The Full Circle
Our story begins with Bert Baker, a retired WW II aircraft engineer to whom the word "relaxing" defined a family business. With nothing better to do and bored with retirement (presumably relaxing in his backyard) Baker got and purchased the Sarasota Redwood Furniture Company in Sarasota, Florida for a mere $7,500 in 1954.
At the time, the company did as the name suggests: they built outdoor redwood picnic tables and chairs. But Bert had other ideas. Struck by the wide uses of aluminum by the military, he first introduced the alloy in what then seemed a unique application in outdoor furniture.
The innovation was a natural fit and came at a time when America needed durable and lightweight stuff to lay back and watch the world spin away at pool side. The company was renamed "Tropitone" and soon Bert had himself a booming business servicing the burgeoning residential and resort outdoor furniture markets. In 1965, Bert's oldest son, Jim, inherited the president's mantle and kicked off a drive to position the company to national market prominence.
Jim made the most important strategic move in the company's history since Bert's pioneering use of aluminum by opening a new facility in Irvine, California in 1971. He hired prominent designers to style a new line of furniture from the historically quaint to the daringly contemporary. The effort was quickly rewarded by record sales from each year that followed. Tropitone rocketed to nationwide prominence as a leader in upscale casual aluminum furniture in both the general residential and hotel resort markets.
Relaxed and assured with their place in the sun, Tropitone's unflagging growth finally peaked in 1988 when it generated $45 million in gross revenues, $20 million from the Irvine facility alone. This was a milestone distinguished by the then highest growth year in domestic residential home building; but that's when the trouble started brewing.
By the late-80s, the nation's economy was beginning its plunge into recession. Meanwhile, top management had taken their eyes off their cash, inventory, and their profit loss ratios, and dived straight into the recession head first. Vulnerable and fat with inventory, Tropitone was doing fine as long as the cash flow from sales continued. But when sales plummeted to $24 million, management was staring right into the eyes of a shocking $3 million write-off.
In times like these, companies must either adapt to the new situation and restructure, or fold up their lounge chairs and go out of business. Jim recounts, "we knew we had to do something fast before we lost the business completely."
Management immediately set aside plans to sell Tropitone and cash in on their remaining assets. "They thought that they could hold off and wait until things got better," says Jim. But Jim thought better of their plans. What the company really needed was another bold move; a clean slate of managers to take the wheel. Enter the next oldest Baker son, Douglas, who at age 29 did not fail to live up to his older brother's expectations.
The first thing Douglas did was sack the then sitting CEO and assume total control of all company operations. He promoted Mike Echolds from within the company to co-lead the charge. By 1992, Douglas and Echolds had assembled a completely new management team.
The present Chief Operating Officer and President, Echolds, who is 38, is an enigma at Tropitone. He is the only remaining member of the original management staff, aside from family members, and has punched in more than 22 years with the company. "I literally started by pushing a broom on the factory floor," Echolds says.
Douglas and Echolds then enlisted the help of outside consultants Michael Krusing and Charlie Farrell to help navigate the difficult road to recovery. While Krusing consulted on manufacturing practices, Farrell, who is now Chairman of the Board and CEO, directed the overhaul of financial and day-to-day management of the company. "We did some real soul searching for about three years," Echolds remembers.
Management activities and procedures once considered vital were re-evaluated for their actual value. For instance, the company had two autonomous operating divisions, in Irvine and Sarasota, each with a complement of managers and staff. Sarasota management was closed completely and Irvine, after a major overhaul, was reduced.
Furloughing more than 30 managers and supervisors had the obvious benefit of lowering overhead, but the action did more by consolidating management into one corporate services group. Recalls Echolds, "The effect was sudden and noticeable."
Practices were changed by requiring managers and supervisors to help write business plans. They were held accountable to the goals that they had set themselves. The focus on goal management dislodged old thinking and steered management away from day-to-day crisis handling to strategic planning for long-term productivity.
The results were swift and tangible. They cut nearly half the product line up and reduced inventory to nearly nothing. Echolds explains that by limiting what the factory made they reduced inventory and increased efficiency by cutting the production timeline by more than half.
Another factor in improving production is their use of just-in-time (JIT) production management, a method that was perfected by the Japanese in the late 70s and adopted by many American firms in the 80s.
In the traditional method, the floor is assigned sequential production of components based on the idea that you tool once to produce many parts. However, if you believe that cash is inventory, all you end up with is a large pile of unassembled parts and no completed product. With JIT, you tool up many times to complete as many products as you need for today's production. It requires adept forecasting to stay just ahead of demand, but the cost savings is a compelling reason to try it.
Another interesting tidbit from Tropitone's restructuring was a suggestion from Krusing to restrict floor space. About 20% of the production floor was sealed off to help focus attention on waste on the factory floor and to train workers to make do with fewer resources. "We found that the more you give, the more people use, so we finally said let's learn to work with less," comments Echolds. "Eventually we'll wall-off the area and release it to another tenant."
Retooling Tropitone's operations was not limited to the factory floor. An antiquated computer system and a stodgy information management regimen were both replaced with a new system that generates real-time statistical analysis of company performance. This kind of micro management can be dizzying for the uninitiated, akin to playing a computer game 8-hours a day, but Echolds claims that the effort is paying off. "The staff has more information available to them than ever before and can test 'what-if' scenarios and model new capacity plans in a matter of hours. This has expanded their ability to control assets, like inventory, and schedule production accordingly."
A big topic that was put on the table early on was whether to keep the Irvine plant at all. "We considered many options ranging from relocating manufacturing to Mexico to consolidating operations to Florida." They also weighed the Irvine plant's strategic location in relationship with the markets that the company served.
They knew that two thirds of Tropitone's business went to the residential consumer, with the rest going to hotels and resorts. But what they realized was that 46 percent of all Tropitone business was generated by the Irvine plant. Closer examination also revealed that while company wide sales dropped 47 percent sales from the Irvine plant dropped only 35 percent.
The bulky nature of furniture can make distribution logistics an expensive proposition. "Many of our direct customers come here with their own trucks to pick up product," says Echolds. So, when it came down to cost savings, they agreed that it would actually cost more to ship the product here from Florida than keeping the plant open.
Eventually they considered moving all manufacturing to Mexico. The plan offered some attractive features, namely cheaper labor, however even the additional cost savings in reduced taxes could not tip the scale far enough in Mexico's favor.
"It was easy for management to get lulled into thinking that a move to Mexico would be the big solution," Echolds explains. "But if you take a broken company from here and move it there, usually all you'll get is a company that's even more broken."
Indeed, if a company is having trouble anywhere, moving to just cut labor costs simply will not help. While larger corporations may have the resources to plan around certain logistical problems, smaller operations are merely swallowed up by them. One of the fundamental flaws of the "sucking sound" alarms that were declared by anti-NAFTA groups is that the strategic and tactical costs of running an operation in Mexico can be prohibitive, as Tropitone quickly discovered.
Finally, management realized that one of their biggest assets was their own well-educated and skilled labor force. Not to mention the fact that they felt they owed it to their people to give it a try and stay.
Out of a company wide total of 450 employees, 175 worked at the plant in Irvine. After taking on the task of restructuring the company, the new management team decided to include the rank and file in the discussion of the company's problems.
"Two years ago we told everybody that we're in trouble," explains Echolds, "this laid down a very honest and open dialog with our employees. Now we have quarterly employee meetings where we share the financial information, especially the overhead, to show what we have to work on to make the company healthier."
The new openness heightened the employees' sense of participation, says Echolds. The employees appreciated their contribution to the company's eventual turn-around and that has kept company moral high.
The proof is in the absentee rate, claims Echolds. Over half the employees don't miss a day of work in any given year. To help matters more, the company can now afford to pay starting wages in excess of the minimum wage, provide healthcare coverage, and a 401K savings plan.
About two years ago, the employees asked for a 4-day work week but, the effort was complicated by inflexible state regulations. According to Margie Pohl, Tropitone's human resources manager, the problem was in the guaranteed hours and overtime. "If we decided to work only a three day week because of a slow down in business, we'd still have to pay them. If business picked up and we had to work on Friday, it was all overtime."
Echolds explains that since their business is seasonal, "there are peak times everybody will work 50 to 60 hours a week. In the off-season, we can go from a three-day work week to five depending on the orders on hand. What it came down to is that we lost that flexibility and the four-day work week was abandoned."
From the looks of things, it appears that the effort is beginning to pay off. Last year Tropitone captured $32 million in company wide gross revenues, up by 25 percent from the low mark set in 1988. Although the Irvine plant improvement was less spectacular (only $15 million or 14 percent), Echolds and the Baker family are convinced they've sowed the seeds of their future growth.
"We've made a long term commitment to keeping the plant in Orange County," says Echolds. As proof, the company recently signed a sale/leaseback contract for the Irvine building with an investor who has a 7-year term and a 5-year option.
Adopting what Echolds calls a "family owned and professionally operated" philosophy for the future of the company, last year Douglas cast his vote of confidence in the current management by stepping down from active management. From this point forward, says Echolds, nobody should expect anything more extravagant from the company than for it to stick it out for the long haul.
Meanwhile, he is excited with new marketing efforts with foreign distributors that have already kicked in an additional 10 percent of new business. The company had hoped that a NAFTA-inspired contract would have a positive short-term effect on some new prospects, however the recent crash of the Mexican peso has dimmed some of their hopes.
The newest effort will take Tropitone furniture into booming hotels and resorts in Southeast Asia and Australia. Among their growing list of new clients is the New World Hotel in Ho Che Men City, formerly Saigon. Echolds savors the image of tourists relaxing on his company's outdoor furniture in a country that was so ravaged by war; an image that he's certain that Bert Baker would have also enjoyed seeing.
"It's a funny world," Echolds comments. "But I feel as though we have come full circle." -HP
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