Houston, TX-based Hisco, a $191-million distributor of die-cuts, adhesives and MRO materials to the electronic assembly industry, wanted to optimize the balance between branch autonomy and centralized control in its 30 locations in the U.S., Mexico and Puerto Rico. It used the front-line experience of its branch employees to make it happen.
Hisco is 100-percent employee-owned, giving it an entrepreneurial feel, with no employee or executive holding more than 3 percent of the company’s stock.
And so while branch managers at Hisco are empowered to run their branches, make hiring decisions and manage assets to best-serve the needs of customers in individual markets, it was important to Hisco that some functions be centralized for efficiencies and that the branches followed Hisco’s overall vision and strategy for the company.
Corporate has a greater role in setting strategy, but at the end of the day value is created at the branch level,”CEO Bob Dill says. “The relationship is probably best characterized as one of mutual respect and interdependence.”Hisco works hard to tap the experiences of its employees when approaching, planning and implementing new initiatives.
The initiatives to better leverage and optimize Hisco’s structure came out of a formal strategic planning session about two years ago. “It was the most important thing we have done in the past 10 years,”Dill says.
The process involved a 10-member cross-functional team with an outside consultant to facilitate. The cross-functional team was made up of five executives, three branch managers and two salespeople.
It was important to gain input from the “front lines,”Dill says. It’s also crucial to gain “internal champions”for initiatives developed through the strategic planning process.
“The cross-functional team allowed us to create a shared vision and a clear strategy going forward,”Dill says. “We left egos and titles at the door and focused on what was in the best long-term interest of all employee-owners.”
Striking a Balance
The branch management team, Dill says, creates Hisco’s competitive advantage. However, there are limitations to autonomy, for example, inconsistencies in:
- policy, such as in HR
- marketing initiatives and campaigns
- the sales management process
The company looked at this project from two directions:
Strategic -What was most important to leave at the branches? What must Hisco leave at the local level to maintain its competitive advantage? “We must give the branches the ability to respond to the needs of customers,”Dill says.
Operational -What could Hisco do to gain operational efficiencies?
Hisco decided to centralize the procurement of MRO materials, leveraging spend, but has left the procurement of all other products at the branch level. Hisco also looked at how it could centralize certain logistic functions. For example if a branch wants a low cost-low-touch model they can have the Distribution Center drop-ship to their customers, to avoid the activity-based costs of purchasing, receiving and shipping.
Also, if a branch serving customers with a Vendor Managed Inventory program wants to maintain local inventory, it will pull MRO products from the DC once a week, reducing receiving to one bulk shipment.
Getting Employees On Board
To get employees on-board the MRO procurement initiative, and to collect their opinions, Hisco distributed a survey to sales and management asking questions such as: “Do you support centralized distribution?”and “Do you support the creation of a private label?”
After receiving validation from survey responses that the company was on the right track, Hisco then sent a business case outlining why the company should move forward on these initiatives and how. A week later, the company convened a management team conference call with 35 people. On this call, the company set a framework for moving forward and asked for feedback.
“You gain input on how we can improve the process, and look for blindspots. This is the time for participation in the change process,”Dill says. “As a result, you can get most of the people to buy-in.”As soon as a decision is made to move forward on a particular initiative, it is time to implement, Dill says. At this point, the process is less like a democracy. “If you asked the right questions and had the right conversations with your employees, the implementation should go pretty smoothly,”he says.
“If we’re not getting the desired result, we’ll make adjustments to the strategy. We have a good system of checks and balances.”
Winning the hearts and minds of employees can be a challenge: “I would not say you win the heart and mind of every person on every initiative,”Dill says. “Change is never easy. What makes it different at Hisco is our shared ownership. We invite people into the process, encourage candor, and trust the wisdom of the group.”
This article was based in part on a presentation at the National Association of Wholesaler-Distributors (www.naw.org) annual meeting in January.