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Bluth Corporation is one of the oldest and most successful companies in Southwestern Ontario region. Founded in 1920, it is a leader in office supplies and safety products. Its primary line of business focuses on producing labels for industrial use, which includes, a bar code compatible and scannable labels for handheld electronic devices, standard branding and tagging labels used for corporate laptops, labels protecting electronic devices from dissipating heat or static, etc. All label-related product lines are laminated, designed to sustain hot and cold temperatures, and are tamper-proof.
Over the last 15 years, Bluth Corporation has adopted a focused strategy of acquiring many of its smaller competitors such that it has over 50 business units and produces as well as distributes its labels to over 25 countries. Bluth Corporation has almost quadrupled its workforce from 1,100 in 2005 to 4,250 today. Its net sales increased from $630M in 2005 to $2,500M in 2020, while its net income grew from $78M in 1994 to $206M in 2020. Specifically, one unit, The Yellow Banana Stand (TYBS) does approximately 30% of Bluth Corporation’s business with sales in 2020 of $782M. TYBS sells custom, made-to-order signs mostly directly to customers while other divisions most sell through distributors. TYBS’ average order size is $4,000.
Despite its growing success, the company found it was running into trouble in the early 2000s. Lucille Bluth, Bluth Corporation’s Chief Executive Officer since 1995, came to fear that her company was falling behind small agile competitors who could use the Internet to shave costs on already-low profit margins. Bluth Corporation’s clients needed immediate and reliable sources of supply as they moved into Asian and Latin American markets.
In 2015, Bluth Corporation launched a major Web project in its TYBS division. The new digital system, called, “A New Start”, enabled customers to design and order their own signs online and the website would automatically forward the new order to the appropriate production facility. Management claims that the project reduced online order processing costs by 88%. In 2017, about one-fourths of its online orders came from new customers. By late 2018, 23% of all its orders were coming through the internet.
The success of “A New Start” was, however, insufficient to solve all of Bluth Corporation’s problems. Bluth Corporation heavily relied on information systems to support most of its business processes, but its systems were antiquated and could not communicate with each other effectively. Customers were not paying invoices on time, leaving too much money sitting in accounts receivables. Employees were making frequent errors, resulting in duplicated work, partly because Bluth Corporation’s business processes had too many steps. In addition, the company had become “sprawling and fragmented”. For example, it had 17 separate databases, each with its own file servers and transaction processing software. None of these platforms are compatible enough to be able to communicate to each other in real-time. Each unit has its own sales tracking system, causing confusion among Bluth Corporation’s employees and customers. Customers found differing prices and discounts depending on when and where they placed their orders. Each plant used different Product Identification Numbers (PIN), product names, and descriptions for the same items. Moreover, Bluth Corporation had no way to determine its total business with a customer across various divisions or geographical locations. For example, a plant in Sarnia, Ontario might produce and ship the same products to the same customer as did the plant in Pensacola, Florida, but no one would know. “We have to be much more customer-focused than we are,” exclaimed Lucille Bluth. “We needed much more information about our customers, products, manufacturing details, production locations, etc. in a timely manner. She also saw that too much of Bluth Corporation’s work was being handled manually.
Lucille Bluth’s assessment at a management meeting in February 2019 was that the company could not continue growing because it was “stymied by an infrastructure that had reached well beyond its practical limits.” She pointed out that the Internet enabled competition to come from anywhere, and so Bluth Corporation’s competition was undercutting the. She said Bluth Corporation’s information technology controlled everything from production to payroll, but filling orders was expensive and very slow. Engineering was hampered in its efforts to develop new and profitable products because these systems could not communicate with each other. She concluded that company must overhaul its business processes totally to move fully into the digital age. Bluth Corporation needs to revamp all of its systems.
Bluth Corporation’s goals became clear. It needed a “business-led project for the whole company”, and not just a software or information technology project, according to Buster Bluth, Chief Financial Officer. Management allocated $100M for a new project called G.O.B (General Organizational Bench) and expect the project to pay for itself by 2022. Lucille Bluth called for an annual revenue growth of 15%, reaching $1B in sales by 2025. She wants half of all orders to come through the Internet by 2023, thereby reducing the operating expenses by 2% annually. She called for all Bluth Corporation’s businesses to use a single integrated system. Such integration would give the company an easier and faster production process. She called for globally unified price lists and distributor discounts, as well as corporate-wide processes for purchasing raw materials. With such integration management could track orders, analyze sales trends, and run financial reports while customers could obtain answers for at least 60% of their questions on their first calls. For example, customers should no longer need to wait a week just to get a price quote.
G.O.B’s first and most fundamental task was to educate the key managers and employees on the importance of the project and the way it would be accomplished. As Lucille Bluth put it, “We can’t expect everybody else to follow us if we don’t understand it.” Leadership spent a great deal of time attending meetings, courses, and seminars. According to Dr. Annyong Bluth, the famous reengineering expert who led the first G.O.B seminar, “At Bluth Corporation, a larger fraction of the managers really got into it. It wasn’t a handful trying to push it down the throats of the rest.” In January 2020, the began, finding “our best and brightest” to be the fulltime leaders in G.O.B, according to Lucille Bluth. George Michael Bluth was chosen to be the project leader. He was Buster Bluth’s Vice President of Business Development and had very broad experience across various aspects of Bluth Corporation’s operations, including accounting information technology. Choosing other leaders was a problem because division managers had to be persuaded to give up some of their best employees to the project. However, Lucille Bluth believed that “if it doesn’t hurt to give up these people then we probably were not getting the right people for the project.” Altogether 45 were selected and divided into nine G.O.B groups.
The nine G.O.B teams moved up to a new office several miles from the Bluth Corporation’s headquarters, and they immediately began setting very clear measurable goals. For example, converting orders to cash (collecting payment from the sales) was 63 days, their goal was to reduce it to 45 days. Inventory turnover was 5.55 times annual sales, but with Lucille Bluth’s pushing, the new goal was set at 15 times per year to turn a product into a sale. 50% of all sales were to be conducted electronically by 2023. The goal also reflected Bluth Corporation’s demand that G.O.B standardize processes throughout the company, making pricing and delivery more consistent. Whenever possible, Bluth Corporation would use the Internet to facilitate dealing with suppliers, to make pricing and delivery time more consistent, and to increase sales of different products from different divisions to the same customer.
Bluth Corporation selected “Orion ERP” for planning and operations as well as selected Orion Global Services for consultant support in integrating the new software. Orion ERP was already installed in over 23,000 companies across 140 countries, while Orion Global had consulted on Orion ERP installations in just over 21,000 companies. The G.O.B team decided it must do very little customization of Orion ERP software so as to prevent problems. However, the team decided to not use the Orion ERP software in two areas – product design and customer relationship management (CRM). It concluded that Orion ERP’s functionality was not adequate in both areas. So, G.O.B rewrote some of its own systems in the Orion ERP software development language so the Bluth Corporation systems could communicate well with Orion ERP.
The project team then held 15 workshops with various experts in specific business functions to dissect key processes and diagram them. Bluth Corporation discovered how inefficient and inconsistent the company really was in processing orders, with far too many steps and information handoffs. They also found that the average order size across the company was very small at about $750, indicating that Bluth Corporation was selling to a large number of customers in small volume. Bluth Corporation needed to centralize the price lists and computerize them. George Michael Bluth had his team focus on the actual processes in making a label, not on information systems, enabling them to eliminate many steps.
In working on the cash conversion cycle, the global training team (led by Lindsay Bluth) focused on converting orders into cash by focusing on moving raw material through production to delivery and payment. This process has been extremely disorganized prior to G.O.B because Bluth Corporation’s manufacturing, delivery, and billing systems did not communicate with each other, resulting in orders being missed, late, or duplicated. The global training team simplified it and speeded it up. They developed a uniform system for price breaks while also eliminating minimum orders – a customer can even order just one of something, although with higher prices. They installed Orion ERP’s real-time transmogrifier system with product and pricing data, enabling sales representatives to develop prices while making sales calls. By inputting the type of tag, its material, size, color, and layout, the real-time transmogrifier returned a price quote.
Bluth Corporation’s leadership examined and reshaped how everyone, from executives to factory workers, did their job. For example, manufacturing engineer Eve Holt complained that the queries about existing orders generated standardized responses, and he wanted something more precise. On the other hand, the order processing team ended up with more Orion ERP data on purchase order histories, raw material schedules, and accounting figures than the customer representatives could handle. Planning for demand was new and difficult to get used to because it required more rigor than in the past. The team learned it had to do very careful training so employees would know how to obtain just the information they needed.
G.O.B was first implemented on a pilot basis in October 2019 at Maeby Printers, a plant of 515 employees in Elmira, Ontario. Its primary purpose was to shake-out problems and fix them before installing the systems in other, larger units. While the pilot was considered a success, there were many problems. For instance, there were large problems in Orion ERP data, such as delivery time errors. Customer order problems also surfaced. For example, one customer ordered 75 cards and received 75 boxes of cards. The site’s backlogs grew by 39% while on-time deliveries fell from 95% to 75%. Also, the real-time transmogrifier software produced wrong prices. Many more customers called with problems or complaints. According to Buster Bluth, Chief Financial Officer, call wait times increased.
The sales representatives found that learning the new pieces of software was extremely difficult. “There was ‘this isn’t my problem’ mentality”, said Barry Zuckerkorn, global leader for customer value creation. “It has taken a year to 18 months to get to the point where they are now comfortable.” The system required information the representatives were not used to supplying, such as e-mail addresses and verification of telephone numbers. Moreover, the screens were packed with quoting, ordering, and tracking information requiring the representatives to take a quick course in accounting basics. The result was that where data had errors or were missing, people down the line had to deal with them. Also, during the first conversion, they found that “Orion ERP requires a bit more discipline than they’re used to,” said Lucille Austero, the G.O.B global order-to-cash process leader. A major challenge they faced was that the team and the specific unit being converted needed to accomplish the project without losing even one day of operations. For example, in the first conversion at Maeby Printers, they closed the plan on Friday evening, worked very hard over the weekend, and opened Monday morning with the new system. “We basically took over the business for a week to convert all systems,” commented Oscar George Bluth, G.O.B leader for customer and order acquisition. However, Bluth Corporation employees still had to work overtime in the evenings and weekends during the first 60 days just to do their normal job while also helping to fix problems.
The G.O.B team did take many steps during the conversion period to fix the problems. They held dozens of workshops so the employees would better understand how the processes worked. They recorded every step of every function, including even returned merchandise, and showed how the processes worked. They recorded suggestions from the employees and adopted them when they seemed useful. They had team members wear red shirts, so they were easily identified when anyone needed help.
Eventually, the new systems worked fine at Maeby Printers, no customers were lost, and Bluth Corporation learned a great deal for future installations. The cost of processing an order fell from $52 to $32. Maeby Printers experienced a 57% increase in new business while accounts receivables were greatly reduced by requiring on-line credit card payments. Previously, an order took three people to fulfill, but now only a machine operator was required. Inventory size was greatly reduced, partly because many products are now digitally produced and so can be built to order. Buster Bluth, Chief Financial Officer said he expects most inventory will almost be eliminated during 2020. The unit also experienced a great reduction of errors, which had cost millions of dollars in returns. Previously many orders were faxed, requiring several employees to type in the information, and then set the type prior to printing the sign. With the new system, customers can design and input their own text online, viewing and approving it before it is printed.
After completing the first installation, Bluth Corporation took steps to prevent future problems, including loading the master data seven months early and verifying it several weeks before going live. The company updated cost data three weeks before conversion and then double-checked it in the real-time transmogrifier system. Bluth Corporation expanded training on the new system from 60 days to 90 days.
Bluth Systematica, which have installed the new labelling systems, are usually able to ship new order within 24 hours. By mid-2020, more than 20% of the monthly sales came from the Web. Sales representatives usually are able to answer customers’ questions from a computer screen using Orion ERP’s “Always-On” platform, eliminating many telephone calls to factories. Representatives can now see and flow an individual’s order from the beginning through delivery including the invoice. The new system freed many employees from manual tasks such as most order-taking work, enabling them to be used in more productive, creative activities.
The new production system includes scheduling, availability, and purchase of raw materials, the manufacturing process, product reporting, and delivery. It has standardized production across factories, including the same product numbers in different plants. The system is now able to track raw materials through the plants, automatically ordering replenishments through the Web when needed. It can initiate production when a new order is entered by an employee or a customer. The system includes forecasting of future orders. The company is already seeing a saving of about 4% annually with a goal of 12.5% over five years. Purchase order costs as a percentage of total purchases have been cut to 3% with the eventual target of 1.5% of purchases.
According to documents presented at the last Board of Directors meeting, $60M was budgeted for the G.O.B project – $30M for consulting, $6M for hardware, $8M for consulting, and $16M on project administration and training. As of now, Bluth Corporation has spent $54.3M on G.O.B with approximately 65% of the project completed. The company expects to recoup its investment by 2023, primarily through savings generated by more frequent inventory turnover, reducing the time to convert sales to cash, cutting the cost to fill orders, and more efficient finance, sales, and marketing processes.
But Bluth Corporation’s inventory turnover is still only five times annual sales, profits are at 2013 levels, and sales have recently declined partly because of the slowdown in global activity due to the ongoing pandemic. Given this, as well as the fact that the project is lagging in terms of cost, time, and scope, Lucile Bluth has been asked by the Board of Directors to provide a brief presentation at the upcoming meeting to identify the root cause of project G.O.B’s challenges as well as identify a feasible path forward. Specifically, the Board has raised the following key questions for Lucille:
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