Product line simplification in action

Years back, in an effort to teach my children about money, we set up a candy store in the company.

The first sign shown comes from the Candy store we set up with my first son.


It offered a wide range of choices, multiple price points, and food choices that required us to shop at several different stores in order to stock them.

This second sign comes from the Candy store my second son set-up after the company had been through the ITW complexity reduction process.

Candy store price list after the PLS process

We had one product offering, one price point, and had narrowed our offering to our core products.

The second candy store was easier to manage and run. It also made more money. We didn’t have to worry about change and the product offering could be whatever was available at the grocery store. In the end, the customers at the second store always left with what was being advertised and so they seemed happier.

This is probably the simplest, but most compelling, Product Line Simplification (PLS) story I have ever seen. Obviously, General Motors can’t just put a sign outside the dealerships and proclaim “Cars $24,995”, but the proliferation of products and customers is the key driver of complexity in any organization. Complexity is exceptionally camouflaged and difficult to find. Often it is concealed in the minutia.

Many people who learn about the 80/20 process and PLS presume that we are mindlessly going to eliminate the 80% of the products that produce 20% of the revenue. This couldn’t be further from the truth.

PLS is a methodical process. Correctly done it is extremely powerful. Rushed through haphazardly, it can have major negative repercussions on a business for years to come. 80/20 Quad Analysis offers a clear and systematic way to work through product offerings and customers and be confident that you are making good choices for your company.

It is only after the PLS process that I ever see organizations make game changing transformations. They are ALWAYS there waiting to be discovered. But you can’t hear the music until you have eliminated the noise.

Candy anyone? Only a $1.00.

The $20 million dollar lesson that launched this book

I started Midwest Industrial Packaging (MIP) in early 1987. It was a classic startup in a market too small to attract a large company but large enough to support a healthy medium sized business. The market for industrial packaging products and materials wasn’t glamorous but MIP provided products that every business needed.

Over the next thirteen years, MIP grew to become the world’s largest simple packaging tool company selling over 100 different products to 1,000 customers in 44 countries. We manufactured forty of these tools; the remaining items were purchased overseas and resold. In 2000, we generated $7 million in sales, 4% in operating income, turned inventory 3 ½ times per year, and employed 52 people.

The operation was textbook, as taught in most business schools, with machining, assembly, quality control, shipping, and receiving. Products were manufactured in batches to make more efficient use of manufacturing assets and complicated set-ups. The Quality Control department inspected incoming raw materials and parts, inspected the first products off the line during batch production, and checked outgoing products before shipment. Materials handlers pulled parts and material from stock to prepare batches for assembly, monitored and tracked key parts during assembly, and periodically worked to get rapid delivery of key components when a shortage threatened to slow up or stop a production batch.

In 2000, Illinois Tool Works (ITW) identified MIP as a potential acquisition target. For one thing, MIP could round out ITW’s product line as a value brand. MIP products could also be offered to customers as a way to generate incremental sales and income from existing accounts that ITW didn’t already have. As a part of the acquisition agreement, MIP continued to operate as an independent business unit. Based on their review and due diligence, ITW believed there were opportunities to significantly streamline and improve our operations.

ITW bought MIP and hired me to manage the company during the transition.  Our staff and I started to learn, apply, and modify the tools, techniques, and methods that became Think Inside the Box.

What were the results at MIP?

Over seven years, operating income rose from 4% to 28%. Inventory turns rose from 3½ to 12 times per year. Revenue per employee went from $143,000/year to $435,000/year. The valuation of the business was $20 million more than what ITW paid me in 2000. All of this was accomplished with the original management team, the same resources, and the same customer base. There was no grand change in strategy, no radical innovations in technology, no clever financial engineering.

The methods and practices we applied at MIP worked as well as they had elsewhere in ITW.

ITW has always been public about their playbook and practices. These practices have always identified opportunities for improvement. I started work on the book to allow any organization to travel this path without the $20 million tuition bill.