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.