Legal Zone (S2:E1): How to Manage Inflation and Supply Chain Issues Within Your Business

Transcript

Welcome to season two

And we want to welcome you back today for episode one of season two. We want to thank you all for joining us for our first season and its episodes. We hope you've enjoyed them and that they've been helpful for you, your business and your family. And we hope to bring you additional content this year that will be new and interesting.

So today we want to talk a little bit about how to manage inflation and supply chain issues within your business. Everyone's very well aware of what's going on in the world, and the literally seismic change that COVID has brought about, not just to us humans, to our health and our concerns in this world internationally. It has also greatly affected our economies, and the United States, particularly Florida, is no exception.

How the pandemic disrupted the supply chain

There is a supply chain issue that everyone's talked about, which seems to have been ongoing for some time. It seems to have started with the change in the pandemic that required everything to halt, and then to re-gear up to what we needed on a short-term, emergency basis. It was basically chaotic at the moment. We weren't even sure what we needed. All we knew is that we had to change. We needed medical supplies. We needed the raw material that went into medical supplies and testing. And we needed to hunker down.

Our consumer and business behavior changed, causing ripples, and in some cases maybe a tsunami, along the supply chain. We were hoping that as we came out of this, it would get better little by little. People went back to business. They went back to work. And we were hoping that would alleviate some of the changes. But depending on the various waves that have gone by, we went like this: we go back to work, we start seeing an increase in our need for supplies and in demand for various materials, then we have another wave, and we might shut down again.

And of course that happens all over the world, and it's not synchronized, so it has different effects. One country would have some difficulty and shut down due to its wave, and that affected various products that would come out of that country, including raw material, products and the availability of things. And it happened in different areas.

Changing consumer behavior

The other concern was that we changed our behavior quite significantly. A lot of us stopped driving to the office and to different places, to retail stores, to go grocery shopping. That created a shift to Instacart and other delivery services for groceries and our needs. This also became another shift. A lot of people became more interested in working out at home, exercising at home. They were getting more into what they eat. Actually, a lot of people developed a desire to go vegan. They learned a little more about cooking, about the keto diet. There's been an awakening of certain behaviors and thoughts to make our lives better overall. And of course, we were always trying to make sure we stayed healthy, doing whatever we could to avoid getting gravely sick with COVID.

That also caused us to do a lot of things online, of course, as we all know. This is a Zoom age. I'm sorry, let me not prefer anybody: Google Hangouts, Zoom, and the numerous other platforms that exist out there on the virtual level. It changed many things. Now there's a great demand for certain products and services we never thought would have been such an issue: technology, changes in technology, software, the ability to do more things at home, to learn platforms, and more things driven from the cloud, including businesses driven in that manner.

Employees and the Great Resignation

There are also the issues with employees. They've become sick, and there's been a lot of absenteeism due to COVID. But there's also been, in the United States particularly, a Great Resignation that has caused a need for us to become more technologically reliant, less reliant on human beings, so to speak. Well, as we've all learned, we are definitely needed. Employees are definitely needed.

There's also been an awakening among various industries and employees that maybe it's time for a change in life. That has added to the supply chain issues, because of course there aren't as many employees in these different locations. There isn't the same availability. Everything we had in place before shifted and changed. People moved to different cities and different states. They decided to change careers. There was no more work for them in certain places, so they had to leave. They're looking into going back to school, changing their careers, making more money, making a better life for themselves.

The stimulus money, particularly in the United States, also helped that grow, because to some extent there wasn't any need to live paycheck to paycheck. There were significant other changes occurring as well. So that, coupled with the reliance on different countries for raw material or products, became sort of the Achilles' heel.

Why this change was different

So people say, "Well, that's more of a reason to make everything American-made, and not import and export so much." And I'm not saying there shouldn't be some rebalancing of certain things, and maybe some less reliance. It's possible, as we learn certain things, that we'll want to have a little more on hand on a short-term basis, so to speak. However, generally it worked before. We had it down fairly efficiently, because we had patterns of consumer behavior, and we could watch them change and adjust over a slow period of time. Economies, transportation companies and companies from different industries could watch that change, right? This was immediate, and it still is somewhat immediate as we get out of each wave: "Okay, we need this now. Okay, we need that now."

Now our children need additional help. I've never seen such a need for virtual tutoring. It used to be hard to find an in-person tutor, and it still is, but it's actually hard to find a virtual tutor too. And you would think, wow, the tutor could be anywhere in the world, so there should be exponentially more people available to fill those services. And yet that has not been the case.

So with the advent of technology, there have been some pros, but there have also been some cons. Of course, there are things that just don't communicate right over technology. But surprisingly, the medical industry has changed significantly and done pretty well moving to virtual office appointments. That could be beneficial to most people, as they get better care and it's easier to get care. They can go on a lunch break and do a quick doctor's appointment, versus before, having to take time off, go across town, sit in a waiting room for three hours and come back, in which case they miss half their day. Now they're able to resolve that in a half-hour call and attend to their medical needs, to make sure they're taking care of themselves. A lot of things, like testing, can even be done from home. So I think there's been a lot of positive change as well.

Transportation and labor bottlenecks

Unfortunately, a lot of industries have not done so well, or have struggled because of supply chain issues, waiting for certain products to come from other countries, whether those countries were dealing with COVID outbreaks themselves or with instability. There were also transportation slowdowns, even with truckers. There's a huge shortage of truckers. There was a huge shortage of port employees to man the ports and actually unload the containers. So you had containers going back and forth across the world as usual, using the usual infrastructure we have in place, but you didn't have the employees to offload them, whether because of COVID illnesses, changes in employment, or because they moved out of the city. All of these things have contributed to an increase in costs and a bottleneck in the supply chain.

Adapting: alternatives and local sourcing

But I also think it's important to note that the same way we got into trouble really fast, little by little it appears we're getting out of trouble. What do I mean by that? We're figuring it out. We're figuring out alternatives to products, whether it's another product, a competitor's product, or using different material. You have people going vegan, so now they need different types of plant-based food they may not have needed before. Instead of a lot of dairy products, maybe there's a shift to more plant-based products that might be easier to source where you're at.

I also find businesses becoming very creative, trying to find things more locally sourced. Smaller businesses that might normally have been too pricey for them now have more flexibility to work with them, and they don't have the same transportation costs if it's going across town versus across the country. They're using their resources. The companies I see survive and do well are adapting.

So I wouldn't call it a full new normal. I'd call it a medium new normal, so to speak, because I still think there are some short-term issues that have to be resolved. And there are, of course, midterm goals and issues that companies have to figure out, what that looks like, and be able to adapt to. But more importantly, what seems speculative right now is the long term. Where is this world going? Whether it's the local store, your statewide store or an international store, where are we going?

In some ways it looks clear. Consumer demand: "Okay, we've got this now. We had this shift, and we know what people want now." So it's more about technology, more about purchasing things at home, and fewer people going to the gym. But will that shift? A lot of businesses are trying to figure this out as we speak. And baked into that is the increased cost of materials, raw materials, production, employment and transportation that many businesses are having to deal with. That's forcing them to think about alternatives, and to create alternative products and services to offer, to meet not just the immediate short-term need but the midterm. That way they have enough adaptability to adjust when needed, without creating an infrastructure that's geared toward one set of markets or one set of consumers.

Flexibility, credit and investors

I think businesses are learning from this that they have to be a little more flexible. They have to be able to get up and go, or change as needed. So the important thing is to create flexibility in infrastructure costs and the cost of capital. Right now, before interest rates go up, I see a lot of businesses refinancing some of their debt and trying to obtain credit lines where they can, if they're strong enough to do so, to weather a possible increase in the cost of credit and keep their businesses flowing to the next stage or next level.

This is also important for attracting investors at this time, the savvy ones who are looking for opportunities in places most people aren't looking, not mainstream. They're looking for businesses that have value but just don't shine in the same manner, or on a national scale. When you can show an investor that type of value and that resilience, you can most likely attract investors who will help you get through these crunches and help you with a vision of the future. Combine forces, so to speak, where you didn't expect to, and add that to your stability. I don't know why that word won't come out today, but in any case, it's very, very important.

Cutting transportation costs

On the cost of transportation, look at alternatives, whether it's by sea or through a different kind of trucking company. Consider possibly purchasing your own trucks, depending on the distance you're referring to. You may want to start these delivery processes yourself. Services like Uber and DoorDash actually do have commercial services. You want to use platforms that might lower the cost, things we don't normally think about. This is how these businesses are able to stay afloat even as these supply chain issues come about.

Costs are increasing, and the employment situation increases costs, but I do think this is going to even out at some point, as consumer demand starts to slow down and get to a more stable place, which is hopefully going to happen. Hopefully the worst of COVID is over. God willing, fingers crossed, right? I'm sure it's always going to be with us, but hopefully it's not going to come in the same ways we've seen in the past. If it does, we are ready. We have some indication of what we need to look for. We know what we have to store. We know how to live, and how to change our habits, certain consumer habits, and the same goes for business, for that matter.

Legal tip: review your contracts

So today I just want to give you some points about what you can do from a legal point of view. Once again, I always tell everyone to look at their contracts, but it's true, it helps. Look at your contracts, not just with your customers, but with your vendors and your distributors. See where you can change something, or try to negotiate something that might be mutually beneficial, that allows flexibility and adds stability. Oh goodness, it's just going to be one of those days today.

You want to be able to continue to be resilient and potentially attract other investors, and not have a base or structure in your company, whether it's capital or a business model, that doesn't allow for the flexibility that's needed currently. You can work with these vendors, and even consumers and customers. They are very wise right now. They understand that things are expensive, but they understand the value of someone who gives quality and has products stocked all the time. They may be willing to do short-term bargains with you, whether it's certain pricing for bulk, or a short-term increase in pricing where you give them additional similar products that might be complementary but don't cost you as much. Get creative with these things right now in order to grow your business, or at least maintain it, and look a little into the future to leave some room to grow.

Employment relationships

Another thing is employment relationships. Employees most certainly can command quite a bit of power right now, and we see their value. Now when you go to the store, you might even have the product but not the manpower to restock the shelves. The ports need manpower. I have many clients who are doing fantastic in business, and they weren't able to get their products unloaded from the containers. The containers would sit there for weeks, and they'd be behind, potentially in default of their contracts, because they could not find people to unload them.

So these are things we need to find possible alternatives for and think ahead about. Is there a particular container company that can change where your material is located? Consider other ways to get it into the country, or possibly use local material or a local manufacturer in the interim, to offset your costs and these particular issues that can cause you to be in default of a contract.

In general, though, employment is really important. This was always the rule: I always find it easier to keep an employee than to keep finding new ones. The cost of obtaining new employees, or acquisitions, so to speak, if you want to use that word, which is a strange word in terms of employees, but it's sometimes used to describe the hiring of employees, is a lot higher, and a new hire is an unknown. An employee who's been proven, who does good work here, may be having difficulties at home. You can provide some flexibility in work schedules and payment schedules, and offer additional benefits that might be of assistance. Offer value, and offer humanity and compassion.

Now often people say, "This is a business. Are you crazy? What are you thinking here?" Try smiling at your employees. Try to speak to them about good things. Praise them when they do things right. Talk to them constructively if something goes wrong and they need to be retrained in something. How you treat people makes a big difference. Otherwise, it's less likely they're going to want to be sitting in your office for eight hours a day.

Offer them fair pay, especially in cities. Miami has just been found to be one of the least affordable cities in the United States. We actually beat out New York City. I don't even know how that happened. I still think of New York as that mountain you would never climb, so to speak, in terms of housing and cost, and here we are. Consider the cost of a car, or the cost of gas, for employees coming in, and the time they lose doing so. Be flexible if they do have to go to doctor's appointments.

I think it's very, very important to have that friendly environment that helps people grow, and to show them they have the potential to move into other positions and learn other things, so they feel part of a family. It's not all just about money. And of course, I do suggest that you pay at least market value, a decent salary, to these employees. That goes a long way toward attracting talented employees. Ultimately it's going to benefit you, keep your company stable, and benefit whatever services and products you sell. It'll show, and you'll shine at a time when a lot of companies are having difficulty even answering their phones, or finding employees to answer the simplest of questions. So invest in your employees, and find that balance in employment policies, in pay, in the way you treat them and in the environment you create.

Alternative materials and partners

We've talked a little about finding alternatives to transportation costs, and we talked about contracts. Also, potentially consider alternative materials that you can source locally. A lot of times it'll be a surprise: there are local businesses that had trouble being seen before by the big players on the national or international scene. Maybe they were a little too costly for you in the past. Maybe they're willing to work with you now. They might be cheaper now, or at least a little cheaper than buying across the ocean, so to speak. And at minimum they might be a resource for a short-term stopgap in the products and services you maintain, to complete the overall picture and potentially lower the cost of the supply chain issues that are currently happening.

Try to reach out to other competitors too, not your competitors, but competitors within other areas, whether it's a staffing agency, a transportation company or product distribution. Look and see what else is out there. Look at alternative products that are similar and also might be in demand. A lot of consumers nowadays are very climate-conscious, so to speak. If you can offer them an alternative product with material that's more conscious of the environment, that might actually be a bigger hit than anything you were selling previously. And it is needed. It's becoming more and more important every day, and people are more conscious of that as well.

Inflation and closing thoughts

So these are a couple of tips that can hopefully help you with the cost of inflation. Like I said, I think it's a short-term issue brought about by the stimulus and the change in behavior. Some of the products we're buying now, we weren't buying before the pandemic. The infrastructure, the economy and all the moving parts are adapting and adjusting, so that will take a little bit of time.

With inflation, I do think it's a good thing in many ways too, which people don't realize. It can be a sign of a healthy economy. It just has to be in the right areas. What we can't do, as business owners, is affect geopolitical and economic circumstances, but we can certainly try to mitigate what goes on in our individual lives and our business lives. That means trying to keep the cost of credit down. Think about doing something now, before interest rates start to increase. And hopefully, little by little, some of these supply issues will start to work themselves out and bring the cost of materials, services and other things down to a more normal level, and everything will even out.

Well, good luck to everybody, as always, and we hope to see you for our next podcast. Please follow us on our social media accounts and subscribe to our podcasts, The Legal Zone and The Campbell Corner. Thank you. It's a pleasure seeing everyone again, and happy 2022. Thank you.