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March 2017

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Are self-driving trucks going to put you out of business?

That proposed mega-merger of ABI distributors in the southeast (total cases 35 million spread over 3 states) got me thinking about the future of beer distribution in specific and beverage/consumer products in general. 

As a side note, mergers are a great way to position yourself to remain in this business IF you have willing potential partners.  If so, give me a call and let me lend a hand.

But what might the future hold for distribution and how might it affect your businesses’ operations and valuations?  What should it mean to you and your business for operational, estate, and family planning?

First let’s look at demographics and technology.  Each and every year about 4 million young adults graduate high school… well actually just over 80% graduate, the rest just move one.  Of these 4 million, around 2.6 million will either never attend or never graduate from college.  And as a WAG (wild ass guess), let’s say at least 400,000 of those who do graduate college do so with a degree which holds little economic value.

So in total about 3 million young adults, each and every year, will be entering the work-force looking for relatively low-skill jobs (that’s 250,000 jobs required per month – forever… and as our population grows, so does this number).  The question is whether the economy will actually be able to produce enough of these jobs to offer these folks employment and all the benefits (economic, social, and personal) that come with having a job.

My gut says not a chance, and sadly so does a whole lot of other folks.  The construction trades used to be where a lot of these people went (yes, mostly males).  And construction is a big industry, employing just under 7 million folks (average wage of $28.50 per hour) according to the Bureau of Labor Statistics – beer drinkers all ;-)

Sadly the construction trade has effectively been taken over by illegal immigrants over the past few decades.  This is not a personal statement, just an observation of facts; Spanish in the primary language spoken on most construction sites around the country.  Of course they drink plenty of beer too ;-)  But we can leave it to another day to discuss whether this is good or bad, for now let’s just accept it as is. 

Assuming the vast majority of people know what they are talking about – always a dubious proposition at best ;-), there is a coming robotics revolution which is going to remake the entire workplace.  Low skill, repetitive jobs are simply going to disappear – forever - driven both by technology and the insanity (IMHO) of $15 minimum wages.  This is going to occur in months, not decades. 

This has already been happening in manufacturing for the past few decades… look at the typical large brewery.  Years ago it would have employed 5,000 to 6,000 people in good paying jobs.  Today that same production (if not more) is accomplished by around 150 folks.  How many of you have automated warehouses?  How many people no long work in your warehouses due to this automation?  I’m not asking this as a moral statement, just an observational one.

In addition, many high-skilled jobs are also going to disappear as the artificial intelligence that drives this process becomes better and better.  Anything that is somewhat “rules based” is under potential assault.  Engineering, architecture, design, law, software engineering, hardware design, manufacturing, some areas of medicine, the list is potentially quite long.  The impact on these higher skilled jobs is more difficult to quantify but keep it in the back of your mind, to some degree it will be happening.  And just like the lower skilled workers, these folks may find it very difficult to get another similar paying job.

For beer/beverage distributors a significant disruptor is going to be self-driving vehicles – and I’d guess the net result for many of you will be much more negative than positive. 

Many are betting big dollars this will become a reality and much sooner than later – they will be legal on California roads NEXT YEAR!  Many had predicted self-driving vehicles were coming but were a decade or two away.  Not anymore.  We are now talking a few years at best.  ABI already had a show run of a self-driving delivery truck taking a load from their Ft. Collins brewery to Colorado Springs.

If you believe in following the money…

Intel jumps into the autonomous vehicle business with the purchase of Israel-based Mobileye for $15 billion – March 14, 2017

In February, Ford invested $1 billion in Argo AI, an artificial intelligence startup.  Ford sees their corporate vision changing from simply an automotive company to being automotive and mobility.

General Motors announced early in 2016 they were making a $500-million investment in self-driving vehicles via a partnership with rideshare company Lyft.

Last year, Uber acquired Ottomotto LLC, a startup that is working on self-driving tractor trailers – terms not disclosed.

Tesla, Google (Alphabet), Volvo, Apple, Chinese company Didi Chuxing (with an investment of $1 billion from Apple) are all jumping into this world… big time!  And this list isn’t complete.

Unless there is some unforeseen technological problem which simply can’t be economically solved, the reality of autonomous vehicles is going to be here far sooner than even the most optimistic planned.

This is going to hit beer/wine/spirits distributors in a couple of ways.  On the consumption side, according to the Bureau of Labor Statistics there are just over 5.8 million people who work in the wholesale trade sector and another 4.65 million in transportation and warehousing.  That is almost 10.5 million people!  If we use the same employment reduction ratio as with a large brewery (I admit probably a way too high WAG at best), we could be seeing a reduction in these labor forces of around 10 million. 

If one wants to just focus on trucking and delivery… there are 1.7 million over-the-road truckers in America, and another 1.7 million drivers of taxis, buses and delivery vehicles.  So 3.4 million folks behind the wheel… and very likely almost all will be replaced.

Again, trying to match consumption with these demographics is difficult but one would have to guess a serious amount of beer/alcohol consumption is driven by these people.  What will the effect be on consumption and selling prices (and thus GP$)? 

In the short-term you often see alcohol consumption actually go up during bad times (you see a similar trend going on right now in deaths from alcohol, commercially manufactured opioids, and heroin throughout much of the country as they experience tough economic/social times). 

So best case – if you can call it that ;-) distributors could expect to see significant price pressure, significant trading down, and a corresponding growth of “bang-for-the-buck” thinking – which often drives the beer drinker to spirits.  This environment may be far different than the recent GP$ good times driven by the craft brewing craze and ABI’s focus on profit rather than market share.

The rapid expansion of legal weed in this environment will also take a chunk out of the business as from a “bang-for-the-buck” thinking, weed is a far superior value than beer/alcohol.  And as legal weed takes the profit from the drug cartels, you will continue to see them increasing their efforts to flood the country with other drugs… why do you think heroin is now everywhere in the country?  It was just reported the coca crop in Columbia is back to its highest levels ever… to say nothing of the new designer drugs flowing out of China.  That stuff is going to end up someplace.

I think the far bigger impact from autonomous vehicles - if the consumption hit wasn’t enough! – will be on the fundamental need for as many beer distributors as we presently have. 

Many of you have confronted the decision whether to close a branch warehouse.  The process is pretty simple… figure all the savings of the closure versus the increased cost/feasibility of running operations without this warehouse – people, drive-times, fuel consumption, hot-shots, customer service, etc.

Perhaps you can use this technology to get rid of most of your delivery drivers (but again that brings back the testy notion of consumption… if these folks don’t have jobs how are they going to purchase your beer?).  But I think the potential negatives (the fundamental need for distributors) FAR outweigh the potential personnel savings.

Because autonomous delivery vehicles changes the entire concept of warehousing and distribution.  No longer do we have to concern ourselves about driver-time and thus distance and the need for remote warehouses become far less important.  These trucks can be running 24 hours per day (and of course that would be the most efficient use of the assets).  Companies are already using artificial intelligence and a subset of this, something called swarm intelligence to allow technology to direct the when’s and where’s of these delivery operations.  Taking the driver out of the equation is already rather simple.

In this environment, are these warehouses scattered across the land as necessary as before?  I’d have to guess not.  Which comes down to are you, the beer distributor as necessary as before?  Again, I’d have to guess not as much as before.  Sure retail service/operations of some sort are still required, although they could be far different than in the past.  But are YOU needed in this equation?

For a thought experiment I recommend you get a state map and draw a circle around your warehouse(s) at a distance you think is the maximum (or optimal if you desire) that can serviced from that warehouse – drive-time, loads, etc.  Now double that distance (something I’d guess would be quite do-able with autonomous delivery).  I’d guess well over half the distributors in any state would be looking redundant. What if one could triple the distance?  A couple distributors left in an entire state? 

Think about it… if you can figure out how to service retail by using self-driving trucks (and of course you will try), why can’t someone else use the same process but just take you and your warehouse out of the picture?  They can and most likely will at least try.

Could chain grocery use self-driving trucks as the leverage to finally break the three-tier system and go direct?  If possible they will try… why wouldn’t they?  You might still exist to service on-premise, provide merchandising, etc. but only a shadow of your former self.  And even here, just because these activities might be done, they don’t need to be done by you, the local guy.

Think about the entire supply line.  Already brewing, bottling, packaging, palletization is done with no human hands touching the product.  With automated truck loading, self-driving vehicles, automated unloading and storage at your warehouse, automated order pick and build, automated delivery truck loading, self-driving truck to retail… From brewing all the way to the consumer, the first time human hands might even touch the product could be at retail delivery! 

And having fewer but higher volume automated warehouses helps spread the costs of this technology over many more cases, thus making it more cost efficient.

Combine this fundamental question – why are you and more fundamentally your warehouse needed? – with the potential consumption hit driven by the disappearance of millions of jobs and it could be very ugly indeed. 

In the past low skilled workers simply moved to the next low skilled job… those who made buggy whips simply left that dying field and stated turning wrenches and making cars… but now, for the first time in human history, perhaps there will not be anywhere for these worker to go.  Then what do we collectively do?  Remember each and every year those 3 million young, relatively low-skilled workers entering the workforce (to say nothing of immigration, both legal and illegal) and we might be facing a unique time in the “advancement” of human society.

In a very short period of time, we are going to discover our new society needs far fewer workers to produce the same amount of economic activity… and for lower-skilled workers there likely aren’t going to be a whole lot of options.  This isn’t just Conlin talking; many are discussing the same thing and what if anything we are going to do about it.

Unfortunately our social welfare systems (as in Europe) are designed as a Ponzi-scheme which only works if there are an ever increasing number of new workers to support the scheme.  This is not a political statement, just a fact.

Thus technology is driving us in one direction while our social welfare systems (and in fact most government operations, especially their underfunded and over-promised pension systems) require more and more workers to keep them afloat. 

This is a monumental crash that sure looks like will occur sooner rather than later.  Some have suggested a “solution” to this lack of jobs is a national guaranteed income… a system whereby we get rid of all welfare (and all the costs associated with delivering it) and simply give every adult citizen a check for some amount.  It would be far more efficient and effective than the present welfare system and most likely would simply expand to provide a living income to these folks who have no jobs to go to… depending of course on whether it can be afforded. 

Of course this too would drive a massive loss of jobs as all of those in the welfare-delivery complex would no longer be needed.  In addition, unfortunately from any real-world observation a life-on-the dole has historically had pretty bad results for the individual, their families and society as a whole.  Is it sustainable for the longer term from both an economic and societal perspective?  I think not.  And remember those social programs and government require WORKERS creating wealth and paying taxes, not just folks on the dole.

We won’t be solving this issue in this blog but beer/alcohol distributors (in fact all consumer goods companies) need to be planning for both a potentially significant impact on consumption/product mix AND the possibility that technology is going to replace the need for having distributors dotted across our fruited plains.

Does this mean sell?  Buy?  Merge?  Keep on keeping on?  That answer to that is it depends.  But not the coming, but the present technological revolution is not going to leave you all unscathed.  And it is coming far faster than many predicted even just a few years past.

If I can help, give me a call… if not, take a careful look out into the future and PLAN.  Disruption is coming whether any of us like it or not… try to ride this disruptive wave to your advantage rather than have it crash over you, perhaps destroying decades of the family business.

Ain’t technology grand? ;-)

What is the science behind free markets and capitalism?

Just had the following published in The American Thinker which you can find here or you can just keep reading…

The economic system called capitalism has been described in many ways but at its core it is quite simply free people freely interacting with other free people.  Capitalism has transformed the world by producing more wealth than any other economic system in the history of civilization.

But why does it produce such wealth?  Some have said freedom is the magic potion; that left to their own devices free people will outperform any other economic system. 

That is true but the ultimate reason is deeper and firmly based in science and fact.  In the past few decades a great deal of research has been done on what is called swarm intelligence.  Swarm intelligence attempts to explain and understand the collective behavior of group animals; think of honey bees, schools of fish, herds of bison, flocks of birds, etc.

The intelligence of the swarm is a significant multiplier.  Rather than relying solely on individual intelligence, these groups create a collective intelligence that is orders of magnitudes beyond that of any individual member.

They do so without any leader, with no management of any sort, with no one “seeing the big picture”.  In fact having no one in charge is a key ingredient to swarm intelligence.  This incredible increase in intelligence is driven by countless interactions between individual members with each following simple rules of thumb and reacting to their local environment and those members around them.  That’s it.

Perhaps counter-intuitively, but if an individual member did attempt to become a leader the group intelligence would drop precipitously.  And although it may be difficult to grasp, this self-organizing behavior has no cause and effect, it simply is.

Think of the intelligence of one of the members of these swarms versus the intelligence of the group.  We are not talking about adding a few group IQ points but rather increases in intelligence by orders of magnitude.

My hypothesis is this same process is the scientific basis for the success of capitalism and in fact the success of the human race.  This swarm intelligence has always been at work but with our highly developed communication skills and the ability to record and store knowledge our collective swarm intelligence is truly astounding.  Just like the honey bee, our swarm is orders of magnitude more intelligent than even the brightest among us.

And thus capitalism, which is just individual freedom as expressed in an economic system, is absolutely certain to “work”.  It is a scientific fact just as certain as gravity.  And just like the swarm it does so with no leader, no management, and no one seeing the big picture; no cause and effect, it just is. 

And just like the swarm, when we attempt to place leaders in this process the collective intelligence plummets.  This explains why governments and their activities are always going to be far stupider than free individuals going about their daily lives.  This isn’t a political statement but a factual one.

Again, we aren’t talking about knocking off a couple group IQ points but rather magnitudinal increases in stupidity.  This stupidity multiplier isn’t restricted to governments but to all organizations, the larger the worse.  Anyone who has worked in government, the military or other large organizations has seen it every day.

Some economists have noted that during the Soviet Union’s existence the central planners had to daily determine the prices of literally hundreds of thousands of things and thus the system was terribly inefficient as they had no way to accurately determine this.  My hypothesis is even if they could have accurately determined each and every one of these prices, they still would have failed.  The stupidity multiplier of their command-and-control economy ensured this.

The science on this is clear.  If we want to maximize our collective well-being and wealth, if we want to maximize our freedom, if we want to maximize our collective odds for survival we must allow human swarm intelligence to do its magic.  And governments are not the solution but are rather the destroyer.  The science is clear.

John Conlin is an expert in organizational design and change.  He also holds a BS in Earth Sciences and an MBA and is the founder and President of E.I.C. Enterprises, www.eicenterprises.org, a 501(c)3 non-profit dedicated to spreading the truth here and around the world, primarily through K-12 education.

The Education Plantation

Just had the following published in The American Thinker which you can find here or you can just keep reading…

In the course of my management consulting, I’ve been to some of the toughest neighborhoods in the country.

If you do business in these areas you know to always visit them early in the day when they are relatively safer. Thus in my travels I’d see four and five-year old kids playing like all four and five-year olds do.

But, as they got older, they developed an increasingly hard look in their eyes. And, by only nine or 10, many had a look in their eyes no child in America should have.

Even at that age, they had put up with more crap than one can imagine. The neighborhoods they were born into have astonishing crime rates. The few terrorize the many and unlike the police, they don’t leave.

Job opportunities are limited and youth unemployment reaches heights unheard of anywhere else in the country. A hand up is not an easy thing to find in these neighborhoods.

In many of these places a culture has taken root where the very keys to success are viewed as being somehow foreign and something to reject, not embrace. These realities are true regardless of one’s heritage but it has fallen disproportionally on black Americans.

What of the education opportunities presented to these children today? The inner-city schools these children are forced to attend are a national disgrace. Education has been called THE civil rights issue of our time by political leaders across the political spectrum.  I disagree, I believe it is the moral issue of our time.

What we see in the inner-cities is the result of a lot of factors.  But a major one is the collapse of the educational system decades ago resulting in generations of people, each receiving a lousy education.  Generations of people pretty much screwed from the womb with their only hope being a chance for a decent education.  Without that they are lost.  Without that they have little hope.  In the face of this desperate need, the schools that are forced upon these children are an obscenity.

It is quite easy for someone who has never witnessed these realities to talk about hard work and pulling one’s self up by the boot straps.  It is much easier said than done.  What future truly awaits a 12 year old with very poor reading and writing skills, little to no math skills, and no command of the English language?  They are supposed to happily go to jobs pushing a broom or flipping burgers?  And fighting for these jobs against an army of illegal immigrants who are willing to work for below-market wages?  Or is a much more logical path one of crime?  Far too many of these inner-city schools are simply one stop on the assembly line from school to prison or the cemetery.

Martin Luther King Jr. said, “The function of education is to teach one to think intensively and to think critically. Intelligence plus character - that is the goal of true education.”

But the public education system is doing neither for the poor souls forced to attend these life-destroying institutions.

How many of the problems of the inner-cities in general and of black Americans in particular find their roots in generations of failed education? We will never address the issues of race, crime, poverty and the pathologies they unleash until we at least provide an opportunity for every child in America to attend a quality school where their intelligence and character are developed to the peak of their potential.

Will every parent and child take advantage of this? Of course not. But until everyone who wants it is given a true opportunity to send their kids to quality schools, this country will fail in its basic commitment to those poorest among us. And, when you consider the resulting crime statistics and the cost of filling our prisons, that’s a problem for all of us.

For the richest country the world has ever seen to allow this destruction to these young lives is simply wrong. Not every parent is “parent-of-the-month” material but at least let’s give those who cry out for help a chance by offering them a school which at least has the potential to save their life rather than destroy it.

John Conlin is a self-employed management consultant who lives in Littleton, Colorado. He started End The Education Plantation because he’s seen first-hand the harm being caused by our nation’s schools and believes it’s time to do something about that. For more information, go to www.EndTheEducationPlantation.org.

System design advice for the Trump administration

As the Trump revolution gears up it is time to understand the solution to many issues facing government is as much system design as overall philosophy.  Obviously fewer regulations, less government, and more individual freedom are superior.  Real world results across the globe prove this beyond any doubt.

But within this framework, the design of these systems is something that needs renewed attention as it is fundamental to the results generated.  First let’s think about regulation and law.  The first step in analyzing a new or reviewing an established regulation is a clear definition of its goal.  Why does it exist and what do we want it to accomplish?  If this can’t be done then why do we have the regulation in the first place?  Nothing should move forward until this is clearly defined or the regulation is tossed in the dustbin.

But here is where regulation and law often goes awry.  It is the wrong path to attempt to determine exactly HOW to do this.  Rather effective regulation and law should set the boundaries between acceptable and unacceptable actions.  That’s it.  And perhaps counter-intuitively, acceptable actions should be undefined while unacceptable actions should be clearly defined.

As long as the participants stay within these boundaries they are free to do as they desire.  This imbibes the regulation and the area it attempts to regulate with life, flexibility and elegance; rather than a static unbending rule which doesn’t, and in fact can’t react to a changing world.

And speaking of life, organizations of all sorts behave much like a living organism.  Trump’s cabinet teams will soon be overseeing huge multi-layer organizations.  Some have called them the permanent bureaucracy since administrations come and go but they remain in place.

By their very nature these organizations are resistant to change and in many cases will be actively hostile to the actions taken by their new temporary leaders.  Unlike for-profit organizations which are ultimately restrained by the realities of the marketplace, the powerful non-profit organizations we call government are by their very nature not capable of self-correction.    

In addition they are far too large for a single person or even a committed team to transform them from the top-down simply by strength of character.  And of course there are unions and civil service rules which make them even more resistant to change.  Cutting funding is always an option but it can’t be the only tool since these permanent bureaucracies will almost assuredly make the most politically painful cuts first - to the people, not their organization - to ensure no more come their way.

Obviously the best option would be to never have these bureaucracies in the first place but for those that remain the only way to truly and continuously transform these permanent bureaucracies is to change their design.  Without changing their system design they will remain in place long after the Trump team has moved on.

Just like regulations, these organizational designs need to be re-built to imbibe them with life; the ability to change and react to changing circumstances.  Top-down hierarchical organizations, which occur nowhere in the natural world, have shown themselves to be both unwilling and unable to change via their own efforts.  This is especially true of the non-profit organizations we call government.

It is not possible to provide a single answer on how best to design these systems, that would be in direct contradiction to the functioning of these “living” systems but they must be built on a foundation which leverages two key facts.  First, the unbending law of statistics proves the many will always outperform the few and thus individual freedom designs versus top-down, “we-know-best” will be superior in providing positive results. 

Second, free individuals acting on local information will show far higher intelligence than a single individual(s) attempting to direct them; think of the intelligence in a school of fish or a bee hive versus the intelligence of an individual fish or bee.  One is orders of magnitude more intelligent and dynamic than the other.  The same is true with humans.  Effective, lasting, living and adaptive systems must be built on these two foundational facts.  Carpe diem President Trump.  Change the system design and change the world.

Insights on Racism from Ayn Rand

Ayn Rand generates strong emotions from all side but she certainly nails racism..

"Racism is the lowest, most crudely primitive form of collectivism. It is the notion of ascribing moral, social or political significance to a man's genetic lineage--the notion that a man's intellectual and characterological traits are produced and transmitted by his internal body chemistry. Which means, in practice, that a man is to be judged, not by his own character and actions, but by the characters and actions of a collective of ancestors

Racism claims that the content of a man's mind...is inherited; that a man's convictions, values and character are determined before he is born, by physical factors beyond his control. This is the caveman's version of the doctrine of innate ideas--or of inherited knowledge--which has been thoroughly refuted by philosophy and science. Racism is a doctrine of, by and for brutes. It is a barnyard or stock-farm version of collectivism, appropriate to a mentality that differentiates between various breeds of animals, but not between animals and men.

Like every form of determinism, racism invalidates the specific attribute which distinguishes man from all other living species: his rational faculty. Racism negates two aspects of man's life: reason and choice, or mind and morality, replacing them with chemical predestination."

And from her 1977 speech at Ford Hall Forum entitled, Global Balkanization:

There is no surer way to infect mankind with hatred--brute, blind, virulent hatred--than by splitting it into ethnic groups or tribes. If a man believes that his own character is determined at birth in some unknown, ineffable way, and that the characters of all strangers are determined in the same way--then no communication, no understanding, no persuasion is possible among them, only mutual fear, suspicion, and hatred,. Tribal or ethnic rule has existed, at some time...in every period of mankind's history. The record of hatred is always the same.


In summary, when in doubt always follow the truth... there are only individuals and they are not defined by the color of their skin or where their most recent ancestors are from.