Betting Bad in the Cost vs. Value Fight

Oct. 1, 2013
Choosing cost over value is a bean counter’s business. Right now that’s a bad business to be in.

Material handling equipment vendors usually get together en masse in one place at least three times a year. One of those times is for the big ProMat or Modex trade show put on by MHI in alternating years. At those events they try to convince customers to invest in their equipment, software and systems. The other times, usually during their industry spring and fall meetings, these vendors talk to each other, figuring out how to be more convincing.

I’m in Orlando, Fla. this week for MHI’s fall meetings, and I have a message for you finance guys on the customer side: these people picked up some good ammunition to make their case to you.

Fittingly, some powerful ammunition came from a military guy. In one session, Major General Vinny Boles drew from his 33 years as a career soldier and logistician to help MHI members face the bean-counter-bureaucracy that may be represented on their customers’ buying teams. Boles experienced his fill of bureaucrats in his service to this country.

“One of the challenges in the supply chain business is people who know the cost of everything but the value of nothing,” he said. “We want to coordinate supply chain  in the U.S. Army through the Global Combat Service Support System, [which called for] spending $50 million a year for 10 years. The budgeteers were saying you can’ do that. Luckily the Secretary of the Army was a businessman. He asked how much stock visibility we would have if we spent this much a year.  About $500 million? For a $50 million investment? Ray Charles could see the value in that.”

His point was that if you talk about the cost of the supply chain you’ll lose the argument every time. Leaders have to provide context so people understand why it’s really important to do this.

In his luncheon presentation, Economist Alan Beaulieu, of ITR Economics, provided powerful context for both equipment OEMs and their customers to make capital investments now: the availability of cheap money.

“In 2013 the demand pull on the customer side will continue to be there, but in 2014 the economy is likely to slow down the rate of rise in material handling orders,” he said.  “It will then pick up steam again in 2015. The banks will lend less in 2014 and it will be harder to borrow. Right now rates are exceptionally low and banks want to lend. So borrow as much as you can. How much? Until you can’t sleep anymore.”

That wasn’t my problem after a full day of meetings and face-to-face conversations. When I got back into my hotel room, I was ready to crash, but I surrendered to my e-mail so I could crash with a clear conscience. After cluster deleting a long series of spam messages, the subject line of one e-mail stopped me from hitting “delete” one more time:  “7 Important Things To Know Before Financing Equipment.” Number two addresses capital expenditure plans, and explains the potential value of leasing:

“Most businesses, particularly in this current economic climate, have reduced or limited budgets for business investment,” writes the author, Philip A. Bruno, Chief Marketing Officer for Marlin Leasing Corporation. “If your company is like the majority of those facing unlimited wants and limited resources, leasing equipment allows capital budgets to be used for other business and operational purposes.”

I’ll let you link to the article on our site so you can determine its value for yourself. You might as well start arming yourself with this kind of information now. Your vendors picked up a lot of economic ammo themselves this week.

(Coincidental with its fall meetings, MHI released the findings from its series of Roadmap meetings held around the country that took a longer-range view of industry and the economy. The industry experts who participated helped come up with an action plan they hope will increase productivity, reduce costs, create jobs and improve the global competitiveness of the U.S. between now and 2025. It has been posted to the newly-revamped MHI welcomes your comments. Also, read what one of MH&L's advisoy board experts had to say about a topic that came up during one of the Roadmap meetings.)