Lisa Ryan: Hey, it's Lisa Ryan, and welcome to the Manufacturer's Network podcast. I'm excited to introduce our guest today, John Abplanalp. John is the president and founder of Tight Lines Advisors consultancy, which focuses on optimizing manufacturing performance. So John, welcome to the show,
John Abplanalp: Lisa. Thank you very much. I'm delighted to be here.
Lisa Ryan: Please share a little about your background and what led you to focus on manufacturing with tight lines.
John Abplanalp: I will try to give you the quickest version possible. I was involved with a family business, a precision valve corporation. My father invented the aerosol valve. I'm looking at the patent copy in front of me right now.
He received the patent on March 17th, 1949. He is Swiss, but St. Patrick's Day was a celebration for my father that afternoon. He started their business. We ended up with 22 locations worldwide, serving most of the major customers, the SE Johnsons, the Unilevers, the record, Ben Keer, the who's who of, who's in the consumer packaging goods.
A lot of the products they had were in aerosol form. He passed away 20 years ago at the end of August 2003. If I drop some numbers, we made about 250 million in sales. We get some family dynamics - a sister and brother-in-law that didn't necessarily buy into what we were doing, where we were going, confidence about myself, et cetera. It's not a complaint about it. Everybody has a right to, so we made the deal of evaluation and allocation assets, et cetera, and got that behind us in 2006 and continued.
In 2008 we went from 250 to the end of our fiscal year 2008. We got to 343 million, and I'm proud of myself and the team for what we were able to do. That was the fiscal year of May 31st, 2008. You may remember a little turbulence in 2008, 2009. We went from 343 million in sales leverage from 343 to 290 million. It nearly killed us. From that, we brought the guys in to do the restructuring. We brought partners in the private equity world, and through you, watch it. I understand it. It's receivables. It's payables. It's inventories. It's what are we going to cut? What are we going to cut? What are we going to cut? As we went through it, we were two or three years into this process and had an opportunity to visit our South Carolina plant.
Customer service was an issue, so we raised inventories, and cash was the issue. So we're driving inventories down again. The organization was just getting pulled back and forth again. I fully realized I was tapped into the ship at the time that created the change. But I had the opportunity to go down to our plant in South Carolina. It was a great group of people and still is. What we decided to do was focus on productivity. We started looking at the obstacles of productivity, material losses, health, and safety issues, downtime, and quality issues. We did it in various part series. We did it in a parade and went after the biggest issues first.
We found that we made some mold changes without putting capital or throwing real capital investment into it. We did some, while leadership at the time was talking about we didn't have enough capacity. We had to spend $440,000 for a mold in a machine that was $20,000. We were getting the changes in a mold that we made. A mold that was 30 or 40 years old, and my father was getting about 50% output out of it.
It took us eight hours to set up. Within 30 seconds, the mold was running at a hundred percent capacity. It was a phenomenal turnaround. We said that if we continued the path we were going, and what we could do, get all these changes, and the next ones on our list would reduce the cost of goods by 10 to 12% in one year alone with a lot more work to do.
That would allow us to get more output in fewer hours. So you'd reduce your amount of labor hours. The other part was that productivity was greater, your lead time was reduced, and your on-time delivery was more consistent.
Also, we were going after qualitative problems, and as a manufacturer, if something happens internally, it will eventually get. But we were able to reduce the number of qualitative issues that we had internally, and therefore the external failure rate dropped. So, our competitive position was enhanced along with greater profitability. At the time, if we were going back in and looking to sell, which I understand was part of the deal when we brought in our rescuers in the private equity world.
But now we had a real chance to show to whoever was coming on. So here's your path out. Here's how you can drive profitability. If the gross margin improves, gross margin improvement, especially when you get a competitive position, is the greatest thing you can do to drive value in a company that drops right to the EBITA.
You show it's consistent, the multiple improvements, the valuation takes off exponentially. So we continued down that path. The company eventually ended. Being sold, whether the ideas were adopted or not. I honestly don't know. Part of the reason we couldn't share those in the selling process.
It was reflective, look, reflective on current management, but that's someone else's issue. But we sat there and said, Hey, this is viable. This is a hundred percent viable, and it's a real passion because the coolest part of the whole thing was not necessarily the dollar. But we had them when you watch people on the floor that were finally a part of this. We had the machine maintenance guys.
We had the machine, the operators. We had the assembly mechanics. We had the assembly operators all have a partner say in it. Because they're the ones working around the problems and the issues daily. We gave them our support. You had guys high-fiving each other on the floor.
When you started seeing the turnaround, there was one woman that was in charge of an assembly machine, and this one machine, we had to run Three shifts, seven days a week, and import goods from one of our sister companies to meet our demand in the two months. So by the time we were done, it was down to running two shifts a day, four days a week, and she wouldn't let anyone else near her machine.
And it started when we first started doing that work. She came in with a bag of rejects, put it on the table before me, and said, we need a new machine. I said trust us. Let's go down this process for two months; I'll be completely behind you if we do. By the time she was done, there was no way you were getting rid of her machine.
And to watch that turnaround, and to see the involvement, and the enthusiasm of the people, and don't get me wrong, everybody wants to make a. But, to watch what these people achieved with the appropriate guidance, I still need to come up with the solutions. They weren't my ideas.
These were solutions running around our floors and machines for 30 years. So was, it is fantastic to do it, and that's the genesis of tight lines. The best way I could tell you is driving this profitability and value for a company with an organization that's upside down to the traditional triangle.
My job is to support everybody else down there so they can be most effective as they can, and the last thing, and I swear I'll shut up and let you ask a question with it, but the last part of that is part of, the, one of the tenants of what the tight lines advisor says. So as we go through this process, we get that gain in the competitive position, the revenue line, and, most specifically, the cost of goods, which drives valuation.
You take that gain in the cost of goods every year that the organization has been supportive of. Then, put it on the new valuation, a company, and give that value back to the employees appropriate on the appropriate percentages in either real or synthetic equity. Because yes, they will be working fewer hours, but you give them back because you can only achieve this with their input.
So that's that, that's where the dynamic is. So now you've got partners with you that are all focused on the same aspect of what you're doing, getting the obstacles of productivity out of the way.
Lisa Ryan: So that's such an important lesson right off the bat when owners and leaders of companies consider their hourly employees Because they know their job better than you know their job.
And when they feel that they are a part of the greater mission, that they're able to make a difference, they are willing to give you so much more, and as you said, you also realize that there's an expectation of a return. So if employees are helping you to be more profitable, of course, they share in the profits, but when things don't turn, you know when things aren't going well.
At least the employees know. So there's that level of transparency and accountability. You built in that feeling of ownership with your people, who were the lowest in the organization and the most important.
John Abplanalp: How well did that come home to us during the pandemic? In the manufacturing op, it was guys. They came there every day when everyone else could afford to work from home in manufacturing. We saw it with the police officers, the supermarket guys, and the rest. They were the ones, they were the, right there facing the operations.
This was this idea, and these concepts were formed before that. But okay. Someone said okay, I wouldn't have a hundred percent of the value. Yep. You won't get anywhere near the value, increase, or continual increase if you don't have their ideas. As you said, they're closest to what's going on.
They're the ones that are dealing with the decisions the guys in the corner make on equipment. They have. Our brilliant ideas, and I'm not disparaging the guys in the corner office, don't get me wrong about that. But there are so many different things that are going on plants, and it's, a lot of it is legacy stuff that, that they were given either poor design, et cetera, that we made them run.
Lisa Ryan: And it, when it looks like it, you had your first downturn, of course, in 2008, and now we're facing some different challenges when it comes to the economic headwinds that currently exist. So what are you seeing regarding some of the biggest roadblocks to productivity and growth that manufacturers face today? And how would you recommend they overcome them?
John Abplanalp: My biggest issue is the pervasiveness of the success of the private equity world. That is not so much, and I don't want to paint them all with that same brush. You're familiar. You see how private equity works. They come back in cost, ripped out, et cetera.
Decisions are made in a corner office, the same thing we're discussing on the floor. So you've got companies like Nusteel or Danaher even, productivity-based, et cetera., and they perform well. But my, my, my biggest headwind is not even so much it's an operation.
It's the operating philosophy. There's a line. If I can say it this way, go back to you. You probably needed to be older to remember a gentleman named William E. Simon. Bill Simon was a treasury secretary under Gerald Ford and the energy secretary under Richard Nixon. But as treasury Secretary, ironically, he also made his fortune as the LBO of a company called Gibson Greeting Cards, which was the progenitor of the whole private equity world.
But his view, and his quote, which I think is phenomenal, and I wish I had under, I had known it while I was still operating before, before tight lines in his as a country, he was speaking of the United States, the productivity, and the growth of productivity should be the first to economic considerations at all times.
It is through those two things innovation, jobs, and wealth. If you can bear with me as I describe it this way, I'm using my two fingers. But if you can get more and more consistent output for fewer units of input. That's your gross margin line. So in between those two, that spread gets better.
That's what drops to the bottom line. That's where the company's value has been created over the last 20 years. But unfortunately, it's one of the things I only have my subscription to the Wall Street Journal for this quarterly productivity report.
Covid Aside, you can see over the last 17 or 18 years that while productivity is improving, the rate of productivity improvement is in decline. And to me, that is because what has happened was everybody started chasing As they got more competitive, they started losing productivity. China opened up, and Mexico opened up.
Everybody was chasing cheap labor and not going after the productivity side of it. I'll say this. It could sound sarcastic or sincere, but when the previous glorious leader was down in Washington, the one that was just recently in New York yesterday. He put the tariffs in to support manufacturing in the United States.
I'm not a big tariff guy. I am a, yes. I understand it would help the US manufacturers think it's artificial at some point. Cause you know it, it puts the barrier on the incident, which allows people not in the productivity to razor priThek the biggest hit in the face was when we had the supply chain issues, and we started realizing our dependence on.
There's no cost to import from Mexico, China, or these other locations. There's the manufacturing there. There's a freight. Some logistics have to be baked into it. But I think in the US manufacturers, as they come back in, and onshore if they're coming from a lower labor rate area to a higher labor rate area, where we are right now, a lot of guys are resistant to doing that because it's going to reflect poorly on their financials.
The only way out is through productivity. If I might add, the other aspect is that I guess the most significant headwind is changing our thinking even more than economic aspects Going on. The other thing that was going on, that was after World War II, had three advantages. One was we had a growing population.
We had a population that was getting older, so you know, what we were buying was, increasing. We had more people coming in, but we also dramatically improved our productivity rates. So we are getting older, but it's almost running at a decline right now. Population wise. We're certainly not adding to the population.
The only way we're out of we can get out of this thing now is productivity. One last part is to think of the huge amount of debt that the US has right now because of what was necessary in most cases in CO through Covid, and all the rest of us through Covid, and all the rest, not the covid. So the only way we get out of this is to become a net exporter.
Nobody will buy from us just because we're the United States. We have to compete on price service. You know, the innovation side of the only way we can do that. Remember, we started before you went after productivity, lead times reduced on-time deliveries, and more competitive external quality. Is there a reduction or improvement in your gross margin line?
Therefore, you can reduce your pricing. We have to. The only way we can do that is to be competitive in what we're doing. We can only do that through productivity, innovation, and the innovation that'll give us.
Lisa Ryan: When you look at some of these things, you're talking about tariffs, and China, and supply chain, and the national debt, and some of those, sometimes it just feels so overwhelming as we think as an individual manufacturer or organization that's not something that we have any control.
So when you're looking at the things that you know manufacturers themselves can control, that over time will benefit that big picture. But what does it take for an organization to do in its culture to generate that productivity at all levels of the organization?
John Abplanalp: First, you have to go in e even before collecting the data. As we discussed before, the people in New York have to go in with an intrinsic belief in the human spirit. You have to figure out there are some dirtbags out in this world. We all know, but you have to believe that most people coming in to try to provide an income for themselves and their family is there for the right reasons.
And they want to be part of something even bigger than themselves, that they feel good about it. So if you've got that, then we use the system called the DMA system. I'm not, the guy Nick Demus now passed away in South Carolina, but it was a great way to keep track of it.
I recommend it for anyone to keep track of all the negatives. I like looking at the negatives because the positives to me, what your output was only the positive output result in any daily production or what was there was only because of the absence of the negatives if I can. So the more you can measure these negatives, and go after it, and organize your people, and in such a way to go after the biggest issues first.
And it was non-financial. It was the number of pieces lost, in that series, the number of pounds, lost amount, it all translated to. By the way, we're patenting this tight line system the way it all rolls back into it. You can come back and take how it affects the financials, but that's what I would do.
Believe in your people. Start organizing a data collection so you can go back in and start looking at what the negatives are, again, health, and safety issues, material losses, downtime, and qualitative issues, and then start organizing your key or best employees that you think could help out to begin with, and start working on the buy-in.
Lisa Ryan: It comes down to company culture and what you do to connect those employees with the mission. One of the techniques you stress as crucial for creating sustainable value is your inside-out approach. So talk about that. How does it work, and what are some of the benefits that result from it?
John Abplanalp: We've talked a lot about that and what we're doing. It's the guys on the floor. It's getting the data from the inner side of it, being able to put it we have yet to use. Terms like lean or six, whatever the appropriate methodologies are, you want to go back in and organize the people so they can do it.
But you know what we're doing is collecting the internal and external data that is there, bringing that back into the organization, letting them have it, and having it reflect both internally, financially, and externally on the., and your competitive position. One of the things you mentioned sustainable growth.
Sustainability is different. We hear a lot about the pros and cons of ESG - environmental, social, and governance. But you've listened to what we're talking about now. Are you in an environment where we can get more and more consistent output for fewer units of input material?
That works for the ESG. The social aspect is now we're bringing our employees in. Not only by the way, not only are we compensating them on this side of it, but the other thing that we're doing is