Brian Shanahan: I've got a few very robust perspectives on that. There is an element, virtually, wherein some very simple things just want to be carried out properly, and that became usually the case, and that is not changed. What's modified is the urgency. Look on the classic case: "if it's no longer on the first seven priorities of a business, it does not get executed". You're going to locate that for a variety of groups, running capital can also constantly had been an difficulty to a degree, however it's never been a concern; consequently not anything's ever been accomplished approximately it. That's going to change. Why? Because margin pressures will continually increase; in case you take a look at each person who is in the public region, capital investment goes to emerge as very tough; for every person within the commercial quarter the idea that "I'll simply cellphone up the bank and get extra cash" has certainly stopped in the intervening time; all of us who's were given banking covenants which are in any way related to asset valuations goes to be traumatic himself ill right now, because December thirty first is going to be the following time the covenants are going to get measured for the general public. So we are seeing already inside the marketplace people scrambling like lemmings searching out cash anyway they are able to.
But what it's miles going to do is refocus the ones corporations that did not have operating capital as a priority during the last 4 or five years due to cheap money, to come back again and say "we need to move and take a look at the ones easy, fundamental techniques, those things which might be intuitively right to do, and make sure we string it all together and in fact do it better than we have finished earlier than". We're no longer simply speaking approximately supply chain and, particularly, purchasing, but additionally the bit approximately "where am I sourcing from? What are the lead times? What's my funding in that operating process that I'm now inventing?" And additionally on the client aspect - because even though there had been tremendous improvements, no longer handiest within the UK but across all of Europe, in purchaser collections, it's getting harder out there. It really is getting tougher. And we are going to see matters getting worse before they get better.
Stephen North: What do you suspect the destiny is for a number of the smaller organizations that we all cope with?
Annie Guerard: They will cross down. I think Christmas goes to be a bloodbath. My enjoy is in retail; there are some business models which can be based totally on cheap credit and because credit goes to be at a premium, those businesses - except they exchange their commercial enterprise model - will now not live to tell the tale, because now the banks will have to rethink the manner they operate. For instance, a furniture enterprise that simplest sells at sale time every 4 months, supplying credit score lines like "purchase now, pay in 2010" will vanish due to the fact it truly is no longer a enterprise model that works - no longer that it became in no way operating before, however money turned into reasonably-priced...
Brian Shanahan: A company like this is clearly a financing business extra than a store, due to the fact in case you stroll in there you can't pick out some thing up and say "I'll have that these days" - it is all six to eight weeks. They're make-to-order; they do so many stuff which are virtually spot on, however surely they're a financing commercial enterprise. It's finance arbitrage.
Annie Guerard: We need to head again to basics; every corporation needs to locate the proper primary version wherein debtors must be on average, say, 45 days, and you may deal with suppliers if they may be between brackets - you have to have brackets in place of one guideline of KPIs. As people broaden their business version, they want to develop their cashflow model - as in "this is what we need to do to survive" - and have a buffer. Now that takes finance people, no longer simply an entrepreneur. I suppose that is elevating a exceptional kind of finance animal to paintings in cooperation with the marketers.
Brian Shanahan: It's requiring human beings who've a miles greater holistic information of commercial enterprise than just the useful factors.
Simon Graham: I became going to mention on the subject of the recapitalisation of the banks, the UK authorities have stipulated that they need the banks to make it easier and revert again to the lending regulations of two or 3 years in the past. Do you observed that is certainly going to materialise?
Gavin Jones: Certainly now not earlier than the year-end. When you speak with the banks - and I do on a day by day basis - they're so centered on their stability sheets for his or her year-quit role, I cannot see - some thing pressure from both the United Kingdom or different authorities bodies throughout Europe, or inside the US - that they're going to want to kickstart their lending, specially lower back to, say, the 2007 stages as has been advised here in the UK. They're just now not going to want to do it. And you normally locate that at region-end - or even in some cases at month-stop - that banks don't want to lend except they ought to over their reporting intervals.
Brian Shanahan: The key element for year-quit this time is their lending ratios. Most of them are going to bust the hell out of them all, so they're very heavily retrenching, essentially making emergency repairs to their stability sheets. When you take a look at the drop in share costs, this is essentially being driven via hedge finances in the mean time who are desperately looking to make margin calls and that's why they're promoting the entirety. Everything. Just for quick-term cash. It's panic.
Gavin Jones: Certainly after I speak to banks they observe the statements that have been made about returning lending to 2007 levels and they may be saying "it's going to take time for us to do that; it's no longer going to be an overnight thing. Just because we've got got cash from the authorities, doesn't always unfastened up stability sheets." It's also a mind-set now within banks; a number of them were badly burned - in large part due to a number of their very own negative hazard-management selections - and it is almost a entire swing to the opposite manner now, turning into absolutely conservative.
Stephen North: Do you suspect that throughout all businesses in opposition to this background that there may be more stress put on procurement inside each business enterprise to make savings and to assist the organisation work extra efficaciously - nearly becoming commercial problem-solvers?
Brian Shanahan: My own opinion? I assume the knee-jerk reaction is "what can I do to reduce fees?" whether it be through procurement, headcount; that is continually the knee-jerk response of modern day technology of commercial enterprise leaders, and alas in the unique environment we are in right now this is truely just placing a small dent in the automobile.
Annie Guerard: And it is no longer the answer.
Brian Shanahan: It's not the answer in any respect.
Annie Guerard: When our enterprise started to say no in terms of income there was first-rate pressure on me to locate fee savings. Now, you have got some value savings that take a long time to materialise because it's about business reengineering, and process reengineering. You can not supply them in the brief-time period like your boss is pressurising you to do. So what do you do? You visit your suppliers. Which once more isn't always the solution. Also, if you begin slicing headcount, you create a worldwide hassle of more unemployment, and raising taxes and so forth. What we're going into now can be a macroeconomic situation of less human beings running, with much less resources, having to supply to unreasonable targets, to fund the unemployed. At a macro level this is quite horrifying. What we should be doing - without trying to be Keynesian - is refuelling the economy and actually encouraging businesses to turn out to be more lean however in a constructive way. There are usually ways to attain value-financial savings.
Brian Shanahan: I suppose it truly is already happening. Governments international - inclusive of, let's face it, the neo-conservative authorities in the US - is simply throwing cash at this within the billions. And what I could predict over a 12-to-24-month period is that you'll see the toxic debt it's sitting obtainable among most of the establishments' hedge fund slowly shifting into government debt. We're going to look an sizable pile of presidency debt sitting accessible in about years' time. It is Keynesian, and it's far necessary, or everything's going to crumble.
But the comply with-on from that - and to get back to working capital - what this is going to do long-time period is power up the price of cash, as greater authorities bonds are issued - and this is one of the motives why cash has been reasonably-priced in recent years, due to the fact the biggest governments within the global, excluding the United States, had been issuing very low ranges of paper debt, historically. That's going to alternate proper round. The fee of money is going up; therefore there is a simple mathematical equation among "do I take the fee-discount or do I pass after the cash?" Quite certainly the balance of this is going to trade, and it's going to change in favour of cash.
Q: Moving on: might there be opportunities rising from the downturn - increased mandate for change programmes, greater flexibility and value-upload at the part of outsourcing carriers, for instance - and in that case how can organizations high-quality function themselves to take advantage of these possibilities?
Brian Shanahan: I recognize what I'm seeing: we're a working capital consultancy, and we have by no means been busier in our history. Never. I'm seeing a number of the strangest things I've ever visible; I'm seeing industries like prescribed drugs - in which corporations famously do not care approximately operating capital due to the fact they make a lot cash - these men are focusing so hard now. Not simply one of them: all of them. We're searching at industries in which they have got huge cashflow deficits resulting from asset-valuation drops, pension-fund necessities. This year-end is going to be huge - now not simply in terms of banking ratios, however for corporations with pension price range with, now, the accounting requirements that are there: those corporations are going to be reporting massive shortfalls in pension-fund property. It's going to be a huge, massive problem...
But I would predict that when they get beyond the year-quit - and there may be going to be a few very, very painful bruising inside the New Year whilst human beings have to record whatever it is they have got to report - then that will be the time whilst the dust settles and a number of people can be obtainable announcing "right: I've long past through the panic and I did the best I could; what am I going to must do to ensure we by no means undergo this again?" I assume Quarter 1 2009 is a time when there's going to be a variety of reflection occurring, after the dust is settled. And it would not count number what region you're in: even in case you're in a cash-wealthy public-area commercial enterprise, the only issue you depend upon government funding for is the capital investment.
Simon Graham: Is it over-panic?
Brian Shanahan: It's a large, big overreaction.
Simon Graham: You do not suppose it's justified?
Brian Shanahan: Well, in some sectors it's miles. Take retail. I've simply been running for a client electronics firm; I've just been in China. The way the cycle works is, their massive clients in North America and Europe are putting their orders over the summer, with in all likelihood the previous few orders coming in overdue August. They then go into manufacture in China, and they're probable delivery already for Christmas. There are some of principal stores accessible - now not within the foods marketplace, but in the dry goods marketplace - who are desperately seeking to cancel orders in the mean time. And those people aren't at the high cease, the Sony end of the client electronics market; they may be very a good deal at the cheap cease. But people aren't simply switching to inexpensive options; they're stopping that kind of purchase altogether. You're going to see some real blood at the floor.
Stephen North: From a retail angle, this is going to be the absolute worst Christmas that shops are going to have, virtually.
Annie Guerard: We noticed it from 2003. We saw it in our logo. A slump in like-for-like. It became very tough to carry to the institution that once we checked out the truth we had ten years double-digit like-for-like and then started to fall into single-digits, you failed to need to be an professional to see that there has been a sample. The hassle with retail is that when you have this sample you have stocked on an impetus of preceding like-for-like. It's not even your stock: it is your orders. It's your forward commitments. You have an 18-month cycle in retail from theory to shipping in the shop, so you're usually 18 months at the back of to your ordering. This is how lengthy it takes. But what the commercial enterprise is seeing is which you can't commit to that long any more. You need to discover a deliver chain that permits you to have a proposal to buy which rather than committing ninety per cent up the front you commit 60 or 70 per cent after which the rest is repeats.
Brian Shanahan: The constraint has modified as nicely; specially inside the electronics promote it used to be that for your without a doubt cheap product you went to the Far East, with an extended lead time, however reasonably-priced. Then if you had a quick want you had a secondary provider someplace like Hungary or Turkey, slightly greater steeply-priced but they could get it to you quicker. So you do not make the same type of margin, however you could pinnacle up: you've got solved the old tale that if it is no longer at the shelf you can't sell it. Now although big gamers have come into the market and that they've driven the charge down so much that there's huge pressure no longer to use those secondary suppliers because the margin strain is so tough that in case you placed the product made in Turkey, as an instance, at the shelf, you cannot probably sell it - and this applies to fashion products as well - against merchandise coming from Bangladesh or Burma.
Stephen North: Do you watched even though that the decrease-give up outlets will have an amazing Christmas due to the fact human beings will still be buying but spending less?
Annie Guerard: Yes, I think so.
Stuart Reynolds: Looking at the marketplace in the intervening time, we're trying to push from branded to non-branded - so Sainsbury's own-brand. We agree with that is a truely appropriate flow due to the fact you continue to get the satisfactory but you shop X consistent with cent. There's a whole lot of change inside the way that we are marketing.
Brian Shanahan: Going again to the original query approximately opportunities within the crisis: examine what Philip Green's doing for instance. There are opportunities right here: the asset-valuation of companies is ridiculous. I may want to nearly purchase General Motors for $200 million. If you are an business enterprise with bundles and bundles of cash, and also you don't have those constraints - a minority of groups, however some of them - there are deals available.
Stephen North: It's like the housing market is not it?
Gavin Jones: Certainly in the US - we're very lucky because we sit on a huge pile of cash because of a divestment programme from closing 12 months - we think there will be opportunities to take out person stores from a competitor, or some of the smaller own family-run operations that do not have the equal get admission to to capital that they as soon as did. But commonly it will be those like Philip Green who can profit; the credit for acquisitions that changed into there just isn't always going to be to be had now. It'll either be proportion-based deals or coins offers for the ones organisations that have cash on their books.
Brian Shanahan: One of the matters this is very thrilling in the interim is that if you observe the non-public equity marketplace, they stopped shopping for stuff months and months in the past, but if you take a look at the groups they have bought and taken personal, regularly they've taken a business enterprise and break up it up, and exclusive corporations have taken one-of-a-kind bits, and now as individual parts they do not upload up into sustainable agencies due to the fact they don't have full infrastructures. So they ought to build a procurement function, build the finance feature, get systems in, construct or lease a head office, all that sort of stuff.
One of the things we're seeing is that where as soon as the non-public equity corporations were getting their acquisitions to pay for this kind of investment themselves, now it's the private equity businesses paying without delay for those improvements because of the capital constraints - capital for investment, working capital, margin stress - all hitting at the identical time. So the non-public fairness guys are not most effective drained because they can't get get right of entry to to coins; the profits they may be built on they're now spending on groups which there may be generally a three-in-4 threat won't make it from a profitability factor of view.
Q: Let's circulate away to a more returned-workplace attitude. What about companies that do not have those remarkable coins reserves, that are going to need to sink or swim over the next 12 months, two years; what possibilities would possibly there be inside those corporations for actions that may shield them?
Annie Guerard: Going returned to fundamentals.
Gavin Jones: I suppose any exchange programmes will should show fee financial savings. You're no longer going to get away with a gentle commercial enterprise case; you may have to reveal the actual tough benefit of doing any venture. We're very huge on ROI; sometimes in a bricks-and-mortar retail business the ROI is not as true because it have to be, and now we're going via an exercise across the organisation sincerely identifying keep formats asking, are they genuinely generating the proper kind of sales per square foot for the form of investment we're making. Do we really want to move refrigeration from here to here because it's going to cost us 1,000,000 greenback to try this; can we simply depart it where it's far and layout the store in a slightly different manner? I suppose there could be possibilities - situation to the assets turning into available, but you'll virtually have to show very actual advantages.
Stephen North: I'm due to the fact that additionally; I'm proper within the center of call for planning for next yr, and a variety of the stuff we need to do round systems contain advantages round being slicker, having a better procedure, and there isn't always a certainly robust case on ROI so this is a absolutely hard one to get thru right now. Before, it turned into nice; no longer now.
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Brian Shanahan: I would upload to that - talking about the ones exchange programmes and the problem of showing the ones hard blessings - one of the things this is already occurring in the consultancy marketplace is the sizable majority of the massive players are hurting badly right now, because the hassle is that they've spent years and years borrowing your watch to tell you the time... But absolutely within the consultancy marketplace until you're able to reveal a actual difficult ROI it's simply not going to show up.
Stephen North: Fewer trade programmes, less work for the massive consultancies.
Annie Guerard: I'd like to bring in some thing that is very near my heart. You are constantly beneath stress to supply profitability, better ROI - which can be finished, and there may be a very easy manner you may do it: beneath-make investments. You can get to a level wherein you're showing great return on sales, and have a rocketing ROCE, but you're below-investing in key matters around systems and infrastructure. Often, profits move back to the shareholder, or go returned into acquisition - however are by no means positioned again timely into the enterprise in which it is maximum wished inside the long term. So then whilst you most want it, there's no access to the capital which can help in balance inside the lengthy-time period - and that's why using KPIs may be so risky, due to the fact you get a tick and a bonus due to the fact you've hit x in step with cent ROI, but you have not indicated the actual solidity of the business.
Brian Shanahan: I think the alternative is likewise actual in phrases of KPIs; I use a phrase occasionally, "yr-stop heroics". Everyone has their goals, be they income goals, sales objectives, margin objectives and more and more working capital goals. But if I have not made the actual change occur what am I going to do on December fifteenth? I'm just going to prevent paying anybody. So the humans at the top stop of that money chain will appearance adequate, however a whole lot of human beings within the middle order are going to be harm pretty badly due to the fact those massive monies that traditionally could had been used, as an instance, on Christmas Eve to pay salaries simply aren't there.
Annie Guerard: As properly, there's regularly quarterly hire to be paid at the twenty third of December or thereabouts - as a minimum within the UK. Christmas could be in particular tough because if the like-for-like sales don't hit the spot, people may not be capable of pay their rent. A massive business enterprise went bust final 12 months because it could not renegotiate with its landlord to pay rent month-to-month up-the front rather than quarterly, which could have eased their cashflow extensively. And that type of change in commercial enterprise practice would be a completely positive pass the enterprise may want to make.
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