THE BULLET TRAIN AT SCHRAMM, INC.
A Case Study
By:
 Jerry Burris, Retained Advisor, GenNx360 Capital Partners
and Board Member, Schramm, Inc.
 Michael Horchuck, VP Manufacturing and Engineering, Schramm, Inc.
 Nate Case, Manager Supply Chain Operations, Schramm, Inc.
May 2016
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PART I
The Bullet Train Concept
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The Bullet Train team concept is patterned after the Japanese teams who made quantum leap
improvements in designing the Tokyo Bullet Train. Companies like General Electric (GE) have
applied this team concept to drive quantum cost reduction. The Shinkansen Bullet Train in
Japan was able to reach record speeds in excess of 360 miles per hour. At GenNx360 Capital
Partners (GenNx360), the Bullet Train initiative is driven with speed and self-confidence across
portfolio companies in order to quickly achieve ledger-based cost-out savings. Like the Trotter
Matrix and driving operational excellence, the Bullet Train initiative is embedded in the DNA of
the GenNx360 Founders, Operating Partners and Retained Advisors; many of whom were
trained in an academy company, such as GE that has a monarchial focus on driving process
improvements.
Unlike traditional approaches to driving discretionary speed reduction that rely on a single
function, such as finance or purchasing to monitor and manage cost reductions, the Bullet Train
initiative employs a cross-functional team approach. This team of leaders and individual
contributors establish cost reduction “stretch” targets typically in the range of 10% to 20%.
During the team’s kick-off and monthly meetings, they are encouraged to brainstorm ideas and
develop road maps for reducing costs. Teams are also empowered to develop new policies to
manage and control costs. During the weekly or monthly meetings, the Bullet Train champion
facilitates best practice sharing between plants, divisions, operations and functions. Like the
old adage goes, “What gets measured gets monitored and thus gets managed,” and the Bullet
Train initiative is no exception to this rule as tracking, score carding and reporting performance
results are vital to the effectiveness of the initiative.
The best place to start a Bullet Train initiative is in the areas of discretionary spending or selling,
as well as general and administrative dollars. These indirect costs include, but are not limited
to, such categories as purchase services, office supplies, overtime, tooling and supplies, travel
and entertainment, repair and maintenance, utilities and transportation. A reduction goal
against prior year spending of 10% along with a stretch goal of 15% is set for the overall
initiative. Be careful not to simply “peanut butter” spread the reduction targets across the
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organization. The 10% goal represents the average or mean; however, some Bullet Train
teams, depending on the size of the cost bucket and the history of spending relative to top line
sales growth, may make it a more attractive cost bucket to target a higher goal, such as 20%.
While other cost buckets may represent a lower opportunity because of the business strategy
(e.g. grow sales and focus on general and administrative expenses only) or due to the historical
productivity gained in the particular area of spend, it may very well deem it more appropriate
for a lesser target, such as a 5% goal.
The first step in establishing a Bullet Train discretionary speed control and cost-out initiative is
to form a cross functional team. See Fig. 1 below for an example of a Bullet Train team. The
“conductor” or champion of the Bullet Train initiative should be the CEO or highest ranking
leader of the business unit.
All monthly bullet Train meetings are held by the champion.
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Figure 1: Bullet Train Team Example
The Bullet Train philosophy is all about facing into the reality of current markets or industry
downturns, with an emphasis on understanding that traditional approaches to cost savings are
not enough in today’s environment. Setting aggressive targets is required to promote a
paradigm shift around fundamental rethinking rather than incremental improvements.
Again, the Bullet Train champion should be the business CEO or highest ranking leader of the
business unit. He or she must mobilize the organization around the initiative starting with
senior staff members. It is incumbent upon the Bullet Train champion to tap the best talent for
each team and empower those teams to work “boundaryless” or without boundaries, while
promoting creativity. The end result must be a change in behavior on cost usage. See Fig. 2,
“What is Bullet Train Thinking?”
Figure 2: Bullet Train Thinking
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Each Bullet Train team is led by a leader who is responsible for:

Assembling the team

Scheduling weekly team meetings

Establishing cost reduction targets

Developing a detailed road map for cost reduction

Developing and implementing controls and policies

Facilitating best practice sharing between plants, divisions and functions

Preparing and presenting monthly results, status updates and accomplishments to date
There are three basic strategies to reduce expenditures, control, negotiate and reduce usage
(see Fig. 3). Controlling expenditures is accomplished by preventing the organization from
spending money. It is typically accomplished via establishing draconian tactics such as multiple
approval signatures, stringent policies and absolute spending freezes. Controls can provide
“quick hits”, which are great in getting the momentum of the Bullet Train initiative and teams
going forward. They are typically effective for one-time reduction of spending, but very difficult
to sustain over time.
Negotiating lower prices from vendors is typically a function led by sourcing and supported by
the organization. Its focus is on paying less for what an organization continues to consume. It
has some limitations on the amount of overall reduction, but should be included as part of an
integrated Bullet Train strategy.
The cornerstone of an effective Bullet Train initiative is to reduce usage. What you want the
Bullet Train teams to drive the organization to do is to focus on using less of what is currently
utilized, while accomplishing the same or better outcomes. For example, we have success
stories where the office supplies Bullet Train team implemented a “no paper meeting policy.”
Presenters were required to utilize LCD projectors in lieu of handing out paper copies of a
meeting presentation. The productivity savings resulted in a twofold benefit: a reduction of
copier paper and copier ink.
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Figure 3: Control, Negotiate and Usage
A commonly used scorecard for tracking Bullet Train performance is a “four blocker” (see Fig.
4). In the left upper quadrant, a pareto of cost drivers is utilized to help the Bullet Train teams
to prioritize the cost areas that should be addressed first. The right upper quadrant is reserved
for comments, while the lower left highlights key project status. The lower right typically is
reserved for the action register that focuses on the activity being tracked, the responsible team
member and a due date.
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Figure 4: Monthly “Four Blocker” Scorecard
Again, the old adage, “What gets measured gets monitored and thus gets managed” now
comes into play to ensure that the Bullet Train savings are in fact ledger-based savings…in other
words, they hit the bottom line. Since the Bullet Train initiative is a business-wide initiative, it
must be led by the business president. Periodic reviews, such as monthly reviews and weekly
pulsing sessions are held with the Bullet Train Champion (see Fig. 5).
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Figure 5: How Do We Ensure We Are Realizing The Savings?
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PART II
Schramm’s Bullet Train
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BACKGROUND: Schramm is a 116 year old company based in Southeastern Pennsylvania
located right outside of Philadelphia. Over the years, Schramm’s product line has changed to
where by the 1970’s, Schramm was positioned as a land-based drill rig manufacturer focusing
on the water well markets. By the 1980’s, Schramm expanded into the mining and exploration
markets and in the 1990’s had begun making inroads into the oil and gas markets. By 2015, the
markets for mining, oil, and gas were all severely depressed. In fact, the number of rigs actually
drilling new wells in oil and gas was down by over 70%. Many rigs owned by drilling companies
were sitting idle which not only affected new rig sales but, also impacted parts and service
revenue as well. Schramm was caught in a position to sit idly by and watch their markets
evaporate or do something proactive about it.
ACTION PLAN: During 2013 and 2014, functional areas in maintenance, safety, calibration, and
environmental costs started being reviewed to either contain or reduce these expenses. The
initial investigations showed a reduction of approximately $100,000 during this period.
In the fourth quarter of 2014, Schramm created a cross functional team to review obsolete and
low turn inventory. This team was to determine if these items of little value could be
monetized. Over the course of a fiscal quarter, Schramm was able to generate $2.5 million
dollars of cash.
Based on the success of these initial efforts, a plan was initiated to expand the effort
throughout the entire company. Additional cross functional teams were established to review
spending and determine what opportunities existed to perform the following:
Control expenditures – is this expenditure something that is needed at this moment that will
affect the revenue stream adversely or can it be delayed for the future?
Negotiate – can we negotiate a better price or better terms to reduce our costs? Can we
review the terms of our contract and determine if a change in services can be made in order to
reduce our costs while maintaining an acceptable level of service that will not undermine the
business? Can we obtain more “bang for the buck”?
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Reduce Usage – do we really need the same level of service or quantity of an item or service or
can we reduce it to a level that will not undermine the business? Can we review our historical
usage of an item and determine if a lower level of service will meet our needs but, provide
enough flexibility to “turn on the spigot” should business conditions change and an increase in
business occurs.
Companywide (i.e. Global Impact) – this effort needed to impact everyone at the company and
include all operations globally. This included operations from Australia as well.
Cost Outs – are there new ways or designs of doing things that have been overlooked that need
to be revisited to reduce the costs of our existing products? Can those cost outs generate a
lower cost for the product that can increase margins that will not affect product integrity so
that when an order does come in, the product can be executed more quickly and/or at a lower
cost than prior to the market downturn?
Revenue Generation – what skills do we have as an organization that are marketable that we
have either have not pursued or are not aware of that can take advantage of the excess
capacity we currently have. Are there opportunities that exist that could be used in other
businesses that could be eventually leveraged into other markets?
Team and Focused Activity Components – The structure of the Bullet Train initiative required
two major components. First, someone needed to oversee and manage the overall teams to
insure that they stayed on task. The person needed to have the authority to recommend
changes but, also needed be able to facilitate the process to encourage the free flowing of
implementable ideas. The person needed to also insure that oversight was occurring to
validate the savings were occurring. Finally, they also needed to insure that whatever was
implemented was also sustainable. The sustainability component is important because it
directly impacts both fixed and variable overhead costs. In turn, this lowers the overhead
burden of the operation so that when a market upturn does occur, the likelihood of increased
profitability is enhanced.
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Schramm appointed a mid-level manager to oversee this project because this person needed to
communicate to upper management on wins and successes while also pointing out resource
constraints as well as being able to identify impediments that needed to be either overcome or
removed. As with any project of this nature, there are times when the manager needs to get
“into the weeds” and help teams sweat out the details and identify opportunities that can
eventually be leveraged into successes.
The teams that were established were cross functional but, also had a common theme. For
example, one team that was formed focused on Purchased Services. This team was comprised
of members from IT, Maintenance, Operations, and Accounting. Although cross functional in
nature, each member of the team had services they managed that were purchased from the
outside that needed to be reviewed based on the objectives noted previously.
The teams that were formed focused on the following areas in West Chester:

Advertising and Marketing

Human Resources (benefits, training, etc….)

Purchase Goods

Purchased Services

Utilities

Warranty

Operations

Fabrication
Based on the initial success from the teams above, the program was initiated in Australia at the
end of May, 2015.
Teams initially met on a weekly basis. Each team was assigned a specific list of accounts to
review to determine the following:

Were the charges hitting that specific account correct? If not, where should those
charges be charged to?
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
If the charges are correct, how much are they, who is the vendor, and what are we
getting for that specific charge(s)? One of the elements of Lean operations is to ask
the five (5) “Why’s”. Needless to say, this went on quite a bit.

What is the “low hanging fruit” that can be implemented as soon as possible with
the least amount of resources used? What can be placed in a “parking lot” for
review at a later date?

Do we need more granularity in our account structure in order to establish a
framework where it is easier to use the existing accounting system with some
“tweaks” in order to maintain the gains and make it easier for managers to manage
their departments and expenses?

Where are we today with our expenditures and what do we think we can commit to
and achieve? Can we sustain these levels when business returns to normal or
mitigate any increases in order to increase margins when the “new normal” does
return?

How can we leverage some of these ideas into other areas of the company in order
to “sow seeds” and reap more benefits? How can we not only communicate these
ideas throughout Schramm but, also communicate these ideas to GenNx?
Some of the highlights associated with this effort include but, are not limited to:
Advertising & Marketing:

By reallocating resources and negotiating better rates, we were able to reduce our
advertising expenses by $36,390.

By reallocating resources for trade shows, we were able to save $89,168.

By using methods like selecting less expensive vendors or by insourcing some marketing
activities, we were able to implement $6,025 in savings.
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Human Resources (Benefits, Training, etc…)

Resourced our healthcare provider from a major provider to a direct competitor. This
reduced our annual healthcare increase from 14.7% to 5.6% resulting in a cost
avoidance of $128,316.

Obtained a $10,000 grant from the state of Pennsylvania that will be used to upgrade
our skills in NDE/NDT (weld inspections) as well as helping us to certify our welders to
be able to perform high pressure piping. We currently outsource both of these
activities. As an example, we have historically spent anywhere from $5K to $35K
annually on NDE/NDT inspection. In the case of high pressure piping, we are hoping to
not only insource this activity but, to also bring in more residual work as well.
Purchased Goods:

We will use a major national retailer as our office supply provider ($2,000 annual
savings).

Through negotiating with vendors on various purchased components, unit cost will be
reduced by a minimum of $41,000 once volumes return to normal.
Purchased Services:

Reviewed what tasks were needed and required from our custodial services vendor and
reduced service levels to reduce our costs annually by approximately 20% ($10,000).

Changed pest control vendors ($2,800 annual savings).

A review of software required for our Manufacturing and Engineering groups allowed us
to streamline the number of licenses we were using resulting in an annual savings of
$36,490.

Through a variety of different strategies which included reviewing all service contracts,
and reviewing our need for support, the IT group was able to implement over $22,002.
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Utilities:

Renegotiated our natural gas and electrical rate contracts which will result in over
$35,000 in savings.

Repaired two fire suppression system water leaks which will result in a reduction of
water consumption ($5,000 annually).

By reviewing our internet connection requirements, internet redundancies, and cell
phone plans, the IT group was able to reduce our annual costs by $125,066.
Operations / Fabrication:

By performing assembly work for a local compressor company, welding frames for a
local engineering design company, welding walkways and framework for a local
manufacturing company and designing and selling snow pushers, we were able to bring
in over $146,443 of revenue over a 12 month period.

The Operations team had a portable pump installed for $4,800 in the paint booth. As a
result, there is 125 feet of hose that is no longer needed which translates into a
reduction of scrap material during change overs. This results in a savings of $178 every
time the system is purged. During normal business conditions, it is expected that we
could see savings in excess of $50,000.
Warranty:

The Warranty team established a process to clearly identify all warranty costs which
include labor, parts, travel, lodging, meals, and outside services in order to create an
accurate baseline on actual warranty costs.

The Warranty team has created a Warranty Review Board that reviews warranty claims
monthly. If required, tasks are assigned and corrective actions are generated as part of
Schramm’s continuous improvement program.
Engineering Cost Outs:
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
Working with the Purchasing department, the engineering department was able to
resource five sub-assemblies to reduce unit costs by $63,020.

Through a series of ECOs and redesigns, the engineering department was able to reduce
unit costs on existing components by $35,738.
Schramm Australia:

Negotiated new leases on buildings that resulted in savings of over $62,708 per year.
Sub-leasing unused portions of one of the buildings yielded another $7,000 as well.
These savings do not include a $70,000 over charge on rent that was also recouped
during 2015.

Renegotiated more favorable electrical rates to reduce costs annually by $14,766.

Were able to renegotiate more favorable insurance terms resulting in a cost reduction
of $48,799 which included adding business interruption insurance at no additional cost.

Through renegotiating supplier contracts and eliminating non-value activities, hammers
and bits was able to implement over $78,000 worth of cost savings.

Operations were able to bring in work for their paint shop and outsource their fitters to
perform maintenance work at customer sites yielding another $44,041 in revenue.
Results:
The result of the bullet train teams was significant. In general, most teams had a 10% savings
stretch goal. If we look at all our expenses ($33.4M) at the end of 2014, the $4.4M realized in
savings from the Bullet Train represented a 13.2% reduction. However, the percentage of
reduction is actually much higher. Of the G/L accounts each team was responsible for
reviewing ($12.4), the $4.4M savings represented 35.5% of the G/L accounts that were
targeted. What’s even more impressive is that many teams did not start hitting their stride
until well after the year was underway. As a result, many cost reductions that were
implemented throughout the year will have residual savings well into 2016.
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Future Work:
Much of the “low hanging fruit” associated with this project has been plucked. There are still
teams that meet on a monthly basis that are still working on specific tasks. If and when the
Bullet Train stops meeting, smaller teams like Warranty will continue to meet in order to effect
change and improvements as a result of what has been started. These teams are more focused
on reducing expenses through better business processes as opposed to strict cost control.
When our business returns to a sense of normalcy, teams in Fabrication and
Assembly/Operations will continue to meet in order to provide a path for operators to voice
concerns and suggestions that can be addressed and implemented. To date, the Bullet Train is
the best way to handle these ideas right now. Once revenue returns to a historic normal, many
of these ideas will be brought to fruition.
In an attempt to sustain the gains, additional steps that will need to be taken include the review
and implementation of new G/L accounts. These additional accounts will make it easier to use
the existing financial reporting system for mid-level managers to manage their budgets.
Currently, we have several accounts that are too broad in nature and do not provide the
granularity required to manage our expenses easily and appropriately.
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