Remanufacturing legend Jack Stack freely admits he adores the industry. He talks to ReMaTecNews US correspondent Denise Rondini about challenges, what companies needs to do to overcome them – and why he lives by income statements.
If you ask Jack Stack, CEO of SRC Holdings, what’s changed in remanufacturing since he first started the company in 1983, he’ll tell you ‘not much’. “My feeling is that it is still not consumer-driven,” he says. “When it comes down to going out and appealing to the consumer, I think we fall short.” Stack says it is the remanufacturing industry itself that has failed to do a good job of educating the consumer about its benefits – and that lack of education is in part responsible for one of the biggest challenges faced by remanufacturing: a shortage of new talent. Stack is addressing that challenge by developing a remanufacturing programme at the Ozarks Technical College. “We are now running and have classrooms inside our factory that are available to high school juniors and seniors who want to understand manufacturing and remanufacturing,” Stack explains.
In fact, 17 school districts are now part of the programme and about 50 students have spent a semester at SRC getting credit for classes they take there: “We are building bridges between kids that at one time thought a factory was a place they did not want to be. We are showing them that a factory of today isn’t a factory of the industrial revolution.” SRC is based in Springfield, Missouri, and Stack says the company is doing outreach to grammar schools by opening up the factory during the summer, allowing students to visit. He says part of the problem finding people is that remanufacturing doesn’t get the respect it should as a job creator in a local area. “Maybe a lot of that is because we don’t pat ourselves on the back and we don’t market ourselves that way. We are really a labour-intensive industry and you would think that would have a little more focus on an political level.” Stack says the high-tech world is touted as a place to go, but explains there is not a lot of labour involved. “I am prejudiced because I am in love with remanufacturing. I am prejudiced because I see all the benefits it has. It has created a tremendous amount of wealth for people in our community and it is sustainable over a long period of time,” he says. “But it is not for us to moan about. It’s for us to go do something about.” Stack does just that, spending a lot of time working with members of the US Congress, local officials and local institutions to raise awareness of remanufacturing, its ability to create jobs and its impact on the environment.
Another challenge he sees for the industry is managing the raw materials of remanufacturing. “How do you understand the raw materials? How do you put forth investment and make sure you understand the total life cycle of the product itself?” He says it is important that everyone involved in remanufacturing understands the economic value proposition of a reman programme. Manufacturers need to “plant the seeds” for remanufactured products by having enough new product flow into the market. “You have to keep an eye on the material as it flows year after year. What happens is at the front end of every programme the part is going to be expensive. Then as the product begins to slow down and demand begins to shift you have to be certain that you are not stuck with a tremendous amount of surplus or obsolete inventory,” he explains. Stack has a demonstrated history of what’s needed to be successful in remanufacturing. “You really have to have a tremendous grasp of mathematics and income statements and financials. It is about financial literacy if you want to play in this marketplace. Everyone in your organisation needs to have financial literacy.”
Stack explains that financial statements have been around since the 1400s. “They have not changed very much over the years, yet few people know how to read them even though many billions of lives have been affected by financials.” Stack says they are like “a living crystal ball because they tell you what you have got to do in order to build your company”. They point out a company’s strengths and its weaknesses. “Then you have to have the guts to make the needed changes. That is the hard part,” he says.
The Great Game
Stack believes that, while SRC is apparently all about remanufacturing, the real business of the company is education: in other words, teaching employees to understand a company’s balance sheet leads to innovation, creativity and entrepreneurship. “When [employees] can see the scorecard, they can come up with ideas,” he says. “I don’t know why everyone is looking at markets for answers - to me you have your answers right there in the balance sheet.” Stack’s philosophy, outlined in his book The Great Game of Business, relies on complete transparency with staff. “We started out in the beginning, opening our books to our employees. Then we began to open our company to anyone who wanted to come in and see what we did.” He explains that historically when something goes wrong in a company, “you shoot the person you think is responsible”. But, he explains: “Nine times out of ten you actually have a systems problem.” Leadership to Stack is putting a system in place so that the leader and everyone else in the organisation is working side by side to fix the problem: “It’s not having one charismatic person at the top.” Stack says he has seen many people adopt his philosophy and scale it - so it works in companies with union employees, companies where multiple languages are spoken and companies with many locations. But it was not just other companies learning from it. “We have learned so much from the people that we are associated with related to The Great Game of Business. It is almost as if you are on an accelerated learning process every day.”
Planning for recession
Even though Stack and SRC have achieved great success, he is not content to coast. When asked what he still hopes to accomplish in his career, Stack says: “We put together a plan back in 2009 of what we needed to do by 2019 when we believe there will be a recession. We want to have a balance sheet that will put us in a significant opportunity to be able to double our growth in the five years following 2019.” He said they have targeted a nine-digit number for liquidity on the balance sheet in order to make a move in 2019. “We are planning for a recession,” Stack explains. “We have been through four recessions and we have doubled the value of our business five years after each recession because we had a strong balance sheet.” Stack says SRC is building the balance sheet and is 70% of the way to hitting their goal: “Hitting that is my goal right now and then we will lay out another ten-year plan.” If history is any indication, Stack and SRC should continue to be successful. After all it’s just a matter of balance in order to make absolutely certain you have the strength in order to be successful, according to Stack. He says too many people get trapped on the top line. “Everyone likes cocktail talk about the million-dollar company. We never focus on the top line - we have always focused on the value proposition and how strong our balance sheet was.”