Thursday, April 15, 2010

Day 94 - Crash and Burn

          There are ten days until Christmas, and I am not in the holiday spirit. One of my good friends at Albatross was the IT director. He was (and still is) a smart, sensible, and unassuming fellow full of good humor and grace. He used to wear a different Christmas themed tie to work every day from the Monday after Thanksgiving until the Christmas break. I thought this was a wonderful tradition and worthy of emulation so I started doing it too. I continued to do it at my new job. I won’t be doing it this year, but I do stare wistfully at those ties every morning when I’m in my closet picking out a t-shirt to wear with the shorts that I have worn every day for the past two months.
          The boat division at Albatross was not the only division for which Richard Hardin had grand designs. He also intended to create a commercial seating division. The idea was to leverage our capacity and expertise in school based applications to create both individual and stadium seating solutions for non-school applications. These would be more up-scale, comfortable, and expensive than the school products and would both broaden our markets and improve our profit margins.
          Development projects had been launched and project managers put in place. A new head engineer was brought on board so that the old head engineer could take over the commercial division. A new controller was hired for the commercial division. Things were popping. There was a lot of excitement in the air. We were spending money like water on new product launches including new office furniture suites, new stadium seating packages, a new classroom suite aimed at private schools and universities, and two new boats. It wasn’t very long before every project was over budget and in trouble.
          At the outset I wouldn’t have thought it possible for a company like Albatross to burn through $600 million in such a short period of time. The failures were legion and the timing even worse. Every project went over budget and every new product went over its target unit cost. This was a huge problem because they all had to compete on price in the marketplace. The markets had all gone to hell for a variety of reasons—not the least of which were the tragic events of September 11, 2001.
          It seemed we couldn’t get traction with anything we were trying to do, and what products we did manage to sell were sold on such skinny margins they made hardly a dent in their astronomical development costs. To make matters worse almost everything we sold came back with serious warranty issues.
          Bad as things were for the commercial fixture and boat divisions, almost everyone at Albatross remained calm and composed, secure in the knowledge that we could always depend on the school product sales to keep us afloat while we sorted out our problems. This or course was precisely the time that the bottom fell out of the school fixtures division.
          The problems at the North Alabama plant had continued unabated and largely unnoticed. Everything imploded in one catastrophic day when our largest school system customer rejected a huge shipment of furnishings destined for a dozen or so new schools being built in a high growth population center. This was the inventory that had been stacked in the warehouse in North Alabama—the stuff that wasn’t shipped because it wasn’t finished. When DeLeon couldn’t delay shipment any longer he sent the stuff out late and incomplete. It was so far below standard that the school system refused the whole lot out of hand, and cancelled all their pending orders.
This presented a number of immediate compounding problems. First and foremost was the immediate loss of about $60 million in revenues, revenues that were not going to be recovered easily. The second problem was that the returned items were going to have to be fixed.
They couldn’t be fixed in North Alabama because they obviously didn’t know how. North Alabama had its own problems to address. That would be the third problem, but the second was more immediate and more critical because we needed to turn that inventory into cash as soon as possible. The solution ended up being to load it all into trucks and haul it to the Mid Alabama plant to be reworked. When we started doing this we found that the number of hours required to fix the items was nearly the same as the hours it took to build them in the first place. Thus ended the fatal Albatross complacency—the belief that the school business would keep the rest of the company afloat.
As you can probably imagine, this debacle caused quite a shake up in executive management. Richard Hardin was forced to step down in the UK. Not surprisingly he had made some other costly missteps in the European operations. The Albatross problem was the final straw. Personally I think it was his arrogant management style that was his undoing, but no one is listening to me.
Robert Lester, the U.S. president of Albatross had to step down as well, although he didn’t really go anywhere. The directors brought in a new president, one who had recently presided over the dismantling of a crane company, and Robert moved over to the boat division to become the sales manager. He moved at the same salary he had been making as president, which probably rankled a few souls. I know it rankled me.
While Robert’s duties and responsibilities had shrunk considerably, he was making north of $350 thousand a year. Meanwhile my duties and responsibilities had more than doubled in scope, but adjusted for inflation, I was making less than when I started. To make matters worse Robert came to my office every day to get my advice and opinion on every decision he had to make in his new reduced capacity.
Now I have to say that I actually liked Robert. He was an engaging and personable fellow, and he certainly tried hard. It’s just that when it came to actually moving the company forward, Robert was just taking up space. He once said to me in the course of a rambling philosophical soliloquy, “You know, as long as I live I don’t think I’ll ever understand what went wrong at North Alabama.” That’s too bad really because almost everyone else did know, and almost every one of them blamed Robert for being asleep at the switch.
I guess it should go without saying that DeLeon was forced out. The only surprising thing about it was that he was allowed to leave under his own steam—that is to say, still walking. He stopped me in the hallway to say goodbye. He told me he’d given it a good run, but it was time for him to move on and try something different.
I asked him what he had lined up, and he said nothing definite. He was just beginning to explore his options. I personally thought that one of his options ought to have been scrubbing the restrooms at Albatross while the production employees took turns kicking and insulting him, but apparently you get better treatment than that when you cost a company millions of dollars. The bigger the screw-up the more likely it is that you will be allowed to walk around with your dignity intact.
A few weeks later I read in the paper that DeLeon was teaching a course in industrial management at one of the local community colleges. Knowing that he was passing his special brand of production know-how on to the next generation of plant managers gave me a sick feeling in the pit of my stomach.

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