Kiva's backyard hole is simply the centerpiece in a web of regulation that has ensnared the company:
Tom Stafford says that Department of Transportation guidelines now can hold the packager liable if the packager makes a box for one product, the shipper repacks the box with a hazardous substance, and that box subsequently spills in transit. Accordingly, stringent disclaimers must be printed on the box, and if the box is to be used to transport chemicals or explosives, it must be tested at an independent laboratory and packed in precisely the way that the shipper intends to pack it. Wearied by the process and scared off by the potential liability, Kiva abandoned that market.
The Commerce Department periodically collects economic data, randomly tapping small companies. Currently, under penalty of law, the Staffords must collect data for the Commerce Department. Much of the information is hard to track down. Says Ruth Stafford, "You get selected by the Commerce Department for one full year. Every quarter you have to go back and pull roughly every tenth invoice. You have to list the mode of transport, where it went, its value, and the ultimate user, and then break all that information out by product code." Stafford says compiling the data requires one full weekend each quarter.
Kiva used to bid on government jobs. No longer. Bidding requirements have grown more elaborate, relating to various government-mandated set-asides for different types of contractors. Besides, notes Ruth Stafford, "there is no one clearing place for financial information on your company. Each time you bid you have to go back and provide information for the past three years." Stafford wonders why the government can't file the information centrally and certify contractors for a certain period of time.
Kiva's pension plan is under siege because of continuous revision of government rules, says Kiva's lawyer Jim O'Sullivan. "Retirement plans are important vehicles to keep employees around," he says, "but the retirement-planning industry has died because employers -- as trustees of the plans -- are afraid of potential liability." Ruth Stafford says it costs Kiva $5,000 in professional fees each year just to administer the plan, with the bulk of that money being spent on lawyers interpreting new guidelines. The Staffords are considering terminating their employee pension plan.
Witness the Demise of Loyalty
When large companies begin to downsize, the first casualty is loyalty. But that is just one facet of the endemic problem of fraying relationships in business. A small manufacturer like Kiva Container often finds itself stuck between vendors and customers much larger than itself. Between October 1993 and January 1995, Kiva saw five separate price increases for paper, totaling 68%. Corrugated plastic rose 42% in that time. Currently, U.S. paper companies can achieve a 25% premium by selling offshore. Hence, domestic supply is tight -- and prices soar.
Kiva resells stock corrugated paper boxes for a larger manufacturer. Twice this year it has had to throw away its catalogs after they were printed because prices rose again before the catalogs were shipped. In contrast, Kiva saw just four paper price increases in the previous 10 years -- and as many decreases.
When Kiva now tries to pass through price increases, customers ask for proof that three other customers have received similar increases. Longtime customers routinely shop around, and they demand just-in-time delivery, which forces Kiva to warehouse more product. The company used to send out one full truck a week. Now it sends one out daily, often carrying no more than one or two pallets. One customer even wanted to take product on consignment, paying Kiva weekly just for the amount of product sold. Kiva's customers now often demand payment schedules longer than the usual 30 days. "In fact, it's not unusual for the customer to say, 'If you want this job, you have to give us 60-day terms," says Tom Stafford. To gain more favor from customers, adds Stafford, "we source things for them that we don't even sell." In one instance Kiva located and purchased warehouse shelving for a customer.
At the same time, Kiva has been burned by bad debt, which totaled $40,000 last year. That stress gets off-loaded onto the work force. Kiva's sales force earns commissions based on collected sales, with higher commissions paid for earlier collections. Kiva now has an employee who spends about 75% of her time as credit manager. Ten years ago that job took no more than two hours a week.
"It's harder to build rapport with the customer," says Tom Stafford. "We used to feel comfortable with the smaller accounts, but now they jump around a lot." Stafford says the larger accounts, in contrast, want a stable supplier and a single source. "So the loyalty is now more with the medium-size and larger customers."
The decline in loyalty is internal as well. Ruth Stafford says that if a company like Kiva wants to fire an employee it must document everything. Kiva now has a labor lawyer on retainer. Two recent cases show why.
Two employees at Kiva's Anaheim plant quit voluntarily and subsequently filed for workers' compensation, claiming mental stress while on the job -- after they learned they could collect more from disability than from unemployment. Kiva's insurance company "reserved" $22,000 for each case, basing that figure on the average workers' compensation claim in California. "That $44,000 was charged to us as if it had been paid out," says Anaheim plant manager Norm England. "That affects your experience rating. Our premiums went up 15%." The insurance company subsequently recommended that Kiva settle each case for $2,000. "We said, 'No, we're going to fight this.' We even warned our insurance company that if it settled the claim we would sue them." Kiva ultimately prevailed after three years. That wiped out the $44,000 reserve. Says England, "We then asked, 'How about the higher premiums we paid during those three years? Are you going to reimburse us?' The insurance company said no."
