Don’t get caught flatfooted when a recall crisis hits

Recalls have been in the news quite a bit of late, and no company ever wants to be in the media spotlight having this conversation.

The unfortunate situations, however, raise the importance of companies having crisis plans in place to deal with such recall scenarios. Getting caught flatfooted when a story of this size breaks can cause significant damage to the brand.

Below are a few cornerstone elements for a crisis plan. But any strategy is only as good as employees’ readiness. So it’s imperative that marketing communications and public relations teams regularly review and drill on plans.

• Get ahead of the story. In our digital world, news is breaking fast and from multiple channels. So companies that feel they can sit on a story, do so at their peril. As soon as an issue is discovered, get in front of it utilizing all media tools available. The caveat to this is that, while multiple channels will be utilized, the company needs one gatekeeper controlling the flow of all information. This ensures consistency of message. The only thing worse than no information being released, are details that trickle out from multiple company sources. 

• Communicate a plan. Know what the company is going to do to address the problem, and communicate it. This is the active part of the plan that helps a company steer the conversation. Good plans will highlight what the company is doing to assess why the situation occurred, as well as a focus on key steps involved in managing the recall. Plans also should emphasize the safeguards being put in place to prevent the need for a similar recall in the future. Step outside your company role and anticipate what consumers and media really want to know, versus what the company wants to say. 

• Admit the mistake. This seems like a no-brainer, but it’s surprising how many companies can’t utter the words “we are sorry.” Again, use the mediums available to your company and make it a part of all communications. Something as simple as a 30-second video clip of a company president apologizing can have a major impact, provided he or she comes across as natural and unscripted.

No company wants to face a major recall. However, having a plan in place with three simple elements – control the story; communicate your plan; and apologize – will help protect the brand in the marketplace.

NFDM Prices Present Significant Profit Opportunity

Lower your production costs and your profits will increase. This is why companies do all they can to leverage the best prices on raw materials.

Food product manufacturers are doing this today, taking full advantage of Non-fat Dairy Milk (NFDM) powder prices that are at five-year lows. This low point is an opening for companies to utilize an asset-based line of credit to stockpile the commodity. But food product manufacturers aren’t the only ones who can benefit.

The down market also presents a fantastic opportunity for savvy NFDM manufacturers and traders to hedge. Given the right financing terms, setting aside product now for a later sale can pay significant dividends in the months ahead.

Consider this scenario. Powder is selling today for roughly $1 per pound. Let’s say a company was able to secure advantageous finance terms, which came out to $.02 per pound every three months. If the price of NFDM were to increase to $1.15 in three months, that’s $.13 of profit per pound.

Now what if NFDM rallied within a year to its 3-year average of $1.60? Subtract the $1.08 in finance costs, and the profit becomes $.52 per pound.

All of this depends on a financing mechanism that not only gives companies highly competitive rates, but also is agile enough to put them in a hedging position now, while the market is at a low point. The old adage holds true – time is money.

What Is Contract Operations And What Value Does It Bring?

There is a difference between getting things done and getting them done efficiently. One example is running a distribution center in-house. Because the operation appears to run with no major roadblocks, many companies aren’t aware of their true costs and don’t focus the time or resources to drive out inefficiencies and unnecessary expense. This results in a distribution center that is operating sub-optimally and negatively impacting the company’s bottom-line profit. Additionally, allocating resources to an in-house distribution center only diverts attention from the company’s core competencies, priorities, and business purpose.

Turning over distribution center operations to a third party can often reduce costs, improve operational performance, and customer satisfaction, and ultimately help companies better focus on their business priorities.

Use the topics below to determine if your company could benefit from a contract operation.

• Staff recruiting and management. Is recruiting, training and managing warehouse staff an effective use of company time? Could that time be better focused on the company’s core competency.

• Upfront investment. Purchase of racking and material handling equipment is expensive. What is the lost-opportunity cost to tying those dollars up in a major capital purchase? Could they be better deployed in other areas of the business?

• Layout and design. Is your warehouse designed to perform? The efficiency of a distribution center is determined before the first loads are moved. Make the wrong decisions on layout, racking, and design, and the inefficiency will burden a company with overtime and additional personnel costs.

• Management systems. Distribution is driven by big data. Does your facility have the systems in place to collect it? Do you know what the data means and how to act on it? Without a quality warehouse management system, companies operate in a vacuum. Real-time access to this information is critical to the overall performance of the facility and, ultimately, customer satisfaction.

Selecting the Right Transportation Broker for Your Business

Enlisting the help of a broker can be an efficient way to alleviate one of the most time-consuming transportation tasks – finding carriers to cover your lanes. However, not all brokers are created equal. Each has their own network of carriers with unique specialties, their own approach to customer service, and varying lane coverage. 

It’s important to select a broker who truly understands your business and aligns with your needs.

Quality carrier network. The most significant aspect of a quality carrier is their commitment to safety. Talk to potential brokers to better understand how they select their carriers. The best brokers will only work with companies who have a Federal Motor Carrier Safety Administration (FMCSA) rating of satisfactory or better. It’s essential to make sure your broker’s carriers meet the minimum liability insurance requirements – some brokers even require carriers to exceed these amounts.

Customer service. If something goes wrong with one of your shipments, or a change needs to be made in the 11th hour, it’s important to work with a broker you can count on. Look for companies that offer 24/7/365 on-call support to ensure safe, on-time arrival of loads.

Diverse solutions. Whether your company needs interstate, intrastate, or international lanes, it’s key to work with a broker who can offer diverse options. So, as your business needs change, you can be confident your coverage requirements are being met.

Brokers who offer access to a variety of modes and specialized equipment can provide you with superior solutions for your specific product and shipment needs. Some of these include:

Modes	Specialized Equipment
Rail/Intermodal	Flatbed
Less-than-Truckload (LTL)	Heavy Haul
LTL Pools	Curtain Side
Truckload (Dry Van and Refrigerated)	Conestoga
Multi-Stop Truckload

Do you know the true cost of your asset-based loan?

Asset-based lines of credit are a popular finance tool most businesses use to unlock capital held in inventory. Wide utilization, however, does not imply that everyone understands their true cost. When figuring the total cost of money, there is way more to consider than just the upfront interest rate for your loan. Below are just a few items to consider when comparing financing options.

• Advance Rate. Not all lines of credit are equal and certainly not when it comes to advance rates – the percent of inventory value the bank will loan on. Low advance rates prevent you from realizing the full potential of the inventory value, meaning a sizable amount of cash is still tied up in the product. Any way you look at it, that’s a cost – and quite often, a major one. Obviously, the closer you can get to a 100 percent advance rate, the better.

• Focus on fees.  Doing business with banks brings a variety of fees, such as loan origination fees, unused line of credit fees, service fees, fees applied for flexing the line up or down, and termination fees. When all those charges are added up, a 3.00 percent rate can quickly rise by ¾ of a percent or higher.

• The value of equity. If companies are going to fall down anywhere in the finance process, it is in undervaluing their equity. In order to accurately compare finance packages, companies cannot discount this cash outlay. They must determine an ROI that they could expect had those dollars been used for additional production or investment. After all, nobody hands out cash without an expectation of a return. This number absolutely must be figured into that total cost of money. And once it is tallied, that initial upfront interest rate undoubtedly will rise.

So as you shop for asset-based financing, the goal should be to maximize the advance rate, reduce or eliminate fees, and minimize the cost of equity through a low or no down payment.

So what does all this mean? Just how much do these costs impact the interest rate

Consider a $15 million line at 2.75 percent. We’ve already established that fees, alone, can drive costs up by $317,953.

If you look at the equity required to support the difference between the advance rate and the value of the product, you will be required to come up with roughly $4.3 million in cash. If you assess a value of 10 percent to the cost of this required equity, that adds an additional $431,250 to the cost of the line of credit.

That brings the total cost of debt and equity to $749,203 and shifts the previously low 2.75 percent interest rate to 4.99 percent.

Protecting Your Inventory from Unwanted “Consumers”

Pest control. It’s a topic you simply can’t ignore when selecting a warehouse or 3PL partner. Whether it flies, crawls, or burrows, pests are a constant threat, especially to facilities storing food-grade products. Without the proper procedures in place, this can mean big problems for your stored product.

Before trusting your inventory to a warehousing provider, ask the questions below to ensure that your products are in good hands.

• What inspections take place around pest control? It is important to work with a facility that goes beyond regular checks on interior and exterior traps. Make sure the actual product is being examined, as well as the tops and sides of pallets, for any pest activity. Some facilities will take extra measures, such as using pheromone traps, to make sure nothing was missed during regular inspections.
• How often are the inspections conducted? A reputable warehouse will have a pest control professional visit at least once a week. Additionally, the warehouse itself should have staff perform detailed inspections during inbound, outbound, and storage processes to ensure product is pest-free at all stages.
• What is the audit process to ensure their pest control vendor is doing their job? Make sure that your warehousing provider does random checks on traps, pallets, etc. directly following an inspection by their vendor. This will reveal if the vendor is doing a thorough job.
• What is the corrective action when pests or pest evidence is found?  Corrective actions are all dependent on the situation. Give a potential warehousing provider a pest related scenario and confirm they can provide a suitable plan of action. 
• How are live insects handled when found? In the event that live insects are found, your warehousing provider should have their pest management company come in to do fumigation or fogging upon your approval. 

Time is Now to Check FSMA Readiness

We know the Food Safety Modernization Act (FSMA) will produce a significant impact within not only the food processing industry, but also all who provide services to processors. While FSMA will change how many do business, there are questions left unanswered.

Knowing non-compliance is not an option, perhaps it’s time to turn a few of those questions into action. Companies that store product or ingredients off-site with third-party warehouses can gauge the safety of their product by posing a few simple questions to their warehouse provider.

Ask to see their Hazard Analysis & Critical Control Points (HACCP) plan. The cornerstone of FSMA is identification of possible hazards to the safety of food products, and creation of controls/procedures to significantly minimize or prevent their occurrence. For facilities storing food products, a robust, written HACCP plan is a must-have for every product type. Absent this document, the facility will be at a severe disadvantage in terms of meeting FSMA standards for protecting your product.

What is their recall/traceability plan? Another of FSMA’s cornerstones is the ability to track and trace food products to prevent a widespread outbreak. Does the warehouse facility have a detailed plan? How often do they perform recall/traceability drills? If recalls and traceability exercises utilize paper instead of computers, it’s probably a red flag of their readiness for FSMA.

How is the facility audited? There are a variety of auditors and levels that facilities can be reviewed at – warehouse, food processor, etc. If the facility is not going through an audit process, it may be another FSMA readiness red flag. Regular audits are a key component of FSMA.

Gone are the days of selecting warehousing based solely on lowest price. With the introduction of FSMA, and its increased level of accountability, food processors must now choose a “partner” rather than a “service provider.” A partner will ensure the quality of the product as if it was their own, as well as comply with FSMA standards.