While the lengths of each part of the economic cycle may vary, we can be certain that after the economy falls – as it did in the Great Recession – it will eventually rise again. By recognizing the signs of decline or improvement early on, you can react and gain share over those who fail to see patterns, says Mike Marks in Managing Across the Economic Cycle.

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For example, early signs of decline may include:

• Products on order with your suppliers with an eight-week lead time suddenly show up at your receiving dock.
• Major customers decide to renegotiate contract pricing the same day the product showed up on your dock.
• Receivables start to increase rapidly.
• Customers start to push out negotiated deliveries from you, as their demand is 'slightly soft.'

By failing to recognize these patterns, distributors can get caught up in the downward spiral, resulting in rapidly rising inventories, increasing receivables and declining margins. An early reactor takes decisive action and creates a plan that allows them to act quickly rather than just react. By the time the herd figures out there is a cycle change, the early reactor has the right levels of inventory and receivables. When deals start to become available in the market at better purchase pricing, the early reactor has room to take advantage. When customers of the early reactor go to negotiate, the margins stay close to the same.

By the time the economy is transitioning out of a downturn, an early reactor is in a better position and can carefully gather the cash or debt capacity required to continue gaining share when the market moves up again.

It is much easier to stay on the offensive and gain share when the bottom line is still black and you have available working capital.