am I already engaged in the best possible relationships?” The best possible relationship isn't as simple as the best price or the best stock balancing plan. The best possible relationship is the relationship that gives a retailer the greatest return on investment for their merchandising purchases, along with the most frictionless buying experience, because the cost of doing business varies from supplier to supplier. Trade shows are a great time to explore those things.

The last thing to think about for retailers shopping trade shows to consider, particularly for my readers in the jewelry industry, relates to the number of suppliers you work with. Abe Sherman, CEO and Founder of Buyers Intelligence Group (BIG), a jewelry industry supply chain analytics service, reports the average jewelry retailer has 200 suppliers. Now, they may not deal consistently with all 200 of them, but 200 suppliers is a lot of suppliers.

The number of suppliers a retailer buys from plays a direct role in overall merchandising effectiveness. More suppliers increases the cost of merchandising and decreases the ability to be important to suppliers. Trade shows are an opportunity to review the supplier mix, have conversations with existing suppliers about how they can work together to improve merchandising strategies, or identify opportunities to work with different suppliers that might check more of the boxes of what is important to the retailer.

If a retailer has three or four bread and butter suppliers that provide them with generic merchandising or generic products, and then has a dozen or so suppliers that provide them with differentiated goods not carried by their competitors, that's an interesting mix. If instead they have a dozen or so suppliers that are providing them with generic merchandise, and very few suppliers that provide them with differentiation, that’s not helping their business.

Approaching trade shows strategically can assist retailers in reducing their overall cost of merchandising and, ideally, increasing their value to some of those suppliers.

Using trade shows to improve differentiation, merchandise balance, cost of merchandising, and reshape and manage supplier relationships for the best possible merchandising strategy is a valuable way to spend time at trade shows. Save things like stock balancing and filling holes in inventory for the day-to-day work of merchandising. Trade shows are not about the day-to-day work of merchandising. Trade shows are about the once or twice per year work of strategy.

We discuss both Fairtrade and Fairmined in relation to jewelry industry supply chain transparency, and it’s no wonder that people get confused by the two.

First, don’t think they’re both part of the same thing! At one time they did have a partnership, but after that they decided to pursue their “metals” goals separately. The major difference is that Fairtrade covers a broad range of goods – well beyond metals and mining. In fact, entire communities in Europe call themselves “Fairtrade Communities,” and work hard to only provide goods that are certified as Fairtrade. Fairmined is only concerned with mining. On the other hand, Fairmined has more mines signed up, since they have been in the metals business much longer than Fairtrade. Both are working hard to sign up new members, though the process is intensive and takes a long time to complete.

Second, don’t confuse “Fair Trade” with “Fairtrade.” The Fairtrade label is a standard. Fair Trade - with a space - is the concept of fair trade, but not a specific standard or program.

Finally – get involved. When you buy your metals through a Fairmined or Fairtrade initiative, you become part of the social standard, which means your metal supply chain is audited. This is a good thing. Each of us must take a position in the supply chain as part of the sustainability movement. One of these two standards for metals is a great place to start!

So here is a quick comparison of these two different approaches to supply chain transparency and responsible behavior:

When Will We Start Treating Lab-Grown Diamonds Like a Product Instead of Like an Intruder?

The jewelry industry continues to take polarized positions on lab-grown. It seems like every time we've grown past this debate, another social media group comes to virtual blows over the topic. I'm not surprised - it was the same conversation when Chatham first started offering lab-grown emeralds and rubies. But it's not useful. Not to us, not to our customers.

You don't see grocery stories saying, "we won't carry organic/gluten-free/paleo/pick-a-theme" groceries because they interfere with our other grocery sales. They evaluate consumer interest and potential demand, and offer choices. Fashion has done this with alternative fabrics. Car companies had a harder time doing it with alternative fuels, but that's largely because of the expense of tooling up to produce new equipment coupled with wanting government assistance to do so.

When it comes to lab-grown diamonds, we get all tied up in our shoestrings with our own preferences, fears, and perceptions, and in the process lose sight of the customers.

In the most recent social media post and following thread, I saw all the same black-or-white arguments. Diamond mining concerns are doing great! So much change! Mined diamonds are terrible, so much abuse. Lab-grown diamonds are not ecologically friendly - so much electricity! Lab-grown diamond producers are abusive, they're all in (pick a country). None of these tropes serve the industry, our businesses, or our customers. But if we're going to have honest conversations and learn from each other, we need to get comfortable with shades of gray - because that's all there are right now.

Shades of Gray Shadow Both Mined and Lab-Grown
The social and ecological issues are very challenging to sort. Tens of millions of artisanal miners around the world rely on mining to feed their families. Anything we do in the mining sector must be done not only with regard for their health and safety while mining — but also with regard to their health if they cannot mine. In that regard, the pandemic is causing horrific food insecurity around the world.

Want to help support artisanal miners suffering from food security caused by the pandemic?

On the other hand, diamonds do not "do good" yet. Not by a long shot. They are "doing better," and better is a good direction to go in. So we must keep applying pressure on the mined diamond front.

But let's never demean progress. The natural diamond sector was pretty bad for a long time, they've made progress, and if we treat progress as an all-or-nothing proposition, it tends to stop. We don't want that.

So, are lab-grown diamonds a more or less ethical solution? Like natural diamonds, it all depends. If you're talking about factories abusing their labor, then no. But just because a factory is in China doesn't mean it's abusive. I spend a lot of time in manufacturing facilities around the world, and I've seen rotten treatment of employees everywhere — including in the United States — and excellent treatment of employees everywhere — including in China.

Are lab-grown diamonds more or less ecologically sound? Again, it depends. I know of growers working to use the most responsible power generation possible, and some that don't care about that at all. Until lab-grown producers start disclosing some of those details, it's just impossible to know.

But, if you have a customer who has a really hard time with the concept of digging and blowing holes in the earth, then lab-grown may be the flavor of "responsible" she's looking for. I don't agree with making green statements that can't be validated, but I'm uncomfortable with blanket statements that lab-grown producers are all disruptable too.

Which Holds Its Value Better (Hint: It's a Red Herring)

Do lab-grown diamonds hold their value for the future? That's a laugh — a discussion we shouldn't even be having. Not because lab-grown will or won't hold their value for the future — nobody knows that yet! It's a laugh, because mined diamonds don't hold their value. We should never treat diamonds of any sort as if they are a financial instrument. A very small number of collectors in the ultra-rare mined color diamond sector do use diamonds as a financial investment, but that's it. We should never make any promises or inferences to customers about the future value of a diamond.

Should you Sell Lab-Grown Diamonds?

So - should you or should you not sell lab-grown? Well, you could base that on your own preferences, fears, and biases, but I'll suggest that's a terrible business approach. You should make every business decision based on your businesses core values (which are different than biases), and on the desires and interests of your customers. It won't be the same answer for everyone, nor should it be. If analyze this question with intellectual rigor, self-awareness, and deep interest in your customers, you'll have the right answer - and nobody else can tell you otherwise.

##