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Business Week e.biz -- Strategies
Reinventing Herman Miller
Its innovative SQA division is turning the furniture maker into a Web wizard
Managers at Herman Miller Inc. are justifiably proud of their furniture plant in Holland, Mich. The place is so bright and airy that it's called "the Greenhouse." Workers firing staple guns keep time to tunes by U2, the Allman Brothers, and Sting as they assemble chairs, desks, and other office furniture from rows of parts gathered neatly nearby. Forklifts glide across the spotless floor ferrying pallets of finished goods to the loading dock.
But best of all is the plant's performance. A sign near the front door boasts that workers there haven't been late in shipping a single order in 70 days. "The Achilles' heel of our industry has been poor reliability, and we've solved that," says Gary Van Spronsen, a Herman Miller vice-president who helped launch the factory.
Indeed, the factory has managed to solve a host of other problems plaguing office furniture makers. Zeeland (Mich.)-based Herman Miller, the country's second-largest manufacturer of office furniture, built the plant five years ago to experiment with new technology. Miller started a new division to run the plant: SQA, which stands for "simple, quick, affordable." Key to the effort: linking all sales and purchasing operations via the Internet--something Herman Miller's competitors are only now starting to do. "No one is going to lead in this industry without leading in technology," says Herman Miller CEO Michael Volkema.
Now Herman Miller managers are using the division as a blueprint for improving efficiency throughout the company. SQA has been folded back into the main company, and Van Spronsen and other top managers moved to corporate headquarters in nearby Zeeland to help engineer the transition. Taking a page from PC giant Dell Computer Corp., Herman Miller is setting up special Web sites for large corporate customers to order furniture at special low prices. At the same time, it's hooking suppliers into the company's accounting and order systems via the Net to speed delivery and slash costs. "SQA was the petri dish, and now we're reinventing the entire company," says Van Spronsen, whose broad smile and intense eyes light up as he interjects "bingo" every time he agrees with a visitor.
Reinvention is never easy, and there has been plenty of resistance along the way from board members, dealers, and salespeople. But after five years in which spending on technology has grown from 2.4% of revenues to nearly 5%, the initiative is starting to show results. Miller's revenues are expected to hit $1.9 billion in fiscal 2000, ending in May--a 90% increase from 1995, and up 8% from 1999. Operating income likely will rise to $231 million this year, up from $224 million last year, according to First Union Securities. And Miller's operating margins should be over 12%, better than any other publicly traded office furniture maker, says analyst David J. Manthey of Milwaukee investment bank Robert W. Baird & Co. "In terms of technology, they're tops in the business," he says. And thanks to SQA, which pulls in 15% of Herman Miller's revenues, the company has bolstered its No. 2 position in the industry, moving closer to leader Steelcase Inc. As Van Spronsen would say, "bingo."
All the technology in the world would not do Herman Miller much good if the company sold lousy furniture. But Miller has won scores of awards for excellence in design and in 1968 revolutionized the American workplace--for better or for worse--when it developed the notion of open-plan offices, or cubicles. And while the company has a current hit with its $750 gray-and-black Aeron chair, Volkema realized that good designs were no longer enough to keep Herman Miller ahead of the game. Competitors such as Steelcase and Knoll Inc. offer furniture that most customers have trouble distinguishing from Herman Miller's. "Going forward, the advantage isn't going to be just product differentiation," says the lanky 44-year-old Volkema. So he looked to technology to improve three crucial parts of the business: Design, order entry, and manufacturing.Top Priorities. And SQA provided the working plans. When it was founded in 1995, the division was intended to serve small and medium-size businesses, a market Herman Miller had largely ignored. Those customers' top priority: speedy delivery of their furniture. So SQA set a goal of delivering anything in its product line within two weeks, compared with six to eight weeks for Herman Miller as a whole. To do that, the unit had to scale back the number of choices it offered customers. Chair finishes, for example, come in only gray or black, compared with 11 color selections in the broader Herman Miller line. Desks and tables are offered with just five surface finishes, vs. 84 for the company. And cubicle walls from SQA can be covered with 160 different fabrics, instead of 284 choices, plus a virtually infinite number of special-order options, at the main company.
To simplify the design process, the unit hired Seattle-based Lembersky/Chi Inc. to write software that would allow salespeople to display 3D layouts on a laptop computer they take on sales calls. The system, called Z-Axis, lets salespeople configure office systems to a given floor plan while sitting with the client. The customer can choose from scores of options and experiment with, say, pink panels with green desks or six workstations per cluster instead of four--and see all of them from any angle in three dimensions. While it typically takes weeks or even months for a large customer to settle on a design, Z-Axis makes it possible to select a layout on the spot. "Instead of trying to imagine your design, you can put it in three dimensions, which shortens the decision cycle dramatically," says Jon C. Gaulding, who runs an Internet startup in Dallas called Instant-EC Solutions Inc. Gaulding recently ordered 16 SQA workstations for his employees.
The same program solves the thorny problem of order entry. When the customer chooses a design, the software automatically creates an order list with all the necessary parts and can give a final price. In the past this process could take a week or more of careful examination of the design and its components. Any changes or anomalies are taken into account. If, for example, a layout calls for two cubicles back to back, it automatically rejiggers the order to reflect only one wall between them. "It's miraculously foolproof," says Kraig Wellshear, owner of Intelligent Interiors, a furniture dealer in Dallas.
The heart of SQA's success, though, sits smack dab on the manufacturing floor. When an order is completed, it is zapped via the Web to an SQA factory in Michigan or in California. As soon as the order is transmitted, another program schedules a manufacturing date and reserves space on the truck that will deliver it a week or two later. Within two hours, the dealer and customer receive an e-mailed confirmation of the delivery and installation time.
The company developed another program to give its network of more than 500 suppliers access to its ordering system on the Web. That means companies that make, say, chair coverings or laminated surfaces can check what the factory's needs will be weeks in advance. As soon as inventories are expected to drop below a certain level--usually a day's worth of production--the supplier sends more. And to give suppliers an incentive to make their deadlines, each is given a daily rating based on punctuality of deliveries and quality of the goods sold. Companies that perform consistently below expectations are warned and eventually face termination of their contracts.Rave Reviews. The system is winning rave reviews. Nancy Stone, director of operations at textile maker Teknit USA Inc., says she logs on to the Web site every morning from her home in Saugatuck, Mich., 12 miles from her plant. Before she has finished her morning coffee, Stone can see whether Teknit has delivered the chair coverings to Herman Miller that it had committed to. If anything is missing, she can get it to the furniture maker before she leaves home. Until the system was introduced, Stone had to wait for a Miller employee to fax her a list of what the plant had received and then reconcile that by hand--a time-consuming process that meant any missing parts might not arrive at Herman Miller until midafternoon. The system "has made life much easier," she says.
And leaner. Inventory turns at SQA--the ratio of the unit sales to its average daily inventory, a measure of efficiency--exceed 40, compared with 27 for Herman Miller as a whole and under 20 industrywide. The division has reduced order entry errors to almost nil from the more than 20% that Herman Miller suffered five years ago, which in turn has cut faulty shipments. Market researcher Wirthlin Worldwide says the unit has the highest customer-satisfaction rating in the industry.
That's why Volkema is trying to reshape Herman Miller in SQA's image. He's now adding an ever-greater portion of Miller's product line to the Z-Axis system and has equipped nearly 2,000 salespeople with the software--in addition to the 1,200 SQA representatives who already use it. Extending SQA's Internet connection even further, Herman Miller is setting up EZ-Connect, dedicated Web sites for its best customers such as insurer Nationwide and stove-builder Viking Range Corp. Now clients around the world can order furniture from a limited menu at previously negotiated prices. And EZ-Connect zaps a bill to the customer's accounts payable department via the Net. The best part: Delivery is guaranteed within four weeks.
The technological transformation wasn't an easy sell. Early on, Volkema ran into resistance from a board that was more accustomed to capital investment projects for new products. When asked to fund technology that ultimately would cost nearly $500 million, the board demanded a far more detailed assessment of the potential payoff than was customary. "As a manufacturer, you're used to investments that produce goods," says Volkema.Cultural Problems. He also faced cultural problems. Dealers and salespeople were afraid they would be cut out of the loop as customers started to order directly from Herman Miller through the Internet. "It was a control issue, and salespeople felt threatened," says Jerry Erickson, a Minneapolis-based vice-president for sales at Miller. To counter those concerns, Volkema spent many hours meeting with both groups, reassuring them that their participation was essential to the company's success. Today, some dealers say that their business actually has improved since the technological changes were introduced. "Volkema has consistently said he is not going to do anything to disrupt valuable distribution, but that leaves it up to us to be valuable," says Dick Klingman, president of Charlotte (N.C.) dealer KlingmanWilliams.
The value of Herman Miller's foray into Web technology is indisputable. Following SQA's example, the rest of the company has reduced the amount of time it takes to build and deliver most orders by more than a week, and has boosted on-time shipments from about 75% five years ago to nearly 98% today. But that's not enough for Volkema, who says he won't be satisfied until Herman Miller hits 99% or better. "We believe we're at the threshold rather than any kind of destination," Volkema says. In the evolving world of e-business, that's a big bingo.By David RocksReturn to top