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Supplier Global Resource Magazine March/April 2012 : Page 26

SGR CASE STUDY Movin’ Out BY CHUCk zAk When the lure of greener pastures overcomes a growing supplier, how does it best balance the benefits and risks of pulling up stakes and relocating somewhere new? s fledglings, we leave the warm embrace of our family home with bittersweet emotion, but also with a rav-enous curiosity and desire for independence. Later, older and wiser, we make our leaps and bounds with greater care, aware that each year brings more responsibility to make advances from which we won’t need to retreat. A rising supplier of headwear and his 50-member team now face that dilemma. The entrepreneurial drive has so far driven this plucky supplier from basement to garage and finally to a refurbished factory in a tolerably sketchy part of a venerable Northeastern city. Even with all of its challenges, the neighbor-hood has become ingrained into our supplier’s self-image: gritty, cosmopolitan and hungry for the thrum of activity. But the time to fly this particular nest may have arrived. Though the city has improved its business climate, tax burdens still encumber the growing company. And chic or not, the urban hide-away from which trucks of fashion-forward caps have trundled forth for two years has become a liability. Decaying infrastructure makes for intriguing catalog photography, but it imposes persistent operational hassles which distract from the company’s mission. A So their gaze turns longingly to the Southwest, lured by promises of minimal taxation, cheap real estate, warm weather and abundant barbecue. But the move will undoubtedly cost the company some beloved employees who aren’t feeling the love for flyover country. It will also place them at a greater distance from some regular clients with whom they have coordinated since the supplier’s infancy. But most worrying is the lapse in production the move might cause. Consistent on-time delivery has been a point of pride – even with those snarled, poorly-maintained city roads – and no one wants to incur a new reputation as the sup-plier whose reliability isn’t what it used to be. So what should this company with dreams of capping every head in America do to maximize potential? We’ve addressed these concerns to four professionals from the ad specialty indus-try and beyond: How should our supplier best position itself for the future while ensuring production keeps moving along? SGR ’s case studies, which are composites of real industry companies and situations, present common managerial dilemmas and offer concrete solutions from experts. 26 MARCH/APRIL 2012 WWW.SUPPLIERGLOBALRESOURCE.COM

SGR Case Study

Chuck Zak

Movin’ Out<br /> <br /> When the lure of greener pastures overcomes a growing supplier, how does it best balance the benefits and risks of pulling up stakes and relocating somewhere new?<br /> <br /> As fledglings, we leave the warm embrace of our family home with bittersweet emotion, but also with a ravenous curiosity and desire for independence. Later, older and wiser, we make our leaps and bounds with greater care, aware that each year brings more responsibility to make advances from which we won’t need to retreat. <br /> <br /> A rising supplier of headwear and his 50-member team now face that dilemma. The entrepreneurial drive has so far driven this plucky supplier from basement to garage and finally to a refurbished factory in a tolerably sketchy part of a venerable Northeastern city. Even with all of its challenges, the neighborhood has become ingrained into our supplier’s self-image: gritty, cosmopolitan and hungry for the thrum of activity. <br /> <br /> But the time to fly this particular nest may have arrived. Though the city has improved its business climate, tax burdens still encumber the growing company. And chic or not, the urban hideaway from which trucks of fashion-forward caps have trundled forth for two years has become a liability. Decaying infrastructure makes for intriguing catalog photography, but it imposes persistent operational hassles which distract from the company’s mission. <br /> <br /> So their gaze turns longingly to the Southwest, lured by promises of minimal taxation, cheap real estate, warm weather and abundant barbecue. But the move will undoubtedly cost the company some beloved employees who aren’t feeling the love for flyover country. It will also place them at a greater distance from some regular clients with whom they have coordinated since the supplier’s infancy. But most worrying is the lapse in production the move might cause. Consistent on-time delivery has been a point of pride – even with those snarled, poorly-maintained city roads – and no one wants to incur a new reputation as the supplier whose reliability isn’t what it used to be. <br /> <br /> So what should this company with dreams of capping every head in America do to maximize potential? We’ve addressed these concerns to four professionals from the ad specialty industry and beyond: How should our supplier best position itself for the future while ensuring production keeps moving along?<br /> <br /> SGR’s case studies, which are composites of real industry companies and situations, present common managerial dilemmas and offer concrete solutions from experts.<br /> <br /> Chris Clark <br /> <br /> Vice President of Sales, Ash City USA<br /> <br /> Any time a business finds itself with higher labor costs, higher taxes, facilities that need updating and no real incentives to remain where they are, it’s a cause for concern. And if there are incentives to move or relocate, they must be seriously considered. When weighing the pros and cons for staying vs. relocating, the company needs to look at statistical data involving the region of the country to which they’re looking at relocating. Is the labor pool stable? Are taxes stable? Do incentives exist to move there such as tax breaks or help in building or refurbishing an existing building? <br /> <br /> And then of course there is the question of existing employees. Will they be willing to relocate with the company? Are there incentives to help them decide? Another scenario would be to keep certain parts of the organization where they currently are (such as customer service, accounting, design, merchandising, IT, etc.) and just relocate the manufacturing and inventory. <br /> <br /> Either way, it’s a tough decision, but in this day and age, all options must be considered in order to help a company remain stable and look toward growth.<br /> <br /> Chris Clark, currently vice president of sales for Counselor Top 40 apparel supplier Ash City USA since 2002, is an industry veteran with over 23 years of experience in the apparel market. He can be reached at (732) 381-2525 or cclark@ashcity.com.<br /> <br /> Joseph VraniCh <br /> <br /> Principal, Spectrum Location Solutions <br /> <br /> Moving a manufacturing company is more challenging than moving other types of facilities because of the risk of a decline in production, the sheer weight and mass of the machinery to be hauled to a new location, and the potential loss of skilled workers. <br /> <br /> Yet, crossing into another state can make a company more competitive, especially if rivals are in low-cost states or countries. A move can lower or completely eliminate certain taxes, and costs can be reduced for facility construction or leasing, utilities, regulatory compliance, workers’ compensation and unemployment compensation. <br /> <br /> Employees can reduce expenses while improving the quality of their lives. Where affordable housing exists, apartment renters can buy a home. If in a state where there’s no personal income tax, take-home pay rises even if the compensation remains stable. <br /> <br /> However, moving costs, production disruptions and losing valuable employees are significant issues. <br /> <br /> One manufacturer heading across the country will pay $18.5 million to move machinery, spare parts and inventory. The cost would be higher except the company is purchasing advanced machinery that will be sent directly to the new factory. <br /> <br /> Minimizing production delays requires a choreographed arrangement where equipment is moved in stages so that some machines will always be producing product.<br /> <br /> Motivating key employees to stay with the company can be accomplished with bonuses and fair treatment. It may be that a manager will not relocate, but it’s vital that he stay in the existing plant through closing day. The solution is to offer a generous retention bonus and be very nice to him. <br /> <br /> To convince someone to relocate, an inducement would be a company-paid familiarization trip to the new community for the entire family. Covering the cost of shipping household goods is expected, and a relocation bonus also might be required. <br /> <br /> The total cost to relocate can be intimidating. However, economic development agencies will offer incentives to lower taxes, underwrite some moving costs, support low-interest loans and provide employee training grants. <br /> <br /> The bottom line is the project’s return on investment. If a three-to-five-year cost-recovery period is forecast, often companies will relocate. With a seven-year ROI, the decision becomes blurry, and companies will often drop plans if it’s 10 or more years. <br /> <br /> With careful planning, a business relocation can result in financial rewards. <br /> <br /> Joseph Vranich is an executive coach/consultant who helps businesses make location or relocation decisions driven by growth, market changes, tax and regulatory climate or a need to improve competitiveness. His clients, located throughout the United States, range from family-owned businesses to international corporations. He has been a repeated guest on network and cable news programs and has frequently testified before Congress. He can be reached at Joe@ SpectrumLocationSolutions.com.<br /> <br /> Brandon Mackay <br /> <br /> CEO/President, SnugZ USA <br /> <br /> Unless your business is in the middle of a tremendous momentum upswing, my advice it to stay put. Unless you can prove via fact – not theory – that the move will produce net revenue, stay put. Oftentimes the reduction in taxes, licensing fees and perhaps labor costs entice employers to make drastic moves when the net savings can never be amortized. <br /> <br /> Here’s my exact reasoning: The costs to replace tenured employees or to move existing employees are terribly expensive – and that’s the easy part. With the cost of fuel, moving a simple factory can go from one dozen to dozens of semiloads of equipment and inventory to be moved. And believe it or not, those are the easy things to deal with. Technology, communications and electrical are some of the most frustrating and expensive paths to cross. Putting a cost to each item above is something you need to put your heart and soul into, and once you have that number you should triple it. <br /> <br /> Now that I’ve pretty much said that I wouldn’t do it and that it’s impossible, keep in mind it can really happen. We successfully navigated a move of 100+ employees from Vegas to Salt Lake City using over 50 semis of product and equipment for the opportunity to better the quality of life of those employed by us and to enjoy the good old Rocky Mountains. <br /> <br /> Brandon Mackay, CEO/President of SnugZ, started his career in 1994 in the company’s shipping and receiving department. Through his ability to build systems and forward thinking, he has made SnugZ one of the most successful and well-known brands in industry. He can be reached at (385) 234-6872 or brandon@snugzusa.com.<br /> <br /> Kathryn hawKins <br /> <br /> Writer & Co-Owner, Hawkins Multimedia, LLC <br /> <br /> Take the time to carefully analyze the situation before jumping ahead. Talk to an accountant in the state where you’re considering relocating to find out about any tax advantages or disadvantages of moving. Learn as much as possible about how well your target demographics are represented in the area, and work with a realtor to find a space within your price range. <br /> <br /> Carefully weigh up all of the factors at stake, including negative aspects such as the likelihood of losing existing clients and the cost of recruiting and training new staff, as well as positives including lower tax rates and labor costs. <br /> <br /> In some cases, making the move may not be worthwhile: If, for instance, your current employees are highly trained, your clients are primarily local, and the tax rate is only marginally lower in a different state, you’re not likely to gain much value in the move. <br /> <br /> However, if your current staff is able to continue working virtually, or most of the jobs are low-skilled positions that would be easy to refill, the financial benefits of a new state may be substantial enough to make relocating your business a good idea. <br /> <br /> If you do opt to make the move, keep in mind that you’ll need to re-register your business in your new locale. A business attorney will be able to help you file all of the necessary documents and provide consultation on other relocation-specific matters. <br /> <br /> Kathryn Hawkins is a Maine-based consultant who frequently writes about matters affecting small businesses for clients including Intuit, BNET and Inc.com. She is also the co-owner of Hawkins Multimedia, LLC. She can be reached at kathryn@hawkinsmultimedia.com.

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