Managing To Succeed

So is it any wonder we're feeling sheepish about increasing our capacity? If this recession does go deeper, and people do stop eating as much prepackaged produce, and deflation takes hold and customers have a hard time paying, maybe it doesn't make sense to spend the $4 million it takes to buy the latest, greatest machinery needed to print on plastic. So we've delayed a decision on new capacity until later this year. Of course, the bank wouldn't mind if we didn't come back to them for more capital, I think. Recently they decided they'd no longer loan against 100 percent of the installed cost of equipment, as they have for years. That means we may have to reach into our own coffers for up to $400,000 as a down payment. And the bank gets the cash cushion should they ever need to repossess and sell a machine.

Not unreasonably, we've begun conserving cash. I've asked our maintenance department not to spend beyond what is necessary to keep machines running, and to police the edict, I've begun looking at the bills again, a practice I gave up several years ago as more demands fell on my time. As a result, we've shaved $50,000 from maintenance expenses this year. I've also swatted down proposals to add more staff, including beefing up the number of janitors, instead choosing to outsource the work. We're also cutting the inventory we carry, with finished goods in storage down 20 percent in just three months.

But the downturn has also unleashed some creativity. Late last year, our maintenance manager called our local utility and asked if there were any new rebate programs to help finance energy-saving investments. If it weren't for asking, he would not have found out about a program that rebated part of the cost of a piece of equipment based on how much energy it would save during its lifetime compared to the machinery it would replace. This led our local utility to recently cut us a $200,000 check toward the purchase of new gas-fired pollution-control equipment, which will allow us to double the size of our printing department, helping us defray 30 percent of the cost.

Of course, in any crisis there is opportunity. I'm on the lookout for troubled companies that might want to shed assets that we could use. Already I know of one company looking to sell a 10-color printing press. Buying a used rather than a new one might help us save nearly $1 million. I've also got an eye out for small acquisitions that could help us quickly increase capacity and chew through our lengthy backlog, which is a good problem to have these days. No doubt things could be worse. Unfortunately, with the economic news getting bleaker by the day, I can't shake the worry that the worst lies before us.

Kevin Kelly is a former business journalist and CEO of Emerald Packaging in Union City, Calif.

© 2009