You're Only As Strong As Your Weakest Link
Buying a Supply Chain Business
If you are buying a business it is important to benchmark key variables to determine the true value of the business. These include inventory, space, equipment, staff, and technology.
Inventory typically includes slow moving items and overstock which adds to space, staff, and equipment costs and reduces productivity. The real value of the inventory is that of the faster selling items in proper quantities.
Space is usually valued by the cost of the property or of the lease. Space also should be valued in the context of growth. One should determine for how many years the space can support future business based on the company’s growth plan to avoid the costs of moving soon after the purchase.
The value of production and material handling equipment is typically calculated by its cost less depreciation. The real value of the equipment however is in its ability to produce better than the competition and provide a competitive edge at lower costs. Expensive obsolete equipment is detrimental to the deal.
The cost of staff must be benchmarked by its relative productivity. Having lower cost workers is irrelevant if they under-produce the competition and your labor cost per unit is will be too high.
Both operations and communications software and hardware must be valued by how well they support both the current business as well as how far into the future they can effectively support the business before they require replacement.
By benchmarking key variables one can determine the proper price to pay for a business.
Inventory typically includes slow moving items and overstock which adds to space, staff, and equipment costs and reduces productivity. The real value of the inventory is that of the faster selling items in proper quantities.
Space is usually valued by the cost of the property or of the lease. Space also should be valued in the context of growth. One should determine for how many years the space can support future business based on the company’s growth plan to avoid the costs of moving soon after the purchase.
The value of production and material handling equipment is typically calculated by its cost less depreciation. The real value of the equipment however is in its ability to produce better than the competition and provide a competitive edge at lower costs. Expensive obsolete equipment is detrimental to the deal.
The cost of staff must be benchmarked by its relative productivity. Having lower cost workers is irrelevant if they under-produce the competition and your labor cost per unit is will be too high.
Both operations and communications software and hardware must be valued by how well they support both the current business as well as how far into the future they can effectively support the business before they require replacement.
By benchmarking key variables one can determine the proper price to pay for a business.
Roy Strauss is President of the Strauss Consulting Group, a supply chain logistics company that specializes in helping companies increase profits and customer service while reducing costs. For additional information, please go to www.scg4u.com.
Email: rs@scg4u.com
Office: 1-201-337-7108
Corporate Web Site: Strauss Consulting Group
Web 2.0 Community: Supply Chain Experts
Tags: , Tags:, >Distribution, >Logistics, >Supply, >Warehouse, Chain, href=, http://www.scg4u.com/
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