Jerry Murphy is the kind of resource we all wish we had on speed dial. He works at Sikich as the partner in charge of the manufacturing/distribution services for the CPA service area, a multidisciplinary practice that encompasses audit tax accounting, technology, investment banking, wealth management services.
One of Jerry’s specialties is aiding Sikich clients when they know they need business assistance but aren’t sure where to turn. He and his colleagues will then make introductions to the appropriate service areas within his company to assist in solving their client's challenges.
Jerry also oversees the Manufacturing & Distribution Report at Sikich. I happened upon the 2019 survey while doing research and found it so useful and informative that I reached out to Jerry to see if he would share his perspective with us and our readers. Since last-mile distribution in omnichannel is so competitive, I thought Jerry’s perspective on new ways to think about fixing problems would be extremely valuable. As it turns out, that was spot-on!
Here’s part 1 of our interview. Read on for more! (And don’t forget to check out the survey here.)
Q. We enjoyed looking through your survey because I think it's there's so much change in our space. Material handling hadn't changed much for a long time, but in the last five years, it's really accelerated. It’s a fun time to be in the space, but there's lots to think through if you're running a facility or you're running a supply chain. So to start, I'd love to get a sense of the genesis of this report..)
A. We're just actually about ready to launch the questions for our sixth annual survey. We began putting the survey report together to accumulate the responses and information that our clients were sharing with us throughout the year when we're having conversations about their various challenges. The survey gives us an opportunity to summarize conversations and share best practices and information. It also allows our clients and prospects to understand what their peers are doing and what challenges they face.
Q. Over the five years you’ve been administering this survey, have there been any major changes in the concerns or worries you’ve been seeing?
A. Topics such as workforce challenges, cybersecurity and technology have been at the forefront of the last two or three surveys. But I think that, recently, there has been a heightened awareness of these topics, along with more urgency around cybersecurity and more interest in becoming more digital—and many more solutions have been created around the labor force challenges that business owners and executives face today.
The optimism of executives is something that has ebbed and flowed over the last couple of three surveys and will be no different this year. Elections have had a big impact on that trade tensions and now more recently, a serious virus that seems to be growing globally.
Q. Do you feel like executives were highly optimistic and maybe that's turning right now?
A. I think CEO optimism is actually quite high. The economy continues to be very strong in most areas, but we still have some issues such as trade tensions, tariffs, and now a virus that may tamp down some of the recent economic growth.
Q. One of the things that I'd love to hear more about is if you saw any massive difference in how large and small companies view their challenges and investments?
A. Sure. I believe that the challenges that these two groups have are still very similar. You'll see that the larger businesses are actually tackling some of these issues like cybersecurity, innovation and technology because they have either the financial resources or the internal resources to tackle those challenges.
Businesses that are a bit smaller may not have either financial or internal resources to tackle them. As a result, they prioritize them and take them on internally or use an external party—maybe a bit more slowly than their larger counterparts. Still, I think they're all facing many of the same challenges, whether it's cybersecurity technology, workforce challenges, or being more connected to their supply chain and customers.
Q. Do you think that businesses have a good sense of the cost of cyber-crime? In other words, can they quantify that, and do they understand what a big event will mean to their business?
A. I think they know what it would mean to their business, but it is difficult to quantify because you don't know exactly how long you may be down or disabled. If you have good backups, you may only lose an hour to 24 hours of information and get back on your feet very quickly. Without that kind of backup, cyber-attacks could be very debilitating. You may be down for many days or more. Not being able to supply product to customers, not knowing what to make and who to send it to can be very debilitating and costly.
It’s also important to recognize that a lot of businesses must comply with federal regulations surrounding protecting data, whether it's health data or credit card information or other personal information.
Q. It seemed like the smaller companies might be even more optimistic than the bigger companies about the economy and future growth. Would you agree with that?
A. I think that often, the much larger businesses—as an example, an OEM heavy industrial manufacturer--have a very large exposure to international markets. When the international markets are not as strong as the US market, those companies get a little bit more pessimistic because a lot of their revenue depends on the international economic strength.
Businesses with less exposure to international markets will probably be more optimistic because the majority of their revenue is domestic.
Q. Interesting. And would you also say that when you start being global, the level of complexity you have to deal with it grows exponentially?
A. It does. The compliance complexities, whether it be taxed or duties and trade tariffs in different countries multiply very quickly and are different all over the world. Companies need to have partners in those countries that help them navigate those challenges.
Q. You talked about outsourcing to a third-party to speed things up and you also mentioned that larger companies doing that tend to do that faster. I would think if I'm a smaller company, the fastest way to move and innovate is to turn to others, but that doesn't seem to be necessarily the approach. Any thoughts on why that is?
A. I think part of that stems from the fact that they may not have internal resources that can be the champion of the project. I know you had a question about how workforce management might impact that. I've noticed that business owners and executives are really trying to hire individuals that have specific expertise that will enable them to adopt some of these technologies and take on these projects. They want people to champion the project from within, whether they're doing it themselves or partnering with an external resource.
Q. If I run a project with a third party, am I better off bringing in somebody from the outside that might not know my business that well but has the technology expertise? Or am I better off having somebody that's a leader that knows all my people, knows my business processes, and knows the ins and outs of my company?
A. Sure. I think that you've got to have a very strong partner that understands the technology and how to implement it successfully, but you also have to have internal resources—particularly at the highest levels of management—championing the project and supporting it with all their resources. If you don't have that level of support, it's often difficult to have a project conclude successfully. The most successful project implementations occur when you have a strong individual leading the charge internally, ensuring everyone completes their individual requirements for the project.
Q. As a business partner to manufacturers and distributors, how do you take some risk out of it for them? If they've got to have an executive sponsor and they've got to have a project owner to be successful, how do you communicate that there is still immense value in outsourcing this project?
A. The solution is helping them understand the return on their investment and the quantitative and qualitative results to feel good about and be excited about the project. They have to understand the financial results they will get at the end of the project.
I also think it's important that the external resource helps all the employees understand how it's going to make their job easier, more efficient, and improve customer satisfaction and efficiencies. Employees get really excited if they know what's in it for them.
Q. Can you talk a little about digital transformation and how it’s an iterative process to get there, rather than a “big bang?” I think every business struggles with that.
A. With many of these new technologies, business owners or executives haven’t put that process in place before and don't necessarily understand that it is an iterative process. It's not all-or-nothing. They often need external resources to help them understand that you don't necessarily have to take on the whole process at once and that they will still see positive results with a phased approach.
From our general experiencing working with clients, whether they're using Sikich for implementation of technology or other significant projects, they certainly need external resources—whether they're a very large business with thousands of employees or a smaller one with just hundreds. They still need that external resource because they don't have access to the talent or don't have access to the technology that they want to implement. They need an external resource to help with implementation.
Q. On that note, the survey highlighted that talent management is really a challenge for the future. But at the same time, most also said they were highly confident they could win and compete for talent. So, which is it?
A. Well, I think, I think that more as this talent shortage has continued over the last several years, more and more executives are realizing that they as they hire individuals that they will need to train them internally and bring skill levels up to where they need to be. They're able to find good quality people; they just need to train them. In the past, they were looking for individuals that already had these skills. I think that's where the confidence comes from.
Q. But what about the risk there? Thirty years ago, everybody was trained because they would stay with the same company for their entire career. How do the companies handle saying “Hey, I'm going to spend a lot of money on training knowing that people are going to jump in and jump out?”
A. I think the executives are spending a lot more of their energy understanding what is it going to take to retain people? So, they're improving a lot of things in their business to help make this a more friendly work environment. They want the employees to be are happy and feel good about the jobs they're doing so they don't want to look elsewhere. Execs are doing studies on compensation to make sure that their factory workers or administrative talent are being paid appropriately for the region in which they work. They're making sure that their benefits are competitive with all the businesses located or in their area. So, they're spending more, more time emphasizing the retention as well as training.
Stay tuned for more in this series! In the next part of our series, Jerry will share his thoughts on topics like AI and cost management, as well as more detail about his views on digital transformation.