This is the second in a two-part column on the role of manufacturing superiority in strategy, based on the author's time at Burruss, a manufacturer of hardwood products. Read the first part here.
While Don and some of our other key people were answering the questions posed for them, I began talking with our key customers: Budd, Strick, Trailmobile, and Fruehauf. Before I had finished talking with our OEM customers, I began talking with their customers, the companies they sold to, the over-the-road freight lines such as Yellow Freight, Roadway, Old Dominion, and UPS.
The questions I asked the freight lines were different than the ones I asked the OEMs. I asked the freight lines: "Did they care very much about the quality of the floors in their trailers? If so, why?" From my conversations with the customers of my customers I confirmed a crucial truth: The superior strength and durability of our floors, our core capability, mattered greatly. While the cost of the floors was foremost to the OEMs, the strength and durability of those floors was of overriding importance to those they sold to, the freight lines.
Shipping departments and loading-dock workers frequently drove forklifts that were over-loaded into the trailers that belonged to the over-the-road freight companies. Those over-loaded forklifts in turn often broke through the inferior floors of our competitors, which meant the damaged trailer came off the line, went to repair shops, where they were side-lined often for two or more weeks, generating zero revenue during that period, and generating high costs of the replacement floors and the maintenance labor, before the trailer returned to line operations.
As you would expect, the freight lines had chapter and verse on those cost and lost revenues. They agreed that if the Burruss floors were demonstrably stronger, those floors would be worth a premium in the trailer purchase price to avoid the lost revenue and repair costs due to floor failures.
We had answered the question of "where to play" and we had identified our true customers in the freight lines. The OEMs didn't care about floor strength, only floor cost. We had to sell to the freight lines and have them specify Burruss floors. The OEMs could in turn pass the incremental cost of our floors to the freight lines when the trailers were ordered and purchased. Burruss, in turn, could maintain it traditional higher price, but now with greater volume.
Capitalizing on our core manufacturing capability
In my brief time with Burruss, Don had taught me why our floors were stronger than our competitors, even though we used essentially the same raw materials, processes and equipment for drying, planing, and finishing the wood strips before gluing them electronically to create the floors. These beautiful and strong floors resembled butcher block and were so attractive they were eventually sold by us as table tops for residential and business furniture.
If the processes and equipment were essentially the same, why were our floors so much stronger than our competitors' floors? The answer was in the drying and the skill in setting up and using the planing equipment. We were able to hold closer tolerances than our competitors could and as a result the glue bonds were better. We had less surface variance. We were better at "machining" the wood, and therefore got stronger bonds. Our floors were superior and that was what our newly identified market wanted and for which they would pay more. Our core capability met the freight lines' needs and expectations.
In looking at our target market, we chose the top 300 domestic freight lines. We ranked these companies in terms of revenues and divided them geographically. We estimated that we could begin with two salespeople to call on and service our newly identified "where to play." How could we demonstrate that our floors were superior so that these freight lines would demand our floors over our competitor's floors?
While putting together our sales effort, Don and his staff assembled a demonstration team and approach, using two trailers and a technical team of two sales engineers. We arranged demonstrations with the key executives from the two largest freight lines. Only needing to be convinced, they potentially had the most to save with our floors. Our first carefully planned demonstration went as we hoped. The competitor's floor failed. The Burruss floor did not.
We were on our way. We formed a second demonstration team to work with our Western sales representative and we began making calls based on company size. The process succeeded and Burruss was able to level our planned demand increases since we were now being specified by an ever-increasing number of freight lines. As our total production was growing we were able to meet the demand relatively easily though investment in a raw (green) lumber pre-dryer, really a low-temperature kiln that reduced the typical drying time from six months to one month.
Not only did that shorten our drying time, it increased our throughput and capacity several times over, at relatively little investment. An early MRP system coupled with our macro-scheduling system of PSI (production/shipments/inventory) produced substantial unit-cost savings and extraordinary company-value growth. Burruss grew in revenues at more than 15 percent per year. Residual income grew at a much faster rate. Costs of layoffs and rehiring went to zero. Burruss and the Lynchburg community flourished. And Amos was pleased . . .
The partners of Associated Metals, had given Amos Melamede the task of building an operating arm of their firm, first in the U.S. and then expanding internationally. Burruss was to be their model, both economically and managerially, to test their methodology's efficacy. Amos had asked me to define our market, where we would compete in that market and then how we would win in that market. Years before Lafley defined strategy in his book Playing to Win, the Burruss project revealed the importance of knowing "where you will play" and "how you will win" and what core capabilities you will use to succeed.
The results, both immediately and in the long-run, bore out our hypothesis for value building. The publication of Lafley and Martin's book years later was an interesting piece of support, particularly given the well-known nature of both P&G and Lafley himself. It's tried and true business model; the approach worked then and it works now.
Where might your team begin? Define a clear vision. Identify your true customers and their true needs. Focus on the capabilities you must have to meet those needs. Define an overarching strategy that will correctly and completely meet your customer's expectations.
Burruss was not unique, simply an example of how manufacturing companies can win, and win big, when they get a few key concepts right.
This is the second part of a two-part series on manufacturing strategy by Larry Valant and Gayle Hustad of Valant and Company.