UK: FEAST FAMINE AND FLEXIBILITY - SEASONAL BUSINESSES.

UK: FEAST FAMINE AND FLEXIBILITY - SEASONAL BUSINESSES. - Three or four months of frenzy followed by eight or nine months of inactivity - how do seasonal businesses even out the peaks and troughs?

by Hashi Syedain.
Last Updated: 31 Aug 2010

Three or four months of frenzy followed by eight or nine months of inactivity - how do seasonal businesses even out the peaks and troughs?

Christmas happens every year. And though it is a time of unusual stress for most people, with shopping and who is coming to dinner, we might spare a thought for those for whom the Christmas period means survival itself - commercially, that is - for the rest of the year. They are the purveyors of hampers, chocolate selections, decorations, diaries and toys, who are in a frenzy of activity. If anything goes wrong - if deliveries are not met or the computer system goes down, it can spell disaster for the whole of the year. At the other end of the cycle, meanwhile, for companies in fertilisers, say, or ice-lollies or lawn mowers, this is seriously off-season time. There are few, if any, sales and the key is to keep costs to a minimum and to start preparing for the summer season.

Seasonality brings with it a host of problems far beyond what most ordinary businesses have to cope with. Activities more usually spread over 12 months are concentrated into three or four, compounding the importance of decisions made or problems faced; predictions about market trends may have to be made many months in advance in order to have sufficient stock for the busy period; finances must be arranged to cope with potentially wildly fluctuating capital requirements. Labour and skills, meanwhile, must be organised so as to be available when needed, while minimising their cost during the off-season. In short, it's a giant juggling act. So how do businesses cope?

The first point which emerges is that there are as many solutions as there are seasonal businesses. The management decisions each makes are as much dependent on the nature of the business and its particular circumstances as on seasonality. How Yorkshire-based Standard Fireworks organises its production, for example, is governed as much by regulations about the handling of explosives as it is by working to the all-important 5th November deadline. Similarly, for Christmas hamper company the Hamper People - nine months of the year it has spare warehouse capacity that ideally would be subcontracted to other businesses. But because of the company's Norfolk village location, there is very little demand for the space and the warehouse remains largely underutilised. Such differences notwithstanding, there are a number of universal problems.

First and foremost, perhaps, do you try to counter-balance seasonality by diversifying into non-or counter-seasonal products or do you simply accept seasonality? Size plays an important role in deciding this issue. If you are Cadbury Schweppes it is easy to have separate management teams running the different sides of the business. But if you are a small or medium-sized seasonal venture, there are the problems of overstretching yourself both financially and in management terms.

Bill Gore, managing director of diary manufacturer Charles Letts - turnover £23 million - has clear views on the subject. In his business 75% of deliveries occur in the period July to November. Retail sales are concentrated between November and January and by the end of January any leftover stock is effectively dead. Despite this rigid cycle, Gore is totally opposed to diversification - a strategy that was tried by Letts in the 1970s and '80s with disastrous results. The company moved into contract printing and a number of other quite unrelated activities which have since been disposed of. Now, says Gore, who led a management buy-in of the company in 1993 after acting as company doctor on behalf of Hambros bank: 'We have to turn a vice into a virtue. Let's manage every aspect of the seasonality. If you counterbalance you lose sight of what's there, this viper that's the seasonal business.' Although others are less strident, most agree with the underlying sentiment. As John Higgins, managing director of the Hamper People, illustrates: 'It's very high-pressure. You have a finite delivery date. It's not like Littlewoods or Grattan, where you can say "Oh, that item is out of stock, we'll deliver in two weeks". If you can't make it for 24 December or before, that's it, you've lost the customer.' Higgins nevertheless has a long-term strategic objective of spreading business more evenly throughout the year. So far his only non-seasonal activity is a catering disposables venture that supplies napkins, pizza boxes, candles and the like to the catering trade. The important thing, says Higgins, is to seek opportunities in your core areas of competence. There would be no sense, for example, in the Hamper People moving into summer hampers for Henley or Glyndebourne. 'That's a completely different business,' says Higgins. 'It's little bowls of salad and pots of salmon, it's kitchens and outside catering. Our core expertise is in warehousing, dispatch and mail order.' Indeed, so fraught is the issue of finding suitable diversifications that many seasonal businesses take the view that it's better to concentrate on managing the seasonality than on looking for diversification. There are ways of evening out the worst excesses of the peaks and troughs, they argue. Nigel Dunham, a consultant with KPMG's Centre for Manufacturing Consultancy, sees the key factors that need to be juggled as flexibility, stock and information. How these three factors relate to each other will have a profound effect on the running of the business, he believes. Flexibility is certainly high on the agenda of most seasonal businesses - for labour, finance and production. As for stocks, a recurring question is, do you build them up or do you increase capacity closer to market? The answer to this question will depend in no small part on information systems about customer trends, especially if the market, in addition to being seasonal is also faddish - such as computer games or toys.

Mel Barker, chief executive of Standard Fireworks - which, with a turnover of £16.4 million and growing, is the only major firework maker in Europe - reckons his biggest fear is of his computer system going down. Standard delivers fireworks to 17,000 customers around the country. Eight salesmen whiz round collecting orders, with last orders coming in in October. Orders are collected all year round and compared with the previous year to get an idea of trends and adjust manufacturing accordingly. Delivery itself, however, of some 79 million fireworks a year, is concentrated into a three-to four-week period from the beginning of October. The computer works out the logistics of delivery, such as compliance with the load laws and overnight storage regulations relating to explosives. It has just been replaced - the old one had become unreliable, says Barker. 'It was my Achilles heel,' he admits. 'I just can't afford to be without it for more than half a day.' Gore at Letts agrees. He believes that one of the factors which led Letts into financial difficulties in the '80s was dramatic underinvestment in systems. 'I have a 20-minute back-up, using an outside contractor, for my key computer systems. Other less crucial systems will be back in half a day,' he explains.

Flexibility of labour is another hallmark of the successful seasonal business. There are two elements to this - flexibility of availability and multi-skilling. Again the approach taken depends on the particular circumstances of the business. At Standard for example, the workforce is quite steady. Production proceeds throughout the year. 'We start making fireworks for the next year on 6 November,' says Barker. This is because the safety requirements are so rigorous that it isn't viable to build up a capacity that would then be idle for part of the year. Production takes place in 400 separate huts each with one or two people hand-making the fireworks. It's a skilled job and night shifts, for example, are forbidden for safety reasons.

The Hamper People in Norfolk, meanwhile, rely heavily on a casual workforce. Armies of women are drafted in each autumn. Because the company is located in a village it has a loyal casual workforce, 70% of whom come back year after year. They work with minimal notice and can be sent home almost immediately if there is a sudden drop in work, for example. There is a core of 12 full-time managers plus a further 12 part-timers who work two days off-peak and five days in peak times - and holidays, naturally, can only be taken out of season.

At Letts, too, there is strong seasonality in the labour requirement. Gore has instituted a system of annualised hours. Workers put in between 20 and 45 hours a week, depending on the time of year, but get paid the same all year round. This evens out capital requirements throughout the year by reducing the need for overtime payments. It also means that production takes place later, increasing the ratio of made-to-order products to made-for-stock.

Multi-skilling is particularly relevant to a full-time permanent workforce. Sales staff whose jobs are confined to just a few months of the year can be trained to deal with after-sales service the rest of the time or to taking on strategic marketing functions. Warehouse staff ideally turn their hands to maintenance and repairs.

As for finance, this also requires greater flexibility. Factoring or invoice discounting is a favoured option, as it allows businesses to adapt their levels of finance according to the state of their order books. Managing cash-flow is crucial - Gore at Letts and Barker at Standard look at cash balances daily. Gore is working hard on reducing the maximum fluctuation in working capital requirements from £8 million in past years to £4.5 million this year and maybe £2.5 million in future. He has reduced the number of his suppliers, but arranged terms varying from 180 days to 30 days with the rest, depending on the time of the year. Higgins at the Hamper People, by contrast, is concentrating efforts on getting in as much cash with order as possible - particularly from corporate customers who typically order hampers further in advance.

Barker at Standard, meanwhile, has little scope for squeezing either suppliers or customer. His biggest supplier is ICI - for gunpowder - while his customers are mostly small, family-run newsagents and shops that can't pay any earlier. His efforts to increase profitability, therefore, have come primarily from greater production efficiencies. And cash-flow is managed by producing cheaper products early in the year, leaving expensive ones to last.

Clearly, the scope for evening out financial peaks and troughs varies considerably between businesses. The pressures are undoubtedly high so that many would argue that a seasonal business is better managed by entrepreneurs, such as Higgins, Barker and Gore, than by corporate executives. KPMG's Dunham draws this conclusion: 'Entrepreneurs are often closer to customers and to the business. There are shorter chains of command so they have the ability to react faster to changes. It can work in a corporate structure, but the temptation is to have a bureaucracy where you can easily get stuck.'

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