Supply Chain Diligence for Business Buyers

Supply Chain Diligence for Business Buyer

Supply Chain Diligence for Business Buyers

 

The supply chain is often not reviewed in detail when purchasing a business.  The recent history shows that understanding the supply chain risks and proper supply chain diligence is a very important consideration when buying a business.

 

In this week’s The Faces of Business Episode, our guest speaker was Roy Strauss. Roy is the President of Strauss Consulting Group. Before this, he was also the Senior Advisor of Vognition.  Roy’s company provides supply chain design and problem resolutions to improve business performance.  A special service Strauss Consulting Group provides to business buyers helps them properly evaluate their supply chain risks with comprehensive supply chain diligence.

 

The conversation of this episode started with Roy sharing some details of his past and childhood. He said that when he got his first real job, he was hired for purchasing an inventory because he was a numbers guy. 

 

After this Roy learned more about this industry. Later on, he finally understood that this is what he wants to do in the long run. Moving on, Roy talked about supply chain diligence. He said that when his company was starting a new project, he knew the budget was less which is why he advised a new action plan to the president.

 

Roy thought of this plan back in 1975 and now people are implementing the same action plan till now.  Further, into the conversation, Roy talked about supply chain diligence and the operational growth plan.

 

According to Roy, the operational growth plan is the one that works for everyone and every business. He said that this plan is feasible even if your business is failing. In addition to this, Roy said that anything that they talk about is applicable to any business. It doesn’t matter whether you are in supply chain diligence or not.

 

After this, Damon asked Roy about the things that he feels are exciting in the supply chain industry. To this, Roy said that there are many moments as such in this industry. Moreover, he also said that when it comes to supply chain diligence, you share an operational growth plan with the CEO and he accepts it.

 

However, when the same plan goes to the CFO, he rejects it. People like these according to Roy are silent killers. This is because these people don’t want the internal issues to resolve and their problems to get out.

 

For this purpose, Roy said that he asks the CEO to consider all of his options and also find out the silent killers of his company as well. By the end of the conversation Roy said that when it comes to supply chain diligence and a company’s own assets, it is important to know how operational they are currently.

 

Moreover, it is also important to know where their leadership stands at that point. The conversation ended with Damon thanking Roy for his time.

 

 

 

Our Guest:

 

Roy Strauss

 

Roy Strauss is the President of Strauss Consulting Group. Before this, he was the Senior Advisor of Vognition. Roy was also the Supply Chain Consultant at NJMEP and a VP at Novare Solutions. Moreover, he was also a Partner at Gross & Associates.

At his company, they assist clients in multiple industries to increase both their competitive edge and profitability by improving customer services while reducing costs.

As for his education, Roy has an Executive MBA from Fairleigh Dickinson University. In addition to this, he also has a BA from The City College of New York.

 

 

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Supply Chain Diligence for Business Buyer

The Exit Your Way Business Round Table Live Stream

Transcript

47:09

SUMMARY KEYWORDS

business, buying, supply chain, product, building, people, inventory, sell, happen, roy, equipment, companies, growth, talking, plan, important, run, years, operation, rack

SPEAKERS

Damon Pistulka

 

Damon Pistulka  00:06

All right, everyone, Welcome once again to the faces of business. I’m your host, Damon Pistulka. And with me today, I’ve got Roy Strauss, from Strauss consulting group. And we’re going to be talking about supply chain supply chain diligence for business buyers and sellers. So, Roy, thanks so much for being here today.

 

00:30

Well, thank you for inviting me, Damon, I’m looking forward to this very much. Awesome, awesome. Well, Roy,

 

Damon Pistulka  00:36

you know, you’ve been in the supply chain business for more than a few weeks. So I always like to, I always like to let somebody kind of explain how you really got into the into the supply chain consulting business. And then we can talk about some of the things that that you’ve seen develop over the years, and some of the things that are, you know, recent developments and other things like that. But let’s start by understanding a bit more about your background and how you got into supply chain.

 

01:04

Sure. Thank you, Damon. So I’m going to talk a little bit about my early history. I got my first real job, and I was always a numbers guy. So the company hired me for purchasing an inventory. And a couple of months later, they hired a warehouse and consultant. This was gonna be the first of three, we heard over the 10 years, we were going to be there. I had the good fortune to experience hyper growth.

We grew tenfold in 10 years. That’s nice. Yeah. And so what happens is working with this experience consultant, and they don’t like anything he’s doing. And this project was so important, they’d reported directly to the President. Yeah. I don’t like what he’s doing. And the President said to me, You didn’t know what a pallet was three months ago, go learn something. Well avoid this and say quietly. Yeah, oh, I started taking notes. A few weeks later, I gave him my notes. We’re going to long July 4 weekend, I said, Just do me a favor, read my notes.

And he comes back after the weekend and says, I don’t know what’s going on here. But the kid knows more than a belt, and he’s running the project. And this is how I learned that this is what I was born to do. And I will get into it a little bit. Because it’s really going to affect things. I’ve seen that currency elsewhere, through people buying and selling businesses, as well as supply chain in general. Yeah. And so we, like I said, we heard or the consultants later, but it’s about three years later. And the President calls me and says, while you screwed up, Roy, I said, How did I screw up? He says, Well, we had a five year growth plan. And we outgrow it in three years.

 

02:51

Roy being wasted good, don’t sell so much. Anyway, what that really meant was, excuse me, that was the other guy’s growth plan. So what he I said, Look, let me know what you’re trying to accomplish your growth plan. Tell me what the resources are. And I will get back to you with a plan. And I get back to them with you can’t do it. He goes, What do you mean, I can’t do it. I’m the president, I said, the resources you’re allocating is not enough to hit the speeds we’re looking for over the continuum, to always have the right space, the right equipment, the right staff, the right it resources, and the right systems and processes.

So as we grow through that growth continuing volumes go up every year, we keep our customers happy, you will go back to plan, we increase the resources. Yeah, that became the operational growth plan that came out of my head back in 1975. Okay, and it’s still in use today. Because when I how many companies you visit, what happens with the operation of growth plan is we do modeling, and they see 10% do for five years. 7% do for eight years, whatever, what it’s going to look like, again, how much space staff equipment process in it to be successful. And then the client picks something that’s manageable.

They have participated in it. And then what happens is, I create exception reports, let’s say to hit the speed, you require that third year you need automation. You don’t need it. Until then you start growing sooner. Well, my report is saying to you, exception report, started querying sooner. Let’s say we’re about to go into a recession. Well, look what’s happening, you’re gonna see sooner that things are slowing down. Do you ever stop spending money before the competition? Why is this important when I’m looking to buy a building? Well, you’re gonna buy a building and let’s say it’s 200,000 square feet, and you have 10% you have 20% to grow into, okay?

And this is a business you’re buying the building comes, you know, the building comes along with the business. Well, for all you know, you can outgrow that building next year. If you haven’t created In an upgrade to operational growth plan to see what’s really going to happen, and what resources you’re going to need, okay? So do you really want to buy a business where you think you have enough space? And then a year later, you have to either expand space? take additional space elsewhere? Or, you know, hoping to buy the building? Because, yeah, this wall for your whole life in the building?

Yeah, operational growth plan is so essential in understanding what you’re doing in terms of the space. Now, once we’re talking about the building, the building itself is part of the profit center. Okay, you could have two buildings with the same exact footprint 200 by 300. Okay. Well, one has column spacings is support directly, the other one doesn’t, one has docks in a favorable place. So many of the products can move quickly from the dock to the rack and back to the dock. Again, others you may have to travel 100 feet before you even get to the wreck. Yeah, it’s a good building for distribution. Everything that sells fist is right opposite to that door.

A good building for a manufacturer is I receive it, I store it, work in process, store it finished manufacturing, staging, and shipping out the door. So in the latter case, I want a building that has doors on the opposite side of the building, and I want it to be longer. In the first case with distribution I want to do is to be on one side, what good is it having doors on the opposite side of the building, if fast medium is suitable for product all have to travel that distance? I want the doors on the wide side of that building. So as much rack as possible is opposite those doors.

So the best moving product travels the shortest distance possible. Yep. Okay. And again, what we do is we have building checklists, several things happen with people I work with, first of all, and we’re going to get more into white just beyond growth, and what would end the building. But most of the people I work with, they’ll call me in to look at the operation with them, and critique it before they’ll buy it help them with the due diligence of my clients who are going to buy a business and and even just as important, you own a building, or you have to get into building your own space.

I have my building checklist that covers all those things. And facility size, this is a port growth, the configuration is that right? Or the docks in the right place, column spacing, ceiling heights, you have special requirements, hazardous materials, security, so forth and so on. And our our analysis of the building a for people who are getting a building, but just as important, you’re buying that business, is the building part of the a profit center, or is the building continually constraint management. And that’s a big difference in how profitably you can be in that business you just bought.

 

Damon Pistulka  07:56

Yeah, that’s that’s a great point. And it shows you know, your background of understanding how to run a business and and run a business that that’s that’s moving products is is key to understanding how to have a have an efficient warehousing operation have an efficient supply chain overall. So what are some some when you look back at the projects you’ve done, what are some of the some of the interesting projects that you’re why that was really fun.

 

08:24

If I can’t let me do a second add on to your original question, if I may, very

 

Damon Pistulka  08:27

good, very good.

 

08:28

Yeah. The second part of it is not only the building, but the product and the equipment that may be coming along. Because the manufacturing you may have extensive manufacturing equipment, you have very possibly conveyor rack, forklifts, etc, etc. And what happens here is the key to success is what are you buying in terms of product? First of all, one of our other areas of expertise is product mix inventory. So when I first worked on it, first job, I was a numbers guy. I saw all the stuff.

We were stocking, my first year, we couldn’t sell it was packing something we can sell. The second thing I saw is the inventory plan was three months and they did my numbers thing. We have three years we have three millenniums. So over those 10 years, and over the 38 years of my consulting practice, I started in January 1983. I developed what you have to do to be successful. So we have scientific formulas to determine what products you can sell successfully and what you shouldn’t be carrying. Well, gee, if you’re gonna buy a business, don’t you want to know that maybe 50% of what you’re buying is not sellable.

 

Damon Pistulka  09:45

Mm hmm.

 

09:46

On the on the inventory side, again, we said we had three months we had three years worth. Again, I know why I go into my clients and teach them and we have monitoring tool. It never gets out of control again, but you’re buying their business. Oh, good. This is terrible product. They tell me the inventory models three months. Well, you know what, it’s really three years, do I really want all that inventory laying around all that time, it’s, it’s not killing my cash flow business. So what we want to do, what happens is when I work with a client, okay? Warren Buffett’s model when he’s buying a business, he’s not buying stuff. He’s buying a business.

He wants the best product with the best service with the lowest cost. So when we do the product mix, inventory study, we get rid of a lot of stuff. Getting rid of stuff shrinks to put fresh. Yeah. Welcome, I’m going to address threats less time. less time is less people, less people’s less equipment. So by doing product mix and inventory study, we are streamlining the business course you go into much faster, it’s much less and reducing costs for inventory, space, staff and equipment. We just created Warren’s model, you get the best product with the best service at the lowest cost. And you’re building the competition. And you’re beating it on cash flow.

Yeah, if you are buying the business, this is clients I work with. But again, if I’m working with you, you’re buying the business, we’re going to look at that and say, do you want to buy this business versus this business? Because this business has all this extra stuff? And this one doesn’t? What do you really want to pay $20 million for inventory when the stuff is only worth $10 million? Yeah. What’s the heads up on? You’re going to be putting a lot of money into stuff that you can sell. And it’s going to burn a large hole in your pocket? Yeah, okay. Yeah. And again, let’s talk about the equipment.

What happens? Again, what typically happens in a purchase agreement with inventory? Their perpetual inventory says 10 million, we counted as 10 million, we got 10 million, but 10 million, let’s go buy it. That doesn’t work. If 5 million isn’t saleable. Yeah, equipment. The books say, well, we bought the equipment 10 years ago, for $50 million, we depreciate it down to $30 million dollars, there’s a $30 million worth of equipment. Well, you know what, maybe that equipment is absolute. If you can’t compete anymore, okay. And what we want to do is get the real value of the equipment and see what you’re really buying for your money.

Maybe none of it is usable for all, you know, maybe you can’t beat the competition, but that equipment, and you have to know. And what we’re talking about is the building the equipment, the inventory. What about staffing? Oh, wow, look at this. They’re producing at this rate? Well, is anyone buying a building? Seeing what is standards for that industry? Overall, local businesses getting out of their labor force? So again, the keys are, whether you’re doing your project or buying your business, is that the right space for now? in the future? Do I have the right equipment? Based on my growth plan?

Again, I said, you know, you need more than 20,000 extra square feet? Well, gee, what if I’m growing, and I have to spend another $10 million on equipment because, or IT resources even more important? Yeah. Because it’s not going to be able to support when my growth plan is to understand what your growth plan is, before you look at the business. Or if you’re looking at the business, go back to someone who can help you with the growth plan to determine if the business is viable for you or not. And again, to set the price of things all the time, space staff, equipment, process, and it

 

Damon Pistulka  13:39

Yeah, yeah. And it’s it is interesting, how much the bring up it and you’ve brought it up several times. And it’s interesting, how much status changed and how much it really is affecting the the efficiency of warehouse operations. I mean, the mobile computing devices, I read the barcodes you know, yeah, Chuck Cox, and a friend of mine, is got they, they sell the hand on the back of your hand barcode readers, they use like, like a venger off of a cartoon movie, you know, you’re, you’re pointed at the barcodes and reading it into the systems and stuff.

So you don’t have to, you know, key in stuff. And then you think about the way the systems now help people that are picking products for an order to minimize the movement throughout the facility, as you’re doing it. And as you spoke, they inventory locations, management, where you move the products closest to the doors that move the fastest. So it’s just, there’s so many of these things that I think that when businesses grow up, right, I started out I got a great idea.

Damon’s got a cool product line and and we’re doing it and so all of a sudden, I’m in my garage, and pretty soon my garage isn’t big enough, then I got to rent a little space and then I got to run a bigger space. And I’m not I’m not reinventing myself and I think that’s one of the things that you’re talking about without talking about it is where do you get to a point where you go, Okay, yeah, it was cool and you’re walking around in your garage and had three racks in a piece of paper, keeping your inventory.

But now now we’re in 50,000 Square Feet or 100,000 square feet with with racks, you know, 30 feet high. And and, you know, we’ve got pickers and we’ve got, you know, 35 people working in here 24. Seven, trying to keep up with the order flow of product in and out. And, you know, that takes a different system. And a lot of people don’t realize that until they’re just about broke from just adding more people in more space.

 

15:27

Well, again, getting back to it that he was talking about. Okay, so the current software, again, you have that growth plan, you don’t have enough space. You don’t have enough equipment to get it manufactured. And if you if they had equipment, well, what about the IT resources? What volumes the capabilities of the software it’s coming with the business is not capable of supporting future growth? Yeah, are important when I talk to my friend Bob, who’s one of the top security guys, how hackable is it have this? This is 2021 anything and everything is possible. And you don’t want to buy it get hacked the next day and ransomware Yeah.

 

Damon Pistulka  16:07

Oh, for sure.

 

16:09

Yeah, for sure. I get the COVID now, okay, let’s talk about provenance supply chain. Okay. So I will go to a networking meeting two years ago, and have two people would say what supply chain?

 

Damon Pistulka  16:20

Yeah.

 

16:22

Now they know what it is. They couldn’t get toilet paper, they can’t get a bicycle, they can’t get their car, or they own a business in selling the heck out of it. Now nobody wants it. Yeah, selling anything, and everybody wants it. Yeah. If you have a business you’re buying doesn’t have any systems in place, like we talked about before, with some predictability. You’re going to buy it, at least the people that sold it to you had a history, you have no break, and these things are happening and you’re in a vacuum. Yeah.

So it’s even more important when you’re buying the business, that you increase exponet exponentially. Your ability to again, space staff will quit and process it. Make sure you’re handling it in the future. You’re handling it now when you’re doing everything right. Again, it makes me cry, a friend of mine sold his business to somebody, and they mess it up that they had to sell it back to him and half the price because they couldn’t run it. Hmm.

 

Damon Pistulka  17:19

Yeah. And that happens. I mean, because again, I see this a lot too. In business owners, we especially want people that start out in a business right and start the business and I’m you know, I’m a plumber or like I said a product, I develop it in small and it gets big, you can run it intuitively right you run a just because you’ve you’ve you’ve hit that i’ve you know I’ve hired the wrong people, I’ve ordered the wrong stuff, I’ve lived through those nightmares over 20 years, or whatever it is, and and someone comes in that buys that business, they haven’t lived those nightmares and lived all through that.

And and they’re they’re on the other side of this thing with a loan that they’ve got to pay back on this business to or whatever kind of way they finances business, they’ve got to play, pay that back.

Plus try to make money in the business plus try to learn how to run the business successfully. And honestly, that is one of the things that we see is is most common is that transition. People, they really don’t understand what they’re buying. And they really don’t, they’re the the seller, while well intended not trying to discredit any of the sellers, they’ve been able to build that experience level up. So it’s almost like breathing. And the new buyer, it’s completely you know, I don’t care if you’re in the same industry or whatever, there’s there’s business nuances that are gonna make it way, way different.

 

18:42

I said this to somebody that wasn’t getting it. I got punched in the nose for you. So you don’t have to get punched in the nose. I said that to them? Yeah. Are we getting it? By the way? Everything. We’re talking about supply chain business. I don’t care if you have a law office, whatever you have, how much space will I need? How many people how many computers will I need? how big an office telephone systems will we outgrow them.

Okay, so the operational growth plan we’re talking about works for any business, we’ve got the product in the rack and move into the office side of the building. So you can be buying a business that has no product at all, but understanding everything we talked about, again, based on growth, we run out of office space, which is something that store you’re gonna have to get a bigger space to have two offices. Okay, so everything we’re talking about is applicable to any business, not just supply chain supply chain just lends itself the most because you have the risk of product equipment, everything we talked about.

 

Damon Pistulka  19:43

Yeah, yeah. So what are some things that you see So changing and then supply chain that you think are kind of exciting?

 

19:52

what’s exciting is that we’re finally being recognized as important. Okay, yeah. I made a sales call to a major division and one of the major companies on the stock exchange, okay? everybody owns this stock. I’m not gonna embarrass them. Okay. everybody owns this stock. And this sales was about maybe 20 years ago. Okay. And they didn’t know how much product they had to be tried them. Yep. Which building it was then. And I’m making the sales call to the supply chain staff. Well, supply chain is part of the marketing vertical.

Again, I don’t care how much you market and I don’t care how much you sell. If you can’t deliver it. Look, yeah. What’s the sense of human having a plan? If you can? Yeah, yeah. So now, what we’re told is we’ll send it up to marketing against this 20 years ago, working says, that’s, that’s all important. Forget about it. We want to spend the money on selling stuff. So they didn’t know what they had. They didn’t know where it was, etc, etc. Would you buy a business if you didn’t know what you had and where it was? Well, you pretty tough. Well, I didn’t want to I didn’t buy your stock after that. Yeah. And what was really annoying is they succeeded despite themselves. Yeah,

 

Damon Pistulka  21:11

yeah. Well, that that happens. I think there’s some of that that happens. And it’s it is, but but it but the thing that you’ve pointed out there is there’s problems like this in every company. And I mean, I don’t think that the one thing is, is I think, some owners and executives get, I don’t know, if it’s I’m afraid to look look like they don’t, you know, haven’t done or made some big mistakes, or whatever it is, sometimes they don’t like to call in outside people to help.

But honestly, the the only way that you’re going to get good at something is if you screwed up an awful lot. And that’s, that’s, you know, that’s how you learn and the you know, someone like yourself working in supply chain many years, you’ve seen it, you’ve seen it done wrong, enough ways. And and seen it done right enough ways that you’re bringing experience from from many different many different operations, many different situations into annex to a business that has their experience in this one operation and doesn’t have this more? Yeah, wider look.

 

22:17

Yeah, let In fact, let’s talk about it in general. Okay. So you meet with the president of the company. And he says, Yeah, that makes sense. And then he goes back to the CFO, and he says, we can’t afford it. We got a CMO and his career sky says, this is probably not the right guy for us. He goes to CEO, the operation is running pretty well. You really want to waste money in that guy. And I call these guys the silent killers. Okay?

Yeah. Okay. The guys that don’t want you in there, because they want to don’t want to be exposed would be again, afraid of change, afraid of risk cover your fanny. You know who those guys are? Yep. Going, when I’m making that initial meeting. I’m insisting that all the key stakeholders be at the meeting. And if they’re not going to be at the meeting, I postpone it.

Yeah. Because what I have to do is, this is, again, a little bit different than buying a business, but really important, okay to get businesses working right and getting the right people in the right place. So what happens is, again, I have everybody there. And we again, this is my case. Now, this is that voice saying this is what Roy does. This is Roy saying to whoever’s out there, think about what you do, and how you’re going to apply it to what you’re doing. Get an eat, whether you’re looking at business, buying a business, running your own business. Okay.

So what I’m doing is I’m putting my hat on as a consultant before that meeting, first meeting and what’s anything and everything confessed to me happen, that I’ve done all the stuff, okay, put under precedent set? What am I looking for? How can I get deep six, cmo, CFO, cio, cio, and now I’m showing up the meeting and already for everybody. Okay, so when I talked to the President about, hey, you’re gonna have an operational growth plan, no matter what happens, you’re going to know what to do, how to do it, when to do it, and what it’s going to cost you, which everybody should have and nobody does.

Yeah, welcome to the CMO, you’re gonna have the best product, the best service, the lowest cost, the CFO, we just reduced quest for space, cemetery, staff and equipment, the CEO, well, we’ve just streamlined to the operation. we’ve thrown nuggets at everybody to have to be an idiot to say, No, we don’t want to move forward. So what I’m suggesting is, again, working with owners of companies or presidents or executives, you have to get through to them. They have to really understand what could be happening in their business. What’s the gap between what could be happening and what’s happening? And how do you treat the silent killers from your business, if you will? Yeah,

 

Damon Pistulka  24:51

yeah. Yeah, that’s a great point is is getting keeping the silent killers from hurting your business. That’s because you know that the It’s easy to it’s like you said that the people that don’t want to want don’t want to have the outside opinion or don’t want to have help, even if it’s inside health, whatever it is that that are trying to keep people out there, they’re silently killing your business every day.

And it’s, we see it in sometimes when it’s not resistant to change or resistant to, you know, really responding to market demand. And if your market changes and different things, you got to be doing that. And those things don’t happen. All of a sudden, they’re usually a little bit a little bit, little bit. And then and then actually, you know, you’re like, oh, we’re not making money anymore. Yeah. And then then then you really are scrambling to try to find out how the last 10 years of just slow decline, how we’re going to make that back up,

 

25:50

or get back to where we were. Now this is just as important as anything else we talked about about buying a business. Okay. So, how is that business systemized and operating right now? Is everything coming down from top leadership? Because a lot of companies I visit, the President is too busy gives it to the vice president gives it to the manager gives it to supervisor who gives it to the guy working, because everyone’s so busy, so the lowest common denominator, and the guy that cares the least is determining how it’s being done.

Okay, I don’t care what you’re doing. If you’re selling real estate, if you’re picking an order, if you’re loading a truck, this company something called Best practice, that’s the best way to do it. Okay. And if you have 10 workers, and one is doing best practice, and everyone else isn’t 90% are underperforming?

Do you want to buy a business when 90% are underperforming? Okay. So when again, when you’re looking to buy a business, you want to make sure that leadership is established a chain of command, with delegation of responsibility. And you’re going to step in, build a squat that that person had, or you’re going to want to change how to pick quarters and have a right on your hands. It’s so important the culture of the company, and how that happens. And this is what happened.

On one of the one of the deals I went on, where I was working with the seller, and the buyer is walking through. And I’ll tell you what this came to in a minute what it led to the boys coming through and ask the supervisor, well, how does that work? And his answer was, hello, hello. I know. You think that guy wanted to buy that business? Okay, that’s a glaring example of what I’m talking about leadership from the top best practice domains. The domain is the corporate domain, everything else says is what the corporate domain that describes department to disguise is more important than the business itself. So the corporate culture is so important.

So that led me to, in addition to buying a business while you selling a business, okay? Hey, if you have a million dollar house, so you’re gonna have everyone say, hey, come take a look. Are you going to stage at first selling a business? You should be staging it also? Yeah, okay. We talked about companies have dead inventory, obsolete equipment, okay? Well, if someone comes along to buy your business, and they really know what they’re doing, they’re going to say, I don’t want to buy business got $10 million worth of inventory, or that equipment isn’t any good, or, you know, anything that could kill the deal.

So you’re staging it. So first of all, everything is clean and spotless, second of all, and then when that they could possibly talk to us and be trained how to talk to a person the way you want it spoken that what’s going to come out of their mouth. Okay. Yeah, yeah. Now, well, so let’s say you don’t have some dead inventory. Well, what what is a deal breaker for you? Okay? Well, if the guy says I’m giving you $5 million, that’s what’s his dead inventory. And you can take $5 million less, but maybe you could take $2 million less than get rid of, I say, Get rid of, you may be able to return to a vendor, you may be able to sell it, you’re able to donate to a charity.

Yeah, 3 million $3 million of we’ll call it bad stuff that this that the buyer should not be saying if you’re selling the business, and then the $2 million becomes negotiable between the two of you and you may be able to make a deal. But yeah, that is too big. You’re gonna and someone knows what they’re doing. And and one of the bad things also is to sell to someone that doesn’t know what they’re doing. That’s going to be even more problems down the then down the road because they’re just going to keep on complaining and so forth and so on, because they didn’t know what they got themselves into, and they’re going to come back to you all the time.

 

Damon Pistulka  29:39

Well, and it’s it’s like you mentioned you know, it those it doesn’t immediately, yes, you may get a deal done, but what happens as far as the financing of but most business deals at least when you get in a multimillion dollar business deals and 10s of millions is that the seller is going to hold a note for part of the purchase price of the business. Well, they that that note is usually could be 15 to 30% of the business sometimes more depending upon what what is what’s negotiated.

But they the seller needs to understand that in what they do it’s not that that you know sell an excess inventory selling bad equipment that that will that will cost that business a lot of money down the road will only hurt them over time. And it’s like you said it’s much better to to have a business that is ready for the next person to be very successful in it for all parties involved.

 

30:36

Yeah, si sim said the best customers and educated customer.

 

Damon Pistulka  30:42

And that is correct.

 

30:43

Yeah. And and and again, you brought this up also talking about supply chain right now and how it’s affecting everything. Okay. So like we said before, you’re selling it like, there’s no tomorrow and then people stopped buying it. Or you nobody’s buying it. Now, how many people want the bicycles now? Because they’re going to be riding in a country instead of taking the train into the city, whatever.

Yeah. And again, if your system you can control it, it’s Yeah, bro. You can you can tell me anybody in December of 2019. That’s going to tell you in July you can’t buy a bicycle. Yeah, you show me that person. I’m gonna hire him, you know, to run my business or her. I’m sorry. Yeah. And so so what’s going on here is again, if you’re prepared, if you’re systemized if you have a growth plan with with with monitoring system, so at least you get get it as early a heads up as pot. Yeah,

 

Damon Pistulka  31:39

yeah. Okay. Yeah, yeah, yeah, cuz it there, there really were some some glaring things that happened just because of the rapid shutdown of some industries. And now, when we run into trying to start them back up lumber is a good example. I mean, nobody, nobody really anticipated. Everybody said, Well, we, you know, turn all the lumber plant Mills off, because you know, we were not going to do anything, and that what they didn’t realize is that just made it everybody’s at home, remodeling their homes and doing doing, you know, they’re remodeling themselves at home.

And the contractors continued to work, and they needed more homes, because they’re moving out into places where they weren’t before. And we have 1000 you know, what was it $1,000 for the 1000 cubic feet of whatever there was way it was like three times the normal cost on the lumber. And now you see that it’s finally as supply chain is catching back up, and the price of lumber is coming back down. Yeah, but those those kinds of things are going to plague us for a long time.

And the more complex the industry, the worse because when you look at, like, the icy chips, it’s crazy what what that’s done to the automotive industry and everything else, when you got even here in Seattle, right, we have a packed car, they build tons of semi trailer trucks here. If you drive by their their facility, right now, there are literally 1000s of trucks out there that are waiting for components. Right. And and and you go into the, into the Midwest at the plants that the automobile plants, you know, they shut down how many production lines, yeah, just because of ice chips. I’m not talking about all the other stuff.

And and it’s so these kind of things have really put a, a new spin, I prefer to say, on the supply chains, where they expose that we can’t react down or up as fast as we really want to, I think where the supply chain that’s been leaned out, you know, a global supply chain that you keep really, really lean, if you’re going Hey, it’s container to customer. It’s like container comes in. And that’s in the customers hands, you know, 30 days from there. You can’t You can’t plan around a disruption like we had where you gonna have 12 weeks or 16 weeks of No, nothing coming?

 

33:58

Well, look what happened to Apple, where the province in China where they made the Apple products had the biggest case of COVID over there. Yeah. Apple, Apple should say I want this I get this apple couldn’t get their products. Okay, so if Apple can’t get it, what’s gonna happen to you? Yeah, yeah.

 

Damon Pistulka  34:16

Yeah, it’s a great example, because that’s a company that has all the money to do whatever they need to do to keep the product flowing. And if they’re having trouble that’s that’s the real I think the real enlightening thing about this is, this is not something that money can really fix, maybe in new systems and better better thought around the overall supply chain. But it’s not something that that can be fixed easily by money because it would have been already in some of these situations.

 

34:42

Now, again, buying a business and how it relates to a particular project. I did a project where the company was very seasonable 95% of the Christmas season, related to Christmas, and I don’t know if you remember or not Do we have 911 2001? But we had a dock strike on the West Coast? Yep. And they are here during that they had 100 containers sitting out there. They couldn’t get their project for the Christmas season. Yeah, barely survived. Okay, barely. Okay. So now, what I work with my clients is have a backup source in the States. I don’t care if you don’t make money. You can’t disappoint your best customers could still go elsewhere.

Yeah, I don’t care if you lose a lot of little money. You’re in the game. This guy had nothing to ship anybody that 100 containers were sitting in the Yeah. So the business you’re buying also was hell? Well, what are they? What are their emergency plans? Okay, yes, they have an emergency plan that is, again, California is a fire up the road or hooking, or it can be awkward, whatever. So just as important also as, and you’re going to learn about the company you want to body if they have these things in that. Yeah, companies will have disaster plans or emergency plans.

 

Damon Pistulka  36:07

Okay. And that’s, that’s honestly what I think happened a lot when when COVID first hit is that people who got lackadaisical about that, and especially when you look at PP, items that they couldn’t get in the hospitals and stuff, because those kind of low cost items have traditionally been moved offshore many, many years ago. And we’ve just lived with that. And it’s been it’s happening in the background. And most people that pick that product up and use it every day don’t realize what it took to get that product here or how tenuous that supply chain is to get that product there.

 

36:38

Yeah, I mean, I did, I did work for people express airlines for two and a quarter years. Among other things, he was part of the team to design the software used to run maintenance. There were three and a half years old, they didn’t know which parts are on which planes, which is no, no. Yeah. So we tracked every 52,000 parts and every plane and every terminal and everywhere else in the country.

But but but just as important, the most important thing, you have to keep the planes flying four, seven, as the plane in in 1984 737, the smallest plane in the fleet, if that can fly for 24 hours, the question $75,000 revenue, paying the staff fines from the FAA, etc, etc. So the name of the game was keep the planes flying. And everything I designed in the software was meant to do that. So buying the business, what it is, and how prepared are they to make sure that that that happens? Yeah. You know, in addition to the disaster plan, plan for making sure what’s key to the business is always gonna happen.

 

Damon Pistulka  37:49

If that’s a good point. That’s a good point. So as you’re looking at companies now, what do you think they learned to go on through COVID? That, that they’re going to be changing, that’s actually going to sting bad enough, they go, Okay, we’re changing this. Because we don’t, this is not going to happen to us again.

 

38:09

I’m not I don’t, you know, like, he just won the swimming medal. And he goes, it didn’t sink in yet. Oh, yeah.

 

Damon Pistulka  38:18

Yeah. Okay. I

 

38:19

say to me, Well, I these companies that didn’t sink in yet, what I yeah, but have learned and seen is that people are changing the business models. They’re learning how to work virtually. Okay, how to work remote, they’re remodeling the business, etc, etc. I’m seeing a lot of that now. I’m not seeing so much. What? up? Sorry about that. Yeah, no

 

Damon Pistulka  38:41

worries. No worries. No worries. I can’t hear it. So we’re good.

 

38:47

Oh, good. Okay. Yeah. So. So what I’m seeing is, companies are changing the way they do business forever. And yeah, what’s happening right now. And it’s not mess, the plan. It’s, this is what we have to do to survive. Hey, this worked. Let’s do it some more. Okay,

 

Damon Pistulka  39:08

it’s not really they planted it just happened to them, and they’re gonna roll with it.

 

39:12

Yeah, let’s call it learning curve on the fly. Yeah. Okay. Yeah. Ya know, the companies they speak to, you know, oh, we haven’t. Again, it’s too soon. We’re still in it. Okay. Yeah. After reflect what happened after it happened and say, Okay, this is how we have to remodel the business moving forward. But it’s that instant response. That’s the difference between who’s still here and who’s not here.

 

Damon Pistulka  39:36

Yeah. Yeah, that is, and you’re right. There’s a lot of businesses that aren’t here now that that were here a year and a half ago. And, and it is because of their a their, their response and, and, and, and how quickly they can respond. You know, even in the industries that were hit hard. There still were people that that at least made it through or even thrived if they made the right changes. That’s interesting that you’re seeing and it’s really we’re learning on the fly yet and just kind of rolling with it. And, and not, you know, making some definite plans based on on this. Yeah,

 

40:13

well, in my consulting practice, for instance, okay, supply chain consulting, we do the growth modeling, we do the product mix in inventory, and then we do everything on the other side of the wall, in a manufacturing distribution center, to get the optimal customer service at lowest cost, the building should have optimum throughput, every job should be based on best practice, everything is based on turning the distribution or manufacturing center into a profit center.

Well, what what we start off with is, when we do a project orientation, go down, meet with the owners, learn about the business, and then take a walk through etc. Yeah, I can’t do walkthroughs right now, but we’re certainly a year ago, because yeah, you weren’t going into the building.

So what we did is everything we could do virtually, yes, growth plan, and we did the product mix, inventory study, and they could start fixing all that stuff. And as little as, as it allowed before, to start the variation, then I started to go down and visit the business. Yeah. And put our feet on the ground to get the thing to get this, get this thing running. But again, do it again. So what I learned is, do whatever I could to virtually, yeah, in some cases, you know, in some cases, I had them walk through the building with a

 

Damon Pistulka  41:34

with the iPhone doing it, you could do a FaceTime, FaceTime call walking through the walk, and we actually had buyers for a business take a facility tour with a with an iPhone, right, add people in the facility given the tour because they couldn’t go into the facility. And and that that was that was it worked out actually fairly well. And and the deal was successful. And it’s just like you said, the people are figuring out what they can do and how they can continue to move on with the challenges. And that’s what we should do.

And I think it’s it’s going to be interesting though, the long term effects of this because I think your your suggestion of having an onshore or a domestic supplier for critical products is is going to change. I interviewed Harry Moser from the reshoring initiative last week, I think it was, you know, in Harry’s been talking about this for a number of years. And he looks, he really likes us to look at the total cost of ownership in a product.

So we’re not just going it’s a $5 part and it’s a five and it’s a $3 part, but I’ve got to have twice as much inventory and my risk in my supply chain or whatever else you’re doing, because there’s a lot of other factors. But we were discussing this very thing and that the global supply chain, there’s some of it, you just can’t have that tenuous anymore and be out of product like you’re mentioned with Apple or somebody like that where they just can’t get it.

 

43:02

Yeah, well, there’s also other parts to it. Okay. Do I really want to find backup in the US for everything being produced in China from my old product line? Or only find backup for the move is the bestest Movers. Yeah, customers must have. Yeah. What do I have that backup for? After that backup for my a movers because you have to have them or that you’re going to lose it to the competition? Yeah, have whatever product whatever it is a B or C mover for my a customers? Yeah. Okay, so two things what sells the most everybody? And what are my best customers? Boy,

 

Damon Pistulka  43:37

that’s a good point. Yeah, get

 

43:39

back up to that. So you know, like the 20% of those customers ready to present the business 20% that us products or 80% yourselves This is true, back get back up for everything to 20% that the customers want and get backed up 320 percent of the product with 25% that sells the most and that Yeah.

Hey, we’re moving with let’s say we’re moving a building Okay. What I want is duplicate inventory of the A movers in the next building before we move. So if if there’s a strike under bridge and we can’t get the product there, we can still open a business with the movers. Yeah, same thing. You know, also you when you’re you’re taking the buyer to the business okay. Hey, if they do have overstock a move is no B or C movers you know Yeah,

 

Damon Pistulka  44:28

yeah. That’s that’s a great point right there. If they’re if if people ever sell on the business just made sure that their overstock was primarily and stuff that they know they’re gonna sell it just a matter of a little more time. That would be wonderful.

 

44:41

Well, actually, when we do the product mix study, we’re telling them only keep what you can sell. Yeah. base of the ones you sell the ones you sell the most.

 

Damon Pistulka  44:49

Yeah, yeah, good stuff. Well, Roy, it’s been awesome talking to you. And I think I can just hearing you and the examples that you’re given your wealth analysis For people in their businesses and helping helping them with their supply chain and making sure that their operations around their supply chain are running well, is is what is the best way for them to get ahold of you if they need to need to talk to you.

 

45:14

So let’s use this email address. Okay. My company is strause Consulting Group. Yeah. So as I said, as the Strauss, seasoned consulting Jin group for you number four letter you SCG was taken. So yeah, they email me at info at SC G. No worries are letter u.com. Okay, if they, if they would, if they want to go to my LinkedIn, just go into LinkedIn and put in Roy Strauss very good. Okay, I have a long link, but who cares? And if they would like to call the numbers 201 my office number 201-337-7108. Okay.

 

Damon Pistulka  45:58

Well, Roy, it was awesome to have you on the show today and get some some of the nuggets of wisdom of working in the supply chain like you do. Thanks so much for sharing we had that for those of you that are may just be stopping by and those listeners is Roy Strauss from strace Consulting Group. You want to reach out to Roy directly you can look at him on find him on LinkedIn easy or email him at info at SC G, the number for you.com. And that is just a you not while you but it’s SCG the number for you.com. So thanks so much for being here today, Roy. Thanks, everyone for listening.

 

46:39

Damon, thank you so much. I believed I was going to enjoy this but it exceeded my expectations. It was so awesome. It was a pleasure talking to you. It’s so a

 

Damon Pistulka  46:52

lot of fun. All right, right. Awesome. Awesome. And thanks, everyone for being here. I will be back again next week. And we’ll be talking with another interesting guest about something about business that that while I’m sure we’re gonna have some interest in

 

47:07

Thank you

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