where you open drawers, there's more stock in the office than anybody can imagine. While at the same time they are screaming for a specific item which has to be brought to them by taxi in crazy short delivery times. In Rotterdam we are down to four-hour delivery times! Not even 24, just four-hour delivery times, which is completely crazy for office supplies. I mean, we're not saving lives here.
So this is what we offered our customers: That we would take over all this hassle of supplying everybody in the office with the right equip- ment, the right articles, at the right time. We offered them cabinets with office supplies in them. We owned both the cabinets and the contents. The supplies were for
DW: So you could discover theft?
PH: Well, we didn't call it theft, we called it overconsumption. But of course it was theft, yes. So suddenly this guy who was responsible for office supplies had much better tools to go after his dishonest personnel. He's not interested in how many pencils someone uses. Everybody knows that people take pencils home; you do that by ac- cident and it doesn't cost anything. Toner cartridges, that's a bigger problem. So when the theft of these ink-jet cartridges went up very much, we advised them to buy bigger printer machines, which we could also supply, to make them different than the machines people had at home. Things like that. But those cabinets were a big, big invention. While our customers might have paid 20%-25% more for
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the actual articles, the total cost of providing office supplies for their workers dropped by 50% because they didn't have the internal hassle of misplacements, overstocking, and things like that. So they didn't care that much anymore about the original price we charged. When I sold my company a couple of years ago, the due diligence took a long time because they couldn't believe our added value.
DW: What were the numbers?
PH: Normal gross margins in the industry were very much below 20%. Above 20% was suspicious. We were above 30%, which makes a lot of difference. And we were not ripping people off. They were extremely satisfied with our service.
DW: How did you go about selling the concept to your
customers?
PH: We had a department which was making appointments with financial directors, not the guy normally responsible for purchasing office supplies. That other guy was scared for his job when you came with this solution. And we made a short movie to show the current situation in their office and how people were screaming for office supplies and things like that, and how great it would be if we could take over their stock and their responsibility and solve this problem. And this worked really great. Something like 30% of the sales visits were successful sales. Again, the prices we were charging for supplies was no longer an issue
DW: For anyone?
PH: Not exactly. We still had some customers who were focused on price. We didn't chase them away. We just gave them completely different conditions. We told them that if price is what matters most, you have to buy big quantities and you shouldn't care about delivery times: 'You can get the lowest price possible but you have to stand in line.' Now a good thing for us about the cabinet system was that we had one-week advance notice on our purchasing needs. I mean, what the customer used last week I didn't bring the day I was checking. I would bring it the week later. So I hardly needed any stock anymore. My suppliers could deliver in a day but I had a week. So now I could
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start buying on price. And I could combine my orders with those of the bigger customers who still wanted to do business just on price.
DW: Those must have been a very satisfying couple of years for you as you explored this new way of doing business.
PH: Well, yes, for a couple of years it's really fun. Because you're winning a race. Of course at the beginning I was relatively small; I was number four or five in the country. I was really afraid the bigger companies would copy my cabinet system.
DW: Did they?
PH: Yes, a little bit. But they didn't get the message. It was actually really funny. They were prepared to deliver cabinets but the customer had to buy the cabinet and the content as well. They were never willing to do it on consignment terms, which is what made it work. So that was a big difference to start with. Secondly, they didn't understand my replenishing system of stuffing the cabinets full enough that you could survive a couple of weeks. What they offered was so different that we could immediately show the customer that with our competi- tors, you'll still have to do it yourself, you'll have to take responsibility. Whereas in my case, when you change a printer, for example, and you don't tell me, I will find out you don't use this cartridge any more and I'll adjust. These cartridges are very expensive, do you want the responsibility? That's the main difference of consignment.
DW: Later were you able to discover new constraints that opened the way to new growth?
PH: Ultimately the constraint moved back inside the company. The new constraint became; how quickly can we measure or install a new cabinet? At first we could only do something like two or three cabi- nets a day. People were standing in line for cabinets. We had waiting lists for three months. So we put a second person on the job. Not a big deal. But we were fully in charge. We could grow at the pace we wanted to grow. That's kind of funny in a race where everybody was yelling about price! There are other businesses in that situation. For example, if you go to a really good restaurant, they don't care about prices. They are booked for the next three or four months; they be-
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come arrogant. And we had the same situation! It was great! And to think that we had started with all those competitors, all the problems, and 20 sales guys who were really discouraged, they didn't know what to do. And here we came with this really simple solution. I'm amazed that to this day nobody's really copying it.
DW: Would you have discovered this breakthrough had you not been exposed to Goldratt's theories?
PH: First of all, I wouldn't have known how to attack the problem Since I was working at the printing company and my nephew was working at the office supplies company, I never expected that we would change roles. Nevertheless, I knew how much loss they made. And by then I was so convinced that just by applying Theory of Constraints, I would figure out a way to solve the problem. It took me something like three or four weeks to see the light and understand what was go- ing on and how to solve it. I survived that month by sitting back and saying, 'Okay, no panic, no panic, let's not be hasty. As long as we don't have a breakthrough idea I'm not going to make any changes ' I was just sitting back and thinking and discussing with people how we could solve the problem, until we solved it. And that's one of the good things about theory of constraints. You know in these cases that eventually you will come up with a breakthrough idea.
DW: You have only to find it
PH: Yes, and I became better and better at it. It takes Eli about five minutes to find the constraint and how to brake it. In most cases, I can find the same within a week. Compare it to just doing more of the'same. I very often use this funny story about two guys on a safari. And after a couple of days they hear the first tiger and they think, well, great! So they go for their guns and discover they forgot their bullets. So one of them puts his pack down and grabs his running shoes, and the other guy starts laughing: 'Do you think you can outrun the tiger?' He says, 'I don't need to outrun the tiger, I only have to outrun you!'
