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8 Ways to Slay Your Lunch Hour

If you’re a working professional in the U.S., chances are you have experience with stress. One way to combat this trend, according to author Michele Debczak, is by better using the breaks we’re given. Lunch breaks provide a chance to refresh in the middle of a hectic day. Here are eight ways to spend your lunch hour:Leave the office.Read a book.Meditate.Unplug.Exercise.Take a nap.Catch up with a loved one.Spend time in nature.Click for full article

Global Energy Intensity Declines

Energy efficiency policies differ among regions of the world, with the relative efficiency of buildings, vehicles and industrial processes heavily influenced by the local regulations, incentives and market competition, according to the Energy Information Administration. For example, according to the International Council on Clean Transportation, fuel economy standards are applied in approximately 80 percent of the world automobile market. The remainder of the world, while potentially influenced by regulated markets, lacks local efficiency standards. Building energy efficiency policies also can differ significantly across countries. Countries with more developed economies generally tend to have more stringent regulations on energy use and energy efficiency.Click for report  

THE INVENTORY REDUCTION TRAP

During the Great Recession, many distributors faced severely low cash positions. An implied consensus among firms in the industry emerged: Running short of cash was not going to happen again. One result of this cash focus was a decadelong movement to lower inventory levels to free up cash. It is a movement that continues even now.Programs that eliminated dead or redundant items to generate cash were successful initially; however, there has been an almost endless effort to keep reducing the inventory investment further. In too many instances, the reductions have crimped service levels and probably resulted in lost sales.Let’s examine the nature of inventory reduction programs from two perspectives:  The inventory/sales trade-off: an analysis of the break-even point for an inventory reduction that also results in a reduction in sales.Inventory reduction guidelines: a discussion of the opportunities to reduce inventory without negatively affecting sales. Trade-Off Between Inventory and Sales for Typical PEI Member   Income StatementCurrent Results10% Inventory ReductionBEP Sales ReductionNet Sales $10,000,000 $10,000,000 $9,936,170Cost of Goods Sold 7,150,000 7,150,000 7,104,362 Gross Margin 2,850,000 2,850,000 2,831,809 Expenses    Inventory Carrying Cost (15% of Inv.) 150,000 135,000 135,000 Variable Expenses (5% of Sales) 500,000 500,000 496,809 Fixed Expenses 1,900,000 1,900,000 1,900,000 Total Expenses 2,550,000 2,535,000 2,531,809 Profit Before Taxes $300,000 $315,000 $300,000     Inventory $1,000,000 $900,000  Sales Decrease to Break Even   0.6% The Inventory/Sales Trade-OffMost inventory reduction programs are predicated on the assumption that reducing inventory will have a two-pronged financial impact. First, the inventory reduction will be converted to cash to provide financial stability for the firm. Second, lowering inventory will increase profits because the cost of carrying the inventory will be reduced. There is seldom any consideration that the reduction in inventory could negatively affect sales.The figure above examines the nature of the trade-off between inventory and sales for the typical PEI member based upon the latest “Distributor Profitability Report.” As can be seen in the first column of numbers, the firm generates $10 million in revenue, operates on a gross margin percentage of 28.5 percent of sales and produces a pretax profit of $300,000, or 3 percent of revenue.There also is a memo item for the total investment in inventory. In the case of the typical firm, this is $1 million — a substantial figure. The idea of reducing inventory is enticing.To understand the impacts on inventory and sales, it is necessary to break the firm’s expenses into three categories: inventory carrying costs (ICC), variable expenses and fixed expenses.The most important of these for analyzing inventory is the ICC. The ICC is the cost of carrying inventory for a year. It includes interest, obsolescence, shrinkage and the like. It typically is estimated by inventory specialists to be around 15 percent of the inventory investment each year. Using that figure, the ICC is $150,000.Variable expenses are the costs that rise and fall right along with sales. The most important of these is commissions. For purposes of the figure, variable costs are assumed to be 5 percent of sales, or $500,000.Fixed expenses are overhead expenses. They are the costs that must be covered each year regardless of sales volume. For ease of calculation, they represent all of the remaining expenses, or $1.9 million.The second column of numbers examines the impact of a 10 percent reduction in inventory. That is a sizeable reduction and would require concerted effort on the part of the firm. Inventory becomes $900,000 because of the 10 percent reduction. The ICC also falls 10 percent and is now $135,000. Sales, gross margin and all of the other expense items remain the same. As a result, the entire reduction in the ICC goes to the bottom line.The final column of numbers looks at how much sales must fall to offset the profit impact of the inventory reduction. This means the sales decline necessary to return profit back to the original level of $300,000.For the typical PEI member, the sales decline is only 0.6 percent. Sales, cost of goods sold, gross margin and variable expenses all fall by this percentage while fixed expenses stay constant. As a result, profit falls back to its original level. The impact of even a modest decline in sales is pronounced.The firm continues to have its improved cash position even if sales fall; however, in the long term, cash is produced by generating sales at a profit. The inventory reduction effort has stymied that effort somewhat. This suggests that inventory reduction programs should be approached with caution. Inventory Reduction GuidelinesFew analysts argue with the idea that the inventory investment can be fine-tuned. Offsetting that is the nearly universal desire of customers for distributors to increase their inventory investment.What customers want from distributors has been researched extensively for more than four decades. Nearly every research project reports the same top two desires of customers: Enhanced in-stock position. Customers continually argue that distributors are out of stock too often.Greater depth of assortment. Customers also look for the opportunity to engage in one-stop shopping. Both of these approaches strongly suggest that distributors should carry more, not less, inventory. Reconciling this need with the desire to develop a strong cash position requires fine-tuning the inventory. It cannot support the heavy-handed, across the board cuts that are overused.The solution is twofold and involves eliminating redundancies and continual sales monitoring. Redundancies. Most of the problems with dead inventory can be attributed to redundant items. That is, there are slow-selling items that basically are duplicates of faster-selling ones. In some industries, the slow sellers are nonsellers. Large chunks of items haven’t sold at all in the past six months or a year. Eliminate them, even if it means selling them below cost. Sales monitoring. In a fast-paced world, items move through their life cycles with greater speed than before. Today’s great-selling item often becomes a good seller too quickly. Eventually, it might be another problem item. Make efforts to clear inventory as soon as the item is past its prime. If not, the entire excess inventory issue will arise again. Constant sales tracking is essential to this process. Moving ForwardFirms encounter a continual challenge to maintain an adequate cash position, particularly as they increase their sales. Efforts to increase cash by reducing inventory, however, must be thought through carefully. Any inventory reduction program that reduces sales or diminishes sales growth must be avoided. The trade-off is in favor of sales over inventory. Albert D. Bates is director of research at the Profit Planning Group. His recent book, “Breaking Down the Profit Barriers in Distribution,”is the basis for this report. It is available in trade-paper format from Amazon and Barnes & Noble.

Biggest Workplace Trends

An infographic from the Brighton School of Business and Management highlights workplace trends in 2016, such as:  Employee TrendsBoomerang employees will become more accepted.Baby boomers will make way for Millennials.Generation Z will enter the workplace. Technology and Office Layout TrendsWearable technology will properly enter the workplace.Automation will creep in at the cost of employees.Office design to facilitate collaboration will be a priority.  Work/Life Balance TrendsWorkplace flexibility will dominate the conversation.The sharing economy will rise even more.Maternity leave will become an even bigger topic. Click for infographic

Germany Is Not Killing Fossil-Fueled Cars

Green website Electrek botched a headline this week when it posted, “All new cars mandated to be electric in Germany by 2030.” Problem is, it’s not true.The article announced that “Germany is about to become the first major country to set an official deadline for a ban on gas-powered cars.”Bertel Schmitt, writing for Forbes, examines how the story became misconstrued. Turns out that journalists played something akin to “telephone,” in which the more times a message is paraphrased, the more it gets turned around. Read More 

10 Talent Issues That Affect People Management

DeloitteNow in its fourth year, Deloitte’s 2016 Global Human Capital Trends report is one of the largest longitudinal studies of talent, leadership and human resources (HR) challenges and readiness around the world.The research described in this report involved surveys and interviews with more than 7,000 business and HR leaders from 130 countries.The survey asked business and HR respondents to assess the importance of specific talent challenges facing their organization.The Top 10 Human Capital Trends for 2016In 2016, organizational design rocketed to the top of the agenda among senior executives and HR leaders worldwide, with 92 percent rating it a key priority. Perennial issues such as leadership, learning and HR skills continue to rank high in importance, as they have in each of the four years of this annual study.Yet this year, a key shift is under way, as corporate leaders turn a more focused eye toward adapting their organizations’ design to compete successfully in today’s highly challenging business environment and competitive talent market.Culture and engagement are also a major concern for the C-suite. This reflects, in part, the rise of social networking tools and apps that leave companies more transparent than ever, whether they like it or not.Top executives increasingly recognize the need for a conscious strategy to shape their corporate culture, rather than having it defined for them through Glassdoor or Facebook.Click here for report

Shared Travel: Revolution or Evolution?

The Fuels InstituteExecutive Summary: Insight Into Business Strategy ContextThis report connects fleet and customer analysis. While the customer demographic data represents general locations and not the actual customers, the combination reveals valuable insights because all of the car-sharing companies must make strategic and tactical choices in where to locate, and therefore must assess the characteristics of those markets.In that light, strategic insights emerge from connecting the dots:Car-sharing is a real-estate game. Car-sharing goes after the low-hanging fruit and locates in areas with smaller households, fewer vehicles per household, higher income and more education. Car-sharing is a downtown phenomenon. Turo, the peer-to-peer rental company, appears to have a model that is fundamentally different on some measures than car-sharing. Both car-sharing and peer-to-peer gravitate toward the largest metropolitan areas — those with a population of 1 million or more. Another commonality is that car-sharing and peer-to-peer companies contain nontrivial inventories of alternative vehicles in their fleets. The market introduction challenges of electric vehicles (EVs) cannot be magically overcome by car-sharing; the car-sharing fleets are not dominated by EVs.  Click here for report

TOP 5 MYTHS ABOUT MILLENNIALS IN CONSTRUCTION

By Sabine Hoover, FMIMany American millennials graduated from college with staggering amounts of student loan debt and started their careers in one of the greatest recessions of all time. Seen as trendsetters, millennials are well-known for their outspoken qualities and knowledge of everything from technology to fashion to food. As a result, they have puzzled companies and marketers for years.Furthermore, millennials often are saddled with a reputation for being entitled, disloyal, lazy or optimistic go-getters, but it turns out that they’re actually not that different from their older work colleagues.Millennials are an 80 million-strong generation today. In 2015, they surpassed the baby boom generation as the nation’s largest living cohort and now make up 34 percent of the nation’s workforce, according to the Pew Research Center. This number is expected to grow to 50 percent by 2020.In 2015, FMI surveyed nearly 400 construction industry professionals, more than 200 of which were millennials, to measure this young generation’s level of engagement and explore what a millennial worker is looking for in an employer.The following article presents five key misconceptions of this young generation and explains what they are looking for in a construction industry employer.Myths and TruthsThe information and opinions swirling around the millennial generation can be broken down into two categories: myths and truths. Based on our industry survey and dozens of conversations with millennial employees in construction, we have uncovered the following myths surrounding this largely misunderstood workforce:Myth 1: Millennials are lazy.Fact: Millennials are eager to be challenged and ready to go beyond what is required to make their companies succeed.For years, pundits and contemporary publications have criticized millennials for being lazy. It turns out, however, that this might be one of the greatest misunderstandings about this generation. According to a recent survey published by the HR Policy Foundation, two-thirds of the companies surveyed said that their millennial employees were making significant contributions in the workplaces because of their inquisitive nature, tech-savviness and drive for innovation.Responses from millennials in the construction industry confirm this position. Nearly 70 percent of participants expressed their willingness to work beyond what is required of them to help the business succeed. Like other generations before them, millennials want to be challenged with interesting and meaningful work.As one survey participant put it, “When trying to engage millennials, it is important to emphasize the appealing aspects of the industry. In construction, projects are always different. Showing millennials the challenges each project offers gives them a sense of purpose and greater determination. The constantly changing work environment offers a more exciting route compared with the monotony of replicated day-to-day activities.”Not unlike other generations that enter the workplace, millennials have new perspectives to share, innovative ideas about getting things done, and interesting ways of tackling problems. They are less willing to accept the “old school” methods of completing work, and they are always searching for new ways to streamline processes and increase efficiencies. This mindset is critical for pushing the industry forward. Failing to nurture the innovative and inquisitive nature of younger workers will create disengagement among employees and result in a less productive workforce.Myth 2: Millennials are job hoppers.Fact: Millennials want job security and stability.Much like their predecessors, millennials are interested in job security and stability. And despite popular belief, they aren’t poised to switch jobs as soon as another opportunity presents itself. That said, these younger workers come from a “connected” generation that values collaboration, teamwork and social opportunities. Our study also indicates that millennials value the use of new and innovative technologies to solve client and corporate challenges. Letting young people contribute and participate in such meaningful ways — and showing genuine interest in their careers and personal lives — is key to engaging them long term. Company cultures focused on employee engagement require a defined and well-communicated company vision. This point is especially important for young people who are kicking off their careers. By explaining the whole picture, company leaders can connect the meaning to their employees. This gives workers a clear sense of purpose and an understanding of how their efforts fit within the larger plan. According to our research, when the company’s vision is inspiring and clearly communicated, millennials are 25 percent more likely to stay longer with the company compared with those who don’t understand the company’s vision and direction.Myth 3: Millennials are altruistic and don’t care about money.Fact: For millennials, money is very important.For years, thought leaders have been talking about how millennials are just out for a “purpose crusade” and how they are more interested in meaning than money. Our research paints a much different picture. When asked what’s most important to them, millennials rank competitive pay their highest concern.Haydn Shaw, a renowned generational expert, confirmed this finding.“The vast majority of surveys show that millennials rank base pay as the most important factor in selecting and staying in a job, just as the other three generations do,” Shaw writes. “They want meaningful work and a supportive culture to work in, but they want a well-paying job and career advancement more.”Using well-defined incentives that motivate their employees to go beyond the call of duty, progressive construction firms are taking charge and improving company performance. Beginning with a well-defined incentive compensation system, companies can effectively develop employees who excel at maximum levels and beyond. With the right combination of clear direction, quality feedback and tangible rewards, employees become engaged and satisfied with their jobs. This helps create a situation where employees are inspired because management values their efforts.Myth 4: Millennials want constant acclaim.Fact: Millennials want regular feedback — not because they are looking for a trophy, but because they are still learning the ropes.Feedback is a big topic for millennials in construction. Young construction employees are looking for mentors and coaches to help them learn the business and understand the ins and outs of their daily tasks and routines.Progressive construction firms have started to create formal coaching and mentoring systems that support younger employees while providing an important platform for knowledge transfer. By weaving these programs into their company fabric — and making them a part of employee performance reviews — firms can effectively reach the 75 percent of millennials who see mentoring as crucial to their success. Unfortunately, most construction employers are still missing the mark in this area.According to our latest Talent Development Survey, more than three-quarters of all participants (77 percent) are counting on annual reviews to increase employee performance and development. Conversely, nearly 50 percent of our millennial survey participants stated that they wanted feedback monthly — a key indicator of how this young generation is driving change in performance management and overall communication.This generation is used to speedier reactions and responses; annual reviews are no longer viable. Employers must shift their mindsets and start developing mechanisms for frequent, in-person communication and information exchange across all company levels and age groups.Myth 5: Millennials are entitled.Fact: Millennials are ambitious and eager to make an impact in their careers, which sometimes can be misread as entitlement or even arrogance.This young generation of workers wants to participate and contribute in meaningful ways. They enjoy collaborative employment opportunities that allow them to stretch their creative wings, share new ideas and actively participate in their companies’ successes.Too often, old job descriptions and company policies keep younger workers from contributing at levels that would create value for their employers. In such cases, executives should think about how to change their work environments, team configurations and incentives.Our millennial research also confirms that if employees feel like they are making progress and advancing in their careers, they will be more likely to remain with their companies long term. Of survey respondents indicating that they understood their career paths and opportunities within their firms, 81 percent of millennials expected to stay more than five years at their companies. Conversely, of those respondents not expecting to stay more than five years, one-third were unsure of their current roles, responsibilities and expectations.Career development is particularly relevant for companies in the construction industry, where many firms lack well-defined job tracks or comprehensive talent development and leadership programs. With young, ambitious millennials wanting to learn, improve and advance through an organization, employers must develop better solutions and challenge the old ways of “how things used to be done”— starting with the ways people interact and collaborate with one another.What Does This Mean for You?As millennials become the dominant generation in today’s workforce, companies must be cognizant of the actions they take to engage these employees. Aligning each person’s development plan with the company’s vision and goals is essential in ensuring improved engagement. Millennials are especially eager to contribute and want to know that they are adding value to the company. Never before have the company’s mission and vision been so important to a workforce.Sabine Hoover is FMI’s content director and chief editor for the FMI Quarterly. She has more than 10 years’ experience in the construction and engineering industries.Reprinted with permission from FMI Corp. For more information, visit www.fminet.com. 

SALES-TO-PAYROLL WEDGE: A PROFIT NECESSITY

By Albert D. BatesMost distributors are experiencing strong sales gains. The serious concerns about generating adequate sales are largely a thing of the past. Unfortunately, the strong increases in sales are not translating into strong increases in profit. Expenses — especially payroll expenses — are absorbing an excessive amount of the increase in sales.The key to overcoming this problem (and generating substantially higher profits) is to produce a “sales-to-payroll wedge.” Simply put, sales must grow faster than payroll expense. It is simple to understand, but difficult to implement. Let’s examine the nature of the sales-to-payroll wedge from two perspectives:⦁ The economics of a sales-to-payroll wedge: how sales growth and payroll   control combine to produce higher profits.⦁ Implementing the wedge: specific management actions required to generate a   sales-to-payroll wedge.The Economics of a Sales-to-Payroll WedgeOne of the oldest management bromides in distribution is, “Sales are vanity, profits are sanity.” Bromide or not, the statement continues to be true. Sales growth almost always helps, but what is needed is sales growth that does not require a commensurate increase in payroll expenses. Figure 1. The Impact of a 2% Sales-to-Payroll Wedge for a Typical PEI Member  2.0 % Sales-to-Payroll WedgeIncome Statement ($)Current Results5.0% Sales Growth15.0% Sales GrowthNet Sales$7,000,000$7,350,000$8,050,000Cost of Goods Sold4,970,0005,218,5005,715,500Gross Margin2,030,0002,131,5002,334,500Expenses   Payroll and Fringe Benefits1,225,0001,261,7501,384,250All Other Expenses665,000698,250764,750Total Expenses1,890,0001,960,0002,149,000Profit Before Taxes$140,000$171,500$185,500    Income Statement (%)   Net Sales100.0100.0100.0Cost of Goods Sold71.071.071.0Gross Margin29.029.029.0Expenses   Payroll and Fringe Benefits17.517.217.2All Other Expenses9.59.59.5Total Expenses27.026.726.7Profit Before Taxes2.02.32.3Figure 1 shows the economics of sales and payroll growth. It reflects the results for a typical PEI member based on the latest “Distributor Profitability Report” (DPR) published for PEI by the Profit Planning Group. The Current Results column indicates that the typical firm generates $7 million in sales and operates on a gross margin of 29 percent of sales. It produces a pretax profit of 2 percent of sales, or $140,000. Total expenses are weighted heavily toward payroll, which represents 17.5 percent of sales, or 64.8 percent of total expenses. This is why payroll control is critical.The last two columns examine the impact of a sales-to-payroll wedge. Again, this means that sales growth outpaces payroll growth. Two sales growth scenarios are used to examine the sales-to-payroll wedge: 5 percent and 15 percent.Slow growth. The 5 Percent Sales Growth column reflects operations in a mature market. This growth rate was achieved with no change in the gross margin percentage. As a result, cost of goods sold and gross margin also increase by 5 percent.The key to this column is that payroll expense increases only by 3 percent. This provides a 2 percent sales-to-payroll wedge (5 percent sales growth minus 3 percent payroll growth). For most firms, 2 percent is a realistic goal that should be part of planning.The other expenses (all of the nonpayroll items, such as rent, utilities, interest and the like) are assumed to increase at the same rate as sales. Realistically, such expenses would not grow as fast as sales; however, this assumption allows the figure to focus exclusively on the power of the sales-to-payroll wedge.The modest 5 percent sales growth does wonders for the bottom line if the 2 percent sales-to-payroll wedge can be generated. Profit increases from $140,000 to $171,500; an increase of 22.5 percent. Profit is now 2.3 percent of sales.Fast growth. The last column examines the impact of more rapid growth, defined here as a 15 percent sales increase. The same sorts of effects that were observed in the 5 percent column also are seen here. The gross margin percentage stays at 29 percent, so sales, cost of goods and gross margin all increase by 15 percent.A 2 percent sales-to-payroll wedge remains the goal, so payroll increases only by 13 percent. The other expenses follow the same growth path as sales and increase by 15 percent. The result is that profit grows by 32.5 percent to $185,500.A more rapid rate of sales growth produces a somewhat larger bottom line; however, to get to $185,500 in profit vs. the $171,500, the firm had to generate another $700,000 in sales. It probably had to hire more employees; payroll increased to $1.38 million. It was a lot more work.Rapid sales growth makes the sales-to-payroll wedge a little easier to produce. Sales growth, however, is not behind higher profits. What matters is how much sales can be increased in relationship to how much payroll has to increase to support that sales growth.Implementing the WedgeAt this point, producing a sales-to-payroll wedge should seem like a great idea. Readers may quibble with the 2 percent figure if they desire, but a wedge of some size seems essential. The issue is to identify how such a wedge can be generated.In trying to produce the sales-to-payroll wedge, remember that improved productivity systems probably are not the answer. Distributors have become much more sophisticated in using technology tools during the past decade, yet payroll remains about the same percent of sales as 10 years ago. There has been no sales-to-payroll wedge.Something else is required that necessitates attention to the three areas where the sales vs. payroll expense trade-off should be positive.Lines per order. Putting more lines on every order allows for a sales increase with only a modest payroll cost increase. Increasing the lines per order revolves around two actions.The first is to have the sales force do more add-on selling, an issue of monitoring, evaluating and compensating.The second action in driving more lines per order is to ensure customers are aware of everything in the firm's assortment. There’s nothing wrong with telling customers over and over about one-stop shopping.Fill rate. If you don't have it, you can’t sell it. And if you don't have it often enough, all of your customers go away. Improving the fill rate, however, leads to the requirement of carrying more inventory.Adding inventory to increase sales is always a good idea, but adding inventory without increasing sales is a terrible idea. Too many firms have cut inventory to the point that sales are affected negatively.Average line value. Increasing the average line value, or line extension, is largely a pricing issue. No customer wants to pay too much. Every distributor, however, has a large array of slower-selling items for which availability is much more critical than price. It is an opportunity that needs to be exploited to produce more sales dollars from the same unit sales.With the effort to increase the fill rate mentioned, the opportunity to be the “always in stock at a fair price” distributor increases substantially. The increased fill rate, though, must be supported by fair-value pricing. Firms must get paid for the services they provide.Moving ForwardPayroll as a percent of sales is stuck in a rut that goes back at least 10 years. If firms are going to lower their payroll expense percentages and increase their bottom lines, they must plan with the sales-to-payroll wedge in mind. Generating that wedge will require emphasizing three concepts: more lines per order, a higher fill rate and an increase in the average order line value.Albert D. Bates, Ph.D., is founder and president of Profit Planning Group. He is the author of the newly released “Breaking Down the Profit Barriers in Distribution” available through Amazon and Barnes & Noble.

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