) This is the first segment in the ongoing Orchid series… “I know the regulations, now what?” Executive Considerations
The firearms industry has been active with acquisitions, divestitures, plant moves and growth into new markets. If you follow the industry wires, you’ve likely heard about Beretta’s move south, Ruger’s new facility in North Carolina and other manufacturing considerations for vertical integration. In any industry, corporate events, facility startups and plant moves come with executive-level risk considerations. So, you ask, what should I consider when launching a new FFL, buying an FFL, implementing a new ERP system, consolidating my FFLs (from many to one) or even expanding into new markets? The following are but a few key considerations:
How Do You Undertake a Major Project?
- Regulatory compliance implications;
- Effectiveness and efficiency of the pre- and post-event activities;
- Financial return and pay-back period;
- Impact to your operational effectiveness and supply chain planning;
- Market dynamics and customer satisfaction;
- The impact to and needs of human capital;
- A determination whether all risks have been appropriated identified, planned for and mitigated.
If you’re like most companies, you will want to rely on expertise resident within the company. You will put a vice president you trust in charge of a team of managers from relevant functions and you will rely on them. This seems like a natural first step because intimate knowledge of your business is critical to understanding the current state and, to some extent, the future state of the business. You know the team and the team knows your business. The challenge is, new big projects call on different skills and give rise to different risks than your team may encounter in the normal course of business. Without the right expertise, they can stumble just at the time that risks are enhanced, because major projects are times of increased risk for companies. As an example, let’s look at how things can go awry when opening a new plant in another state. Where Does it Begin?
The new manufacturing plant has been secured and you assemble your team to plan and execute the relocation. The new plant will be used for manufacturing, so you put your VP of Manufacturing in charge of the team. Someone on the staff knows how to use Microsoft Project, so that person is tasked with maintaining the project plan. Managers from all the relevant areas, including Manufacturing, Supply chain, Finance, IT and HR are put on the project team. (Sometime later, someone notices that Compliance may not been included, and that oversight is remedied). Where Does it NOT End?
Six months later, your project team declares victory:
- Machines have been moved……check.
- Designated employees have been relocated…..check.
- New hires have been hired and are ready to work…..check.
- Inventory (relatively) in the right place…check.
So, the only thing that remains is to plug in the power cord and we’re good to go! Right? Wrong. Although circumstances vary, it’s not uncommon for the tasks shown above to be considered the full scope of the event (a plant move in this example). Success is not only defined by moving machines, people and inventory within time and budget, however. The real test begins when you flick the “On” switch on Day One. What Don’t You Want to Have Happen?
The New Plant team is in place and the following happens: Employees say….
- These procedures don’t look like our procedures.
- Wait, that’s now how we did it.
- Well, they are a well known implementation firm!
- Where’s the report that I need to manage inventory, or demand forecasts?
- Ohhhh, I’ve never seen one of those products…we make that now?
- How do I access master customer data? Wait a minute, that’s not our SKU.
- Geeesh, I have to get an import license or variance? We start production next month. Why didn’t someone tell me?
- What do you mean we have received-not-acquired? We installed software.
- I thought that was the right transaction…the system let me use that one!
Yes. The hard part begins on Day One, so to speak, but planning for it should have been occurring throughout the project. We call that Change Management. Orchid’s Corporate Activity R.E.P.O.R.T.
Our team has leveraged years working for major consulting and legal firms like Ernst & Young, Protiviti and Day Berry & Howard, as well as hands-on industry experience with the industry’s largest and various Fortune 500s, to create the Orchid Activity R.E.P.O.R.T. The Orchid Activity R.E.P.O.R.T. is a methodology that forces project owners to think beyond the physical, beyond the obvious, to increase the likelihood of success. After all, we should all strive for compliance, efficiency and repeatability starting on Day One following a major corporate event. The elements of the Activity R.E.P.O.R.T
Lets dive a little deeper into each one. Risk: Have we considered everything?
A common pitfall is the failure to understand all of the internal and external factors that could impact the business before, during or after a significant event. Consider the following:
Execution: What defines successful execution?
- Do we have a contingency plan if we experience an issue with supplier material flow? Will existing ATF variances be transferable to the new location?
- What if our technology integration strategy comes to a screeching halt because of data issues?
- What if the event has a material affect on our ability to “Close the Books” in a timely fashion? How will we respond?
- Have we considered the impact on theft and collusion that too often accompanies corporate events (in any industry)? And, do we need increased or different controls over retail assets, scrap and corporate IP?
- Have we made adequate allowance and created contingency plans for the other things that will inevitably go wrong, recognizing that internal project teams often lack the objectivity to plan properly for this?
As noted above, a common pitfall (if not the most common) is defining project success as moving machines, inventory and employees. Not true. Plant startups and moves, as well as acquisitions and divestitures, truly begin when the physical aspects are complete. The same holds true for major software implementations where success is too often defined as meeting the schedule “go-live” date. The project manager will tend to link his or her success to the tangible milestones, but the company’s long-term ability to be efficient, effective, profitable and compliant are based on many other factors that begin when the new operation starts. Consider the following:
People: They are your silver bullet – just make sure the bullet is going the right direction.
- Did the project plan properly consider the time-sensitivity of dependent tasks that are reliant on internal and external resources? For example, will our suppliers actually be able to generate package labels that meet the technical requirements of our new scanners?
- Did we consider the impact on consumer firearm repairs from a both a regulatory perspective and from a customer relationship perspective? “I used to be able to send my gun back to address XYZ, why are you telling me that’s no longer possible?”
- What metrics have we established to measure a successful implementation? And, do we have someone independent to monitor this performance? It’s very easy to mark a project plan task as “done” when you’re the one listing the requirements. What would an independent expert say? Done is not always done!
Managing the human element is the most challenging part of any corporate event. One of the keys to success relates to people and cultural change management. Consider the following:
Operations: Where it all happens.
- Do our employees understand the full scope of this event, why it is occurring and what the expected outcome is?
- How will future users of the plant, system or process define success? Does it resemble any of the success factors defined by the implementation project manager?
- Do we have training plans to ‘on-board’ new employees and temporary labor on Day One, do we have role specific training, or even recurring refresher training?
- Does our training include “what happens when things break”? Ordinary project plans make sure that employees in the new facility are trained at their jobs, but really well managed projects plan for the unexpected.Things will go wrong…..Did we plan for them?
Operations and execution may seem like the same thing, but they aren’t. Execution pertains to the managerial ‘project management process’ used to complete a corporate activity. Operations is where we buy, build and transform materials and inventory into things of greater value. Consider the following:
Regulations: Compliance is a core part of the project but isn’t always treated that way.
- How will we get raw or finished goods to and from our various suppliers and distributors? Has the logistics model changed significantly, introducing unforeseen freight costs?
- What do you mean we need to change all of our roll mark heads to indicate a new city of manufacture on the firearm? Ooops. Didn’t plan for that! And, what will our loyalist customer base think?
- Designing a new firearm with low-cost overseas components? Well, sharing engineering drawings during the bid and proposal process may very well require an export license…Yes, just the drawing themselves. Think you’re going to import them into the U.S. overnight? Well, don’t forget about the ATF’s application to import on a Form 6.
- Moving into an international market that you haven’t served before? That’s great, but the introduction of a new third party sales agent peddling your product to quasi government officials could spell FCPA risk. Are you prepared?
Consider the following:
- Does my project team remember the disastrous OSHA inspection six years ago and the many changes implemented as a result or will they make the same mistakes again in setting up the new facility?
- Did my team know that we now need a variance to mark guns the same way at the new facility that they did last week—without a variance— at the old facility?
- Why didn’t someone realize before Day One that Customer X would need to re-certify before we would be authorized to ship product from the new facility?Now we’re going to be late!
- Did someone tell the ATF that we have a new offsite storage facility? Did we register it with the Federal Firearms Licensing Center (FFLC)?
The unfortunate thing about compliance is that any perception of it driving operations can be disastrous. However, we operate in an industry where the output of all the operational activities are regulated and audited. So, if compliance isn’t an integral part of the design blue print, testing sequence, change management and go-forward operations, all that work can be compromised. The joys of our industry….maybe consider pharmaceuticals instead? Biotech? Aerospace & Defense? Food & Beverage? Darn. Same challenge. Looks like we’re all in this boat together. Technology: Unit, Integration, and User Testing – Go Live!
System implementations (should) follow a very structured process known as the “System Development Life Cycle”. You don’t need to be a tech geek to understand that the structured process includes multiple phases: (1) Creation of the new design; (2) Developing Technical specifications; (3) Moving, manipulating and developing data norms; and (4) Testing…Unit, Integration and User testing. With all that work, every system must perform on day one (we call that go-live). Consider the following:
Back to the Orchid Corporate Activity R.E.P.O.R.T.
- Did we consider our ERP implementation to be an IT project? A “systems” implementation is a misnomer. There is an unmistaken belief that system implementations are IT projects. Perhaps that is true in some cases, but understanding the true nature (and defined owner) of the project requires a real discussion about why it’s being implemented. Was the project conceived to modify operations and improve productivity? Was it to enhance control and achieve ATF compliance? In these scenarios Operations and Compliance become the key stakeholders and, more so, the drivers and owners of the project. Failure to critically define ownership of a project from the very beginning can produce undesirable results.
- Was the business involved in every step of the project or did they disappear after the blue printing process? Not good. Decisions can get made in a vacuum, lacking contextual understanding behind what is written on a piece of parchment otherwise known as the spec. System implementations require full integration, at all points of the project, between the business and the development team.
- Project management. Data Management. Change Management. Did we include change management? Much like a plant move, a system implementation can have a very negative effect on your business if change management isn’t an integral part of the project team from day one. Changing the manner in which people work, or have worked, every day for 15 years, as of the go-live date single training class is not a recipe for success.
- Data, data and more data. You’ve gone through all this work to (hopefully) scrub, realign and redefine your data for future use. In the event that the data conversion is successful, have you considered how it will stay that way after go-live? Control over master data (much like security) needs to be well thought through long before go-live. Absent bar-none controls in these areas, you’ll wind up with a fancy new $10m system with the same problems that you had last year.
Remember, our goal was to enable compliance and business performance during corporate events. Some projects are at first perceived as successes and, on the surface, seem to yield rewards. But what happens in the first six months after completion or “go-live” can be another story. So how should you move your plant, consolidate your FFL, implement new systems or enter new markets in a manner that will yield long-term, repeatable success? Consider the Orchid Advisory R.E.P.O.R.T. In a short period of time, our team can provide an upfront assessment, mid-project assessment or perform a critical post-mortem assessment using the R.E.P.O.R.T. methodology. Think you’ve got all of your bases covered? Give us a call to make sure.