tag:blogger.com,1999:blog-4886595570005494885.post792770210442234080..comments2009-03-27T05:39:32.723-04:00Nurseb911http://www.blogger.com/profile/04974722323117696369noreply@blogger.comBlogger12125tag:blogger.com,1999:blog-4886595570005494885.post-7647718004657219052009-03-27T00:46:00.000-04:002009-03-27T00:46:00.000-04:00Thanks Brad. I enjoy your posts and find them very useful and informative. My last comment on this brand change issue - in the example you site, if all they are changing is the alcohol content then in my experience this is even more of a non issue. All they would have to do is change the labels (load the labeller with different labels) and swing over to a different vat (basically closing one valve and opening another) for the other beer. On a can line it would be a little more involved. Anyhow all good discussion which reminds me of what the guys in the brewery were fond of saying, "We make one beer and five different labels." Cheers.Richardhttp://www.blogger.com/profile/14005470252450838916noreply@blogger.comtag:blogger.com,1999:blog-4886595570005494885.post-53630867898895628932009-03-26T20:23:00.000-04:002009-03-26T20:23:00.000-04:00Here was my initial thought on the situation:<BR/><BR/>The management of the company I was investigating were touting at the time their commitment to achieve higher profits through increases in sales and decreases in costs.<BR/><BR/>In this situation we're talking about the exact same brand but with two different alcohol contents that calls for additional brand changes. Instead of continuously running one brand the company was shutting down to change over for an unnecessary length of time in order to save a fixed cost. If the company can sell 90% of the product produced and they aren't making that product because of downtime I equate that to a loss opportunity to sell (loss of revenue). The additional brand change doesn't change productivity to the upside and doesn't result in any additional product for sale. To the consumer they would never notice the difference.<BR/><BR/>No worries about the repetitiveness of the argument. Maybe it's just a difference of perspectives in that you see it as only a loss of productivity where I see it as beer that could be sold and instead if not because of an attempt to change fixed costs. In the end the erosion to margins was evident and I decided the investment wasn't in my best interest.Nurseb911http://www.nurseb911.com/noreply@blogger.comtag:blogger.com,1999:blog-4886595570005494885.post-27840575629622846182009-03-26T14:04:00.000-04:002009-03-26T14:04:00.000-04:00I still think we are on different wavelengths. Line changes in a brewery as I understand don't involve any additional cost, only the lost productivity. Having done some work for a brewery on their control systems, I recall that a line change involves reconfiguring the equipment, loading different labels, perhaps different bottles. It's not the same as a store closing the doors because you assume that during that time additional sales can be made. I'm not understanding how/where the $25M a year comes from. Sure, it's lost productivity but that matters only if the company can sell the additional beer. Sorry if this seems repetative. Cheers.Richardhttp://www.blogger.com/profile/14005470252450838916noreply@blogger.comtag:blogger.com,1999:blog-4886595570005494885.post-49625681794581630802009-03-25T14:53:00.000-04:002009-03-25T14:53:00.000-04:00In the example I gave I assumed that in an environment where sales are flat (0% increase in revenue) that the additional cost of the brand changes was a poor decision by management. The additional downtime is equivalent to closing the door to your shop every two hours for a 15 min break. The customers who want to come in, but are locked out are loss revenue and a loss of productivity.<BR/><BR/>The company would have to post an increase in sales of $25M to just cover the additional expenses these additional brand changes required.<BR/><BR/>If they had continued on their previous number of brand changes there would have been no additional potential increase in costs or lost productivity, but by adding an additional 5-7 changes per week increased their costs dramatically. The company now has to increase revenues by the same scale just to break even. <BR/><BR/>The company might still be selling a million bottles of beer per month, but by adding all those brand changes their costs just went up by $25M per year.Nurseb911http://www.nurseb911.com/noreply@blogger.comtag:blogger.com,1999:blog-4886595570005494885.post-78829186101390427552009-03-25T14:22:00.000-04:002009-03-25T14:22:00.000-04:00Hi Brad,<BR/>With regard to brand changes, correct me if I'm wrong (I'm sure you will) - in the example you gave is the constraint not on how much beer this company sells. What I mean is, say they sell a million bottles of beer a month. As long as the company can produce this much what difference does it make if they do this in 4 line changes or 12? Their cost to produce this much is fixed. They can't send the workers home if they can do this in 3 days vs 5. Sure, the workers could spend the extra time doing other tasks, but realistically how much of that would be productive - making MORE beer? On the other hand decreasing the alcohol content is a real saving, like putting less Corn Flakes in the box.Richardhttp://www.blogger.com/profile/14005470252450838916noreply@blogger.comtag:blogger.com,1999:blog-4886595570005494885.post-52316389695834673042009-03-25T09:32:00.000-04:002009-03-25T09:32:00.000-04:00mjw2005: Thanks for the vote of confidence, but I still like nursing fulltime and running my business part-time for now. I am available for a fee if your MF manager wants me to improve his alpha ;)<BR/><BR/>Mark: I'll answer your question in a follow up post this week sometime.<BR/><BR/>Jae: You're on man. They might not let us in once we become world famous bloggers, but we can go undercover as Dividend Addicts!Nurseb911http://www.nurseb911.com/noreply@blogger.comtag:blogger.com,1999:blog-4886595570005494885.post-50111405181945663372009-03-24T23:52:00.000-04:002009-03-24T23:52:00.000-04:00Great post Brad.<BR/><BR/>If you're ever in Seattle we should hook up and hit it up with some of the big boys at MSFT, AMZN and SBUX :)Jae Junhttp://www.oldschoolvalue.comnoreply@blogger.comtag:blogger.com,1999:blog-4886595570005494885.post-67802161643332138942009-03-24T22:49:00.000-04:002009-03-24T22:49:00.000-04:00Great stuff. Just goes to show you how a qualitative approach can help just as much at times as a quantitative analysis. Going the extra mile saved you a pile of $$. In 'Snowball' there are plenty of references of Buffett using the 'scuttlebutt' approach to dig up info on a company.<BR/><BR/>Question - How much impact does your qualitative data have on your overall perception of a company? Is this a sliding scale depending on the size and scope of the company? I.e. If it is a large multi-national corp. a site visit may not be as reliable as a visit to a small company with a handful of plants.<BR/><BR/>Cheers,<BR/>MarkMarknoreply@blogger.comtag:blogger.com,1999:blog-4886595570005494885.post-46821073220524215862009-03-24T12:07:00.000-04:002009-03-24T12:07:00.000-04:00Again...yuou should be doing this full-time....how many MF managers do this....<BR/><BR/>Great Post...mjw2005noreply@blogger.comtag:blogger.com,1999:blog-4886595570005494885.post-26178117328244268572009-03-24T02:56:00.000-04:002009-03-24T02:56:00.000-04:00Terrific post! Good jobChrisnoreply@blogger.comtag:blogger.com,1999:blog-4886595570005494885.post-1582424954883605822009-03-23T12:50:00.000-04:002009-03-23T12:50:00.000-04:00Thanks WMV,<BR/><BR/>Yes, I always ask for two tours: one with a salary employee (Investor Relations, HR, etc) and another with a union/blue collar worker for the reasons I've stated.<BR/><BR/>I have had difficulty only once when I asked for two tours and kindly explained that I wanted a more "technical" tour of the everyday operations that no manager could give me. When he asked how significant a shareholder I was or who I represented I asked if he needed me to ask his boss for the tour :) I would advise going dressed casual and carefree. If they give you a hassle show them your backbone and get serious about what you want. Usually implying that you have a prospective $100,000 to invest in the company will get you what you want. They won't stick you with the 19 yr old intern and you'll get all your questions answered.<BR/><BR/>This summer I have it planned to tour a major Saputo factory in Quebec, the Russel Metals distribution centre in Hamilton and another company for a client of mine. <BR/><BR/>Anyone interested in tagging along can feel free to let me know.Nurseb911http://www.nurseb911.com/noreply@blogger.comtag:blogger.com,1999:blog-4886595570005494885.post-9077700296901347282009-03-23T12:27:00.000-04:002009-03-23T12:27:00.000-04:00Wow, great post and an excellent example. I don't have a lot of time to travel right now, but it looks like I need to start making the time.<BR/><BR/>Just to be clear--you ask for two tours, and one with a blue-collar worker, and you've never gotten any push-back? On one occasion when I tried to do something similar, I got the response that "we don't have anyone prepared for that kind of thing."widemoatinvestinghttp://widemoatinvesting.wordpress.com/noreply@blogger.com