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DPI Client Interview
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If you've been in a big retail store or an industrial warehouse, you've seen Borroughs' products -- automated checkout lines and special-purpose shelving. The trick in these markets is to somehow differentiate your offerings from the many "me-too" products in the marketplace while controlling design and production costs -- essential concepts if you hope to pump up margins and grow the top line. The temptation is to let the customer dictate your product's design -- leading to "me-too" products, since everyone's competing for the same customer, or to expensive over-customization for every customer that demands it.
This is the challenge Borroughs faced, particularly in its checkout line business. Despite a leadership position in the business and a customer list that contains the biggest names in retail, margins were dismal -- victimized by rising engineering and manufacturing costs. It seemed that every customer -- large and small -- insisted on extensive customization of the product. And, following the established "rules" in their industry, they did it. After all, you can't say "no" to a customer.
Tim Tyler, President and CEO of the $50 million Michigan-based company, describes the situation this way: "One of the issues that we were having with the retail product line was that it is one of the most fickle industries you can imagine because all these chains of stores all want their own design, their own look. The majority of these companies, such as food retailers, are huge outfits. Most of them are multibillion-dollar organizations. They have severe problems with ergonomic workplace issues, and they all have their own ergonomic teams looking at how people work. The front end of a store is one of the largest overhead pieces of any of these operations."
In addition to endless variations on ergonomics, customers also want a distinctive design and look based on the individual cosmetic and functional requirements. For very large customers, engineering and production costs could be built into the volume price, but the further down the volume ladder they went, the less profitable these projects became.
Says Tyler, "For a long time, we had told the sales force, 'Go get business, bring it in here.' But then we would get some business from what we call the ma-and-pa stores, the guy that wants 10-15 lanes, and wants all these little nuances to it. So here we are, burdening our engineering department with all of this additional work, to go to the design shop, to program machines, to make product, and we'd always end up with additional inventory. It was driving our inventories and our engineering costs through the roof. I read an article in Fortune about Boeing and how they were faced with the problem of having about seven or eight airplane frame models, yet they were offering something like 33,000 different variations of galleys and bathrooms, and that was us to a 'T'. "
At the same time, the shelving product lines had problems of their own -- little differentiation from rival products and a lot of price competition. Something had to be done to break these entrenched cycles.
Tyler and his management team decided to seek help in the form of DPI's dual processes -- Strategic Thinking and Strategic Product Innovation -- the former to create an overall strategy, the latter to organize and drive new product development.
Not surprisingly, they discovered through the Strategic Thinking Process that Borroughs is Product-Driven -- shelving and conveyorized equipment for retail and industrial customers. Additionally, they came to the realization that Product Development and Service were Areas of Excellence they would need to nurture continuously. Moreover, they realized in going through the process that they could break the mold in their industry, creating innovative new ways to disrupt the established rules that had limited their growth and profitability.
"We had about 28 people that were involved in these processes. We had our marketing folks, outside sales people, a lot of engineers, and the senior management in the company. We worked hard at this thing, and it was very good. It helped us get everybody pointed in the right direction. You know, here is what we know we're good at, there's the product lines that we've got, and we're going to bear down on them and we're going to create new products and add value to our product every which way we can with the resources that we've got," says Tyler.
"DPI helped us define the way we would go about looking at these new product lines, and what we thought we could now bring to the marketplace, and we've been knocking these new product ideas down one at a time. Our process for developing new products is much more streamlined. And another thing that came out of it was that it established the process and the chain of command that we were going to use to bring these products to market. Our group bought into how this process would work and how we could use it as a strategic tool."
Changing The Game"One of the things the DPI Partner, Mark Thompson, kept saying to us is, 'You need to look at changing the rules in your sandbox,' which has become a phrase I hear our people around here saying all the time now," Tyler states.
And change the rules they did in ways that have since greatly increased both top and bottom lines. On the checkout line side, for example, they have developed a game-changing solution -- standardized checkout lines that can be easily customized --that provides the customer with the best product at a highly favorable price, while boosting margins up to new highs.
As Tyler explains, "The biggest thing in changing the rules with the retail line was that the DPI process really helped us identify where our opportunities were, what our strengths are and what to capitalize on. We came up with the idea that we could use our knowledge of all of the needs of our checkout line customers to develop a standardized product that wouldn't need constant re-engineering. Because we're in Michigan we have a lot of people who've come out of the automotive industry, including myself. We understand about having a platform and building off of that, and that is one of the things that DPI helped us with.
"We have since told our customers, 'Look, we've been making these checkout lanes probably longer than anyone else in the country. And we've been listening to you and applying all that experience to come up with a better way to provide what you want.' We're saying we have defined all of the basic needs. We can give them everything they want -- we've studied the ergonomics and incorporated the latest thinking into a much more standardized product. We'll paint them any color, put any molding on them, and so on. And we can give them a product that is absolutely first quality at an extremely competitive price."
Meanwhile, most of Borroughs' competitors continue to go after highly customized, short-run business.
"We see a lot of our competitors doing exactly that. They're fine competitors, and that's the route they've chosen. But where we're different is that we're geared for volume, high production runs. That's where we can be very successful and that is really one of our great strengths," Tyler states.
"And to make sure we reach the profitability we want consistently, Mark Thompson helped us identify a filter that we would look at to be able to set margin targets and quantity targets. If we see potential products that don't pass the filter, we now say, 'If you can't make money at it, why do it?' That has helped us raise our margins substantially. And again, having all the people we had involved in the process, everybody understands what we're driving towards. I just had one of our sales managers in my office this morning and he was showing me a breakdown of a job we're quoting and he had it all -- all of the run sizes costed out, the discounts, and the discounts as they applied to what margins we might get off of it. He had our margin target circled. And he said, 'This is where we're at if we're trying to maintain our margin target to budget.' We now have a minimum budgeted margin target when we put our budgets together every year. We keep pushing it to a higher number, and we are being successful at it. This has become one of our stretch goals and one that our sales department loves to chase after."
Similar results have been achieved in the shelving line through creation of new products. One new product is a folding shelf unit to be offered to consumers -- a new market for Borroughs. Another is a modular drawer system for automotive dealers and other markets with parts storage needs -- a product that had been looked at as a commodity.
As Tyler explains, "With our modular drawers we completely took the high road. There are a lot of people that make this product and we viewed it as a product that will be in our industrial line for a long, long time, and that will service some big markets. So we decided we were going to design something that was better than everybody else's and at a more competitive price, and I believe we have done that. We have won a number of jobs where we've had our customers tell us that our quality was hands down better than the other people they've looked at."
Additionally, Borroughs has launched a focused technical service group to support industrial material handling system integrators that netted six million in sales in the first year. They've also succeeded in resurrecting a product line that was in danger of being axed because of poor profitability. Analysis through the DPI process revealed a way to save the product and raise the margin by 10%.
"We analyzed who we were selling it to. We realized we were letting the customers dictate how we would make and price the product. Finally we just said, 'Enough is enough. We're not going to do that.' And the surprising thing was, when we raised the prices in that product line and told everyone this was happening, we didn't lose one customer. Now we have reached the point where there are some customers we have chosen to part company with due to low volume and profitability issues. We are direct in telling them that we do not feel as if we can be successful for them."
Borroughs has gotten religion about new product development, but more importantly about applying the Strategic Filter they have all agreed upon.
"I can't emphasize enough what this process has done for us as a company, with us as a group looking at these things. The real driver has been that this has really defined how seriously everybody takes the filter. We examine each opportunity based on that. There is not a day that goes by that we don't have somebody from outside sales requesting something that is either driven by an end-user customer or one of our distributor dealers and is outside our plan. And they'll ask the question, 'Well, how come you can't do that; that's what you used to do?' It's interesting because now when that happens there's a huddle that takes place amongst our managers and the people who have been involved with this process and everyone says, 'That's not what we agreed to. That's not how this thing works.'
"If you knew our Vice President of Operations, he's physically an imposing guy, he stomps his foot and says, 'That's not what we agreed to do.' It circulates right back through the organization and we give a diplomatic answer to the end user. What comes out of that is an alternative that we could provide him with and the reasons we think that it's a better idea. And again, we've been very successful in that approach.
"Within the industry there is a lot of carnage going on around us right now. I mean a lot of layoffs, that kind of thing. Our business is at an all time high, and I attribute a lot of that to what we did with DPI's Strategic Thinking and Strategic Product Innovation Processes," says Tyler.
