Louisville Ladder Division,

Emerson Electric Co.,

Louisville, Kentucky

Situation:

In 1985, Robert Amter was promoted to President of Emerson Electric’s $33 million in sales Louisville Ladder Division.  On the surface Louisville Ladder was a successful, high profit manufacturer of industrial ladders.  Prior to his appointment, it was not growing because of the following problems:

Problems:

» Had lost market share for 4 straight years in its highest sales, most profitable product line – fiberglass ladders.

» The aluminum ladder product line had a low market share due to poor product features and high price points.  Aluminum was a low margin and high cost product line.  A competitive aluminum line is essential for success in the ladder industry.

» The strategy for growth was to expand the wood ladder business, its lowest profit product line which had 20 lower cost, high quality regional competitors.  Louisville Ladder sold wood ladders only as an accommodation to customers purchasing high profit ladders.

» The second focus for growth was on the new, two model molded plastic step ladder product line.  An untested product with serious deficiencies affecting safety.  There were no plastic ladders in the industry.

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

Results Achieved:

» Louisville Ladder’s financial results while Robert Amter was President:

Actual Annual

(000$)                                                             FY1985           FY1988           % Change

   Net Sales                                                    $33,104           $43,512                +7%

   Gross Profit                                                 13,691               17,202                +6

               % of Sales                                          41.4%              39.5%

Selling, General &

     Administrative Expenses                          5,645              6,441                  +3

             % of Sales                                              17.1%              14.8%

Operating Profit                                               8,046           10,761                   +8

            % of Sales                                               24.3%              24.5%

Pretax Profit                                                      8,565            11,851                   +9

            % of Sales                                                25.9%              27.2%

Asset Performance:

Inventory Turnover                                             2.96                 3.83

Operating Capital Turnover                                3.43                 3.73

Return on Total Capital                                     40.6%               58.0%

» Fiberglass Ladders:

The fiberglass line offered only one model deluxe step and extension ladder.  Distributor councils, meetings with other customers and employees indicated a product line segmentation opportunity for a new lower price point and lower cost fiberglass ladder with reduced features.  This was implemented without diluting deluxe sales.

Louisville Ladder had almost zero sales to electrical distributors, the prime purchasers of non-conductive fiberglass ladders.  To correct this fault, hired commission manufacturers’ reps specializing in the electrical channel segment.

Introducing the new fiberglass models and expanding coverage of the electrical channel segment resulted in an increase in market share of 3 points in two years.

In addition to increased sales, reduced raw and work-in-process inventories and cost of sales by vertically integrating into fiberglass ladder rail drilling and cutting equipment.  Stock keeping units were reduced from 137 to 32.  Return on investment was 62%.

» Aluminum Ladders:

Developed an aluminum line with competitive features and lower price points.

Reduced cost of sales and inventories by replacing expensive mandrel drawn aluminum extrusions with lower cost commodity grade aluminum.  This was accomplished by a $270,000 capital investment into annealing equipment needed to soften the commodity grade extrusions.

Additional cost reductions were obtained by simplifying the production process.  In some instances, by purchasing duplicate equipment to eliminate bottlenecks to through-put and inventory improvements.

Introduced a new product line, accessories, with a 40% gross profit margin.  First year sales were $200,000.  Accessories are an important support product line, principally for aluminum ladders.

Sales coverage was expanded further by appointing manufacturers’ reps specializing in industrial mill supply dealers – the largest purchasers of industrial grade aluminum ladders.

An additional benefit from hiring manufacturers’ reps was the increase in regional warehouses from 5 to 23, at a low variable cost that did not exceed 3% of the invoice value of the product shipped.

» Wood Ladders:

There are a large number of small, regional wood ladder manufacturers.  Many are successful companies with low cost of sales and a high wood ladder market share in their region.  They do not manufacture fiberglass, aluminum and steel ladders.  The majority of these companies purchased these ladders from R. D. Werner Company.

In 1986, Louisville Ladder penetrated this OEM channel segment and displaced R. D. Werner in four wood ladder manufacturers.  Prior to 1986, Louisville Ladder did not have sales from wood ladder companies.

Stopped opening regional wood manufacturing plants.  This was a high cost strategy with low margins of profit and a low probability of success.

» Other Product Lines:

Based on negative engineering test results on the safety of the molded plastic step ladder, terminated development of this project.

Focused on expanding the high profit aluminum stage and steel product lines.  The stage line only required a simple rearrangement of plant equipment to improve the customer service order/delivery cycle and reduce Cost of Sales.

Developed a new steel rolling ladder to fill in a product line gap which would be sold to existing customers.

» Established tactics to further reduce cost of sales and work-in-process inventories principally through improved product flow.

» Galvanized key employees.  Many of the ideas and new strategies came from employees.  Prior to my appointment, employee participation was not encouraged and respected.

By 1988:

~ Sales coverage had been expanded from 10 company employed salesmen to 105 manufacturers’ reps.  Company salesmen were reduced to 8.

~ 12 new products were added.

~ Fiberglass ladder sales increased 18% in one year, from 1987 to 1988.

~ Aluminum ladder sales increased 15% in one year, from 1987 to 1988.

Improved profit margins while achieving sales growth.

Tweet