Volume 42, Issue 11 - November 2007

the Farnady Files

Economies of Scale
Bigger is Better—Or Is It?
by Dez Farnady

 We have heard that bigger is better so often that by now we all think it’s true. Production efficiencies, better buying power and a host of other perfectly logical explanations have been offered. Although I never quite believed it, now I understand it a little more. In the twentieth century, “biggering” began even before the Depression with the corporate robber barons, the oil millionaires and the railroad magnates. Later there were the war profiteers, and in the 1980s it bubbled to the surface again with Michael Milkin and the junk bond kings. So it’s not news; there has always been an awful lot of greed and need for personal gain and power driving corporate growth. I know that economics is far more complex than my usual analysis, but I think the Enron debacle made it quite clear that greed is still the prime motivator. The most common tool for the money drive is the economies on the bottom that create the opportunities for the economics at the top.

This entire thing becomes a lot more important to us when we consider the recent purchases, acquisitions and consolidations that have occurred involving the aluminum, storefront and other metal businesses that affect us. The glass guys have not been too far behind either, as, for example, LOF is absorbed by Pilkington, which is purchased by NSG, and now Oldcastle picks up Vistawall and so on it goes. If this keeps up, one day one mega international corporation will absorb everyone in our business, our entire industry will become some sort of science fiction thriller with one supplier and the ultimate challenge will be how to get material. The science fiction nature of the corporate monolith has already been introduced to us by Mr. Lyle Hill. In the August issue of USGlass magazine (see The Business on page 96 of the August issue of USGlass) he described how we now communicate with these mega suppliers, but he did not mention two popular options in the automated phone answering marathon. One option, fairly common in most systems, is the selection that sends you back to the beginning just so you can start all over again. The other, my all-time favorite, is the one that unceremoniously dumps you out of the system all-together by just hanging up, leaving you listening to the dial tone. I suppose that really is the best one because it allows you to call some other supplier. 

Lorax Logic 
Clearly the most telling consequence of the “biggering” is that as the rich get richer at the top the poor get poorer or completely disappear at the bottom. Corporate executives and chief executive officers never get automated. However, customer service, sales and order entry all can be done by electronic systems and now even on the Internet. This expedience is implemented only to improve service, as the recorded voice on the telephone tells you. They also insist on telling you how great their company is, while you wait. I am not even going to get into the nightmare scenario of how to fix an order that was fabricated wrong or short-shipped or screwed up some other way. If you try to fix it on the Internet you will probably only pick up some sort of message that tells you, “Sorry to inconvenience you, but our server is down.” The corporate concerns of management at the top are driven by the stock value. The only thing that interests them about the bottom is the bottom line, knowing that all that requires is the manipulation of numbers. Sorry, guys, but the bottom line is generated at the bottom. While it can be manipulated at the top, it requires the front-line corporate foot soldiers who fight the battle of day-to-day sales of the gillion square feet of glass from order entry to production to delivery. Before the lack of service (caused by the lack of service people) finally drives the business down the economic toilet, the corporate wheeler dealers will have long since grabbed the money and run to greener pastures.

Our revenue stream starts at the order desk with customer service. Without that, there are no orders, and if there are no orders there is no money, and then we have to pack up and leave. 

The Once-ler said, “I’m figgering on biggering and biggering and biggering” while he sucked up all of the profits, and then “when the last ‘Truffula Tree fell’ even the Lorax “lifted himself by the seat of his pants … and took leave of the place, through a hole in the smog, without leaving a trace.” And if you don’t know what I am talking about ask your kid to tell you who the Lorax was. 

Dez Farnady serves as the general manager of Royalite Manufacturing Inc., a skylight manufacturer in San Carlos, Calif. His column appears monthly. Mr. Farnady’s opinions are solely his own and do not necessarily reflect those of this magazine.

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