Q & A: For Don Kendall, there is no secret to success

Mack Group fully deserves its place near the top of Vermont Business Magazine's Vermont 100. It is the largest manufacturer headquartered in Vermont, with annual sales of more than half a billion dollars and 1,400 employees in the United States and Scotland, about half of which work at five Vermont plants in Arlington, Pownal and Cavendish. It is the largest non-automotive custom injection molder of plastic products in the United States.

The company was co-founded in 1920 in Little Falls, NJ, as one of the first three companies in the country working exclusively in plastics, by Donald S Kendall, who was raised in Ludlow. Mack moved to Vermont in 1939. Kendalls grandson, Donald S Kendall III, became head of the company in 1973 after the sudden death of his father.

In the years since the third-generation Kendall took over, Mack has evolved from a $5-million injection molder to a full-service product and development contract manufacturer. In its molding divisions, the company concentrates primarily on housings and other components for companies in the computer industry that make work stations and routers, servers, mass memory devices and the other hardware that make the Internet work. One division, Mack Technology, assembles complete computers and other information technology products. However, Mack also molds parts for demanding companies like Garden Way, Lego, Reebok (the Reebok Step and the Reebok Slide), Xerox and Kodak.

Mack is known for progressive employee policies, for supporting the communities where it locates, and for environmental initiatives such as substantial voluntary reductions in the emission of ozone-depleting chemicals. The company intends to continue to grow vigorously and to stay in Vermont, where the workforce is well-educated and highly productive, and the quality of life attracts technically skilled employees.

Richard Andrews interviewed Kendall for Vermont Business Magazine at Mack's headquarters and flagship molding plant in Arlington, built in 1995. Mack is in the process of tripling the size and doubling the molding capacity of the plant, six years ahead of its original schedule. Warehouse space will be expanded by eight times, and the number of loading docks will be more than tripled from six to 19. Even before expansion, the plant was using more than 4 million pounds of plastic resin annually and processing a million parts a week.

VBM: You became president of Mack Molding when you fairly young.

KENDALL: I was 26.

VBM: What preparation did you have?

KENDALL: Oh, it's a family company. It was started in 1920 by my grandfather, and my father became president in 1965.

I graduated from college. I was a mechanical engineer, which is important in this business. I spent two years in the Navy, and two years in graduate school studying business. But I spent a lot of summers working here, as a kid, doing just about everything. To e quite honest, when I was 26 and my father passed away, I probably wasn't all that well prepared for the job. But it was 1973, in the middle of the oil crisis. Plastic is made from oil, so there was also a plastics shortage. It was a very tough time, and in some ways that helped me, because everyone pulled together and kept the place afloat. Everybody was in a survival mode.

VBM: How has the company changed since then?

KENDALL: We're a lot larger. Over the last 20 years we've grown quite rapidly. We have 10 plants now; we had two plants back then.

We are much more concentrated. Twenty years ago we molded for a lot of different markets. Now we are very concentrated in the computer industry

We have a lot more sophistication in our process a lot more automation. Things are a lot more precise. The machines are a lot faster.

VBM: The design turnaround times are faster too, aren't they?

KENDALL: Absolutely. The time it takes to build a mold is shorter. We've really gone from an art to more of a science, and it has required a different set of skills to be successful. Twenty years ago, the machines weren't that accurate, so there was a lot of hands-on fine tuning to the machines. Now they're very accurate.

VBM: Is it risky to be concentrated in one industry?

KENDALL: Yes, it is risky, although it has been a great industry. And the industry is so big that even if it were to get smaller, there is still plenty of room for us.

VBM: And what's the advantage of that concentration?

KENDALL: We become very good at one thing -- making computer housings. We became better at that than our competitors, who may be doing a whole bunch of things. We gain a competitive advantage.

VBM: How is the company organized?

KENDALL: We're set up in three divisions. We have Mack North, which is our Vermont operation, and Mack South, which is our South Carolina and North Carolina plants. Then we have Mack Technologies near Boston, which handles complete systems. They manufacture complete computers, servers, and mass storage products. Mack North and Mack South do not make complete computers. They bring them up to a pretty high level, but they don't finish them.

VBM: Why do you have a southern and a northern division?

KENDALL: It's easier to serve our customers if our plants are near their plants.

VBM: Who is your competition?

KENDALL: Well, we have a lot of competition. It's global competition, actually. There are 10,000 custom molders in the United States. We would consider four or five of them to be in our business. And there are some in Europe and Asia.

VBM: And you have a facility also in Scotland, is that right?

KENDALL: Yes.

VBM: What is that?

KENDALL: That's part of Mack Technologies. They manufacture computers.

VBM: How much of a global foothold do you have?

KENDALL: Well, about 25 percent of our sales are export, either Europe or Canada or Mexico. Forty percent of Mack Technology products are exported to Europe. We purchase some electrical components from the Far East.

YBM: Why is the international business important?

KENDALL: Our customers like to have one supplier serve their plants globally. For instance, a computer manufacturer may have an assembly plant in Scotland and one in the United States. They want one supplier to supply both those plants the same exact subassembly. That's why there's a need to be global.

VBM: What are the advantages and disadvantages of headquarters in Vermont?

KENDALL: Well, I love Vermont. I like living here. And Vermont is a great place to attract people to come to work. It has very high quality of life, and that appeals to a lot of technical and professional types we need.

The disadvantage is we are pretty far from our customers. Most of our customers are located in California -- their headquarters, not necessarily their plants. It makes for a lot of plane flights to San Jose.

VBM: You get good at surviving three-hour jet lag.

KENDALL: Yeah! (He laughs.)

VBM: There are quite a few plastics-related companies in Vermont, Why is that?

KENDALL: There are, but there are a lot of plastics companies everywhere. Vermont actually is a little below average in its share of plastics companies.

VBM: What are the pros and cons of manufacturing in Vermont? And how do you see the future of manufacturing here?

KENDALL: The pros are clearly the excellent, highly motivated, well-educated workforce.

The cons in our business are the high cost of power. We are very power intensive, and we are fairly remote from our customers here. Those are the two cons. But the excellent workforce and the ability to attract good technical people to live here overcomes the cons by a lot.

VBM: Speaking of power costs, what's your view on electric utility restructuring?

KENDALL: I'm in favor of it if it, in-fact, lowers the cost of power.

VBM: Are you concerned about power quality and power reliability?

KENDALL: No. Where they've restructured in other places, except for one notable example, the reliability issue has not been a problem.

VBM: What can state government do to improve the climate for manufacturers?

KENDALL: They really need to do something about the high cost of power. And the road system needs to be improved to allow 53-foot trailers.

VBM: Would that be hugely expensive?

KENDALL: Oh, no. It's a matter of fixing a few corners.

We have a plant in Pownal one mile from Route 7. One sharp corner that could be fixed at a fairly low price is preventing us from having 53-foot trailers go to that plant. We have to bring them all the way to Arlington, unload them, put the freight on smaller trucks, and send them to Pownal. We're actually making the traffic problem worse.

VBM: Getting back to power costs, utility executives have told me it's reasonable to hope for a 10-percent reduction through restructuring, Is that enough, really, to be significant?

KENDALL: No, it's not. For industrial users, Vermont power costs are about double the national average. We really need to figure out a way to get to the national average. One way to do that is through the proposed natural gas pipeline, which would lead one way or another to lower-cost power.

VBM: Mack's mission is stated as "Total customer satisfaction." How do you measure or gauge customer satisfaction?

KENDALL: Well, it's very complicated, but it's really a high priority for us. This is actually what has made Mack what it is.

About six years ago, we went to all our customers, and asked them how they viewed us. We were shocked to find out that they didn't think we were as good as we thought we were.

So we changed the whole goal for Mack from a drive for growth and profit to simply trying to make our customers happy. It's all we concentrated on for one year. And then the next year, we revised that into twin goals of profitability and customer satisfaction, and we have kept those goals since.

This changed everything. Before that change, we were growing at about 10 percent a year. Since that change, our growth has exploded, all because we concentrated on customer satisfaction.

It's sort of counter-intuitive to a lot of people. A lot of companies say customer satisfaction is their mission, their number one goal, but they really don't act that way. We have really tried to act that way. Every decision we make now, no matter what the cost, if it makes the customer happier, we do it.

We try to measure this on a quarterly basis. We have a thing called the Customer Satisfaction Index for every plant. We measure things that are easy to measure, like quality and on-time delivery. But we also ask our customers to measure us, and we get report cards.

VBM: They don't object to making that effort?

KENDALL: Yes, some don't take the time to fill it out. Some will give you spoken feedback. But it's in their interest to give you honest feedback, because if there is a problem, we will improve.

We compile an index each quarter based on all this data, weighted by the size of the customer, and we come up with one index for each plant. And we have built it right into the compensation system. Annual bonuses for all our salaried employees are based on profitability and customer satisfaction equally. It has been the single best thing we have done.

VBM: Why did you question your customers the first time?

KENDALL: A friend recommended that I read a book, called The Customer Driven Company, or The Customer Driven Organization. So I did. Its main recommendation was, throw out all your pre-conceived notions, send somebody out, have them talk one-on-one with all your customers, and try to get a real-world assessment as to where you stand. The book led to a whole shift in our goal system, and I think that shift led to the growth we have experienced since that day.

VBM: I've seen Mack's list of eight key values. One of them is corporate citizenship.

KENDALL: Yes.

VBM: How do you define that term?

KENDALL: Corporate citizenship first of all means being a good member of the communities in which you have plants. Being a good neighbor. Supporting good local causes, either financially or with people. It means being very environmentally conscious, and not just complying with the laws, but worrying about things like noise and lighting, and using fuels that are more friendly to the environment.

As an example, this plant is heated with propane, which is a much more expensive fuel than fuel oil. Both are legal, but we prefer to use propane, because it gives off less air pollution. I think that's much more consistent with the Vermont view of the world.

As you probably know, we were very lucky to receive the Dean Davis Award -- I think two years ago.

VBM: That's right, 1996.

KENDALL: We were very proud of receiving that award. Corporate citizenship is one of the criteria for the award.

VBM: Playing devil's advocate, why do companies owe communities anything beyond decent jobs and compliance with the law?

KENDALL: That's a good question. One of the special things about a company like Mack and a place like Vermont is that we live in this community, and it's ours. Maybe it would be different if we were just a satellite company, part of a much larger organization from Michigan or something.

VBM: But Mack has satellite plants in other places, too.

KENDALL: Yes. It's hard to explain. It just seems like the right thing to do.

VBM: Do you feel citizenship standards in the business community generally are adequate?

KENDALL: It's all over the map. There are good corporate citizens and there are probably bad corporate citizens, just like in any field.

VBM: What environmental initiatives has Mack undertaken in addition to heating with propane?

KENDALL: We've totally eliminated all process-water discharge from our plants. We recycle all our cooling water. Ten or 15 years ago, we used to discharge clean water, but it probably did have an environmental impact. We obviously have drinking fountains and things that go into a septic tank, but from a process water standpoint we have zero discharge.

We recycle everything. We recycle our reject plastic. We recycle corrugated cardboard; we recycle paper. We have very little waste coming out of our plants.

We have switched our a painting facility in Arlington almost entirely from solvent-based paint to water-based paint to cut way down on volatile organic compounds that go into the air.

VBM: Do those things pay economically, as well as environmentally?

KENDALL: Some do and some don't. Water-based paint costs more. That one is probably a negative. Going to a closed-loop cooling system probably was economically positive.

VBM: According to another of Mack's key values, "All members of the Mack team will share in Mack's success." As a privately held company, I assume you don't grant stock options. So how do you implement that?

KENDALL: Well, we share a number of ways. As we are successful, we raise pay and benefits. We've raised pay and benefits every year, at least since I've been here. We also have a bonus plan for salaried workers. Every year a big bonus pool is divided up based on customer satisfaction and profitability. The more successful we are in those areas. the bigger the bonus.

We also have an annual Christmas bonus based on how successful we were for the year, and it's the same bonus for everybody, including hourly workers. We just announced it. Everyone received a $400 Christmas bonus this year.

VBM: A couple of years ago, Mack treated all employees to an excursion, if I recall, to Disney World.

KENDALL: Yes. In 1995.

VBM: What was the occasion?

KENDALL: We were celebrating the 75th anniversary of the company. We took all our employees and their families to Disney World for four days.

It was a terrific experience -- not just from having a good time, but just having everyone meet people from the other plants. There was a lot of interaction. On the last night, I got up and announced that the year we hit a billion dollars in sales we would do it again. People keep asking when that's going to be.

VBM: You're about halfway, aren't you?

KENDALL: Yes.

VBM: I've read that Mack intends to grow 20 percent a year to gain economies of scale.

KENDALL: Yes.

VBM: At that rate, you'll reach a billion dollars pretty soon.

KENDALL: Yeah, if we keep growing as we have been, we'll be there in four or five years.

VBM: Do you intend to stay in Vermont as you grow that large?

KENDALL: Well, we're intending to grow in Vermont, but we're going to grow other plants also, and maybe even add some plants.

VBM: Can the 20 percent growth rate be continued indefinitely? Might there be an optimum size beyond which the economies of scale would be offset by increasing difficulties of management and coordination?

KENDALL: Yes, there certainly is a point where the complexity of the operations starts costing you money. But it probably is past a billion dollars in our business.

VBM: So you're not worried yet,

KENDALL: No. Not yet.

VBM: Mack has no designated parking, Does that include you as well?

KENDALL: Yes. First come, first serve.

KENDALL: One of the basic principles of Mack is that no one is any better than anyone else. We're all in this together. We're all equal. We have different jobs, but nobody is special, and nobody has special privileges.

VBM: You're not concerned that the elimination of perks reduces incentives for managers to perform? Or to aspire to promotion?

KENDALL: I don't think so. You know, there are plenty of other ways to motivate people other than to give them privileges other people don't have. I think that's divisive. You can financially reward people. You can publicly pat them on the back when they've done a great job.

VBM: You also have no time clocks, is that right?

KENDALL: Well, we got rid of them, but there may be a move to get them back. (He laughs.) So I'm not positive where we stand right now.

We got rid of them because I felt the only purpose of a time clock was to keep people from cheating, and it sort of implied that you didn't trust the employees. So people filled out time cards.

Now a lot of people are saying it's easier to use a time clock than to fill out your time card and remember exactly when you came and didn't come. So we may be going back to it, but for a different reason.

VBM: If a company wants to get rid of time clocks, what conditions are necessary to do it?

KENDALL: You just have to trust people. And you have to be willing to tolerate the few people that are going to disappoint you. But why penalize the 98 percent who are honest and hard-working, to prevent the 2 percent from cheating a little bit?

VBM: You've described bonuses based on profitability and customer satisfaction. Do you have individual performance pay arrangements as well?

KENDALL: For salaried people. And for hourly people, we have a merit pay system, where the amount you're paid is based on your performance.

VBM: How is that implemented? Does it depend on supervisor evaluation, or is there more broad input?

KENDALL: It's supervisor evaluation, with some objective data from the Human Resources Department concerning things like absenteeism. But it's done pretty much by the supervisors.

VBM: I've heard people talking Vermont grapevine about your housekeeping inspections.

KENDALL: (He laughs.)

VBM: What are they?

KENDALL: Well, it's one of our idiosyncrasies. We are kind of fanatical about housekeeping. It's actually benefited us in many ways.

We have quarterly surprise inspections, and once a year we have a scheduled inspection. The plants compete with each other, and the winning plant gets two extra vacation days, second place gets one, third place gets a half day.

Why do we do it? Well, two reasons. One is it makes it a lot nicer place to work. And two, it is much more impressive when we bring in prospective customers, who often equate good housekeeping to quality.

VBM: I've heard local employees feel the newer plants in the South have a built-in advantage.

KENDALL: (He laughs.)

VBM: Is that a reasonable concern?

KENDALL: Well, this is our newest plant, right here, the one you're sitting in. The southern plants have probably won as many times as the northern plants. So I think the results prove otherwise.

VBM: Mack is ISO 9002 registered.

KENDALL: Yes.

VBM: What does that mean, and why is it important?

KENDALL: Oh, it's very important in our business. It means our quality systems adhere to a certain international standard. We're audited twice a year to make sure we're in compliance.

It's very important to our customers. If you're ISO registered, you're immediately qualified to do certain kinds of work. If you're not, chances are you may not even get an opportunity to bid on a certain project.

VBM: Should more Vermont manufacturers pursue ISO registration?

KENDALL: It depends on the industry you're in. In our industry, the computer industry, it's very important. I'm not sure it's so essential in all industries.

VBM: Most manufacturers are trying to reduce or eliminate warehousing, but you advertise warehousing in Europe as well as the United States. Why is that an advantage for Mack?

KENDALL: Well, our customers do not want to carry inventory. So we locate a warehouse near their assembly plant, and we ship full truckloads of product into that warehouse. We own the product, and then we deliver to them two or three times a day, so they carry no inventory. We carry all the inventory.

Our customers like that for two reasons. One, is less inventory cost. Two, more flexibility. If they need product quickly, they can just call up the warehouse, and we deliver it right away.

VBM: The cost doesn't vanish because you carry it and they don't.

KENDALL: Well, some costs do go down. The fact that we can ship full truckloads to the warehouse as opposed to shipping quarter-truckloads saves freight. You're right, the actual investment in the inventory doesn't go away. It just shifts from them to us. But we save them freight, and we give them just-in-time deliveries. We have warehouses now in Germany, Scotland, Idaho and California.

VBM: Can one of your warehouses serve several customers?

KENDALL: It's possible, but it doesn't generally happen, because we like to have them right near our customers. We don't own these warehouses. We contract with a warehouse company. In these warehouses there are other people like Mack. So whether we are running the whole warehouse or a quarter of it, it's just on a per-square-foot basis --whatever we need.

VBM: What did I forget to ask about?

KENDALL: Well, we're tripling the size of this plant. You can see a corner of it from the window. When you drive in, that whole wall you look at is three times as big as it was four months ago. So we're in the process of a fairly significant expansion.

VBM: Triple, I would say, is significant and then some.

KENDALL: This phase of it is close to a $20 million expansion.

VBM: What effect will that have on employment?

KENDALL: Well, we figure it will allow us to add about 100 people a year to this facility.

VBM: Which has how many now?

KENDALL: It's around 200. Our plan is to add 100 a year for the next five years in Vermont. Now, it might not all happen here. But at least we will have the capacity to add another 200 here. The rest will be among our other four plants.

VBM: Do you foresee any qualitative change in the kind of business you're doing with your customers in the next few years?

KENDALL: Well, the computer industry is very dynamic, and it's hard to predict. It looks like computers are going to get less expensive, and they're going to sell more of them, which is good for us. One thing that could be bad for us is that some computers now are being made out of metal, instead of out of plastic.

VBM: Why are they doing that?

KENDALL: Primarily for what they call EMI shielding. As computers get faster, they emit electromagnetic waves at higher frequencies, which have to be blocked.

VBM: So they don't interfere with other equipment,

KENDALL: Right. We do that now by putting a metal shield inside the plastic, but if you make the whole housing out of metal, it solves the problem.

The trend that we're riding right now is the trend toward buying higher- and higher-level assemblies from people like us. We used to just ship the plastic housing. Then we attached a fan, and then we attached a printed circuit board. We keep attaching more and more stuff to these housings, and Mack Tech produces the whole computer. We see that trend continuing, because it saves money for our customers.

VBM: So your trend is toward becoming a computer manufacturer,

KENDALL: Yes. But not our own product. We would never make our own product.

VBM: When you talk about computers, are you talking PCs?

KENDALL: No. Mostly servers, work stations, mass storage devices, routers -- higher level computers. We do some PCs for Apple, but no others.

Our customers are very particular. They may be paying only $20 for a housing, but it's for a computer that costs $10,000 or $20,000, so it has to look good.

VBM: Do you foresee other types of information technology products?

KENDALL: Yes. A lot in the telecommunication area, a lot in the medical area.

VBM: Well, thanks very much.

Copyright Boutin-McQuiston, Inc. Jan 01, 1999
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