Over the next 3 episodes, host Victoria Meyer will be diving deep into approaches that chemical companies are taking to combat the market weakness we’ve seen in the first half of this year (for more on this, check out Episode 118 where I review 2Q23 earnings reports).   Victoria’s topic this week: Commercial Discipline

Victoria dives into the concept of commercial discipline and how it can help companies optimize resources, control costs, and maintain strong market positions. Unpacking various approaches that companies are taking, touches on the following strategies for commercial discipline:

  • Cost optimization as a key component of commercial discipline
  • Controlling the right costs and understanding value through cost clarity
  • Cashflow management
  • Business efficiency and optimization through automating and streamlining processes
  • Prioritizing & optimizing products and solutions

 

Exploring the concept of control and clarity as essential components of commercial discipline, Victoria emphasizes the need to focus on the right costs and gain a deep understanding of actual costs rather than relying on assumptions. Discussing the role of cash flow management in improving financial stability, Victoria explores strategies for optimizing business efficiency and supply chains. Additionally, Victoria highlights the significance of prioritizing and optimizing products to drive growth and profitability. Don’t miss this episode packed with actionable strategies to enhance your company’s commercial discipline.


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Listen to Victoria Discuss the Importance of Commercial Discipline Here:

Watch Victoria Talk about Commercial Discipline Approaches on YouTube Here:

 

The Importance of Commercial Discipline: Unlocking Business Resilience in Challenging Times

Welcome back to The Chemical Show. In Episode 118, I shared some insights from the 2nd quarter 2023 chemical earnings reports. In that episode, I talked about the things that came through in those, which were flat markets due to inventory destocking, sluggish economies, and overproduction in some markets. I also highlighted 3 approaches that companies are taking to create business resilience in these markets. Those 3 approaches include commercial discipline, customer centricity, and diversifications of markets and customers.

In the next 3 Thursday episodes, so this episode, episode 120, and 122, I’m going to be unpacking these approaches and sharing the approaches that leading companies are following. So stay tuned. If you’re not already subscribed to the podcast, you are going to want to do that, so hit the subscribe button now so that you get these episodes right when they are released.

We are also going to be tackling some of these topics and really looking towards the future at The Chemical Summit, which is being held on October 24th and 25th in The Woodlands, Texas. You’ll get a chance to hear from great speakers and maybe more importantly, engage and talk with other leaders in the industry about how they are navigating today’s challenges and tomorrow’s challenges to look towards that future. So head on over to thechemicalsummit.com and reserve your spot.

Now back to today’s episode, commercial discipline. It means different things to different people in different companies. So I thought it was useful to unpack some of those approaches that companies are taking, that maybe your company is taking, or maybe it needs to get a little bit more focused in taking.

During a down economy, companies often face challenges, and we’ve seen this. Chemical companies are facing challenges that require them to implement various strategies to help support business resilience for today and for the future.

Commercial discipline is the key to unlocking profits, particularly in challenging times.

Applying commercial discipline involves making really informed and strategic decisions to optimize resources, control costs, and maintain strong market positions. I talked about this in Episode 118, and it came through a couple of earnings reports that I referenced, control what you can control. So to me, some of this aspect of commercial discipline as we see companies implementing it is heavily about control and clarity.

Here are several ways that companies I’ve talked with are applying commercial discipline to create business resilience in a down economy.

Applying Commercial Discipline
1. Cost Optimization

This is a play out of the playbook and we hear it often. Companies focus on identifying where they can control costs, and reduce costs without compromising essential functions and without compromising their customers. Sometimes this may involve renegotiating contracts, streamlining operations, or eliminating unnecessary expenses. To me, this is really about clarity on value. Cost optimization is not just about controlling costs. It’s about controlling the right costs. How do you know they’re the right costs, because you understand the value that you’re realizing as a business, with your customers, and in your bigger picture for your strategy.

Cost control is a key part of commercial discipline

2. Clarity on Costs

When we talk about getting clear on your costs and getting that clarity, it involves getting to the real and the actual, not just using rules-of-thumb and assumptions. One of the things I’ve talked about with a leader recently is margin management and getting really crystal clear on cost management and margin management. In this particular instance, it was really about moving from assumptions in some of their cost basis. Particularly in areas of logistics and transportation, a number maybe got assessed for the whole year and plugged into the SAP system, and then you’re managing against that. Using standard rates, it is a simplification. Simplifications are awesome in so many times. However, when you’re really getting disciplined about your costs, when you have to get commercially disciplined to deal with these flat markets that we’re seeing, you have to go beyond those simple rules of thumb. So getting more current with their real costs.

The other thing I hear from leaders, and I hear this from business leaders who are making decisions around pricing and margins, they are sometimes lagging their finance analysts, or whomever is providing some of that cost data to them are often lagging. Again, making assumptions, using old data around manufacturing costs, production costs, or sales costs. When your information is not current or when you’re using rules of thumb, it is really difficult to effectively manage margins, set your prices to reach your target margins and EBITDAs, and get the business performance that you want without understanding those actuals. So my second point here is clarity on costs is critical and is a critical element of commercial discipline.

 

3. Cashflow Management

I think these 3 go together, by the way. So cost optimization, clarity on costs because it’s tough to optimize if you’re not clear, and the 3rd is cash flow. Cash is king, I’ve said this before and you’ve heard this in other places. This involves better control of invoicing, collections and payments. I think that’s where we often see this cash generation engine. I’m also hearing the pros and cons of this. I talked to a leader recently, who basically said some of their customers have gotten extraordinarily nitpicky on invoices. There’s a typo or something else is wrong, and kicking it back to the beginning. It’s a strategic delay, of invoice payment and processing to manage costs and cash flow.

For both sides of the equation, cash flow management, managing invoices, managing payables, and managing where your cash is going is really critical. Hopefully, you’re doing it in a way that is respectful of your business partners, customers, and suppliers because everybody’s in the same boat. I’ve seen it and you guys have seen it sometimes that, the 800-pound gorilla if you wanna use that term, often has better and more stringent control on some of this cash flow management. But across the value chain cash flow management is critical.

4. Business Efficiency & Optimization

This falls into a couple different categories. One is just automating and streamlining processes. I have talked to a number of leaders who have said “We are taking a really hard look at our business processes. making sure that they are streamlined and efficient.” It takes costs and time out of the system. Time is one of these things that’s actually quite costly. but it’s also the right way to do business. It allows you to be more efficient with your people, with your finances, with your production, and how you’re moving products to and from with your customers. So automating and streamlining process is one element of this business efficiency. The next is optimizing supply chains. I think that’s something that always happens. Taking a sharper look, when you have clarity, you’re able to better effectively optimize. So that’s one of these elements.

The other piece is a aligning business systems. I’ve heard from several leaders recently that they are taking this time when business is a little bit slower, because of inventory destocking and things have gotten flat. They are taking this time to really align and combine business systems. This is particularly true of companies that have formed through mergers, and maybe are operating several business systems. When you look at the activities of 2020, 2021, and 2022, they were running and gunning, moving fast, and didn’t necessarily have time to focus on business systems and business processes and efficiencies because they were, serving customers and serving their business needs while there was opportunity. As things slow down, they’ve taken that time.

One leader in particular said, “We’re working on internal processes and getting that fixed. slowing down so that when the markets speed up, we can go fast.” That whole concept of slow down fix it and then go fast is absolutely essential. It’s a critical part of this business efficiency and optimization and one element of commercial discipline that we’re seeing.

 

5. Prioritizing & Optimizing Products and Solutions

The 5th and final thing I’m touching on today is around prioritizing and optimizing products and solutions, getting clear for clarity on the most profitable products, services, and solutions that you’re able to offer. This aligns with 2 of those other topics we’re gonna be talking about on episodes 122 and 124, which is customer centricity and diversification. So we’re gonna be getting into more depth there. When you’re prioritizing and optimizing on your “best”, and I’m gonna use that term, loosely because it gets defined differently in different places. When you’re optimizing on that, you can’t do it in a bubble. You have to do it in the context of your markets and your customers and the rest of the value that you’re bringing. Figuring out what those best or optimal products and services are and selling more of them is critical, cutting the dead weight. In our businesses, there are products and services that are less optimal, not as profitable, not as effective.

It’s tempting in a down market, to do everything for everyone. Can you make this product? Sure. Can you do this service? Sure. However, commercial discipline basically involves saying no more often. You are really focused in on making the right decisions for your business, for your profits, for your people, for your customers, and your suppliers. That involves this whole aspect of prioritizing and optimizing products and solutions, cutting the deadweight, saying no rather than saying yes to things that are suboptimal.

Winning companies apply commercial discipline in all economic environments.

So those are my five things for today. Applying commercial discipline requires a combination of short term strategies like cost cutting and margin maximization measures, as well as long term strategic planning. You need to look short term and long term at the same time. Companies are really focused on effectively balancing those aspects, so that they have business resilience and can position themselves for economic downturns and these slower times that we’re seeing right now so they emerge stronger when conditions improved.

That’s it for today. If you are interested, I’m attaching a link to a download some commercial disciplined best practices. If your business is challenged to find the next level of commercial discipline to ride out the markets of 2023 and be positioned well for 2024. Let’s set up a call and discuss how we can help. I love having those conversations and have some tools and techniques that we can bring to you and your business to help them navigate these flat times and rocky waters of the rest of 2023. So thank you again for reading The Chemical Show. We will talk to you again soon. Keep reading, keep following, keep sharing, and we’ll talk to you next time.

More strategies that leading chemical companies apply:

How Customer and Market Diversification Can Shield Companies from Economic Challenges

Leveraging Customer Centricity for Business Resilience