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Supply Chain Management of H.B. Fuller Company
Supply Chain Management of H.B. Fuller Company - January 8th, 2011
A top performer among specialty chemicals firms, H.B. Fuller Company markets adhesives, sealants, coatings, paints, and several other specialty chemical products in 42 countries. Fuller's international markets, which have been aggressively pursued since the 1970s, account for more than 40 percent of the company's overall revenue. The company originated during the late 19th century as the first paste and glue manufacturer in Minnesota. Despite a long list of successes, Fuller ranked as the second smallest adhesive firm in the country up until World War II, at which time majority ownership and management of the company was passed from one of the founder's sons, H.B. Fuller, Jr., to Elmer Andersen, a highly successful sales manager. Andersen inaugurated a 'double it in five' strategy, a systematic campaign for decentralized growth that would ensure 14 percent annual sales increases, or the doubling of sales every five years. By 1950, the company had become the fourth largest adhesives manufacturer in the country. When Andersen's son, Tony, assumed leadership of the company in 1971, further rapidly paced growth came through overseas expansion. Since the early 1980s, Fuller's growth has generally slowed; in addition, net earnings have decreased in five of the last ten years. But a major restructuring was initiated in 1998 by new company President and CEO Albert Stroucken, who aims for a quick turnaround.
The company was launched in 1887 when Harvey Benjamin Fuller, Sr., traveled from Chicago to St. Paul, Minnesota, with the sole intention of inventing and selling glue. In Chicago Fuller had experimented with glue mixing, while successfully buying, repackaging, and marketing an existing adhesive that was guaranteed to 'cement everything.' His marketing took the form of various promotional rhymes, including clever Mother Goose spoofs: 'Maid was in the garden, hanging out her clothes/Along came a blackbird, and nipped off her nose/When she found her nose was off, what was she to do/But go and stick it on again with FULLER'S `PREMIUM GLUE.' Fuller regarded St. Paul, together with its 'twin city' Minneapolis, as the ideal urban center to establish his business, for general industry was thriving there and competition was scarce. In addition, flour, then a key ingredient in gluemaking, was in abundant supply because of a strong agricultural base and such rising concerns as Pillsbury and General Mills's precursor, Washburn-Crosby Company.
Fuller's business plan was simple. 'What the world needed,' according to A Fuller Life and H.B. Fuller, Sr., 'was a convenient, economical, strong adhesive--an adhesive so versatile that homemakers and manufacturers could both use it.' His equipment was also simple: an iron kettle and the family's wood-burning stove. Soon Fuller concocted a wet, flour-based paste with which he was satisfied. He then began selling the mixture in small batches to local paperhangers, who were generally glad not to have to make their own glue. As the Fuller brand name gained recognition, Fuller realized his business required outside capital to sustain growth. The company was incorporated when three Minneapolis lawyers agreed to invest a total of $600. Thereafter, Fuller Manufacturing Company marketed its glue to a wide variety of customers, including flour mills, shoe companies, box manufacturers, bookbinders, printers, and households. The company also made and sold laundry blueing and did a brisk business in ink for the city schools. By 1888, the company, which was really just Fuller serving as jack-of-all-trades, added its first employee, Fuller's oldest son, Albert. Two years later the company moved into its own manufacturing facility, where Albert assumed primary responsibility for filling orders and discovering new formulas while Harvey generated more revenues by expanding his sales areas.
In 1892 the company acquired a Minneapolis competitor, The Minnesota Paste Company, for $200. Although several decades later such acquisitions would become regular occurrences, Fuller meanwhile was destined to grow by internal development, particularly through a succession of inventions by the founder that greatly expanded both its product line and its manufacturing capabilities. In late 1893 Harvey successfully produced Fuller's Cold Water Dry Wall Cleaner, intended for use on wallpaper (at that time it was customary to clean walls twice yearly, but existing cleaners tended to decompose under warm conditions), and applied for a patent. The item was in wide production by the following spring and became enormously popular. The elder Fuller's next invention was Fuller's Cold Water Dry Paste, which became even more successful than Fuller's Cleaner. Because it was packaged dry, without the added weight of water, the product could be shipped at lower cost, saving both the manufacturer and the customer money. In addition, Fuller's Paste was remarkably easy to work with, and advertisements boasted that 'a child can mix and use it.' By 1898, Fuller Manufacturing was posting annual sales of $10,000. By 1905, the company was not only shipping its paste and cleaner to both coasts, it also had entered markets in England, Germany, and Australia.
One setback for the firm, however, was the lack of an obvious successor to the post of president, for Albert and Roger, Fuller's middle son, both left the business. Furthermore, Fuller's youngest son, Harvey, Jr., was more inclined to a career in art than manufacturing. Nevertheless, upon his graduation from the University of Chicago in 1909, Harvey, Jr., joined the company full time and made an immediate impact by bolstering advertising and creating the first comprehensive catalog of Fuller products.
Increasing its workforce to include an experienced bookkeeper, a stenographer, and a sales manager, Fuller Manufacturing entered the 1910s prepared for heightened growth. In 1915 the firm reincorporated as H.B. Fuller Company and issued stock valued at $75,000. World War I, already underway, was to be the primary impetus for Fuller's short-term growth. With the engagement of American troops came the need for shipping mass quantities of food overseas. U.S. canneries were ready to comply but had a need for a quality adhesive that would speed the labeling process. Fuller filled that need and prospered. After the war, however, Fuller's sales dropped off and Harvey, Sr., fell ill, dying late in 1921.
Struggles in the 1920s and 1930s
During this difficult period, when the company faced the possibility of bankruptcy, Harvey, Jr., made what was undoubtedly his greatest decision: that of hiring a full-time chemist named Ray Burgess. By the time Harvey inherited the presidency from his father, the company had regained its momentum, due in large part to Burgess's self-taught genius and his ability to develop customized adhesives and formulas for the industrial market. The list of Fuller products expanded to several dozen by the mid-1920s and record-setting sales of $157,000 capped the end of the decade.
In 1930, following the stock market crash, Fuller acquired The Selvasize Company of St. Paul, the maker of a combination plaster and wallpaper adhesive, for $2,000. Fuller, with steady customers in 38 states and a near monopoly on glue production in the Twin Cities, remained relatively healthy throughout the Great Depression. A number of events highlighted the 1930s. The company hired its first degreed chemist, who became responsible for several new patents, such as Ice Proof, a glue resistant to cold water. In addition, a research team was formed, Fuller began a full-scale entry into international markets, and Elmer Andersen, a business administration graduate and budding salesman, joined the company, which celebrated its 50th anniversary in 1937.
Also during this time, Burgess developed an important new product known as Nu-Type Hot Pick-Up. Until Burgess's invention, the company, like its competitors, had marketed several hot pick-up glues for use in automated labeling; all such glues, however, were notoriously difficult to work with, either too hard or too sticky in bulk form, and always cumbersome to apply in measured amounts. Nu-Type Hot Pick-Up was the first glue that solved each of these problems. Consequently, Fuller cornered the hot glue market nationwide.
Not all the corporate news was as favorable, however. The company, with just half of one percent of industry sales, was still conspicuously overshadowed by such giants as National Adhesives Corporation, which controlled approximately 65 percent of the market. Every new sale, therefore, mattered greatly, which made all the more devastating the revelation in late 1937 that three of Fuller's regional salesmen had been undercutting the company's orders through the creation of a bogus firm, which they now claimed to represent. Sales, depressed already by the still struggling economy, dropped from $212,000 that year to $165,000 the following year. Even more devastating to the company's long-term prospects was the debilitating stroke Harvey Fuller suffered in 1939.
In March 1941 a large Chicago competitor named Paisley Products approached the ailing St. Paul firm with an acquisition offer. Both Fuller, then in his mid-50s, and Andersen, 32, attended a meeting with Paisley's representatives, who formally proposed to purchase H.B. Fuller Company for $50,000. Fuller was prepared to retire but was also discouraged by the low offer he had received. Andersen provided an alternative solution. His plan involved assuming leadership of and a majority position in the company himself, while still allowing Fuller to retain at least a 25 percent stake. The deal was completed in July after Andersen borrowed heavily to finance a $10,000 down payment on the stock he was required to purchase. Mere months later, Pearl Harbor was attacked.
World War II and Postwar Growth
Far more so than the previous war, World War II afforded the company a chance to develop a broad line of adhesives that the government demanded for an equally broad array of uses. Fuller became one of the nation's first companies to specialize, among other areas, in waterproof adhesives. It thus earned a place on the government's recommended suppliers list which, in turn, brought it enhanced recognition nationally. The company scored another victory when it was able, during the midst of rationing, to supply Nabisco with raw glucose from its inventory, which had been dramatically enlarged by Andersen as a cost-saving measure. Nabisco subsequently became a major user of Fuller's adhesives for its boxed foods and other products. Both during and following the war, the company focused on decentralizing operations--bringing the product closer to the customer--by establishing a number of branch plants, beginning with Kansas City in 1943. At the close of the decade, Fuller ranked fourth among U.S. adhesives companies, behind National Starch (later owned by Unilever, then Imperial Chemical Industries PLC), Paisley Products (acquired by Fuller in 1975), and Swift.
In 1949, Andersen was elected to the state senate and became a part-time company president. Al Vigard assumed control of day-to-day operations in Andersen's absence; he later became president when Andersen extended his political career by receiving the governorship of Minnesota in 1960. A steady introduction of new products, a systematic development of a strong nationwide sales force, and a greater attention to international expansion typified this transitional era. In 1958, the company launched H.B. Fuller Company (Canada) Ltd. in Winnipeg. Shortly thereafter, Fuller Adhesives International of Panama was established. Numerous other international subsidiaries followed, each of which conformed to the Fuller blueprint for growth. A three-stage process, this blueprint called for: (1) building export volume to a high level; (2) forming or acquiring a subsidiary, or sometimes establishing a co-venture with a noncompetitor, in a clearly defined market; and (3) sustaining the business by hiring and training a local workforce to produce customized products.
One of Fuller's most significant ventures outside the United States was Kativo Chemical Industries Ltd. A promising but nearly bankrupt paint, inks, plastics, and chemicals business based in Costa Rica, Kativo was begun by a Kansas inventor named Dr. Frank Jirik. During the early 1960s, Fuller acquired a minority interest in the company, but by early 1967 Jirik approached Elmer Andersen with a proposal that Fuller assume a majority interest to fuel the company's plans for expansion. In A Fuller Life, Andersen recounted the visit that clinched his decision: "It was Kativo's people who made all the difference to us. ... We trusted them. We had confidence in them and we cut them loose. We decided to send no U.S. Fuller employees to work in the Kativo operation." In addition, Andersen awarded the 13 Kativo executives the right to own stock in the company they had helped build. Soon Kativo became the heart of Fuller's Latin American operations, from Mexico to Argentina. Surviving plant and monetary losses from both the June 1979 revolution in Nicaragua and General Noriega's rampages during the U.S. invasion of Panama ten years later, Kativo and its related businesses ranked among the fastest-growing in the Fuller fold into the 1990s. One of Kativo's original executives, Costa Rican native Walter Kissling, eventually served as president and chief operating officer of Fuller.
Late 20th Century: International Growth and Restructuring
In 1971, three years after Fuller went public, Tony Andersen became company president. International sales accounted for around 15 percent of total revenues, and Andersen was given the primary responsibility of boosting this figure, while increasing overall volume. Consequently, he became a president routinely in transit, flying from one country to the next. Not until 1980 did he return to head U.S. operations full-time. During the interim, he oversaw some two dozen acquisitions--half in foreign countries--and, significantly, the first of these provided important new market entries into Japan and Europe. From 1971 to 1980, sales grew from $60 million to $296 million. Andersen's greatest contribution to the company, however, came shortly after his return to the St. Paul headquarters. In what was then an unpopular maneuver, he decided to revamp the company's entire infrastructure, which because of rapid geographic-oriented expansion had become both inefficient and inconsistent. A market-driven organization stressing product and price uniformity was Andersen's answer. Due to an economic downturn, the payoff was slow to come. By 1985, however, earnings had improved dramatically, and three years later, Andersen was named executive of the year by Corporate Report Minnesota.
Fuller inaugurated the 1990s by broadening its Asia/Pacific operations with a hot-melt production plant in Guangzhou, China. Plant expansions around the globe, as well as continuing investment in research and development, typified the company through 1992. In April of that year, Elmer Andersen officially stepped down as company chairperson. In a speech to shareholders, he optimistically stated, "The past is prologue: you ain't seen nothing yet." During this time, however, Andersen's statement was somewhat eclipsed by publicity surrounding Fuller's Resistol glue and its use as an inhalant by children in Latin America. Widely respected for its sponsorship of charitable and educational causes, Fuller pulled the product from markets in Honduras and Guatemala in the fall of 1992 and continued to fund social programs that helped minimize such abuse. Despite these moves, the Resistol issue simply would not go away. More negative publicity came in 1996 when the company was sued for negligence by the family of a 16-year-old Guatemalan boy. The suit, brought in U.S. District Court in St. Paul, claimed that the boy died as a result of years of inhaling Resistol. The judge in the case dismissed the suit, having concluded that it lacked jurisdiction.
When Elmer Andersen retired in 1992, Tony Andersen took over as chairman and Kissling became president. Kissling added the CEO position as well in 1995. Under Kissling's leadership, Fuller in the mid-1990s worked to reduce its operating expenses through the closure and consolidation of plants, particularly in Europe and Latin America. The company was aided in these efforts by the liberalization of tariffs in these regions. Whereas previously the company was forced to locate a plant in nearly every country in which it hoped to sell its products, it could now consolidate its factories on a regional basis. In concert with these moves came a reorganizing of the European and Latin American operations into strategic business units that were based on product lines rather than on geography. Company sales, meantime, surpassed the $1 billion mark for the first time in 1994 and then grew to $1.28 billion by 1996.
In 1997 Fuller joined its automotive adhesives, sealants, and coatings operations (with annual sales of $100 million to $115 million) with the automotive adhesives business of Zurich-based EMS-Chemie Holding AG to form EFTEC. The Detroit-based joint venture had revenues of about $250 million, making it the second largest automotive supplier, after Dow's Essex, and enabling it to operate on a global basis.
The following year Kissling retired from the company. His successor as president and CEO was Albert Stroucken, the first outsider in the company's 111-year history to take over the top positions. A native of The Netherlands, Stroucken was a 29-year veteran with Bayer A.G. Stroucken's first major task as head of Fuller was to improve the company's net earnings, which had for years stood at around three percent. The investment community had long complained that Fuller's corporate culture, which helped earn the company a consistent place on lists of the best places to work, did not place enough emphasis on the bottom line. The company had a longstanding pledge that "its responsibilities, in order of priority [are] to its customers, employees, stockholders and communities."
It became immediately clear that this outsider would bring startling changes to Fuller and propel it into a new era. Most strikingly, in 1998 the Stroucken-led Fuller changed its mission statement, which now read in part, "H.B. Fuller is committed to the balanced interests of its customers, employees, shareholders and communities." In August 1998, a mere four months after his arrival, Stroucken announced a major restructuring aimed at reducing costs by $30 million per year and improving net margins to five percent through the closure of about a dozen plants, the divestment of underperforming units, and the elimination of about 600 jobs worldwide--all over an 18-month period. Stroucken also took a more aggressive stance toward acquisitions, aiming to displace Imperial Chemical Industries' National Starch subsidiary from the number one position in the global adhesives market. During 1998 Fuller spent $92.4 million on acquisitions, purchasing the Australian and New Zealand adhesives business of Croda International PLC and Peterson Chemicals Adhesives from Ecolab Inc. Stroucken told analysts in mid-1999 that he was identifying acquisition targets with sales of at least $100 million, a huge jump from the $5 million to $10 million companies that Fuller typically purchased. With its newfound focus on cost containment and improved profitability and a more aggressive attitude toward acquisitions, H.B. Fuller was certain to be a much more formidable competitor in 2000 and beyond.
Principal Subsidiaries: H.B. Fuller Company Puerto Rico, Inc.; H.B. Fuller International Inc.; F.A.I. Trading Company; Fiber-Resin Corporation; H.B. Fuller Automotive Company; EFTEC North America, LLC (70%); EFTEC Latin America (88.5%); EFTEC Europe Holding AG (Switzerland; 30%); EFTEC Asia Pte. Ltd. (Singapore; 80%); Foster Products Corporation; TEC Specialty Products, Inc.; Linear Products, Inc.; H.B. Fuller Licensing & Financing Inc.; Kativo Chemical Industries, S.A. (Panama; 99.7%); Pinturas Ecuatorianas, S.A. (Ecuador); Glidden Avenida Nacional, S.A. (Panama); Fabrica Pinturas Glidden, S.A. (Panama); H.B. Fuller Holding Panama Co.; H.B. Fuller Austria Gesellschaft m.b.H.; H.B. Fuller Belgium N.V./S.A.; H.B. Fuller GmbH (Germany; 99.9%); H.B. Fuller Italia s.r.l. (Italy); H.B. Fuller Nederland B.V. (Netherlands); Prakoll, S.A. (Spain); H.B. Fuller Sverige AB (Sweden); H.B. Fuller Holdings Limited (U.K.); H.B. Fuller Canada, Inc.; H.B. Fuller Mexico, S.A.; H.B. Fuller Company Australia Pty. Ltd.; H.B. Fuller (China) Adhesives Ltd. (97%); H.B. Fuller Japan Company, Ltd.; H.B. Fuller Korea Co., Ltd.; H.B. Fuller (Malaysia) Sdn. Bhd.; H.B. Fuller Company (N.Z.) Ltd. (New Zealand; 99.9%); H.B. Fuller (Philippines), Inc. (80%); HBF Realty Corporation (Philippines; 40%); H.B. Fuller Taiwan Co., Ltd.; H.B. Fuller (Thailand) Co., Ltd. (99.9%); Nippon Tilement Company, Ltd. (Japan; 9.1%).
Principal Competitors: Akzo Nobel N.V.; American Biltrite Inc.; Borden Chemicals and Plastics Limited Partnership; Cytec Industries Inc.; Dexter Corporation; Elf Atochem; Henkel KGaA; Hercules Incorporated; Imperial Chemical Industries PLC; Loctite Corporation; Minnesota Mining and Manufacturing Company; NS Group, Inc.; Pacer Technology; Rohm and Haas Company; RPM, Inc.; Sekisui Chemical Co., Ltd.; TOTAL FINA S.A.; The Valspar Corporation; W.R. Grace & Co.
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