by Dean D. Baker
Pewabic Pottery, founded in Detroit in 1903, is
nationally famous for its unique ceramic glazes, vessel ware, and
architectural tile work. A pioneering force in the Arts & Crafts
movement, to this day its products are highly sought after by architects,
designers, collectors, and other discriminating buyers. Pewabic’s products
can be seen in homes and institutions throughout the country as well as
represented in many museums and private collections. In addition to an
outstanding product, part of the appeal of this organization is that its product
and design sales help to fund The Pottery as a non-profit organization that
operates as a teaching organization, a center for the advancement of
ceramic arts, a provider of community outreach services,
and as a
museum and archival
This is a story of corporate renewal. A
financial renewal that was achieved through operational restructuring and
business process systemization. This article details how this renewal took place
and discusses the steps that were undertaken to restructure and turn around
the organization, ensuring its ongoing success and its continued leading
role in the advancement of the ceramic arts.
By late 1996, it was apparent that
significant change was required if Pewabic was to continue ahead, let alone
to thrive. In addition to concern about continued weak financial
performance, several other symptoms of distress were evident. These
included excessive order backlog and order turnaround time, concerns
about deferred maintenance and capital investment requirements, various
production and quality issues and, above all, low staff morale. The Board of
Directors recognized the situation and initiated management changes, which
included the appointment of a staff interim director to manage the operations.
In early 1997, the board retained an independent consulting firm to oversee the
financial situation and to lead the effort to restructure the business
operations with the goal to ensure the long-term financial success of the
The Need for Business Processes
Establishing systematized business processes was essential to success.
The Pottery, despite fairly modest sales
volume by most standards, has a very complex operational and cost
structure. This stems from two primary factors. First, the facility is a
national historic landmark, meaning that the efficiency of the operations
is inherently somewhat limited in terms of layout and process flows as well as
resulting in higher than normal maintenance and operational costs. Second,
there is complexity in the range and diversity of activities. These include not
only design and manufacturing, but also retail and wholesale sales, custom
production, sales of consigned goods, educational classes and workshops, ceramic
art openings and displays, special fund raising events, memberships, community
outreach activities, a museum and archival facility. Truly, the amount and
diversity of activity rivals that of most major
With the range of activities, a fundamental
need was to establish on-going business processes. As it was, each department
was functioning on its own, without the integration of effort required to
turn the departmental activities into an asset to further
organizational goals. Here are some examples:
In wholesale order fulfillment, a stand-alone
process existed for order processing, shipping, billings, and
collections. At the end of the month, accounting would reconcile the
department’s numbers to the general ledger.
In the retail sales area, sales were processed
manually, with accounting batch processing the daily sales into the general
ledger. Retail consignment inventory was maintained by the retail staff
in a separate database, with monthly reports sent to accounting.
In accounting, the departmental reconciliation
needs were all but overwhelming, leaving little time for solving the
underlying business process needs.
In manufacturing, inventory was not
systematized and was only replenished on an as-needed basis. Reorder
quantities could not be fed to the production floor until customer
backorders occurred. In addition, there existed no means to account for
inventory shrinkage (loss, theft, and breakage).
Diverse business processes must be integrated to create an asset that
furthers the company’s goals.
Without formalized business processes, each
department had developed its own informal stand-alone systems—some of which
worked adequately for those involved, others that didn’t. In addition to the
extra personnel required to maintain the stand-alone systems, whenever there was
turnover, a totally new stand-alone system would be created. Steps were
immediately taken to establish fundamental business processes that
that would service all customers corporate-wide. Among these processes
- Customer service. A customer service department was created which is
responsible for all incoming order processing. These individuals
interface with the customers and process the order and sale transactions
immediately through the system. This not only substantially reduced
departmental activities, but the associated transaction accounting
thereby became automatic and transparently captured-a simultaneous
improvement in accuracy, while reducing accounting activity.
- Formalized shipping & receiving. Shipping and receiving duties were formalized and
expanded. For instance, after customer service generates an order, it is
shipping’s responsibility to pick and pack the product and then turn the
order into an invoice upon shipment. Receiving is responsible for
consignment inventory and logging this into the system, before placing it for
sale. Again, all accounting for the transactions is captured at the
source, improving accuracy while reducing accounting activity.
- Retail point of sale. All retail transactions were brought on line with the use
of a point of sale system, also eliminating the batch processing in
accounting. Additionally, retail staff are required to reconcile cash
nightly, a task formerly undertaken the following day by accounting.
- Inventory. All
inventory was brought on line, both in consignment and production. This
is creating both a means to feed reorder quantities to the production
floor and a tool to minimize inventory losses.
- Accounting restructuring. With the new business
processes, accounting activity was already greatly reduced. However, even
within accounting, there was room for more streamlining. For example, a
mandatory check run schedule was implemented, eliminating manual checks
and the resulting re-entry activity. Accounts payable entry was moved out of
the accounting department and into part of the job description of a shared
office administrator’s position. Other efforts included general
ledger simplification, cash management systematization, and formal month
end closing procedures.
Systemization of the redesigned processes allowed significant and ongoing
savings to be captured.
With the establishment of the business
processes, systemization became a priority. While a capable and well proven, PC
networked, integrated system (Great Plains®) was on site, prior utilization
was limited primarily to the batch processing of transactions directly
to the general ledger. Following is a brief detail of the accomplishments
achieved as each module was brought on line in support of the new business
- Point of sale.
POS was implemented at the retail sales counter. This accomplished
several savings. First, accounting activity was reduced as every item
sold is automatically charged to the proper department and account at the time
of the sale. Second, customer history is maintained: a great source of
marketing information. Third, off-line inventory systems were eliminated,
allowing retail staff to focus on customer sales.
- Order entry. OE was implemented in customer service and
shipping. In addition to achieving the same advantages as the POS did in the
retail environment, it:
- allowed the systemization of order management
through the generation of pick lists and shipping invoices;
- enabled the management of customer backorders;
- allowed all departmental customer orders to be centralized through one
department—resulting in an instant improvement in quality and
- Accounts receivable. A/R implementation centralized all billings and
collections into one tracking system. This has all but eliminated the
department-by-department reconciliation, logging, and tracking efforts.
Another benefit has been the improvement in collec tions, not only
through timely reporting of past dues, but through the process of sending
monthly account balance statements to customers.
- Accounts payable. A/P was partially used to track vendor payments, but further
utilization was required. For instance, many checks were first manually
cut, and then entered into the system. By implementing scheduled check
runs—eliminating all manual checks and COD activity—the module greatly
improved accounting efficiency while reducing A/P days outstanding.
Inventory implementation required the coding and importing of all
sales/manufacturing items (approximately 1000 items). By
establishing reorder points and inventory management procedures in
manufacturing and stocking, stockouts are being minimized while
simultaneously giving manufacturing the necessary lead time required to fill
standard stock requirements. Consignment inventory has been brought into
the system, freeing retail staff from burdensome documentation
requirements. In the near future, reporting of shrinkage will be implemented,
enabling corrective action to be taken to minimize losses.
- General ledger. The G/L is the back bone for
financial reporting. To improve reporting and automate the capture of
transactions, a complete restructuring of the G/L was conducted. This
demanded intensive set-up activity including a totally new account structure
to achieve departmental consistency, the utilization of cash clearing
accounts, the design of control accounts to roll up subaccount activity,
and the establishment of allocation accounts to post transactions
properly, among others.
The results have been both gratifying and
extremely successful. The financial position has improved dramatically with the
elimination of all short-term lines of credit and the return to normal terms
with most vendors. The business processes have taken hold to where all of the
transactional activities are being processed in real time, even with reduced
staffing levels. Sales volume has held steady in most areas, even
increasing in some (most notably in retail). The improved performance and
outlook has allowed for new maintenance and investment expenditures to be
approved that will continue to improve the operations. A new, highly
qualified and experienced director has recently been hired to guide the
organization’s future growth.
Restructuring and systemization are not easy
tasks. They require individuals to acquire new skills and to take on new
responsibilities. Once in place, formalized business processes that are
systematized are both keys to achieving corporate success