TGW transforms from hardware maker to direct seller of tech-driven logistics systems

By Joe Boomgaard | MiBiz
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NORTON SHORES — Conveyor systems manufacturer TGW Systems Inc. is almost a completely different company today than it was in early 2009.

For most of the company’s history dating back to the 1960s, it was a “hardware company” that sold products through various distributors across the country. About five years ago, the company sold to TGW, an Austrian firm that had a vision to create an integrated systems company that sold material handling systems directly to end users, according to Larry Strayhorn, president of TGW Systems, who joined the company in April 2009.

“The plan was to immediately start the process of changing, but management didn’t know how to make that process happen, so it sputtered for four years until the former president retired,” Strayhorn, a 30-year industry veteran and current chairman of the trade group Material Handling Industry of America, told MiBiz. “They hired me specifically to do that turnaround. Walking in the door on day one, I was writing a business plan on how to turn the company around.”

The timing for that turnaround ­— in the depths of the recession — wasn’t all that bad.

“Making the change in a downturn is easier. Talent is easier to move around, and the business to book wasn’t really there, so we could make the changes behind the scenes. While it made the transition easier, it was still a lot of work,” Strayhorn said. “I can think back to the board meeting when I told our CEO, ‘We were at a decision point. We can stay the course and be a hardware company, eliminate a lot of cost and become smaller and profitable. If that’s the case, you shouldn’t have hired me. Or we can go forth with the business plan I put forth.’”

Strayhorn said he made his case that the company should accept short-term losses as it maneuvered through a transition period. Once those changes were made, it would have a much greater potential for success than it ever could selling through distributors. The CEO fully backed his plan.

“We entered into the recession with a fairly good backlog, so we rode that for quite a while,” he said. “But we did some downsizing (and asked for some wage concessions) as we were shifting strategy to being an end user systems provider. Then we were actually hiring people, swapping a lot of the old skill sets for new skills.”

Given the hard times manufacturing had fallen on, the response to TGW postings was nearly overwhelming, but allowed the company to be choosey in who it hired, although it didn’t limit itself to tapping the well of unemployed workers, but rather looking for people who fit with the company’s strategic plan.

“We’re a different company now. We’re selling to different markets and channels. We’re selling through dual channels to the marketplace,” Strayhorn said. “Business is up significantly for us. We were sucking wind all last year because what was happening was that our business partners were getting beat up pretty bad. There was no way for us to control the buying decision. Now, we have more access to the end users. …As a matter of longevity and survivability, you have to control the channel between you and the end user to grow as a company.”

In 2009, about 10 percent of TGW’s business was in direct sales, with the rest coming through distributors. This year, the mix is about evenly split, but the goal is to complete the shift to have a majority of the business come through direct sales. With that change comes a need for different marketing and sales tactics, as well as engineering and customer support. The total shift could take another 12-24 months to complete.

“It was a top-to-bottom change,” Strayhorn said. “We know it’s working. Right now, we have end users calling us directly. That’s the first indicator that the shift is taking place. They’re calling us and saying, ‘Hey, we’re planning a project, are you interested in working with us?’ That’s telling us the marketing is working, that we’re on our way to being a viable systems seller.”

Part of the change also meant forcing TGW to focus on its core competencies and mitigate risks. For example, as recent as last year, the company still wet painted its metal parts, even though several local suppliers could do the less toxic powder coating. One of Strayhorn’s first moves was to work with a third party for powder coating. Additionally, several years ago, the company started realizing there were many competent fabricators nearby and that it could reduce its footprint if it offloaded some of those functions, turning its headquarters into more of an assembly shop.

So it shut down what was essentially a demonstration facility a couple of miles away from its headquarters and will be bringing that capability in-house, thanks to the open space from outsourcing fabrication to local companies and from overall leaning of processes. Soon TGW will break ground on an expansion project to create a meeting and tech center to oversee the plant from the second floor, as well as install one of its own cranes and storage systems to serve as a working model for customers. While the crane is manufactured in Austria, all the software and controls were designed in Norton Shores.

Shifting relationships could extend imprint

The material handling industry as a whole bottomed out late last year and the first quarter of 2010 and flattened out through the middle of the year, but Strayhorn said the analysts believe it’s turned the corner and started growing. In the spring, the Material Handling Industry of America projected 4- to 6-percent growth, but now it’s saying it believes the growth will be in the 10- to 12-percent range for the next year as backlogs decline and forecasts for new orders rise.

However, the material handling industry is extremely competitive and dominated by large players, including Grand Rapids-based Dematic Corp., where Strayhorn worked in the 1990s before buying a company in Maine and running it for 11 years. Dematic is about 50 percent larger than TGW and poses some “extremely tough” competition, Strayhorn said.

As the organization morphs to more direct sales, it’s also looking for ways to maintain lasting partnerships with customers. Because of the complexity of the systems, Strayhorn foresees the day that TGW would design, build, install, commission and operate the systems for the end user, versus handing it over and walking away.

“The evolution is to really a lifetime partnership,” he said.

New software allows customers to run densely packed warehouses, where robotic equipment on various conveyors and cranes picks products. While those systems are more efficient, they’re also more complex and require a cultural shift within the operations where they’re deployed. Not all customers can make such a shift and might be more apt to bring on the developer, TGW, to operate it, Strayhorn said.