All of those things contributed to the changes at Pavestone. The ideas Richard brought to the table, he says, “were just the ones I’d been running with for many years.”
Getting under Control
To be sure, some of those ideas were fairly straightforward, though in some cases they produced seismic changes in the Pavestone culture. For example, Richard instituted controls over capital expenditures where there had been none. “The first meeting I had with the management team, one of our transportation guys came up to the CEO and said, ‘I want to buy 15 trucks for $2 million, what do you think?’ And the CEO says, ‘Sounds good, go ahead.’ I was floored.”
Now, he says, an expenditure request must come along with an analysis of how there will be an adequate payback on the investment within 18 months. But he has adjusted the control for the small-company environment. “We don’t have 16 approvals to buy a piece of machinery,” he says. “We want to be able to make a decision in hours rather than weeks.”
It’s not only big capital expenditures that undergo the microscope treatment. Any discretionary payable has to go across Richard’s desk.
For example, the company had a history of treating customers to sporting events and trips. Now, if there is a request for 10 tickets to a football game, Richard asks for a list of the customers and what business they are expected to provide. “What I found is that many times there would be seven Pavestone guys and three customers going,” he says. “That’s a non-starter.”
While sporting events don’t in themselves have a huge impact on the company’s profit performance, they are emblematic of the kinds of savings identified from a Six Sigma-like approach to analyzing the business. The company has lopped $1 million per year off its former tab for attending trade shows, simply by analyzing the leads that derived from each show. “Most of them didn’t produce many leads at all,” Richard says. “We don’t go to those anymore.” And for the shows Pavestone still attends, it is buying smaller booths.
Controls also were put in place over equipment leases. Heavy equipment is a big-ticket item for the company, because it moves a lot of raw materials. “We might lease a big front-end loader for $250,000,” notes Richard. “I would catch things like an operating guy out in the field leasing a new loader through a finance company for a 15% interest rate.” Now an analysis must be done that shows the lease would be a better investment than, say, keeping the old loader for another year.
Purchasing activities were put through the wringer as well. For instance, the company, which had been buying three months worth of safety supplies at a time, has saved $10,000 per month by working with vendors to deliver the items closer to the time they’re needed. That means less drain on working capital.