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Market Daily

Ryan Niddel on Globalization and ‘Just-in-Time’

Ryan Niddel knows what makes a business tick. He’s built a reputation as a business growth specialist for private and public mid-caps looking to improve profitability and EBITDA through increased operational efficiency. As a result, Niddel has helped over a dozen companies achieve a higher valuation before sale or merger by increasing their revenues by nearly $250 million and valuations by over $1 billion. 

We caught up with Ryan to ask him about today’s post-pandemic business climate and the trends he sees developing over the next six to eighteen months. 

Q: Looking into your crystal ball for the next 6-18 months, what do you see in store for the overall U.S. economy?

A: What I see ahead for the economy is an unnecessary yet unavoidable correction. I’m undoubtedly pro-business and pro-economic growth. But when we look back over the past few years, when we’ve had inexpensive money and then the government stepped in during the pandemic and threw money around in the form of Economic Injury Disaster Loans, it’s put a lot of money, too much money into the system. Many businesses probably didn’t need these loans, and when they received them, they didn’t know what to do with the money. Some of it was spent frivolously. Those businesses that have maintained sound, prudent business practices are the ones who will emerge victorious over the next eighteen months. 

Q: With the globalized economy, we’ve recently experienced severe supply chain disruptions. What do you think we’ve learned from that?

A: You’ve hit the nail on the head when discussing the supply chain. We’ve got raw materials coming into the U.S. from all corners of the globe and durable goods from China and that region. And now, the supply chain problem has gained people’s attention. Some businesses have taken that excess capital they’ve had available, and instead of taking it as a distribution, they’ve invested in supply chains and become more vertically integrated. So, with my businesses, we’ve doubled down with growth initiatives over the past two years. As we move into a more challenging business cycle, we’re in a stronger position to consolidate market share. 

Q: What should businesses do to prepare for a more challenging business cycle?

A: Do they have eight months of inventory, including raw materials, to make their products? Do they have their financials audited in a way so that they can acquire capital if needed? But, again, this is not a time to shoot from the hip. 

Q: Over the past thirty years, there’s been a trend toward ‘just-in-time’ inventories and procurement. How does that trend play into the current economic forecast?

A: The just-in-time manufacturing model has the advantages of freeing up capital and improving balance sheets. Both are going to drive up valuations and stock prices. In Wall Street terms, everyone’s happy, and everything is beautiful. But at what cost, and at what risk? So much of our raw materials and consumable goods come from foreign lands. Covid was a wake-up call. In my business, we’ve always run a little heavy on inventory. We’ve even been criticized for it. But I don’t have a business if I don’t have products to sell. I’m out of business. 

Q: Should businesses be looking more for domestic suppliers?

A: It’s going to be interesting to watch the next five years to see how much manufacturing comes back to the United States and how much the government supports that shift. And if so, what will that look like politically? Will it involve socialistic programs, or can it be achieved purely through economic incentives? If I have a bottle that I buy for $.15 in Asia, and that same bottle costs me $.45 to produce in the U.S., I have to buy it in Asia to remain competitive. However, what happens if that Asian supply is suddenly cut off? Suppose I had identified a reliable U.S. supplier for the bottle and dedicated 10% or 15% of my purchases to them. In that case, losing my Asian source may disrupt my business, but it won’t put me out of business.

Supply chain diversification is a form of insurance. I think globalization has run ahead of geopolitics and good common sense. We still have countries that launch wars against their neighbors for no good reason, causing havoc in commodity markets. What happens if and when China invades Taiwan? Is Covid an anomaly, or is it the first pandemic of many? How will climate change affect global economics? We see these things as anomalies, but taken together, they’re not anomalies. There are too many potential sources of risk. In the years ahead, businesses will need to evaluate these risks and make accommodations for them in their strategic planning and operational practices. 

Opinions expressed by Market Daily contributors are their own.