The Calm Before the Storm

It was a cold Monday morning when Bob Murphy drove the familiar route from his suburban home to GoldSMART’s downtown offices. Today seemed no different from so many other mornings as he ran through a familiar routine: the same morning talk show and the same traffic and weather reports, the sluggish traffic lights, and even the same annoying billboards. It was all the standard fare except for the hour. On this morning, Bob had convinced himself that he should hit the road an hour earlier than normal to make up for his early departure from the office on Friday afternoon. He would not have missed his daughter’s school program for anything in the world, but the joy of the weekend had settled into the reality of another Monday morning.

Bob knew that the first half of the day, if not the whole day, would be consumed with playing catch-up in the form of returned phone calls, e-mail inquiries, and any number of hot issues around the office — to make up for those few measly hours he missed on Friday. It was a shame that he could not knock out a few calls on the way into the office, but a dead Blackberry battery was not helping the cause. Bob rationalized the situation by telling himself that the people he needed to reach would not even be in the office for another hour. “Why not relax and enjoy the drive?” he mused, staring down the license-plate-clad bumper easing through the construction zone a few feet ahead of him.

The sun was breaking through the morning sky just as Bob entered the parking lot at GoldSMART Products. Expecting to see an empty lot, he was surprised to see a handful of cars already stationed near the entrance. He instantly recognized that they belonged to some of his colleagues on the senior management team. As soon as Bob put the car in park and turned off the radio, he noticed that Lisa Romanowski of Corporate Affairs was pulling up alongside his parking space.

“I guess you got the message too!” Lisa smiled reservedly as they both reached for their bags.

“What message? What’s going on?”

“Apparently, TriMagna has decided to end its courtship of FantastiCo,” Lisa explained.

“You mean number one in the industry and number four are joining forces?” Bob asked, still incredulous to being in the dark on such a big event.

“Yep, those are the two. Looks like they’re getting married,” Lisa quipped as they approached the front door.

“Combined, they would pretty much double our market share now, wouldn’t they?” Bob reasoned as the security guard nodded politely to the two as they strode toward the elevator.

“That’s about right, Bob. TriMagna would go from a thirty-six share to forty-eight. You’re right, that doubles our twenty-four share. We just went from second to distant second on this news. I’m sure I’ll be seeing you in the boardroom in a bit,” Lisa surmised as she exited the elevator on the fourth floor.

“You got it,” Bob answered as the door closed and the elevator accelerated again, taking him to his sixth-floor office. “So much for catching up this morning,” Bob muttered against the whirring sound of the elevator’s pulleys.

The Approach of Ominous Clouds

As soon as Bob hung up his coat and approached his desk, he noticed the little orange light blinking on his phone. “Sure enough, it’s begun,” he thought to himself as he lifted the receiver and played the message. “Eight o’clock boardroom” he jotted on the desk calendar as the words of the CEO’s assistant were relayed to him.

Rather than digging into the backlog of messages from the weekend, Bob decided to take inventory of the company’s situation and that of his logistics organization going into the meeting. Logistics and the supply chain functions of purchasing and manufacturing had long been viewed as bastions of cost savings by the company. Logistics, in particular, had been recognized as a consistent contributor to the company’s cost-cutting exercises and the logistics organization had delivered reliably year after year. “Where are we going to find the savings that we need now?” Bob wondered aloud as Susan, his assistant, appeared in the doorway.

“I figured you might be clocking in early this morning,” she said. “What can I do to help for the eight o’clock meeting, Bob?”

“Gee, where to start? Can you pull together the last twelve months’ metrics reports and our ‘Big Five’ customers’ scorecards?” Bob asked, knowing that the task would be accomplished easily by his able assistant. “Oh, and throw in the ‘budget versus actual’ charts that we put together last week,” he added.

“No problem. Anything else?” Susan replied.

“That should do it. You might order us lunch if this thing runs into the afternoon!” Bob joked half-heartedly.

“Let’s see, where was I?” Bob resumed his train of thought. “If the big dog is getting bigger, that means we have to do something different, something bold, or else we’re going to get trampled…as if we weren’t already! How did this business get to be so complicated anyway? And to think that it all started fifty-five years ago with one simple product. Look at us now; the portfolio of products is so broad and deep that our catalogue looks like a big-city phone book. The product line has grown almost exponentially. It seems like we add five new products for every product that we should drop. And the sales and distribution networks seem to grow just as quickly. Who would’ve thought five years ago that we’d need a sales office in Thailand or a distribution center in Shanghai? The price we pay for success…but where will we find the growth and savings we need to stay in the game?”

Just as Bob found himself completely lost in thought, Susan strode confidently into the office, her arms full of binders and folders. “Here are the reports, Bob. The rumble gets under way in twenty minutes.”

In the Eye of the Storm

As Bob made his way to the boardroom, he was joined by several of his colleagues from the upper ranks of GoldSMART management. There was Linda McNeely from accounting, Larry Davis from North American manufacturing, and Elisio Salazar from marketing and sales. Already in the boardroom were Randall Knight, the company’s CFO, and Sridhar Agarwal, the CIO. The two seemed to be engaged in deep conversation sprinkled with occasional light laughter. A few more senior management team members joined the scene. However, as CEO Roger Atkins entered the room, the mood turned serious as everyone assumed their places around the long table. Before he could put down the cup of coffee he had carried into the room, Roger got the meeting under way.

“Does anyone not understand why I’ve called you all together this morning?” Roger reasoned that the ensuing silence reflected not only an understanding of what was apparently taking place, but also recognition of the magnitude of the event. “We find ourselves in the midst of a great transformation in the industry. I think that you can all grasp the enormity of what TriMagna is proposing and the challenges that will be before us should this thing take root. And all indications point to this thing, in fact, happening. There had been talk of a merger for some time and the analysts have been encouraging it. It looks as though FantastiCo shareholders are going to receive a handsome premium and it could be approved by the end of the second quarter. And, no, there’s no chance that the Department of Justice will step in on this one. It’s looking more and more like a done deal. Without question, we must act as if it is a done deal.”

“It seems like we need to fight fire with fire. Why don’t we look into buying Grantham Holdings? That would bring us within ten points of these guys?” offered Elisio.

“That is something that we examined in the not so distant past,” Roger replied. “On the surface, it’s an attractive proposition, but when you peel a few layers, it looks not only unattractive but unreasonable for a couple of reasons. The first is the substantial debt Grantham has incurred over the past two years with hefty R&D investments that have generated, well, pathetic returns, not to mention its hyper-expansion over the same period, both contributing to its debt burden. The other reason is our own cash position. We simply cannot justify investing significantly in anyone or anything right now.”

“But won’t the board’s knee-jerk reaction be to respond in kind?” Linda interjected. “Won’t we have to get big too, even if it means taking on some unwanted debt, so that we don’t become TriMagna’s next target? After all, we could use the international assets that Grantham has developed, couldn’t we?”

Randall picked up where Roger left off. “There is just no way we can pull that off right now. As Roger pointed out, we prospected a Grantham deal just two months ago, and we wanted it to make sense, but it simply doesn’t.”

“Well, if the growth must be organic, we need to unleash our own new product development to get the next ‘killer products’ on the market before TriMagna can beat us to it!” Elisio fired back.

Bob and Larry sighed in unison at the very idea of launching more products in rapid-fire succession. Larry finally spoke up. “We have gained quite a bit of flexibility in the plants over the past year and made product changeovers a lot less painful, but we cannot afford to dilute our production economies any more. I lost count of the stockkeeping units that each plant makes a long time ago. Bob can speak to the same phenomenon at his warehouses.”

“It’s true,” Bob agreed. “We had to introduce six-character alphanumeric codes this year to keep up with the proliferation of SKUs.” It’s gotten downright messy.”

“It would be great if we only had to make products that enjoyed healthy margins, but we have to make ‘winners’ and ‘losers’ alike,” Larry added.

Sensing that the meeting could very quickly become one reduced to an exercise in finger pointing, Roger regained control. The dialogue continued for another ninety minutes, with suggestions for growth coming from all sides and corners of the boardroom. When conversation turned to aggressive cost savings, Bob thought to himself, “Here we go again; the supply chain functions will be looked toward us for all of these savings.” His fear was only fueled when Roger looked in the direction of Larry and himself when speaking of the need to “tighten the belt” and “drastically cut costs.”

It was about then that Bob interrupted an exchange between Linda and Sridhar. “Might this TriMagna-FantastiCo venture actually represent an opportunity for us?” he pondered aloud.

Appearing puzzled at first and then intrigued, Roger encouraged Bob to explore the thought.

“I mean, TriMagna clearly thinks that efficiency gains will be achieved through the consolidation and that there are synergies to merging operations with those of FantastiCo. But how long will it take them to find these synergies…to tap into the benefits…if they can find them at all?” He had gained the undivided attention of the group. “There is a good chance that they will be so preoccupied with each other over the next several quarters that we can invade their turf.”

“You know, there is some truth to that,” Randall agreed. “If you track the history of many of these large-scale acquisitions, they often do not pan out. The anticipated benefits fail to be realized. Wall Street rarely rewards companies over the long term for taking on weaker partners.”

“We might actually gain some traction with the customers of TriMagna and FantastiCo if we can prove that these two suppliers are getting distracted with each other and stumbling over the consolidation effort,” Elisio pointed out.

“The last thing the market would like to see is a significant reduction in their alternatives, it seems,” added Linda. “Although I suspect they will expect lower costs through better economies of scale.”

Building confidence in what at first seemed like an errant train of thought, Bob continued. “It just seems like we need to be smarter than those guys. We need to do everything better than them. WE NEED TO BE SMART! It’s in our company name for crying out loud!”

“You’re right, Bob,” Roger agreed. “It’s time that we live up to our name again. Can I count on you to head up the effort, to figure out how we can be the smartest player in the game?”

Bob knew that there was no taking back his idea now, so with a growing lump in his throat, Bob offered a relegated response. “Of course, Roger, I’d be glad to do it.”

On hearing Bob’s anticipated agreement, Roger instructed everyone in attendance to participate in the cause and to be responsive to Bob’s inevitable requests for input and data. When everyone agreed, Roger called the meeting to a close.

Still lost in the moment, Bob accepted the back-pats and condolences of his peers, along with the reality that the company’s future just might rest squarely on the shoulders of his newfound responsibility. “It seems like only yesterday I was kicking boxes around the warehouse,” he thought, “and now it feels like the weight of the whole company is riding on me.”

Bob made his way back to the office, where Susan met him with an expression laced with both anxiety and curiosity. “Let’s clear the schedule for the afternoon,” he told her. “Please alert the team members that they should do the same. We’ll meet in the conference room at one o’clock.”

“You got it,” Susan replied, knowing that the events of the meeting would unfold soon enough.

Riding Out the Storm

Bob was pleased to find that all but a few of his team members from the logistics organization were in the conference room when he arrived. He opened the meeting with an explanation of the likely merger between TriMagna and FantastiCo. He was not at all surprised that most of those in attendance were already aware of the news. Before allowing the meeting to explode into a frenzy of questions, Bob reiterated the sentiments of the senior management team and the nature of the dialogue that had taken place a few hours before. He also relayed the fact that the logistics organization was being looked toward for significant leadership in determining how the company would not only survive the crisis but thrive and grow in the face of it.

While many of the issues that needed to be addressed by the company were beyond the direct scope and responsibility of the logistics organization, Roger felt that Bob’s connection with constituents within the company, as well as the reach he and his organization enjoyed with suppliers upstream and customers downstream, provided a unique opportunity for dramatic change as it applied not only to the physical flow aspects of the business but the entirety of the business. Bob knew that these facts had motivated Roger to call on the logistics organization to serve as a “virtual think tank” within the company. It was also based on Roger’s confidence in Bob, who had somehow managed to generate consistent cost savings over the years despite strong inflationary trends throughout the industry. Bob was also recognized for having developed a progressive team made up of both industry veterans and talented young employees who were bringing leading-edge ideas from their universities and putting them to work in the organization. Bob would now need the collective strength of this group to devise innovative strategic and operational plans.

Rex Carnes, the company’s traffic manager, got the dialogue started. “We can’t expect to go after the carriers for cost savings this year. In fact, I expect carrier rates to stick for the first time in quite a while. Everyone in the industry is crying out about how rates are on the way up and there may be no way to fight them off.”

Import/export manager Maria Sanchez echoed the sentiment. “It’s going to be next to impossible to find savings from the steamship lines too. With the tight-capacity market and growing imbalance of freight flows from Asia, rates are likely to go up before they tick downward again. My fear is that service levels might nosedive simultaneously. It’s entirely possible that we will be paying more for poorer service in the future.”

Harley Johnson, the company’s private fleet manager, failed to brighten the tone of the conversation. “I’m having a hard time keeping drivers around as it is. We’ve had to increase the driver wage three times over the past two years to keep them on staff. The big trucking companies keep trying to lure them away. And, as you know, we never used to have to pay drivers on an hourly rate, but that’s what they’ve demanded when they have to sit and wait for hours on end at many of our big customers.”

Dave Jones, logistics manager of the U.S. eastern region, only added to the woes. “My warehouses are full of product in anticipation of the fourth-quarter sales season, so much so that I’m searching for some public space to cover the need for the next few months. Unfortunately, that space is not going to come cheap, if I can find it at all in a few of our key markets. I probably wouldn’t need the space if I didn’t have to house all of those product take-backs from last season’s customer overstocks. Has Salazar indicated what he wants to do with that stuff?”

“No, not yet,” Bob replied with a sigh.

“Bob, if I can comment,” injected Kathleen Boyd, one of the newest among the bright set of recent hires to the organization.

“Of course,” Bob replied with an air of encouragement, hoping that the dialogue might somehow turn positive.

“It doesn’t seem like we are going to make the critical impact that we need by going after the low-hanging fruit. It sounds like Roger has given us the green light to do things new and different around here, to create a revolution rather than an evolution, I guess.”

“That’s exactly what we’ve been asked to do,” confirmed Bob. “In fact, Mr. Atkins expects us to work smarter, to outthink the competition. It might sound cliché, but that’s exactly what we need to do. We need to step back and question why we do things the way we do them and, in fact, why we do many of the things.”

“I see a new campaign slogan in our future,” chided Andy Wilson, the undisputed “class clown” of the organization.

“What do you mean by that, Andy?” Bob inquired.

Andy sat up to respond. “Well, we all must have a desk drawer full of pens and buttons and closets filled with golf shirts emblazoned with the slogans of the day. I prefer the caps, myself. But the point is that we have all been bombarded with gimmicky efforts for everyone to work harder to produce more. And even if the efforts are important, they’re often viewed as gimmicks. It sounds like we really need to make change happen now and we need to sustain improved performance. But I’m not sure how we’ll able to do it given our past history of pushing people to get what we need out of them.”

“Andy’s right,” Sarah Davies added. “We often push to get what we need out of the people. Though we often do see a temporary performance improvement, soon after the shirts and pens are handed out, everyone goes back to their old ways of doing things and performance reverts back to the norm. People have gotten cynical. How can we make it stick this time?”

“If the line workers smell another so-called ‘efficiency study,’ then we’ll never get the buy-in we need of employees, especially if they think they might lose their jobs,” added Michael Gregory, the organization’s customer service manager.

Bob nodded in agreement, knowing that Michael, Andy, and Sarah were right. The changes that were about to take place would have to become a way of life, not a flash-in-the-pan proposition.

“Back to Bob’s point though,” offered Dave, “we have to question the very essence of what we do around here. Doing the wrong things very well won’t count for much. It only assures us of generating unneeded costs and becoming increasingly irrelevant to our customers.”

Kathleen spoke up again. “I know that I have only been here a short time, but I am not sure that I fully understand what it is that we do. I mean, I know what I am responsible for doing day to day, but the ‘big picture’ isn’t crystal clear to me.”

“Don’t worry, kid,” said Harley, “most of us don’t understand it either.”

“It’s true!” Rex added. “I know how to find trucks and trains to move product, but to be honest, what takes place before and after the shipment is something of a mystery to me. I would be hard-pressed to tell you how Maria arranges for our import and export movements or how Dave finds that public warehouse space he needs.”

When it became clear that the full scope of logistics activity was not well understood by the newcomers and veterans alike, Bob suggested that they work

Figure 24.1. High-Level Value Stream Map.

immediately to remedy the situation. Having worked his way through the organization over the course of his career and ultimately assuming responsibility for the organization, he only now realized how he had taken his knowledge for granted. He had assumed that everyone around him possessed a similar knowledge base — an assumption that proved to be anything but sound.

To start, the group sketched out a cursory value stream map (Figure 24.1) as well as a map of the order process in its current state (Figure 24.2A and B). The mapping exercises themselves seemed to engender more questions than answers, but Bob was encouraged by his team’s curiosity and enthusiasm for the task. With successive maps drawn of other logistics-related processes, Bob even found himself asking “We do what?” when the activity steps were explained by a person close to the process. What also became apparent in the presentations was that the work was not often performed in the same way for any two situations.

Bob decided that it was time to wrap up the day, although no one seemed to mind that the meeting was running into the early evening. “This has certainly been an eye-opening day for us. It’s clear that we, including myself, didn’t know what we didn’t know when we walked in here this afternoon. Hopefully, we’re asking the right questions. Undoubtedly, we’re getting smarter. Let’s continue to dig and look for the critical questions and the answers to those questions that

Figure 24.2A. The Order Process: Current State.

Figure 24.2B. The Order Process: Current State.

will make us the smart company that we must become.” With that, Bob sent his staff home for the evening.

Seeing Daylight Again

Over the next few days, Bob and his staff built on the understanding established in that first meeting. They were able to gather critical operational data (Table 24.1) and financial data (Table 24.2). These data provided Bob and his organization with a better sense of the current health of the logistics system and the business in general. Breezing over the numbers, he could sense that both cost reduction and service improvements could be found, but exactly where and how would involve deeper investigation and understanding.

Using the principles of the Logistics Bridge Model, Bob and his organization developed statements of key focus areas (Table 24.3) and several significant questions for a high-level review for current condition analysis (Table 24.4). Bob examined the guiding principles along with remnants of the necessary data and found some sense of satisfaction in knowing that everyone was focused on the job at hand. What comfort he enjoyed was tempered, however, by the realization that tough decisions and volumes of work were ahead. If the company were to become the “smart company” that he envisioned, he would have to know what information must still be gathered and how to turn that information into knowledge that could guide the company out of crisis and into prosperity.

Table 24.1. GoldSMART Operational Data.

Table 24.2. GoldSMART Financial Data.

Table 24.3. Logistics Professional’s Key Focus Areas.
  

Table 24.3. Logistics Professional’s Key Focus Areas (continued).

Table 24.3. Logistics Professional’s Key Focus Areas (continued).

Table 24.4. High-Level Review for Current Condition Analysis.

Table 24.4. High-Level Review for Current Condition Analysis (continued).

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