NASH FINCH COMPANY

Nash Finch is a large, $20 billion wholesaler of groceries, also with retail stores, in the southeast and midwest of the US.

Our first encounter was in the 1970s, when, the VP of Distribution responded to a mailing about a seminar on Distribution efficiency and attended one that we were running in Los Angeles with his chief financial officer.  They liked the seminar and soon retained us to design a prototype distribution center, which they constructed in St. Cloud, MN.  They subsequently built two other distribution centers with the same design.

After that we talked from time to time, but they had no needs for our assistance, although they were quite pleased with our distribution centers.

I would comment that our design called for a taller than normal building at 32' clear working height, with separate perishable and dry wings with an office over the loading docks where they did not need the full height in the warehouse.  The layout called for the fastest items to go in the front and closest to the center of the combined warehouse to minimize the travel distance and facilitate loading of the dry and perishables on the same truck.

Probably 10 – 15 years passed.  Then the executive VP responded to a mailing about item handling costs and item profitability.  We visited and reached an agreement to work in that area.

We convinced them that they did not simply want a one time study but rather on going information that would be actionable.  So we worked on a system that would do this, and they formed a task force that would work with us.

We delivered the system and profit information and even expanded it to the customer profit level.  There were lots of issues raised but we all too quickly learned that they were unwilling to say no to almost any request from a customer; thus they wouldn't really jump on the information and use it to make change.

Then a tragic traffic accident in front of the offices killed the Chairman and CEO. The executive VP was immediately promoted to President and CEO.  Two projects with us were launched by him, a study of buying efficiency and inventory management and later the oversight of the IT function.

The outcome of the buying and inventory management study led to a proposal that they centralize the stock of slow moving items, marrying the slow moving order from the central warehouse with the order of fast moving items from the customer's assigned warehouse.  The study also validated their idea to close a centrally located but redundant warehouse.  They accepted the proposition of centralized slow movers and proceeded to  plan for it.

So we built them a simulator that would analyze item and vendor movement and make recommendations for what to centralize.  This worked and soon a centralization program, albeit conservative, was in place and growing.

The IT oversight put us in the middle of their millennium preparation.  They had formed a task force to determine what to do.  They didn't really like their evolved heritage systems and began to listen to presentations from suppliers of integrated systems such as People Soft and SAP.  They had decided to go to SAP as the integrated system that would meet the greatest number of their systems requirements.

In retrospect, they had a flawed way of looking at requirements, as they would list a desired feature or functionality without saying how it should operate or whatever were the major constraints.

They had been given some very general presentations by SAP which they mostly liked.  They had determined that the warehouse management sub system from SAP was inadequate, but otherwise no issues.  They were not concerned that there were no grocery wholesaling installations and only an installation in process for a specialty retailer with far lower physical volumes.

I was assigned to the project just as they were preparing to sign a contract with SAP.  I objected strongly to signing without a detailed understanding of the functionality that they would get.  They signed despite my objections.  The CEO implored me to stay with them despite my concerns which I agreed to do.

Signing was followed by several weeks of presentations by SAP people to a large group of NF people from both IT and operations.  My sense of the presentations was that the SAP people were more concerned with describing the sub systems and showing how they fit together, rather than how they worked vis a vis the business functions of a company.  Some new issues did surface, but I do not recall show stoppers except that the buying system capability was judged unacceptable.  SAP agreed to create an appropriate new module for them.

Next was attendance at a training program where the emphasis was on a system of screens to load and run the system.  My sense was that the s screens were very slow with no capability to load or update, say, all of the items from one vendor for specific data elements like case sizes or promotions.  I explained my deep reservations at that point, but the NF people were hoping for the best and did not hesitate.

The actual installation required more assistance than SAP ever would provide and NF was told to hire a consultant.  They did and the installation started with a huge team of NF people and a significant team of consultants.  We noted that the consultants did not always have answers.

Our role was now minor with the SAP project, and the CEO and executive VP decided that we would make a new push on customer profitability.  We actually installed eight Midwest warehouses and were getting some follow through on abusive customer ordering, including customer cherry picking of low cost unprofitable items, and the cost of poor NF customer service.  An example of the latter would be that the promotional product was not available when required to be on a specific customer's delivery so it needed to be specially delivered at an additional cost.  We also got some pricing installed whereas a willing customer would pay a higher, more realistic price for delivery in return for a discount otherwise.

In the meantime lots of things were happening.  SAP was going poorly.  To illustrate how poorly, consider just one of the problems.  They were doing a test of the order processing and shipping system to process a day of orders.  It took some 30 hours to finish, where the existing system took 6 hours which is almost the most that it can take and get the other jobs done and maintain the shipping lead times to the customers.

We made a buying system presentation of a system functionally better than anything they had or were looking at.  They rejected it out of hand saying it was not a part of a bigger system.

NF bought a wholesaler in Dayton Ohio and its three regional warehouses.  They ended up closing one warehouse and never really integrated this new operation with the existing business to our knowledge.

They also bought Associated Foods of Omaha and closed a nearby smaller warehouse.  They had a really difficult time getting the warehouse up to speed, with a loss of customers  and profit.

We prepared a proposal at the CEO's request for cost of service based pricing for a dis-satisfied customer.  All of us involved, NF people included, liked it.  At the last minute the CEO decided not to present it as he thought the customer was too dis-satisfied to listen.  Sad.

About this time the CEO resigned in order to retire.

A new CEO, arrived almost immediately.  He was the former CFO of an East Coast food distributor.

He quickly took action as he saw fit.  He canceled the SAP installation and decided to make necessary changes to existing systems to handle the millennium.  He fired the senior IT people.  He put us on an orderly phase-out program.  He closed several marginally profitable branch warehouses and fired the HQ team that had been overseeing the branch warehouse operations as well as some warehouse managers.

Needless to say, profits suffered initially, but after a year or so things got better and NF stock made new highs.  Subsequently NF had new troubles with failed retail operations and difficulties for making a wholesale profit.  But they got past that and are still in business with a respectable stock price.

Morals abound!

During our term management was quick to see new ideas but very slow to follow up.  They purchased state of the art tools from us but didn't put them to effective use.  There were lots of slip ups with pricing and handling customers and management was not on top of this.  They were not of a mind to look in detail at a branch warehouse operation and correct what was wrong.

Many businesses have gotten in trouble over these things.