The Wall Street Journal-20080114-Some Companies Got Early Start Reacting To Economic Slowdown
Return to: The_Wall_Street_Journal-20080114
Some Companies Got Early Start Reacting To Economic Slowdown
Last July, Bill Zollars, chief executive of YRC Worldwide, the global transportation-service company, saw some alarming figures. The size of the shipments YRC was handling for thousands of retail and manufacturing companies was shrinking after a lengthy period of expansion. Soon, he also noted a decline in the number of those shipments, and both figures kept declining in subsequent weeks. "Those are two clear signs of a slowdown, and we look at those numbers daily," Mr. Zollars says.
He and his senior managers reacted swiftly. In the months before Christmas, typically YRC's busiest time of the year, the company laid off close to 10% of its 50,000 truck drivers to pare labor costs, its biggest expense. In addition, instead of renting extra trucks for the holiday season as it usually does when the economy is strong, YRC parked about 12% of its vehicles. "A lot of the world is just catching up now to what we saw and responded to awhile ago," Mr. Zollars says.
As U.S. jobless claims rise, manufacturing activity declines and consumer spending skids, many executives are beginning to acknowledge that the economy is slowing. But others, like Mr. Zollars, caught cooling signs early and have already trimmed labor costs and inventory levels and made other adjustments.
"The best-performing companies plan in advance -- or at least ahead of many of their rivals -- for slowdowns," says Michael Mankins, a partner and consultant at Bain, which has studied which companies best weathered the last downturn in 2001 and why. "They take a bet early on which way the economy is going and quickly identify which costs they can manage aggressively and where they should use cost savings to fund new growth," he says.
At YRC, in addition to laying off some employees, managers are closely tracking exactly how many people they need where and for how long. "We know the number of shipments we're making from, say, New York to St. Louis, precisely when our trucks will arrive and how many people we'll need to unload them," says Mr. Zollars. "We didn't have that amount of detailed information a few years ago, but with it, our planning has gotten very sophisticated."
The company also hasn't been hit hard by steep oil prices, even though its trucks drive two billion miles a year. That's because a decade ago it began passing along fuel costs to customers. "That isn't good for them now, but it's part of our strategy to have as few variable costs as possible," says Mr. Zollars, who knows YRC may have to make further cuts if shipments in coming months drop sharply.
In a global economy, many companies may be able to take advantage of growth in developing regions to help offset the domestic slowdown. Kelly Services places temporary clerical and industrial workers. In August, after its North American commercial unit saw demand from big customers drop off over several months, it shuttered about 40 of its 800 North American commercial branch offices. But Chief Executive Carl Camden advised executives at headquarters to expect to invest, rather than cut costs, in several regions overseas. Kelly's revenue in North America, where it does more than half its business, has declined about 5% in the past year, but it has been increasing 20% to 30% in Russia, Eastern Europe and India as demand for technical and professional employees climbs. "As a company you have to be careful not to let what is happening in your headquarters permeate your mood or thinking about what's happening around the world," Mr. Camden says.
To guard against this, he told managers in charge of different global regions to do their own budget planning for 2008. "We pushed decision making down because even countries that are neighbors -- in Western versus Eastern Europe, for instance -- are behaving very differently," he says. He also cautioned managers everywhere to be poised to swiftly adjust their budgets if their businesses either improved or declined. "Economic changes happen so quickly today and can't be precisely predicted despite infinitely better information," Mr. Camden says. Last spring, he notes, Kelly was planning for a six- month slowdown in the U.S., "but that has extended longer now."
Companies whose sales haven't weakened should still be reviewing the plans they've made for a slowdown. If possible, they should avoid cutting budgets for research, product development and overseas expansion, which could fuel future growth. And, advises William White, a professor at Northwestern University and the former CEO of Bell & Howell, instead of trying to track reams of data, companies should focus on "three or four statistics that matter most to their businesses."
Frank MacInnis, CEO of Emcor, a construction and facilities services company, says he hopes the portfolio of diverse businesses he has acquired will help him weather a slowdown. Emcor was once primarily a construction company, but now 35% of its revenue comes from maintaining public-transportation systems and facilities in health care and at military bases. These shouldn't decline in a slowdown. "We've dipped our toes into some hot markets like casino construction," he says, "but we don't do housing construction, and I've been preparing for a recession since the last one."
---
Email me at [email protected]. For a discussion on today's column, go to WSJ.com/Forums. To see past columns, go to CareerJournal.com.
