By John Hunter, author of the Curious Cat Management Improvement Blog.
Randy Harward spoke at the 2013 Deming Institute annual conference on applying Deming management methods at Western Mountaineering and Patagonia.
Western Mountaineering was facing a cash flow crisis when Randy Harward took over and he strongly considered closing down. Given the problems the “only way out of the situation was to increase turns” (increase how quickly they sold their existing inventory). Then they could pay down the debt using the marginal profit from sales. Given the financial crisis, the group took up to 20% voluntary pay cuts.
Randy had all employees attend weekly finance meetings where they discussed the company books and the reality they faced (debt levels, importance of quickly turning inventory, cash flow, etc.). On top of this each clerk was given a budget to work with for their area.
each of them got to work on improving turns and sales in their area and the place started to get an energy it just didn’t have before. Everyone was involved at a level I have never seen and sales started to increase.
They had success but then ran into a new problem: they ran out of inventory. And when Randy asked suppliers to provide more inventory they were unwilling to do so (presumably due to concerns about being paid for their good in the event Western Mountaineering ran into financial problems).
Taking a look at the bigger system picture they decided the more useful view was: “It is not about profit margin it is about turns so lets just worry about turns.” They then took to an early version of kanban style thinking: they looked to replace inventory each day based on sales made using the new service of Federal Express. They also paid for the items COD (cost on delivery – so suppliers had no risk). Western Mountaineering paid the shipping costs and paid 15% premium over listed prices.
A shipping clerk (/programer /student) knew of a new company developing point of sale cash registers.
That company was also struggling and getting ready to go out of business. The clerk knew that and called the company up and said “why don’t you install the devices here and we will help make them work and you can then use us as a reference. We’ll gain and you’ll gain.” And they said sure. And they went one step further and said we will put a full time programmer on our [Western Mountaineering’s] staff as well.
And so they did dial this program so it worked really really well. And that company is really big now, I think they are called Retail Solution in silicon valley. We were their first customer.
These efforts worked very well and with turns increasing they were able to start various new efforts to build on the success and they were profitable within a year. During the turnaround year we were able to gradually increase pay to about 40% over their original pay (so the pay cuts didn’t last long and soon employees were making much more than they had been originally).
To me it was amazing what people could do when they had purpose, knowledge, and a small stake in the outcome. It was the greatest management experience in my life.
Related: The greatest waste in America is failure to use the ability of people – Hallmark Building Supplies: Applying Deming as a Business Strategy – Respect for People: Optimize for Developer Happiness at Etsy – Psychology, Managing Human Systems