A Business Transformed
First you figure out what you can do to break away from the pack in your industry. Then you teach your salespeople how to make your product indispensable to customers. And then, as Jerry Kohl of Leegin has discovered, you learn that those steps are just the beginning
Jerry Kohl, at 41, is portly, talkative, impatient, energetic, quick to anger, quick to cool off, a chief executive with his fingers in nearly all of his company's pies, a passionate and opinionated man regarded by those around him with a touch of exasperation and a good deal of awe. Says a customer, laughing, "He's a maniac." She adds, suddenly serious, "He's the heart of that company. I don't know where it would be without him."
Kohl is the owner of, and the motive force behind, Leegin Creative Leather Products Inc., of Industry, Calif., a belt manufacturer that has posted some rather startling numbers.
For much of the 1980s Leegin's sales, expressed in millions, read like the judges' scorecards at a figure-skating contest. Nine point five. Nine point seven. Nine point three. Year after year the $10-million barrier seemed impervious, and Leegin condemned to steady-state purgatory. Just an everyday company in the apparel trade, so it appeared, due to be snapped up by a competitor or driven under by imports.
And then, suddenly, the heavens beckoned. In 1987 the company hit $10.8 million; in 1988, $15 million; in 1989, $20 million. Every year thereafter brought similar bursts. At the end of the company's last fiscal year, October 31, 1992, Leegin recorded revenues of $47 million, five times its mid-1980s level. This year -- no letup in sight -- the company expects to do better than $65 million. Profits, too, have grown apace. Leegin's pretax income in the last three years has hovered around 10% of sales. Its debt-to-equity ratio dropped from 3:1 in 1989 to 1.6:1 in 1992.
Leegin makes leather belts, which is to say it does business in a fiercely competitive marketplace, an industry propelled partly by fashion but mostly by buyers' unchanging need to hold up their trousers. The company has neither uncovered nor created a burning new trend or technology to hitch its rocket to. It hasn't signed up any deep-pocketed investors; it hasn't landed any make-or-break accounts, no Wal-Mart or Sears or J. C. Penney. (Leegin's 15 biggest customers account for less than one-quarter of its business.) Nor has the global economy boosted its growth. Leegin's customers, several thousand specialty stores and a handful of mail-order houses, are nearly all domestic. It makes most of its belts in its California factory.
Oh, and one other thing: Leegin never advertises. There isn't even a sign on the company's building. "The belt industry hardly knows who we are," says Kohl, exaggerating only a little.
So, what's the secret? You could say -- accurately -- that Leegin's salespeople can do things with computers that most salespeople only dream of. You could note how the office and the factory have been reorganized to support sales rather than undermine them. But those are parts. And ultimately, to understand what has happened, you have to see Leegin whole, the way its zealous leader, Kohl, sees it, as a company that has undergone and is still undergoing a self-directed metamorphosis. Leegin has quietly but surely been transforming itself from just another belt company to a supplier that its customers will find indispensable, maybe even irreplaceable. Leegin is eating its competitors' dinner because Kohl isn't afraid to throw out or reinvent any part of the company that interferes with that objective.
And if the reinvention has to be done on the fly, by trial and error, at the busiest time of Leegin's year, with a lot of involvement on the part of the CEO himself, well, hey -- nobody ever accused Jerry Kohl of not being a maniac.* * *
Kohl always wanted to sell to specialty stores. He had run one himself, started before he even finished high school, with his girlfriend, Terri, now his wife of 22 years. It was a psychedelic shop, with T-shirts and paraphernalia for the youth trade, opened up each day as soon as its owners got out of class. At age 19 Kohl bought into Leegin, a tiny leather company he did business with, and set out to supply the specialty-clothing and leather-goods market. Two years later he and Terri bought out the founders.
Leegin grew -- a little. It was a tough business. Customers had to be called on by salespeople; catalogs and telemarketing alone wouldn't do the trick. But the stores were small, and Leegin's line was limited. Salespeople found themselves traveling long distances to write up small orders. Every time a salesperson quit, Kohl lost dozens of accounts. Back at the plant, Leegin's designers kept turning out new styles, since any clothing retailer likes something fresh for the season. But the proliferation of products threatened to choke the factory with work in process. A batch of belts could take more than a month to wend its way through cutting, sewing, and every other department.
Then there was the office, which by the early 1980s had turned into a jumble of fiefdoms and foul-ups worthy of a Charlie Chaplin movie. Orders awaiting fulfillment were jammed into a clipboard on the wall. Invoices were cranked out in sextuplicate. A simple request from a customer -- "add a belt to my last order," say -- went from customer service (which filled out a form) to order processing (which looked up the style and price information) to data processing (which entered it in the computer) back to order processing (for verification) and back to customer service (which was the only department allowed to talk with customers). The round-trip took weeks.
Like employees and managers all over America, Leegin's workers passed the buck and covered their rears. Salespeople on the road griped about lost orders and lousy manufacturing quality. People in the office accused the salespeople and one another of sloppiness, and the factory workers of incompetence. The charges came flying back, with interest. "We'd say, ' We gave it to shipping, and they shipped it wrong,' " says Helen Moreno, now director of administration. "And shipping would be saying, 'Why did order processing take so long to print the ticket?' It was them against us." On the line, production employees pursued their own idea of them and us. They'd come in, put on their Walkmans, and wait to be given work.
If ever a company seemed stuck, it was Leegin. The nine-point-something numbers reflected it: for six straight years its sales scarcely budged. Kohl, however, was about to get himself unstuck. In the summer of 1986 he went off to Harvard Business School for the first of three annual sessions in the Owner/President Management program. Kohl had never been to college, and it was a once-in-a-lifetime experience. There were compelling case studies, smart professors, late-night study sessions. There were a hundred other businesspeople to swap ideas with. Soon, bells began to ring.
Leegin was a belt manufacturer just like every other belt manufacturer, Kohl realized. So long as that was true, the company would never grow. But it didn't have to be just like the others. Frank Perdue, the poultry magnate, had come to Harvard a few times to learn how he could differentiate his chickens from all the other chickens on the market. If Perdue could differentiate chickens, of all things, couldn't he, Jerry Kohl, differentiate belts? And if that was his goal, were his main problems, as he had once thought, how to make the plant and office a little more efficient, and how to add a few more salespeople?
Of course not. Not by any stretch of his fertile imagination. Rather, Kohl began to see, what he had to do was something entirely different. He had to create a new kind of belt company -- a company that offered customers a level of service and a variety of products they couldn't get anywhere else. He had to make it so that customers had no conceivable reason to go to a competitor.
That would mean reshaping the daily interactions and relationships between his salespeople and the stores they serviced, for it was in those interactions and relationships that Leegin's rubber met its road. Salespeople, Kohl could see, would have to have more to give their customers. They'd have to learn how and where the stores made money, then help them make more.
But new tires alone wouldn't make a clunker into a chariot. And if salespeople were to have more to offer, the office and the plant would have to back them up. At the time, all three facets of Leegin's operations were a mess. "Somehow," Kohl muses, "we had to make each one different."* * *
Today each one is about as different as it can be. And though the whole may outshine the sum of the parts, the parts themselves can be pretty dazzling. Come on the road, for example, with Perry Patton, 31, a Leegin salesman for the past seven years, now nosing his new white Mercury Villager around the freeways of Los Angeles. Among his stops, this February day, is a trendy men's clothing store known as Sporting Club, on Santa Monica Boulevard in West Hollywood.
Patton's first job at the store is to take inventory. Like a bread supplier in a supermarket, he and a young trainee go through Sporting Club's belt racks, counting and straightening.
His second job is a little more unusual. Unpacking a Toshiba 2000SXE laptop, Patton punches up the Sporting Club account and records the count for each style number as it appears on the screen. Soon the little computer's portable printer is spewing out reports: Sporting Club's orders in the past 12 months (about $20,000 wholesale). Current sales volume, compared with last season's and last year's (up). Number of belts sold -- by individual style, by category, by color, by nearly anything that Patton and Sporting Club co-owner Don Zuidema might want to see.
Patton's third job? Selling, which is now mostly a matter of consulting the numbers and making informed judgments. Leegin's One World and Honest lines are doing best in Zuidema's stores. Black is hotter than brown right now. Patton shows Zuidema some new styles that fit with the top sellers, and a few others that his computer indicates are doing well in similar stores. Studying the reports, Patton points out that Zuidema's sales as a percentage of inventory are too high: Sporting Club may be losing customers who can't find a belt in a given size.
To Zuidema, the information provided by Patton's computer has changed the nature of the vendor-customer relationship on two critical counts. One: the objectivity of the numbers engenders trust. "If we're not selling dress belts," Zuidema points out, "there's no reason for him to push dress belts on us." Two: the information allows Zuidema to tailor his inventory and thus maximize sales in what was traditionally a forgotten corner of the business. "Thanks to them, we make a lot of money in the small space we use for belts. It's probably one of the most profitable centers in the store." On this day, Zuidema scans Patton's numbers and listens to his pitch on new styles. Then he places an order for $7,000 worth of belts.
Kohl, who still describes himself as a belt salesman, always figured that computers could revolutionize selling. But off-the-shelf software for personal computers never seemed to deliver what he needed. Frustrated, he taught himself to program. When the first portables appeared, he bought one and began experimenting. He asked salespeople what they would like a computer to do, then wrote the software to do it. Soon he was asking for volunteers to take a portable computer out on the road.
Guinea pig number one was Vicki Schubert, saleswoman for the San Francisco Bay area. Guinea pig number two: Perry Patton. There were times when each was ready to chuck the first machines through a store window. On one grim day Schubert visited a small chain's seven stores, spent hours taking and recording inventory, then punched the keys to combine all the stores' records into one for her presentation. All the data vanished -- for good.
Despite such mishaps, the volunteers soon saw firsthand how much paperwork the computers could save them and how the information they held could help in selling. One salesman wanted no part of it and left. The others -- egged on and trained by the early users -- gradually climbed on board. Kohl kept revising the software and replacing the hardware, no expense spared. He told salespeople to call him or another programmer anytime of the day or night if they encountered a problem.
Today Leegin's 60 outside salespeople enter orders directly into those 2000SXEs, no paper required. They transmit the orders to the office by modem every night, along with messages to anyone in the company they need to contact. Information flows both ways. The central computer updates the salespeople on phone-in orders and payment records and credit problems in their territories. It provides daily information on belt availability, no small matter in a company that now produces more than 1,000 styles in a range of sizes. ("That lets me say, 'Those belts you sold? I can get them back in here right away,' " explains Patton.) It automatically updates the portables' software, correcting bugs and adding features. Recently, Kohl added a database to track the competition and asked salespeople to note on their screens who else was selling belts in each store. Now, he boasts, "I can tell you not only what we sold yesterday in Chicago but every other company that's selling belts in Chicago."
To sales managers such as Doug Patton -- Perry's older brother -- the computers provide daily data on how the troops are doing: Number of accounts visited, by store type. Number of categories sold. (Too few categories probably mean stores are missing some sales.) Recurring problems will be grist for one of the 10 or so training-and-discussion sessions salespeople attend each year.
To Kohl, the computers provide instant market information: "We know what to manufacture, because we know what's selling." They also create an account database that remains with Leegin when salespeople leave. Most important, the computers further his strategic objective, which is to make Leegin indispensable to its customers. "Our goal was to know more about the stores' business than they know themselves." Where belts are concerned, acknowledges Zuidema, Leegin does.* * *
How many companies have boosted sales only to watch their production and support systems crumble? At Leegin, the office and the factory were already stretched to capacity. If the new computers made salespeople more productive -- or if, as Kohl expected, the machines made it easier to add and train new ones -- the company would likely face meltdown. Every problem would be shunted off from one department to another. Everyone would have an excuse.
So in September 1988, at the beginning of the holiday production season, an apparel company's busiest, most frantic time, the maniac struck again. From then on, declared Jerry Kohl, Leegin would have no more order processing, no more customer-service or credit and collection departments. All those functions would be folded into one job, account specialist. A pair of account specialists would cover a territory. They would be responsible for everything that customers or salespeople might need from the office. All by themselves.
Panic set in. "I figured either this was going to be some marvel of an idea," says Helen Moreno, "or it was going to be the end of my position here and the end of a lot of other people's positions, too. It was really, really scary." Some people's worst fears abruptly came true. The jobs they were accustomed to vanished. They had no chance of qualifying for the new ones. Three of the dozen or so office workers left right away. Three more were let go later on.
Those chosen for the new jobs plunged into classes, for many the first since high school. How to process an order. How to approve credit or collect a bill. For four months the group met two or three times a week, often from 6 a.m. to 8 a.m. The panic subsided into chronic, efficiency-killing anxiety. Queasy about asking for money, the fledgling account specialists postponed collection calls. Unnerved by demanding customers, they pulled "picking tickets" -- shipping instructions -- from the computer and walked them into the warehouse, highlighting special requests and penciling in changes as they went. Shipping clerks found themselves dealing with 12 different people, each with an urgent need, several times a day. Some orders went out twice. Some never went out at all.
If Kohl had doubts, he doesn't remember them. "You lose some people as they get frustrated," he says breezily. "But we were getting people to feel more a part of the company." Just such single-mindedness, of course, was probably what made the whole thing work. Even after the initial training period, classes continued, once a week, for two hours at a crack, in communications and computer skills and a dozen other topics. (They continue to this day.) Kohl and information-systems director Kimmi Pitchford constantly refined the office's software, streamlining procedures, allowing the specialists to record idiosyncratic but critical information about every account ("pays bills late but always pays"). Moreno concentrated on getting shipping and the account specialists to work together, assigning responsibilities to each department.
Maybe most important, Kohl spent money to help account specialists meet customer needs more easily. He built up hefty inventories of Leegin's fastest-moving styles, then introduced Leegin Express, a program that guarantees shipment of those styles in 10 working days. Last year he and a team from the office developed procedures for a "quick ship" program, allowing orders in before 1 p.m. to go out the same day. Today Leegin Express accounts for some 60% of the company's business. About 80 quick-ship orders are filled every day.
Leegin's office is noisy and crowded, with 16 account specialists crammed into a space scarcely larger than a good-sized living room. But watch an employee such as Theresa Van Frankfoort at work, and you get a sense of what has changed. Van Frankfoort and her partner -- who are known as the Blue Team -- handle the Pacific states plus Arizona, roughly 1,000 accounts in all. They take orders, schedule shipments, approve credit, handle collections, authorize returns, answer salespeople's questions, solve problems such as lost invoices, and perform a dozen other tasks, most with a phone call or a few keystrokes. Charts on the wall track each team's key measures -- credits issued, accounts receivable, cash collected, and so on. Overwhelming? At times it is, acknowledges Van Frankfoort, who in the evening finds herself jotting notes about things to accomplish the next day. The payoff is that the responsibilities -- and the customers -- are hers. "I love what I'm doing," she says. "I know the customers and they know me."
The attractions of the one-stop shopping provided by Van Frankfoort and her colleagues aren't lost on the customers. "I don't need Perry to come in," says Lottie Shamie, manager of a western-goods store that is among Patton's top accounts. "I can call and place an order, and they ship it right out. Even if it's just one belt. Another company we deal with, their orders get messed up all the time and I'm constantly returning stuff."* * *
In the factory the transformation probably started the day Mickey Zaldivar, Chava Sanchez, and the other bosses went out to clean up the cafeteria. Or maybe it was earlier than that; Zaldivar says things began to change "the day Jerry came back from Harvard."
Whatever the key event, the facts aren't in dispute. Kohl began talking to manufacturing director Zaldivar and production manager Sanchez about what he was learning. He gave them books on subjects such as quality and empowerment. Before long the two men found themselves going on retreats, talking to consultants, and taking seminars, often with the plant's dozen or so supervisors. A workbook in a course on continuous improvement suggested the group give employees a live demonstration of the importance of housekeeping. At an appointed time, the managers and supervisors marched into the lunchroom. There they swept and polished the floor, scrubbed the walls, and set flower vases on the tables.
"Everybody stopped working," recalls Zaldivar with a chuckle. "There was, like, this silence. 'Have you guys gone crazy or what?' " But the exercise conveyed an inescapable fact: change was in the air. Now Zaldivar could begin experimenting.
Since belts require a lot of hand labor, Leegin's factory is in many ways old-fashioned. Workers toil over cutters, punch presses, and sewing machines. In the past, employees stayed in one functional department. They cut or sewed or punched or dyed all manner of belts as they came through, and collected a wage determined by a complicated system of piece rates. Wanting to change all that -- and brimming with up-to-the-minute ideas of empowerment and teamwork -- Zaldivar and Sanchez handpicked 20 experienced workers and put them in charge of a complete belt line. From then on, Sanchez and Zaldivar announced, those workers would own that category of belts and would monitor their own production. All would be paid an hourly wage, based on what they were earning before.
The experiment produced a little good news: quality levels in that category of belts rose sharply. But the bad news was dismal. Output dropped like a stone. Unused to working as a team -- and with no financial incentive to hustle -- the group turned out half what the managers had expected. Once again, it was September, the company's busiest time. With production falling, deliveries had to be postponed.
Zaldivar and Sanchez, disciples of a stubborn mentor, didn't quit. They divided the group of 20 into four or five subgroups. They instituted a group-incentive wage. Soon output was up to the hoped-for level; eventually it climbed even higher. In another six months the two men started a second team, this one with only 10 or 12 people. That seemed to go more smoothly. Slowly, carefully, a line at a time, they pressed on. For each line, production systems were mapped out. Machinery was tagged and moved. People were selected and cross-trained. By 1990 most of the plant had been transformed into minifactories, work cells responsible for categories of belts from start to finish.
Care alone couldn't eliminate the costs, either human or financial. A couple of the plant's 12 supervisors wanted no part of the changes and had to be replaced. Employees, suddenly asked to chart production levels and several other variables, were baffled and resentful. Zaldivar hired a consultant to teach basic math skills and graphing. Since most of the hourly workers are native Spanish speakers, classes were conducted in Spanish. Later he brought the local school district in to teach English. All this training and instruction was on company time.
Today the factory is as cluttered as ever; workers are jammed together as closely as the account specialists in the office are. But Zaldivar, walking through the plant, points out the signs and symbols of a transformed organization. See the computer terminals scattered around the plant? Everyone can use them. On-line information helps the teams figure out daily priorities. Workers punch in batch numbers as the belts move along, so managers know where everything is.
Oh, and check out these boards. That's where the teams chart cost, delivery, quality, absenteeism, and safety. Every day each team meets for a few minutes to go over any problems. Every week the lead people review the numbers with managers. Says Zaldivar: "We'll have a meeting where everyone announces the figures, and Chava sits there with a laptop putting them in the computer. At the end of the meeting he pops out a report, and the lead people then go back and discuss the numbers with their teams.
"Three or four years ago," he concludes, "it took us about six weeks to put an order through. Now it's a week and a half, and we want to get down to two or three days." Quality is up, too. Customers can see the difference and the reason for it. "Under their modular manufacturing setup they have the same people working on each type of construction," says Mary Beth Adams, a product manager for Lands' End. "That really assures us that the quality is in there."* * *
Part of Leegin's story -- and Kohl's accomplishment -- is told in the numbers accompanying this article, the dry figures of throughput and receivables and sales per account, gathered and charted by the day and the week in the Industry headquarters. What's curious on this score is that a compulsive counter like Kohl can't quite say how much the transformation of his company cost. The salespeople's computers he figures at more than a million dollars, all told. The reorganization and training of account specialists and factory workers, he isn't sure about. Press him and he shrugs. The company has always made money, he says, sometimes more, sometimes less, and it owes the bank less than it used to. What's to worry about?
Which may, of course, be exactly the attitude you need when you're investing in something hard to put a price tag on.
Consider this: Leegin now makes more than a thousand styles of belts, up from a couple hundred in the bad old days. It sells to more than 6,000 accounts, up from maybe 2,000. It doesn't advertise, because it doesn't need to: a salesperson visits the stores at least once a season. A new telemarketing operation keeps the company in touch with stores that are too small, or too remote, for a visit. Quality levels, delivery times, and prices are among the best in the industry, say buyers such as product manager Rodney Lane of L. L. Bean.
That kind of capability itself makes Leegin difficult, maybe impossible, to compete with. "We have 60 soldiers out there," says Kohl, "and each soldier calls on three customers a day. Unless you have the ability to call on 180 customers a day" -- not to mention the ability to provide them with up-to-the-minute sales information, or the ability to produce and ship thousands of orders a week, including 250 for a single belt -- "how are you going to compete with me?" Indeed, the company has slowly been acquiring lines from competitors who decided not to try.
But Leegin's real advantage is that it has become a moving target, poised for continual improvement on any number of fronts. The company recently introduced a line of handbags, for example. And why not? It has a distribution channel to women's specialty stores. It has the expertise to help the stores merchandise the bags. It can gather instant information, via the laptops, on how well they sell. Planned refinements of office and production systems should allow the company to expand in other ways, too -- by adding more belt lines, say, or by continuing to add salespeople.
Jerry Kohl, in addition to his many other traits, is a business junkie, a voracious reader of business magazines and eager attender of conferences, a man who swaps stories of manufacturing and selling and customer service the way others talk about baseball or movies. Somehow, all the information he gathers seems like more grist for the company-changing mill, the single-minded and in some ways single-handed metamorphosis he has set in motion at Leegin Creative Leather Products. "He has no hobbies," remarks one associate. "Other than his family, the business is his life." A maniacal existence, no doubt. But a pretty successful one, too.
LEEGIN: BY THE NUMBERS
|Annual revenues||$34.2 mil.||$47.0 mil.||$65.0 mil.|
|Pretax earnings||$3.0 mil.||$5.0 mil.||$7.2 mil.|
|Return on assets (pretax)||19.7%||22.4%||27.2%|
|Number of employees (average)||528||530||600|
|Revenues per employee||$64,773||$88,679||$108,333|
|On the Road||1991||1992||1993*|
|Number of salespeople||42||54||65|
|Number of accounts||4,800||5,800||6,600|
|Revenues per account||$7,125||$8,103||$9,848|
|Revenues per salesperson||$814,300||$870,400||$1,000,000|
|In the Office||1991||1992||1993*|
|Number of office employees||48||55||60|
|Revenues per office employee||$712,500||$854,500||$1,083,300|
|Percentage of orders shipped on time||73.5%||81.9%||85.0%|
|In the Plant||1991||1992||1993*|
|Total units produced||3.3 mil.||4.2 mil.||5.4 mil.|
|Throughput time (days required to produce an order)||19||13||10|
|Quality (% of units requiring no||75||89||95touch-up work before shipment)|