Economic Downturn Brought Lasting Changes at Firms By SHELLY GARCIA Senior Reporter In 1999, Remo Inc. paid out $1.4 million in overtime wages. This year, overtime costs for the Valencia-based maker of drums and other percussion instruments were $560,000, and Remo’s revenues are 10 percent higher than they were back in ’99. Welcome to the jobless recovery. After several years spent slogging through the weak economy, companies have learned not just to work with what they have, but to operate and, in many cases, thrive, on less. Layoffs were just the beginning. Company officials have scrutinized everything from rent to raw materials, sales strategies and administrative operations, overhauling their operations radically in the process. “You have to reinvent your business,” said Doug Sink, Remo’s CFO. “You have to automate some, get better equipment and better training and better supervision all those factors that get you more productive with less, we had to do.” Thanks to its efforts, Remo lowered its break-even point by 20 percent. Symark Software, a Westlake Village company that develops security solutions for Unix and Linux systems, logged a 15 percent sales increase last year while cutting costs in some of its departments by 50 percent. BioSource International Inc., a life sciences company in Camarillo, reduced its general and administrative expenses in the second quarter by $112,000 yet the company’s sales increased by 14 percent for the period. They are not likely to revert to their old ways, even when the economy improves. “We’ve never been excessive with perks and spending a lot of money where it wasn’t absolutely essential,” said David Hall, executive vice president at AVG Inc., a Canoga Park designer and manufacturer of animatronics used in entertainment, theme parks and other industries. “What we’ve done is learned to do that more skillfully than we had before. The things we’ve learned during these hard times will stay with us, and I think more companies are going to do the same thing.” Conservative approach Some of the effort boils down to running a more conservative operation. Remo now keeps a one month inventory of supplies on hand in its factory instead of three months worth of goods. AVG and Symark have both moved to less expensive headquarters. And at Veratex, a maker of bedding and accessories, executives are flying JetBlue. “If I have to hop on a plane tomorrow, it was $2,000 before,” said Dale Talbert, vice president of the Panorama City-based company. “With JetBlue, it’s maybe $500.” But bean counting isn’t the only way these companies are shaving costs. Many are investing in new equipment and technology that allows them to boost productivity significantly over the long haul. “We’ve put some software into our technical service department that’s allowed us to be more efficient,” said Charles Best, CFO at BioSource. “We’re going to be able to gather and maintain more data in a lot of different ways. And when we grow, we won’t be having to hire additional bodies to handle the growth.” AVG invested in new software that helped it combine some functions like accounts payable and general bookkeeping and payroll, instead of having an individual dedicated to each of those jobs. “People wear more hats, said AVG’s Hall. “And the use of more efficient software helps people do that.” Employers first embraced a pink slip or perish philosophy in hopes of boosting the bottom line as revenues dipped. But the downturn continued, and other costs escalated at the same time. Multitude of costs Workers’ compensation insurance premiums have doubled for a number of firms, energy costs have nearly tripled in some cases, and health care premiums have risen by double digits in each of the past three years. What began as a short term fix has become strategy for the long haul. “Necessity is the mother of invention,” said Ed Redding, executive vice president at John Paul Richard, a Calabasas-based maker of women’s sportswear. “We’ve had to figure out how to get the same job done with fewer people, and what that means is we’re having to analyze every operation, every job and determine what functions add to the profitability of the company and what functions are relatively superficial.” For John Paul Richard, one result is culling down the reports the company generates, foregoing much of the financial analysis it once performed. “Nowadays, we spend more time looking at the various accounts and which accounts are profitable and which accounts are less profitable,” said Redding,” and redirecting our efforts to some of the more profitable stores out there.” The San Fernando Valley has seen a 15 percent reduction in manufacturing jobs in the period between 2000 when 99,933 workers were employed in the region, and 2002, when the workforce totaled 85,008, according to the California Employment Development Department. Gone for good? In other recessions, recovery on the job front has lagged the economic upturn, but this time many of those jobs may not come back at all. “We opened a factory in China and we’re sending some lower end products there to be made,” said Sink at Remo. “Sixty cents an hour for labor is very tough to compete with.” Symark transferred much of its quality assurance operation to India where workers monitor the operation overnight and send back reports each morning. “There are some pretty interesting cost savings there,” said Doug Yarrow, president and co-CEO, noting that the company has cut its quality assurance costs by 50 percent. “Maybe more,” he added. When the company wanted to expand into the Latin American market, it did so by partnering with a company that was already entrenched there. “They already have a relationship with those customers, and they do the marketing,” said Suzanne M. Dixon, vice president of Symark’s product marketing, “so the strategy for us has been pretty cost effective.” And BioSource has begun consolidating its East Coast customer service operation at its West Coast headquarters. The company hung additional clocks to display the time in different zones, and assigned some of its West Coast staff to an earlier shift so they can respond to inquiries from the East Coast. BioSource has also begun cross training some employees in different operations to cut down on the need to hire additional workers if a department requires more staffing. “You hit a point where you want to manage those costs,” said Best, “and you really have to think out of the box and do some things that are long term thinking.”
