In December we posted 5 pertinent insights into the business of bulk material handling and offered a look at how the industry changed in 2020. Now we’d like to continue the conversation with our general manager Chuck Kerwin to discuss what companies can do to be successful looking forward in 2021.
AZO now offers a free downloadable guide that explores how hybrid “super plants” can help a manufacturer face economic uncertainty, much of this discussion will walk hand in hand with the philosophy that managing a business requires inevitable trade-offs and that a company’s ability to navigate and endure major changes will depend on a slew of critical factors. For more on these particular decisions and rewards, here are 3 more bulk material handling business insights from the AZO camp:
General manager of AZO Inc. Chuck Kerwin
Are there any trends toward (or away from) harmonizing process systems in facilities?
CK: I mean, it’s really hard to say because everybody’s got their own unique situation. Generally, companies that have more than 20 manufacturing locations are going the way of the dinosaur. We don’t see much of that anymore because they’ve either slimmed down already or they’ve gone out of business totally.
There was a baked goods manufacturer that was the perfect example of this old business model. They had like 30 bakeries that were all old, inefficient and land-locked on small parcels. The company didn’t have the cash to build nice new facilities as a potential last-ditch effort to save their business. This problem is behind us at this point — they are out of business.
Another issue is transportation costs. If you’re producing products that are bulky and low value, you don’t want to ship those products a long way. At a minimum, you would need two plants (possibly one on the east coast and one on the west coast) to reduce transportation costs. I know an example in the building products industry. Their products are relatively low margin and heavy. They have four plants spaced out through the Sunbelt. They do this to minimize their transportation costs for their high-runners by being close to their customers.
There was a complication with this strategy. Interestingly, they discovered that “sand is not sand.” Sand in Georgia is different from sand in California, which is different from sand in Pennsylvania. They had to adjust their “recipes” to compensate. That’s just part of the nature of the beast.
Last time we talked about companies being reluctant to take risks and invest in new equipment because it’s hard to say “I’m really nervous about something that hasn’t happened, but could, so we need to spend money preparing for it.” With this in mind, what is the harm in sticking with the status quo?
CK: Sticking with the status quo is the easy solution, but it also puts the company at risk. A lack of investment means you are falling behind technically. You are also limiting your ability to react to something completely unexpected (like COVID). That is, in and of itself, a risky scenario but often overlooked by senior management. Generally, the unfortunate thing is that a lot of American companies have a tendency to reward not taking risks.
“Why do I do anything new? It’s risky. There’s a long list of CEOS who tried something new and were shown the door because the plan didn’t work out. When the next CEO takes over, how likely is it that they will try anything new? Not likely. It’s too risky in that type of culture.
I’m reminded of “Star Wars” when somebody tells Darth Vader some bad news. They get whacked, so nobody ever tells Vader anything. “Why risk it?” In this case, management is avoiding one of its most important tasks — innovation. Staying with the status quo sells your stockholders as well as your employees short. That’s the whole point of management, you’re supposed to be taking risks.
Could it also be a function of “recency bias” (the tendency to prioritize the most recent information gathered simply because it is closest, in our minds, to the present)?
CK: Well yes — we are back to risk vs. uncertainty. People are dealing with risk (potential known problems) than uncertainty (unknown unknowns). I think there’s also an issue with compensation. If you get rewarded richly, why risk that by doing new things? Managers have their own personal short-term plan: “I’m going to hang around for 3 years, I’m going to minimize risk and then I’m cashing out.” Who does this strategy benefit — the company or the individual? Hopefully, the company (and its employees) will be around long after the manager leaves. I think managers have a duty to nurture the organization, to keep it viable and keep it competitive. You can’t do that playing it safe these days.
If you’re ready to keep your company viable by competing in the world of ingredient automation, we at AZO welcome any questions or concerns you might have. Our sales engineers are dedicated to solving your process challenges. We also have free, downloadable material on a variety of topics (including how “Super Plants” are shifting the landscape of ingredient automation). We have more than seven decades of experience in the ingredient automation world and have added tons of other topics also covered at length on our blog.