Volatility. Uncertainty. Complexity. Ambiguity. Welcome, to the year 2012!

The headlines are filled with factors that make our planning for the year ahead futile at best. Eurozone Sovereign Debt. China Currency. U.S. Economic Problems. High Unemployment.

With all of these issues potentially ready to emerge at any second, what can we do to intelligently manage our risk?

Here are 5 ideas to thrive in the face of today’s uncertain market environment:

1) Edit your customer list. In the old days, adding customers was the thing to do. But noone ever made up for low margins with volume.Edit your customer list to those customers that provide you with a return at or above your cost of capital. Just like we add value by taking stock removal from barstock, removing the customers who cost you more than they contribute will free up limited resources so that you can better serve the customers who do cover your costs. (Note: this will really pay dividends for you with your banker, who is no longer lending on B.S.)

2) Work your supply chain- in both directions. Communication and cooperation are critical to success when facing uncertainty. You just might find that your communications is what is keeping your part of the turned products market thriving. Communicate, communicate, communicate.

3) Manage your inventory and dollar cost average in high variability times.There is no doubt that the year 2012 will be one of high variability. Rather than making a few outsize buys of raw materials, placing smaller regular purchases will enable you to dollar cost average as the market does its roller coaster thing based on whatever news story is hot that day. You can’t sell parts this week if raw material is 4 month lead time. You know what you typically use. Intelligently manage risk, have material on hand to make parts, and then you won’t have to listen so carefully to the news.

4) Producing low value added in a high cost location is a losing business strategy. Your peers have been leaning, innovating, and reducing their costs to remain competitive. In addition to editing your customers, you need to edit those low value added jobs out of your business plan. Editing adds value.

5) Improve cross functional communications between your team and your customers’. This is a great year to take your people to meet your  their customers and counterparts and to exchange ideas on ways to improve performance and reduce costs and waste all the way around. While this might be seen as a corollary of idea number 2, the fact is that taking your people to customers is a great idea for continuous improvement anytime.

We have no idea when any of the crises we know of will blow up. We have no idea when the sword might fall. But inspite of increased volatility, uncertainty, complexity and ambiguity, we can improve our chances for success by taking the steps outlined above.

What do you think is the most likely issue to emerge in 2012 that we have not listed above which will affect your business?

Sword of Damocles

 China Trade Surplus Hits An 18 Month High
The U.S. Customs bureau reported this week that China’s trade surplus hit an 18-month high in July as exports rose and import gains slowed, which added pressure on Chinese officials to allow faster appreciation of the yuan.  According to a survey of 29 economists by Bloomberg News, the trade gap surged 170% from a year earlier to $28.7 billion.  Exports advanced 38.1% to $145.5 billion, while imports increased only 22.7% to $116.8 billion. 
July Chinese Imports into the US Still at High Levels.  Hitting a 14-month high, Chinese steel imports into the US in July grew 21% from June (based on licenses), following June’s 35% increase, continuing to outpace overall imports into the country.

Hey, Any body paying attention to China trade and currency issues?

 The deficit on international trade in goods and services was $41.5 billion in June or 3.4 percent of GDP, According to Peter Morici.The trade deficit is a huge drag on economic recovery and jobs creation.In the second quarter overall, the imports grew so much more rapidly than exports that the growing trade gap subtracted 2.8 percent from growth.
But for the increase in the trade gap, GDP would have grown 5.2 percent instead of 2.4 percent. At that pace, unemployment would fall by 2013 to less than 5 percent, the level accomplished the two years prior to the Great Recession
 The United States is doing too much buying but not enough selling.
Oil and consumer goods from China account for nearly the entire trade deficit, and without a dramatic change in energy and trade policies, the U.S. economy faces unemployment around 10 percent indefinitely.
To keep Chinese products artificially inexpensive on U.S. store shelves and discourage U.S. exports into China, Beijing undervalues the yuan by 40 percent. It accomplishes this by printing yuan and selling those for dollars to augment the private supply of yuan and private demand for dollars. In 2009, those purchases were about $450 billion or 10 percent of China’s GDP, and about 35 percent of its exports of goods and services. 
This year,the trade deficit with China reduces U.S. GDP by more than $400 billion or nearly three percent. Unemployment would be falling and the U.S. economy recovering more rapidly, but for the trade imbalance with China and Beijing’s protectionist policies.
In June, China indicated it will adopt a more flexible exchange rate policy, but it has made clear Americans should not expect a dramatic change in the value of the yuan.

Wake up Washington. Its the China Currency and balance of trade. St*pid.
Comments from Peter Morici, various press reports, and our favorite Steel Analyst, Michelle Applebaum.