Entrepreneurial Dominion

       Lud Kimbrough

Spreadsheets on Steroids

Heads Up Systems feeds on the scraps left by the giant enterprise software companies -- helping plant managers make complex operational decisions. 

A funny thing happened when hundreds of corporations invested in ERP (enterprise resource planning) software in the 1990s. The consultants, who charged $50 million or more to implement a system, were happy. The bean counters, who could compile accounting data with unprecedented speed and accuracy, were happy. But the managers in charge of actual business operations were not so happy.

It turns out, says Lud H. Kimbrough III, that the old managerial information systems used by plant and supply- chain managers often got thrown onto the scrap heap because they didn’t integrate with the enterprise software. And, while elaborate Oracle and SAP systems were terrific at calculating the kind of numbers demanded by Wall Street and the tax man, they didn’t help the guys in the trenches make the kinds of decisions they were facing: How much inventory should they carry? How much overtime should they operate? What’s the most profitable product mix to run on their assembly line?

In factory after factory, says Kimbrough, who conducted his share of operations analysis at the old James River Corp., plant managers asked their plant financial directors to rig up in-house spreadsheet models. Spreadsheets aren’t designed, however, to find optimal solutions for complex questions involving multiple variables. Spotting a giant gap in the business solutions marketplace back in 1998, Kimbrough launched his Richmond-based company, Heads Up Systems LLC.

Heads Up sells what it calls the “Performance Management” system, an amalgam of consulting, programming and business methodology. “It’s a system,” explains Kimbrough, “Not a piece of software. Not a week of consulting.”

Kimbrough cites Luck Stone, a major Virginia quarrying operation based in Goochland County, as a client that used his system to solve a complex business problem that had bedeviled it for years. For years, Luck had started its annual budget process by projecting the volume of stone products that it thought it could sell. But a quirk of the aggregates business -- it's impossible to crush stone to a ¼-inch dimension without throwing off stone that’s 1/8th and 1/16th of an inch, both of which can be sold as separate products -- made it difficult to reliably project the impact of a given sales mix on production and inventory.

That created major headaches. As Kimbrough explains: “If your sales aren’t balanced to your production capabilities, either you can’t manufacture what you can sell, or you can wind up with huge imbalances in your inventories.” Today, Luck Stone runs numerous product-mix scenarios through its model to identify the optimal one. “That tells them how long they’ll have to run their equipment, how much inventory they’ll end up with, and what their profit will be.”

Kimbrough relishes tackling complex managerial questions: The more difficult, the better. At what production level does a mill’s marginal costs exceed its marginal revenues? Should we shut down for maintenance this quarter or next? Which plants should make which products?

He addressed those kinds of questions back in business school at Virginia Commonwealth University, but the financial theory seemed too esoteric for the real world. Says Kimbrough: “Everyone walked out of class and said, ‘That’s cool… but I could never use it.’”

He didn’t give much thought to multi-variant analysis until years later, when he found himself grappling with complex questions involving production runs at James River ’s pulp and paper mills. As vice president-corporate development, he analyzed a lot of the company’s business operations, seeking to improve profitability, but was frustrated by the limitations of his tools. He found it incredibly laborious – and very hit-and-miss – to crank “what if” scenarios through massive spreadsheets. That’s when he saw the need for the “constraint modeling” approach that he’d learned in business school. But, remarkably, no one was supplying the tools commercially that would allow him to apply the theory.

Kimbrough went on to other ventures in 1996, taking a job as president of Alliance Agronomics, a company that took farmers’ soil samples and recommended nutritional treatments to maximize yields. But he was lured away when Terry Brubaker, a former James River chum he’d shared his ideas with, told him about some advances in object-oriented programming languages he'd come across, which simplified the task of writing complex programs.

That sparked a series of conversations that culminated in Kimbrough and Brubaker quitting their jobs in 1998 and starting a new company. Brubaker, a former fighter pilot, suggested the name “Heads Up” after the heads up displays on fighter jets that conveyed critical information to their pilots.

They started with pre-packaged software, and focused first on the pulp and paper industry, which they knew best. Over time, they added new capabilities, including proprietary methodologies for analyzing business processes. More recently, they made it possible for their clients to access their new analytical tools through a Web browser rather than installing the software on their own PCs. That made life a lot easier for smaller clients without large IT staffs.

The system, refined after several years of testing and feedback, consists of several steps:

• First, the consulting phase: meeting with the client to understand his production and supply-chain processes.

• The programming phase: creating a mathematical representation of the business, using linear programming solvers.

• The training phase: equipping the client to use the program to make business decisions at a more sophisticated level of analysis.

• Finally, re-validation of the model twice a year to make sure that it reflects the client’s evolving business.

The company has broadened its clientele from its initial pulp-and-paper base to other industries – plastics, steel, aluminum – with complex manufacturing processes. Because the methodology encompasses a company’s entire supply chain, Heads Up also conducts logistical and supply-chain analysis for non-manufacturing companies.

The business is gaining momentum. “Once clients sign up,” says Katherine Whitney, marketing director, “the more they use it. The more they use it, the more they can think of other ways to use it."

After six years, Kimbrough says, he still has the market to himself. Heads Up’s only competitors are the pitiable plant-level financial managers who are building clunky, unwieldy spreadsheet models by hand. The potential market is vast -- virtually every manufacturing operation facing complex sales, production and financial management issues is a potential customer. But with limited resources, the company can't pursue every opportunity. For now, the sweet spot is a manufacturing company between $100 million and $1 billion in size.

Now that Heads Up's product definition and value proposition have "jelled," says Kimbrough, he’s ready to expand more aggressively. Having spent the first few years of its existence as a virtual corporation – six employees in five U.S. cities – he now is assembling an administrative and sales staff in the Richmond headquarters office. The company now has a total of six full-time and four part-time employees.

The future looks wide open, says Kimbrough. He’s got a product proven to have improved client profitability by millions of dollars. He sees no competitive threats on the horizon: He doesn’t enjoy first mover advantage, he enjoys only mover advantage. The main challenge he faces sounds like one of those multi-variant problems he solves for others: How do we balance the growth of the organization with the growth in revenue?

-- October 13, 2004

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