MIAMI — Ask mostly any CFO, and he or she will tell you that “yes, I’m very involved in operations.” But often such involvement is like having a second, lower-paying job: you can’t afford to divert too much focus away from your top breadwinner.
Then there’s Jeff Richard, finance chief at Safety-Kleen, a $1.3 billion environmental-services company and oil refiner. Operations are the core of his job. “Do I close books? No. Am I a tax guy? Definitely not. Where I bring value is on the operations side,” he says.
In fact, operations, he says, are what drive value, and certainly not finance and accounting activities. “You can’t be a good CFO or a strategic business partner to your CEO until you thoroughly understand operations and how they drive performance,” Richard said early this week during a presentation at the CFO Playbook for Private Companies conference here.
Richard says CFOs should “get out of the office and into the field.” For example, ride along on a delivery truck to observe efficiencies or lack of them.
At his previous CFO job with Pavestone, a maker of segmented concrete products, he rode a truck that made 16 deliveries to Home Depot locations over two days. He asked Home Depot receiving department managers what Pavestone could be doing better, and was told that “you guys only allow us to order full truckloads.”
That was a problem for the receivers, because the number of inventory turns they oversaw influenced their incentive compensation. In particular, they said they were reluctant to order from Pavestone after August for fear of getting stuck with unmovable product. “There’s no way I would have known that if I was sitting in the corporate office,” Richard says.
So he revised delivery schedules, enabling Home Depot locations to get the same amount of product but in two separate deliveries. “It took a bit more logistics, but it made them happy,” says Richard. And that had significant value: Home Depot was Pavestone’s biggest customer.
One of Safety-Kleen’s businesses is picking up used oil from consumer oil-service operators like Jiffy Lube, Auto Zone, and Wal-Mart. When Richard went for a run on a truck with a 200-gallon tank, he saw that after each stop the tank was only a quarter or a third full.
“That seemed inefficient,” he says. “And I found that there was really no good reason for it.” He says the drivers were adhering to some bad practices the company had put in place several years ago after it didn’t pick up from some used-oil suppliers until after their tanks had overflowed. That was a huge problem for them because when their tanks are full and there is nowhere to put used oil, they must stay closed.
The solution was simple: Safety-Kleen put some electronic monitors on the tanks so it would know when they were getting full and be able to route trucks there in time. The company also started an incentive-pay program for drivers based on gallons of oil picked up per mile driven.
Also at Safety-Kleen, Richard listened in on cold calls that call-center staff made to customers to inquire whether they were satisfied with service levels. They had a 20% hit rate, meaning that they got someone on the phone only 20% of the time. Most of the hits were at the company’s larger customers, which Safety-Kleen was already visiting once or twice a week in person. They found the cold calls annoying. Richard decided to shut down the call center, a move that’s saved the company $8 million a year.
Working a Shift
There are many other ways for operationally oriented CFOs to gain insights into how to improve the company. Work a shift on the manufacturing floor to see how the company’s products are created. Accompany marketing folks to trade shows, where you can learn more about customers and also scout M&A possibilities and product extensions. Visit the research and development lab to gain insight into product successes and failures, and even take a stab at creating a product yourself. Invite yourself to operations meetings and speak there.
Perhaps a bit more controversially, Richard says CFOs should make road trips with sales managers. That can help foster understanding of differentiators from competitors, of customer segmentation, and of what drives customers’ profitability. Acknowledging that sales professionals inherently abhor invasions of their turf, he says, “That’s one of the good things about being the CFO. It’s hard for them to say no.”
In fact, he says, finance chiefs should even make solo sales calls. “At first, the sales folks don’t like that at all,” says Richard during a postsession interview. “But eventually they see that if they’ve had a hard time cracking a potential customer, as a CFO I might be able to get into that company’s C-suite more easily. And commissions aren’t part of my compensation. The sales manager will get the commission.”
Safety-Kleen’s sales force has had a tough time trying to get corporate truck fleets to buy the company’s recycled oil. “The fact that the oil is ‘green’ doesn’t mean anything to the fleet guys, who have been doing business with Chevron or Pennzoil for 30 years,” says Richard. “But ask the chief sustainability officer, or chief pricing officer, or chief executive officer whether they care.”
Sales discussions he started with companies like Dr Pepper and Ryder System were followed by long sales processes — but eventually resulted in big new accounts. “When the fleet guy gets a memo from the CEO, he listens,” Richard notes.
At Pavestone, the sales team was getting nowhere in landing business from Tractor Supply, a large supplier of materials for farms that Richard figured could be the company’s third-biggest customer after Home Depot and Wal-Mart. So he cold-called the CEO of the Nashville-based company, said he “was going to be in town,” and would it be OK to stop by? Now Pavestone is in 1,000 Tractor Supply locations.
As a result of his sales successes, Richard says, this year part of his incentive-compensation package is based on him landing four new major accounts.