handling with care: interview with John Splude

It was the ultimate trade up—and in hindsight, an astute career move—to go from an accountant at a Big Eight firm to CEO of a successful material handling equipment supplier. And now that accounting has lost any luster it may once have had, it's clear that John Splude, who started out at Price Waterhouse in the '70s, has landed in a far, far better place doing far, far better things.

His journey was not as circuitous as it might sound. As the 1970s drew to a close, Splude left Price Waterhouse for Harnischfeger Industries. He started out at Harnischfeger in the financial area, but one of the firm's small operating divisions, Harnischfeger Engineers Inc., soon caught his eye. The division was growing, but not profitable. And Splude saw it as an opportunity to leverage his financial know-how and turn things around.

Turn things around he did. Splude took over as president of Harnischfeger Engineers in 1985 and quickly grew the business from $20 million to $80 million in revenues. In 1993, he led a team of managers at the subsidiary in a buy-out that resulted in the formation of HK Systems, which provides material handling equipment. Today, he serves as chief operating officer of both HK and Irista, a logistics software subsidiary, and a member of the Material Handling Industry of America's board of governors.

Yet Splude attributes HK Systems' success not so much to his financial acumen as to something far simpler: an unrelenting focus on customer service. That thinking—which was nothing less than visionary a decade ago when everybody else had his eye on manufacturing or sales—has made him one of the true thought leaders in the material handling and logistics technology field. As HK Systems celebrates its 10th anniversary, Splude talked with DC VELOCITY Editorial Director Mitch Mac Donald about the importance of customer service in driving logistics success.

Q: What do you consider to be the highlight of your career to date?

A: Without question, it's the milestone we reached here last month. We celebrated our 10th year as an independent company. Of course, we've been in the industry a lot longer than a decade—our history goes back about 35 years when we were part of Harnischfeger Industries. But the past 10 years [in which HK Systems has been an independent company] have been particularly fulfilling and meaningful for us. We're proud of what we've accomplished —especially given that we've moved forward over a decade that has had both some great years and some tough years.

Q: The past 10 years have been a bit of a roller coaster ride, haven't they? How have you stayed profitable?

A: Customer service. That focus on service goes back to our roots as a division of Harnischfeger. One of the very good things about Harnischfeger was its solid commitment to customer service. Service was a very strong underlying principle even before we went independent. It was already the mindset of the organization.What we saw was an opportunity to differentiate ourselves as a material handling company by making customer service our primary focus.

Q: That seems awfully simple. Wasn't everyone focused on customer service?

A: We felt that many companies really didn't focus on service and that if we did, it would make a difference. You know, when you go out and acquire a couple of your competitors and you look under the sheets, you learn a lot about what was really going on during the time you were competing. It was clear that there was a low level of commitment to customer service in some cases. The approach to growing the business was very much: "Get in, do these large system installations, get them up and running, and get out." That was the philosophy. I think we've done a magnificent job of changing that. Ten years ago I don't think customer service was the number one item on anybody's business plan.

Q: Things certainly have changed a lot in 10 years. You're going to have difficulty succeeding today if you don't focus on the customer, wouldn't you agree?

A: Yes. There's no question about that. Things are changing so rapidly. Logistics and the supply chain have gained a much higher profile within a lot of our customers' organizations. Ten to 15 years ago, a lot of our customers were entirely focused on their internal processes like manufacturing, sales, and that type of thing. They really didn't think about their supply chain. I think the shift is partly because as supply chains become more complex, they become less forgiving. Any weakness in the chain causes much more severe problems than it would have in the past. There is less opportunity to work around difficulties, which means that every element within that supply chain, including software and hardware, has to function much more reliably than it did in the old days when the supply chain was, let's say, looser.

Q: What changed? Hasn't the customer always been king? to have difficulty succeeding today if you don't focus on the customer, wouldn't you agree?

A: The easiest way to answer is by example, and the best example is probably Wal-Mart. I was just talking to someone who works for a regional grocery chain that is one of Wal-Mart's smaller competitors. The rumor is in the industry that Wal-Mart earns 2 to 3 percent more profit than everyone else as a result of supply chain efficiencies— a phenomenal difference in a business with notoriously low margins. In other words, Wal-Mart leverages its supply chain management expertise to both improve the bottom line and serve the customer better.

Q: Beyond customer service, it seems another thing you and your team at HK have done particularly well is bundle the equipment you sell with the enabling technology required to run it through Irista, your software-based subsidiary. Is this approach something that you saw as an opportunity early on or did it just naturally evolve?

A: We will take total credit for the customer service focus. That was clearly a strategy we developed and perfected. On the software side, that bundling emerged as more of an opportunity. That was a logical market for us to step into. Not everyone clearly saw that at the time: In the mid '90s, many of the analysts like Gartner and AMR were maintaining that equipment and software were two separate industries. Everyone was saying you had to separate your software company so you could maximize your investment potential.

We saw it differently. If you run your business that way, you're going to do things that are not always in your customer's best interest. We looked at it and said, no, there are a number of reasons to integrate our material handling and software businesses. Not only was it better for our own employees, who gained valuable background when we moved them between our material handling and software businesses, but it was also better for our customers. As we sat down with clients, they recognized that the interface point was the key.We were confident that if you could consolidate both equipment and software offerings for certain installations with one vendor, you had a much better solution for your customers and fewer issues for them to deal with administratively and operationally.

Previously, our customers didn't have that option. They had to use two different vendors, one supplying material handling equipment and the other supplying software like warehouse management systems. But those two systems are going to have to talk and they're going to have to work together very closely. There have been a lot of problems and headaches for a lot of companies simply making that happen. So we saw advantages in having Irista and HK work together and simply eliminating a lot of the issues of that interface.

Q: Don't software and equipment companies achieve the same thing with operating alliances?

A: A lot of companies form alliances. They're good for a month, the partners get some press, and then later you find out that they haven't really done much work together. The real key here, I think, is trying to give your customers a better variety of solutions, a better inventory of things that you can do for them. That has worked out well for us. It's amazing the number of times customers have decided that they needed a certain solution. We've come in to look at their operation, and as we got into the process, we found that they didn't need the level of automation they thought they did. They could fix a lot of their problems with software alone and retain their manual operations.

Q: So you try to guide them away from the trap of technology for technology's sake?

A: Absolutely. One of the difficulties that I think has occurred over the last 10 to 15 years with companies like SAP, for instance, is that they present their customers with a rigid solution that forces the customers to modify their operations to fit the solution. It's a difficult situation. You have to remember that your clients' companies have likely settled into a certain way of doing things over the years because that's best for their own customers.When you start changing that, you don't always end up satisfying your customers the way you need to. I think that there's been too much discipline imposed on customers by the system they purchase.

Q: How do you get around that issue?

A: It requires more customization.What you have to do is incorporate the customer's business procedures into your solution. What we brought to the software industry with Irista is the same discipline of project success that we had in place on the material handling side. There's no secret that a lot of software implementations stumbled in the 1990s. They weren't done on time. There were very expensive. I don't think that the discipline of good project management existed in our software industry.We've always said we were in the project business—not the equipment business, not the software business, but the project, and project management, business.

Q: Back to the customer service theme for a moment. One of the premises upon which we launched DC VELOCITY was that speed has emerged as the critical component of customer service in today's business environment. Do you agree?

A: No question. I think speed is clearly the key driver for many of our customers. As an industry, we need to cut the time it takes from the point when a company realizes it has a problem to the point when it actually executes a solution. I say this for several reasons: First, the longer it takes to make the decision, the more time elapses before the company benefits from having made that decision. Second, I think that as an industry, we're spending more on the sales cycle than we can afford to because of the way it drags out. That has got to change.

Q: Let's look forward a little bit.When it comes to logistics systems and materials that support the supply chain process, what's the next big thing? What's out there that's going to change our world in the next five, 10, 15 years?

A: I don't think there's any question that RFID is going to be a big factor. It's a technology that will allow our customers to improve the flow of material through their operations. A lot more information will be available and that should reduce the cost of automation. This is not to detract from the bar code: The bar code is great. It can hold a lot of data, and it allows users to make decisions with a fair amount of success and confidence. But it also has its limitations. For example, packaging can interfere with the reading of bar codes. The results are added expense and a lot of misreads. I think that's reduced the reliability of some systems.

RFID is going to solve a lot of those problems. An RFID tag can also hold more data, and it will make the data more readily available. Right now, it's hard to get information at some points in the shipping process. Once a bar-coded item goes on the truck, you really have very little information until the truck arrives at its destination. With RFID, there will be ways of maintaining closer tabs on the whereabouts of your inventory. You'll know what's going on with your shipments, whether you can re-route, whether you can make some changes, that type of thing.

Q: Isn't it really all about information? Isn't much of what you do directed at delivering the right information to the right people so they can make the right decisions?

A: I think so. Again, I hope people have gotten a little bit smarter about technology than they were in the past. In the middle of the 1990s, we started to think of the Internet as something that would take over business rather than just assist business. Now we've gotten to the point where people are using the Internet as a tool. That's all it ever was. For a while, I guess it was almost like a lifestyle. RFID is also going to be a tool, but it clearly will improve what we do. It will allow us to do more, it will speed up what we do, and it will allow us to do it more reliably.

Q: Any closing thoughts?

A: Well, I do think that some of our customers are doing our industry an injustice in their zeal to get the lowest possible price. At a board meeting I attended a while back, a number of people from various industries—insurance, manufacturing, software—all reported that as a result of the emphasis on price, relationships were becoming almost valueless in the selling process. I thought that was sad.

My concern is that if we make the whole selling-buying process too sterile, the fun goes out of it. I really do think that people on both sides of the transaction get some satisfaction from a successful negotiation. If you try to make the process impersonal, you eliminate the little things that differentiate the various companies and make one company better to do business with than another. We believe we should be valued for the customer service we strive to provide every day. That should represent some value and should be seen as something we bring to the table. If it doesn't, you're not going to be able to afford to provide those services. Ultimately, that's going to hurt our industry … and it's going to hurt our customer.