Company finds a niche by getting a product to customers faster than its competitors.
Electronic Liquid Fillers has created one big niche for itself by takingan ordinary product in an ordinary market and getting it to the customer fasterthan anybody else
It looks as if time may be to the '90s what quality was to the '80s. Some companies are competing by delivering products to the customer faster than would have seemed possible only a short while ago. Let's look at Electronic Liquid Fillers, a two-time Inc . 500 company that is using this strategy to build market share in a no-growth industry. -- J.C.* * *
In Silicon Valley the buzzword is Time to Market. In the apparel industry it's Quick Response. Banks advertise 24-hour turnaround on loan applications, opticians and film developers process orders while the customer waits. Call it the Domino's Pizza strategy of competition: do whatever you do, but do it faster than anyone else.
These days, such a strategy may not be a luxury. "A recent survey of 50 major U.S. companies," reported Fortune not long ago, ". . . found that practically all put time-based strategy, as the new approach is called, at the top of their priority lists." And plenty of smaller companies are already practicing what the giants now preach (see "Running Fast," page 5). "There is competitive advantage," observes consultant Stan Davis, author of Future Perfect, "in providing the same product or service, at the same price, in 20% less time." He need hardly add there's competitive disadvantage in sticking to the same old sluggish schedule when everyone else is speeding up.
What some companies have learned, in fact, is that competing on time can be one of the most powerful business strategies around. Speed immediately sets your company apart. It adds value, and it lends an aura of class and competence, putting you up there with the Federal Expresses of the world. Properly implemented, as James W. Ake and Electronic Liquid Fillers Inc. have discovered, it's an engine of growth akin to what's under the hood of a Formula One automobile.
Just one caution: like a Le Mans racer, you have to pay very careful attention to where you're going and what's happening along the way. You'll have to let speed shape and reshape every aspect of your company, and you'll have to be prepared to make quick -- sometimes drastic -- in-course corrections.* * *
At first glance, what's striking about Electronic Liquid Fillers is its down-home ordinariness. Its industry: making bottling and packaging machinery, a business that even optimists describe as slow growing. ("We're in an unglamorous, mundane, old-fashioned category," acknowledges company founder Ake.) Its product: a line of fillers, cappers, labelers, and ancillary equipment, nothing too fancy. ("We make the standard model, what you might call the Chevrolet," adds Ake's oldest son, Jeff, vice-president of sales.) Its location: LaPorte, Ind., an hour and a half southeast of Chicago. ELF occupies a former tractor showroom augmented by a couple of big steel sheds. Out back is a cornfield.
On second look, ELF is anything but ordinary. Six years ago the company had only 6 employees and less than $1 million in sales; today it's up to 100 employees and $11 million. Twice in succession it has made INC.'s list of the 500 fastest-growing private companies in America. The company's profits have been high enough to make would-be acquirers -- there have been several -- salivate. Aftertax earnings in 1988 were 17% of sales. Posttax earnings in 1989 dropped to 14% of sales, but that was the year the company spent half a million dollars opening a subsidiary in the United Kingdom. Like every other investment ELF makes, the U.K. operation was paid for in cash. The company has zero debt, not even a mortgage on its building.
How to explain such performance in so lackluster a business? Speed. "We deliver in 10 days," says Ake. "It takes our competitors 16 or 18 weeks, sometimes more. Customers can't wait that long." Customer Don Vollmar, plant manager of Huntington Labs, in nearby Huntington, Ind., couldn't agree more. "Getting the machinery in 10 days was a large factor in my initial order. I was in a tight bind and they delivered on time."
In the beginning, speed was less a matter of strategy for Jim Ake than of survival. Leaving a 25-year career with Fortune 500 companies -- culminating in a stint as president of Nabisco's Rival Dog Food division -- Ake had set himself up in the liquid plant-food business. When he found he had extra time on his filling equipment, he began doing contract bottling; when he discovered the equipment didn't work as well as it should, he began fashioning his own. Pretty soon he was on the road selling inexpensive filling machines of his own design and calling in the orders to father-in-law Paul Stout, back in LaPorte, who would assemble them.
"One of my very first orders was a machine I shipped to California," explains Ake. "I sent an invoice, waited 30 days, then called the customer up. He said, Gee, your machine is still on the dock -- I haven't even uncrated it yet. I'll pay you when I can make sure it works." Needing the money, Ake offered to install it himself, right away, if the customer would pay right away. A few days later he had both the check and an operating principle: the faster you can get your machine in the customer's hands, the faster you can expect payment. As the orders rolled in, Ake began figuring out how to organize a growing business around speed of delivery.
On paper -- and it is on paper, not on computer -- the system he worked out is simplicity itself.
A salesperson takes an order, say for a 12-head gravity filler, and fills out a detailed production form specifying exactly what the machine is to look like and when it is to be delivered. (Though most of ELF's products are standard models, each one has to be customized for specific applications.) If there's anything unusual about the job, the form goes to Charlie Kuchar in engineering for a few quick drawings. If not, it goes straight into the factory.
There, number-two son Greg Ake, vice-president in charge of production and distribution, will get a copy. So will the supervisors of any department that's involved -- fillers, cappers, electrical, whatever. Greg Ake and the supervisors will set their priorities by the delivery dates on the forms, making sure that today's order gets built in plenty of time. Since the departments are small (only 3 or 4 workers build the basic filler apparatus, for example, while another 4 work in electrical), both workers and supervisors can keep tabs on parts supplies. When they run low they order new ones from the company's 10-person machine shop or from number-three son Brad Ake's purchasing office. In a few days the job will be assigned to an installer, says Gene Tuholski, who will oversee the staging crew responsible for final assembly and testing. Then Tuholski will take the machine to the customer's plant and set it up.
Driving this carefully choreographed performance is a massive incentive: as a matter of policy, ELF doesn't get paid a nickel until the machinery is up and running in the customer's factory. "It's a little noose we hang around our neck," explains Jim Ake. "We say, You give us a purchase order and we'll have the equipment to you in 10 days. If you don't like it -- if it doesn't do exactly what we say it will do -- you don't pay for it." Back home, that noose focuses everyone's mind: both the salesperson and the installer, who are paid on commission, get their money only after the job is complete. So someone has a personal interest in ushering every job out the door.
To be sure, 10 days isn't etched in granite: some customers don't want quick delivery, and ELF is occasionally late. But it's symbolic of a companywide commitment to doing things fast. Salespeople's quotes go out the same day they're requested. If a customer needs a part right away, it's air-freighted out. One day last January, when the factory was a little quieter than usual, salesperson Dave Scarborough asked installation supervisor Kenny Hyde if the order he'd just taken could possibly go out the following Tuesday, only 3 working days away. Skipping some of the customary routines, Hyde had the machine built and ready for testing in 24 hours. Without having to ask, he knew that was what Jim Ake would have wanted him to do.* * *
The trouble with most accounts of speed-oriented companies is that they make it sound so simple. Motorola, reports Fortune, cut the time required to build and ship electronic pagers from three weeks to two hours. How did Motorola do it? "We hold to schedule as a religion," explains the director of manufacturing. Right. Like most religions, speed has a lot of believers and few saints. You can't help wondering what worldly demons Motorola had to wrestle before reaching the promised land.
For ELF, building a company around speed has been a difficult, expensive process, and some of the demons haven't yet been bested. Marketing had to be reinvented. Employees have had to be hired and managed in different ways. Money -- lots of money -- has been spent on matters related to speed; indeed, ELF's financials provide an object lesson in the constraints as well as the payoffs of a fast-paced operation.* * *
Marketing. Visit most custom manufacturers and they'll boast about their backlog. Six months? A year? The longer the better; a backlog represents a cushion of security. ELF, with its speedy turnaround, has essentially none. "If nobody orders anything in the next 10 days, we're out of business," says Ake, exaggerating only a little.
With no backlog, ELF has to pour resources into making sure those new orders come in. Last year the company advertised in 18 trade magazines a month (annual cost: $140,000). It sent sizable delegations to 13 trade shows, each one costing at least $30,000 out of pocket. Leads from all these sources are put on computer and fed to the company's 15 salespeople. Most salespeople work in pairs: one on the road for a week, the partner home fielding calls and lining up appointments for the following week.
And oh, that roadwork. Right from the beginning Ake liked to take along working models of his fillers -- the models just got a little more elaborate as time went on. Today, ELF reps pull up to a prospect's plant in a truck equipped with operative filling, capping, and labeling lines. At showtime, boasts Jeff Ake, "We won't just have the purchasing guy, we'll have the president, the foreman, and the maintenance man out watching the demonstration, too." The live performances are brutally expensive: each truck costs about $80,000 to buy and equip, and the company currently has eight of them, including two in Europe. But they do have the desired effect. "We were able to operate [the equipment] ourselves and see that it was right for us," says new customer Bob O'Brien of Sunburst Products Inc., a maker of soaps and degreasers. "That was very important."
ELF's marketing pizzazz has given it a big boost abroad. When Jeff Ake set up a truck-based sales subsidiary in the United Kingdom last year, he found himself taking more than a million dollars' worth of orders in the first eight months. Now, he's investigating possibilities for joint-marketing ventures, again using a demo truck, in several other countries all over the globe. At home, meanwhile, the competition is watching with reluctant admiration. "We were a very sleepy industry and they woke us up," confesses I. J. Phallen, founder of a Buffalo filler manufacturer called Oden Corp. "They've given sales a new meaning in our industry."* * *
Managing people. If there's one thing that a speed-oriented company can't afford, it's employees who say, "Sorry, it's not my job," or -- maybe worse -- stand around waiting to be told what to do. But how do you find independent-minded hard workers?
ELF starts with recruitment. "Hands-on Thomas Edison type with electrical, mechanical, pneumatic and tinkering skills wanted!!" reads an ad, not for an R&D technician but for a production worker starting at $300 a week. Applicants -- of whom there are plenty, maybe because of ELF's Rustbelt location -- are interviewed extensively, both for evidence of skill (auto mechanics, light electrical) and for attitude. Can you work in a company where you may have to do a dozen different tasks? Why would you want to? By the way, that starting wage will be your lifetime wage unless you learn new skills or take on new responsibilities. Expectations for everyone at ELF are high, as the ad suggests. No one gets a raise -- even cost of living -- just for doing the same job year after year.
Once hired, a new employee gets another message: you're on your own. A rookie production worker might be shown a subassembly, be pointed in the direction of the appropriate parts, and told to build one like it. How to do it? That's your problem. If you need help, find someone who has time to help you. Sales reps Ron Lain and Jeff Huffman, hired last October, spent weeks in the factory learning the rudiments of building fillers and cappers, then more weeks on the road with installers, working in customers' plants. "Then," says Huffman, shaking his head and gesturing at a shiny new demonstration vehicle, "they gave us this truck. It had nothing in it." They could begin selling anytime -- as soon as they could get their demo equipment built, install it, learn to run it flawlessly, and do everything else necessary to turn a bare truck interior into a sales showroom.
Not every new employee finds the system agreeable. Two salespeople hired with Lain and Huffman quit after a couple of months. Installers, who must spend long days on the road, turn over at a 33% rate. Even production workers can wash out quickly. "Guys are left to do their job alone, and some feel it's too demanding," says installation supervisor Hyde. "Maybe it's the pace. They keep up for a while, and then they decide this isn't the place for them."
On the plus side, those who stick it out are likely to have the right stuff. Installer Gene Tuholski was a dairy farmer before coming to work for ELF; others seem equally oriented toward working on their own. Gesturing toward a group of five men setting up an unusually complex filling line, Tuholski observes that two of the five had just wandered over from other departments, slow at that moment, to see if they could help out. From the advice and wisecracks filling the air, all five could have been a group of teenagers customizing a hot rod on a Saturday afternoon. Later, a salesman gropes for words as he tries to describe how "ELF people" work. "It's like this," he says. "A guy needs to get a van out Saturday and there'll be five fellow installers helping him. Production people, the sons, even Jim'll be out there, too."* * *
Money. ELF looks like a low-budget operation: threadbare carpet on the floor, fake wood paneling on the walls, office furnishings that saw their best days some time ago. But hidden within these modest accommodations are some very expensive budget items, each one reflecting the demands of high-speed operation.
Walk through the plant with Ake, for example, and he'll point proudly to the half-million dollars' worth of parts and supplies that he keeps on hand. It's the price, he says, of knowing that you'll have every item you need every time you need it. In one corner of the factory is a fully equipped machine shop, representing an investment of maybe $200,000. It was added, Ake admits, because ELF found it couldn't rely on outside shops for timely deliveries.
Then there are the delivery trucks -- 17 of them, one or more leaving LaPorte almost every day to carry equipment to customers all over the United States. "We always ship on our own trucks, everywhere," explains Jeff Ake. "We can't depend on common carriers -- not with our terms. If a common carrier shows up a day late, it may be his fault. But it's our problem." It's also ELF's problem, of course, to pay for all those trucks, and for the long empty runs home.
On the face of it, none of this should make financial sense. Think about it: ELF spends something like 20% of sales on marketing expenses, as opposed to the 15% or so that competitors in this fragmented industry say is typical. It spends freely on anything -- the machine shop, the delivery trucks -- that helps ensure speed of delivery. Its prices are middle of the road, yet its over-20% pretax margins are the envy of all. "I don't know of anybody else who's doing that well," grumbles a nearly incredulous competitor, citing an industry survey showing the average ELF-size company earning 8% to 12% before tax.
The secret? Much like a fast-food restaurant or a warehouse food store, ELF has effectively rewritten its industry's customary P&L. Its high-powered marketing and fast turnaround generate rapidly growing sales. And though some expenses are high, sales translate into profits because the company keeps other costs at rock bottom.
* Like a fast-food restaurant, ELF offers a full meal -- but from a limited menu. The company doesn't build sophisticated high-speed, high-volume lines for the likes of Coca-Cola; nor does it do much in specialized market niches such as pharmaceuticals, where the equipment must often be built to Food and Drug Administration specifications. "Our product is standard in conception and parts," acknowledges Ake; "our competitors tend to do more specialized work." Result: while the competition has to spend big bucks on engineering, ELF spends little. Since ELF is one of the nation's largest suppliers of standard-model filling lines, it can buy parts the way McDonald's buys rolls. The company has a blanket order with a supplier for stainless-steel turntable tops, $295 if purchased singly. ELF's price: $95.
* Like a warehouse food store, ELF keeps overhead to the barest of minimums. Ake's abhorrence of debt means that the company has no long-term liabilities and thus no interest expense. He asks customers to pay immediately on installation (literally the same day), so there are no accounts receivable and no need for a collections department. This is a $10.7-million, 100-employee company -- yet it has no chief financial officer, no treasurer or controller, no personnel department. Its office staff consists of a part-time bookkeeper, one assistant, and four women doing clerical work. "Everyone else in the office is selling," says Ake.
* The company's compensation system also keeps fixed costs low. Salespeople are on straight commission, installers on a bare-bones minimum plus commission. Ake's four sons and all ELF supervisors get modest base pay plus various forms of profit sharing. For a while, Ake even paid production workers a low weekly salary -- no overtime -- supplementing it with generous regular bonuses. The Labor Department made him change it to an hourly wage with overtime; even so, fewer than half of ELF's employees punch a time clock. More than in most places, personnel costs vary directly with revenues. So a slow month doesn't necessarily mean an unprofitable one.* * *
On paper, everything at ELF is part of a system: the demo-truck routines, the production forms, and so on. But no system is simple when it's running at high speed -- and the faster the growth, the more possibilities for breakdowns.
The fact is, any self-respecting consultant could point to half a dozen potential trouble spots. All that inventory, for example: do you know exactly how much of each part you need? Can you track it day by day? Asked just such questions, Jeff Ake looks a little sheepish: "Inventory management is something we're not good at," he admits. What about purchasing? Interviewed on the subject, Brad Ake describes some new forms he has designed, the better to keep up with what needs to be bought. Implication: he's not keeping up right now quite as well as he'd like to be.
Late last year, the systems threatened to grind to a halt. With domestic sales booming and orders flowing in from the new U.K. operation, Greg Ake and the others in the factory found themselves struggling to keep up. Self-reliant as ever, they decided they just had to work harder. Build it. Ship it. The machine isn't working right? Have the customer call Chris Ake (yes: number-four son), vice-president over in service. Chris won't know anything about that particular job, of course, but maybe he can find an installer to put a Band-Aid on it. No time to waste -- we've got six other orders in the pipeline. Ten days, remember.
Pretty soon, says Jeff Ake, ELF was approaching meltdown. "Production and installation couldn't handle any more sales. We were late getting equipment out. And the salespeople! They had climbed into some kind of ivory tower and were promising machines that were impossible to deliver. 'You want 120 a minute instead of 80? Sure, we can do that.' "
To fix such problems, other companies might hire more managers, even bring in some high-priced experts with experience in the industry. Jim Ake, so far, has preferred to tinker. He set up teams, each pair of salespeople grouped with installers and service people, and each team responsible for a given region. That didn't work; no one seemed able to manage the teams ("We had people flying all over the country to do little service calls"). Most recently he has been talking about reshuffling his sons' responsibilities. Orders slowed down a little at the start of this year, so the immediate crisis isn't so acute. As to what will happen when they pick up again, all Ake can say is, "We'll be trying something new."
For all the difficulties, though, you have to be optimistic about the future: ELF knows precisely what makes it distinctive in its industry, and it shows no sign of letting mere operational difficulties get in the way. If you had been in LaPorte one Friday not long ago, for example, you would have seen an animated group in the cubicle that passes for Jim Ake's office. That day, Ake himself could scarcely contain his excitement.
"Here's a perfect example of how we operate!" he exclaimed. "Today's Friday, right? Well, we just got an order for a slide-track filler in Portland, Oregon. We've got an installer in Seattle right now. If we can get the filler built this afternoon and tomorrow, then ship it air freight, he can install it Monday.
"He'll get an extra week's pay for spending the weekend on the road -- that's our policy -- so our margins will be shrunk a little. But it can be done. And it's an example of how fast we can get $12,400 transferred from a customer's bank account to our own."
Seated in Ake's office were half a dozen key people, grinning and agreeing that, yup, it could be done. If you had checked with the customer a few days later, you'd have found that, yup, it was done.
Systems, in this company, will come and go for a while. Never mind: with an attitude like that, it will be hard for ELF not to continue its remarkable growth. Six or eight managers, in an $11-million company, smiling on a Friday afternoon because they had the opportunity to work late that day or come in the next, and all because they could get an order into a customer's hands a few days quicker than usual.
Frankly, it wasn't normal. Except, perhaps, in a company where speed is truly of the essence.* * *
Research assistance was provided by Lisa D. Royal and Anne Murphy.
How speed of delivery shapes a company
Everex Systems Inc., a $377-million manufacturer of personal computers and peripherals, boasts that it will ship orders within 48 hours. Steadi-Systems Inc., a $5.3-million distributor of motion-picture film and supplies, provides round-the-clock emergency film delivery -- one day to anywhere in the United States. Tarason Labels Inc., a $3.5-million maker of custom labels for garment and hosiery manufacturers, cuts its industry's usual turnaround time by half.
Like Electronic Liquid Fillers Inc., these companies get their jobs done fast -- and occupy a distinctive niche in the marketplace because of it. But speed of delivery is a powerful tonic: don't give your company a dose unless you're prepared to reshape your company around the new strategy. Among the lessons:
* Marketing. There's no point in being fast unless you stake your reputation on it -- and tell the world so. So forget everything else that's great about your product or service and focus on how fast you can get it in the customer's hands. "Zero-response time is the centerpiece of our marketing and operations," says John K. Lee, executive vice-president of Everex, using his company's catchphrase for fast turnaround. "That's how we present ourselves to the world." For Steadi-Systems, the emergency film service isn't a big money-maker, but it's a make-or-break marketing point. "Ten times a week we get [emergency] calls," says CEO Richard Schoenberg. "That's 520 times a year someone's being served when they're in a bind. It gives you credibility -- and in Hollywood, your reputation is everything."
* Money. Speed costs money, sometimes a lot. Often the expenses are obvious and visible, such as Tarason's state-of-the-art label-printing equipment or Steadi-Systems' up-to-the-minute inventory-control system. More often they're buried in a balance sheet. Tarason, for example, always keeps a little production capacity in reserve, just in case there's a rush order; a custom manufacturer with a three-month backlog doesn't have that inefficiency. Because you're spending money on speed, moreover, you won't have much leeway in other areas. Everex, for instance, can't afford big parts inventories, and so must manage its purchasing within an inch of its life. "You have to have all these contingency plans," admits Lee, "not just a second source but a third and fourth source, and you have to know who their backups are." When a parts shipment gets misdirected to Japan, as happened once, such knowledge is the difference between steady production and shutdown.
* Management. Forget structures; forget vice-presidents and assistant vice-presidents and general managers. Everex, by now a good-size company, has only a couple of managerial layers between president and line worker. Ralph Hinson, president of Tarason, frequently puts on his jeans and goes out to run a label-printing press; if he's not there, his vice-president will do the same thing. Workers can forget job descriptions, too -- in speed-oriented companies they'll often be called on to do more than one task. "People in my accounting department can handle sales," says Schoenberg of Steadi-Systems, which generates $5.3 million in revenue with only 10 employees. "And everyone is adept at handling orders. Here, nobody's put on hold and no customer ever has to wait for a salesperson."
Is it worth it? Better believe it. In a crowded field, Everex grew from under a half-million dollars in 1984 sales to its current position as one of the top domestic PC makers. Tarason and Steadi-Systems are both on the 1989 INC. 500. And unlike a lot of fast-growing companies, all three are making money.