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From top left: Mike Jorritsma, Cascade Engineering Inc.; Steve Moreland, Automatic Spring Products Corp.; Mark Kinsler, Trendway Corp.; Jim Monterusso, HME Inc.; Adrienne Stevens, formerly with Plasan North America; Dave Beemer, Terryberry Co. LLC; and Mark Ermatinger, Industrial Control Service Inc. From top left: Mike Jorritsma, Cascade Engineering Inc.; Steve Moreland, Automatic Spring Products Corp.; Mark Kinsler, Trendway Corp.; Jim Monterusso, HME Inc.; Adrienne Stevens, formerly with Plasan North America; Dave Beemer, Terryberry Co. LLC; and Mark Ermatinger, Industrial Control Service Inc. PHOTOS: JEFF HUYCK-GREEN FROG PHOTO

Crystal Ball 2019 Manufacturing Roundtable: Manufacturing execs shift focus to internal operations, efficiencies in 2019

BY Sunday, December 23, 2018 07:04pm

West Michigan-based manufacturing executives think 2019 marks a good time to take a pause from the recent breakneck pace of capital investments and acquisitions to focus on operations. 

That’s the general consensus from local manufacturing leaders across a range of industries who participated in a forward-looking roundtable discussion with MiBiz earlier this month. 

The executives say the period of slower growth forecasted for next year — as well as declining sales projections in industries such as automotive — offers them the time to work on improving efficiencies, fully integrating past investments and honing their operational discipline to ensure they can weather the next economic cycle. 

Participating in the discussion were: 

  • Dave Beemer, COO at Grand Rapids-based Terryberry Co. LLC, a maker of employee recognition products
  • Mark Ermatinger, CEO of Industrial Control Service Inc., a Zeeland-based supplier of industrial automation equipment and the sponsor of the roundtable
  • Mike Jorritsma, CFO at Grand Rapids-based Cascade Engineering Inc., a diversified manufacturer that supplies the heavy truck, automotive, contract furniture and waste industries
  • Mark Kinsler, president of Trendway Corp., a Holland-based contract furniture manufacturer
  • Jim Monterusso, president of  Wyoming, Mich.-based HME Inc., a full-line fire truck manufacturer
  • Steve Moreland, president and CEO at Automatic Spring Products Corp., a Grand Haven-based supplier of automotive stampings
  • Adrienne Stevens, past president of Walker-based Plasan North America Inc., a defense contractor, metal fabricator and niche automotive supplier of carbon fiber panels 

Here are some highlights from the conversation. 

From a 30,000-foot view, what’s your outlook for 2019? 

Ermatinger: From our standpoint, we’re going into a little slump. We’re starting to feel that, although things have been busy in December, so I’ve been kind of shocked by that. Overall, the big thing we’re seeing is just a lot of disruptive technology emerging that’s (forcing) people to decide if they’re going to get in the game or not. But I think that’s going to accelerate exponentially going into the next 10 years. … We kind of look at this as a little rest year in 2019, but it’s a good year to prepare for the Roaring 20s. We’re hiring a lot more people, putting things in place, because we have time to do it.

Monterusso: We operate in two sectors. Our heavy truck parts division is on a cyclical high. That industry has been very busy now for a few years. We don’t see that going sideways; we don’t see a major pullback, at least in the short run. We made the decision a year ago to invest in that business, so they’re moving into a new purpose-built facility… just after the first of the year. On our fire truck business, that one’s a little cloudier to predict. The fire truck industry has still not returned to pre-recession levels in terms of fire truck purchases. … Now we’re looking at the potential of another economic cycle, which makes it even more uncertain. If there’s anything we hate more than bad news, it’s uncertainty, and there is certainly some of that in the fire truck business for us.

Stevens: On the defense side … you recall that Trump increased the budget in the military. Well, everybody’s competing for what that budget is and it takes so long to release that budget. With all of the stress that’s occurring within the government, it just takes so long for things to get approved. Is the market really seeing the impact of that increased budget? Not necessarily, so there’s stress there. 

Beemer: At Terryberry, we’re in the employee recognition, engagement and incentive market. We’re loosely tied to employment levels and our business is pretty strong because employment levels are pretty good. But the other part that really helps us tell the tale is in our incentive products, which are basically sales incentives and achievement-based programs. In those situations, back in ’08 and ’09, people weren’t hitting targets so we weren’t getting a lot of revenue generated from those things. Right now, those things are pretty much off the charts for us. That anecdotally tells me that most of the companies are doing quite well. … All in all, I think the (sentiment) is pretty strong.

Kinsler: In office furniture … we tend to be one of the leading industries to either an economic upturn or an economic downturn. Some of the things that have been impacting us is not just our labor issues but labor issues in the construction industries. Around the country, projects typically had delays because they haven’t been able to get the amount of labor they needed, so it’s put stress on the system. Right now, we’re cautiously optimistic going into ’19. … We know there’s going to be a bump in the road, and there’s enough uncertainty. People are hanging on to their capital expense dollars. We’ll see how cautious they actually are in the next few months.

Mooreland: Although our corporate sales are still very, very strong, all of the indicators that we track indicate 2019 will be the start of the automotive slowdown. I don’t think it’s going to be deep, I don’t necessarily think it will be all that long. … We’re planning for a bit of a softening in the auto side of the market. We’re fortunate to be on a lot of truck and SUV platforms, so we’re less impacted, but I know some of the folks are more heavily involved in the (car) side and they’re just not selling. That hurts your sales, but then it hurts your margins because you price it being half million (units) a year and they’re selling 200,000 a year.

Jorritsma: For the next calendar year, we feel pretty good about what it looks like. However, we are cautious as well and need to make sure we are planning for an inevitable downturn. For us, the benefit of being in the various industries is you’ve got a bit of balance in your portfolio, so hopefully things are counter-cyclical and not all at the same time. But it also adds additional complexity, too, in terms of having to service all of those markets.

What are some strategies you’re deploying to mitigate the talent constraints? 

Kinsler: We moved to a four-day, 10-hour shift about a year ago, primarily for recruiting purposes. It’s interesting. You find people who had to work two jobs, trying to balance two incomes in the house. You find people who are in hospitality and they want to work the weekends, and you can do that. 

Stevens: We have to adapt. We’ve got to have flexible work schedules and have competitive pay with benefits that make it easier and better for the employee. … There’s other things that can make a huge difference. Just for example, if you bring foodservice into your facilities, that stops people from having to leave to go out to lunch, which is just a huge time suck. 

Beemer: Within Terryberry, we have made significant wage modifications, especially in key roles, but we’re also saying, ‘OK, there are a few roles within the company that we’re going to expect churn.’ If that’s going to be the case, if we’re going to accept churn in those roles, we need to make sure that we can train them very quickly, very easily and very standardized.

Jorritsma: We view culture as a competitive advantage as well. We try to market in terms of wages, and we offer great benefits in our opinion. But it’s really around that intention part, which we believe the culture helps drive that. It’s also making sure people understand the value. They can have a career, not just a job.

Mooreland: Our HR director did a great job in helping us put together some unique benefits and how you differentiate, because you can’t do it with wages. We’re in the automotive industry, I can’t pay the highest wage on the planet. We’re very competitive on wages, but we can’t use that as a lead. So then what we did is we put in our own health clinic that we share with a couple of other employers in town. Our employees love it. There’s no deductible. If they’ve got a sick kid, they can go in, get meds, see the doctor, and it doesn’t cost them a penny. And they can do it on their time. It’s just been a huge benefit. 

Kinsler: Right now, (the furniture industry is turning to automation) given the labor issues, and really the changes in the machines that we are able to buy. Right now, we make a two-step process or three-step process to mill and then turn out a work surface or a special wood casegood or something like that. The machines today are allowing you to do that with one machine, so we’ll see that change us as well. As we go through the life cycle, maybe the ROI will require us to do it faster.

How has automation started to spread out of the automotive supply chain to other segments of manufacturing? 

Ermatinger: It used to be just the robots were always in automotive for lifting heavy things and so forth. But with the advent of the collaborative robots, now you’re starting to see it all over the place. It could be in a nursery, just reading bar codes, just potting plants. We’re starting to see all these industries (turn to automation). The other thing that’s changing is the internet of things, with people that are trying to collect data. We’re currently starting to see a big push for people doing preventative maintenance. They’re starting to put temperature and vibration sensors on a motor. They’re trending all that data out and they’re getting alarms on their phone when a motor’s going to blow.

Jorritsma: Cascade is starting to go down that path, getting away from reactive to preventative. Ultimately, we’d like to get to predictive (analytics). We’ve gone through a process of installing black boxes on our presses to get that information in real time. You can look on your phone and tap into the network where you can see what’s going on and react to it more quickly than with a down machine. Ultimately, I think where we are driving ourselves is to bringing this more up front on the design and development side — bring that into the virtual world for when a new product comes in. You can test it and verify it in the virtual space before ever getting it to the production floor. 

Monterusso: Internally with automation, our processes don’t lend themselves particularly well to that. But it’s having an absolutely profound impact on our product development, and the way we look at how our customers use our products as an automotive OEM. I told our national sales meeting earlier this year that we need to think about a world where there are driverless fire trucks without diesel engines dispatched to deploy robots at fire scenes. Now most of the folks in that room — and there were over a hundred of them — looked at me like I’d probably opened the bar early. But none of that is as far out as it sounds at the surface level. 

With the advances in Industry 4.0 technologies, is it hard for employees to adopt a new vision for the future and to be thinking outside of the box?

Monterusso: There’s two answers to that. For us, it’s not difficult at all, internally, for our product development to get way out of the box. Sometimes we have to pack ourselves back in the box. It is very difficult at times among our customer base, if you’ve got firefighters who’ve been firefighters for decades, and they’re used to standing in front of that pump handle pulling levers. In a couple of cases, we actually had to add mechanical controls back to some of our products just so they can be accepted by the current generation of users. That’s just sort of the reality of the marketplace.

Ermatinger: That’s one of the things we’re facing with self-driving robots now. … It’s interesting to watch a company adopt it and try to leverage that technology. Every time I take it out, I just get a lot of people watching it all the way through the plant. Some fearful, some excited. It depends on their age, I think. The younger group are like, ‘Let me drive that thing!’ 

Kinsler: When you’re designing an office, typically the salesperson will come out and say, ‘OK, what are you thinking about?’ They’ll go back and draw something up and they come back out. So, it’s back and forth and back and forth. We had a small company come to us with an application of augmented reality, which you take your tablet and you walk into a space, you take a picture of the empty space, and then right on site, right at the first meeting, you’re pulling (products) in. They can make decisions a lot faster and it’s helping our sales people be more successful, because they can maybe make more sales calls and close things faster. But it also keeps the client engaged very quickly, and they like the idea they can do things a lot faster.

Given where the economy is in the current cycle, how are your companies approaching capital expenditures in the next year? 

Mooreland: From my perspective, because automotive has been on a tear and we’ve been on a tear, we have had record levels of capital investment for about the last four years. For 2019, we’re looking to start to better leverage all the stuff we’ve added. We clearly intend on significantly slowing our capex in 2019, just in anticipation of what we think might be a softening in the automotive market.

Kinsler: I would say (capex) is going to stay moderate. We’ve been moderate for the last couple of years; we’ve been pretty cautious.

Jorritsma: I’d say we’re cautiously investing for the upcoming year as well. We’ll continue to focus on our core. As we refurbish machines, we are adding technology to make them smarter and give us more information. We’re in a capital-intensive business, so we’re not looking — unless it’s absolutely necessary and it’s got a great payback — to add capacity. It’s instead focusing on things that you can increase the capacity with the asset base that you have. That’s the sort of thing that we’re investing in, whether it be on the tooling side and technology or on the equipment. 

Monterusso: For 2019 … for us, this is more of a ‘sharpening the saw’ type of year. We have kicked off in recent years some pretty significant expansion plans. 2019 needs to be about optimizing around that, getting our foundation shored up to the next generation of products and into the investments that go with them.

Beemer: For 2019, we’re not looking at any brick and mortar. With the capex that we would (consider) doing … the hurdle is probably going up a little bit. It’s got to be a little big higher ROI right now if we’re going to move forward with it. But then again, it’s kind of the same type of prioritization. We’re landlocked where we’re at right now, so we’re pretty much at capacity. There are some things where if we can be better with less space, as well as get additional labor savings, those are some of the things we are moving towards. … We’re doing some investment, primarily I.T.-based, to automate more of the scalability and standardization of some of our front-office processes so we can get more efficient and scalable in how we service our clients.

Do you expect to make any acquisitions in the new year? Do you see more consolidation ahead in your industries? 

Kinsler: In the office furniture business, the types of products are changing, so we can clearly see ancillary furniture as something we need to spend more time and energy on. An acquisition there would be something that we’d look at. … We’re more apt to look at somebody who’s got a product that has some life to it, that needs some help and some support, rather than somebody who’s already established. … We’ll be looking over the next couple of years for something like that.

Monterusso: For us, anytime you have a market where demand stays stagnant for a long period of time and capital is abundant and cheap, you’re going to have a lot of consolidations. In the fire truck world, there’s already been a lot of consolidation. We’ve largely stayed out of that. However, we always keep a little dry powder for an opportunity if one should arise, but it’s definitely not central to our plans, in terms of M&A.

Beemer: We’ve had three relatively significant mergers and acquisitions in the last four years, so in 2019 we’re going to take a pause and digest. We need to do a better job of bringing some of those things in and integrating and consolidating some of those things. Mergers and acquisitions take a lot of energy and put a lot of strain on folks. We’re seeing a little bit of that, so we need to take a pause and bring all those things better in house.

Mooreland: We’re in the same place, too. We acquired a couple in the last decade and along with the capex, the assimilation of those into the organization always takes longer than you think. They’re doing well today, but it’s like: No, not for 2019.

Jorritsma: For 2019, I don’t really see it as a year for M&A for Cascade.

What are a couple mission critical steps that you’re taking within your company that you think are really going to prepare you for next year?

Kinsler: Everyone was talking about the trade tensions, and we’re a primarily North American company. In our supply chain, unlike everyone in the furniture business, we’ve happened to stay away from mainland China sourcing because we sell a lot to the federal government. … We’re fortunate in that. We took a stand about six weeks ago, where we said we’re going to hold prices for 12 months. We felt like we could do that and it would put pressure on our competitors because they couldn’t (guarantee pricing). … Clients don’t like the uncertainty. If they have a project that’s way out there, they want to know what they’re going to pay. We’re trying to take advantage of that.

Mooreland: At Automatic, (we’re focused on) fully utilizing and leveraging the huge capex we’ve made recently. Secondly, we’re in the middle of implementing a brand new ERP business software across the entire organization, which we already know will dramatically improve our effectiveness and all that stuff. … It’s an aggressive timeline, but we can see how beautiful the world will be when we get there. Everybody’s willing to put up with it because of the pain they have lived for the last two years as we grew the business so dang fast that none of our systems were effective at the size we are today. 

Jorritsma: For us, it’s continuing to focus on becoming more operationally excellent. We talked about the automation, making sure that we’re implementing that as we go along, as well as identifying cost opportunities within operations. We’re very-customer focused as well, so it’s ensuring that we are continuing to become more intimate with those customers, as well as offering them innovation in a partner kind of way. … And the third area revolves around being an employer of choice. It’s continuing to focus on employee acquisition, retention, up-skilling and becoming more relevant and becoming more flexible.

Ermatinger: The big challenge going into the next 10 years is going to be looking for new technologies. It used to be that we would wait for it to come to us, but now we’re going out to it. There’s a lot of new technology coming out of Europe, and also in South Korea and some of the other areas, so us traveling to the areas to seek it out and bring it to the U.S. is our goal. We’ve done it successfully with some new technology when it comes to deep learning and artificial intelligence. … There’s a lot of very, very exciting stuff. It’s just for us, we’ve got to stay on top of it, make sure it’s real, bring it to bear and market it — and be successful at deploying it.

Monterusso: For us, mission critical is definitely operations execution. In our case, we’ve found ways to grow in a market that fundamentally hasn’t been growing over the last 10 years. That’s been largely on the back of new products and identifying segments where we feel like we can prevail, and we have. Now we need to become more effective at the manufacturing side and fulfilling those channels that we’ve created. We need to do an ERP project, but we need to get our blocking and tackling in order a little better before we can really take that on for 2020. Just good old fashioned execution internally is where we’re at today.

Stevens: In 2019 especially, in automotive and defense both, it takes so long to implement the new product, so there’s new product launches that are occurring next year along with the OEM and the prime. It’s a matter of making sure that those projects are delivered on time to the customer’s expectation. Internally, it’s rolling into the new tooling and changing your plant floor to be able to accommodate those projects, so it’s an exciting time. But it’s keeping our focus on the customer first and foremost.

Beemer: We’re going to be consolidating and integrating the acquisitions we’ve previously done. That’s going to be our main focus. But we’ll continue to do a lot of work on standardization and scalability of some of our front-office functions, customer service, and sales through some integrations with Salesforce … just to make things more automated, scalable and standardized.

What’s keeping you up at night? What’s an outlier that, if it happens next year, could really throw a wrench into plans?

Mooreland: For anybody in the metalforming industry, the steel cost increase will be keeping us up next year until that gets resolved. A lot of our high-quality stuff does come from Japan, it comes from Germany and Korea, and they’re all tariffed, so those costs are all going up. Getting our automotive customers to accept those increases has been difficult to impossible, which really destroys margins in our industry right now. The American steel producers see this as a great advantage. I don’t blame them for what they’re doing, but they’ve all raised their costs so the cost of all of our steel is up 25 percent. What keeps me up at night is figuring out how to get recovery of those higher costs from our automotive customers, because that’s an unsustainable situation, frankly, for us and everybody in our industry that’s dealing with that. That’s the one thing that keeps me up at night right now: How do we win that game?

Kinsler: In the office furniture supply chain, it’s the same thing. Steel for us is up 26 percent, aluminum 16 percent. We’ve done a lot of index pricing with our suppliers where two years ago they were sending us checks, and now we’re writing them checks. So, it’s the good and bad. For our industry right now, I think there’s a movement where the channels are changing. Especially for the big guys, with less cubicles and less task chairs, they’re bringing in all these other suppliers to augment it, and there’s a lot of change going on. We actually view that as an advantage for us, and I think we’ll be able to take advantage of some non-traditional channel players that haven’t been in the industry that are going to come into the industry.

Beemer: With the U.K. operation we brought on, there’s a number of data privacy regulations with GDPR and some of those types of things, and some of the products that we supply are also wellness incentive based, so we’re starting to get more data that’s in a HIPAA-protected type of scenario. Data security and data integrity is very, very important to us. There’s more and more hacking going on and so that would be just a worst-case scenario if something happened with that. That probably keeps me up at night more than about anything.

Stevens: For me, it’s been about generating new revenue and being able to recognize that there’s a very long selling cycle in the markets that we deal with. How do you supplement until you create the bridge, until new platforms come into play? For example, things that we’re winning this year don’t come to fruition until the 2021 timeframe. We opened up a commercial metal solutions business to be able to weather that. We had a huge capex investment over the last year. We’ve opened our facilities to new markets and new customers, and that will help to soften that.

Monterusso: I have to give you a two-part answer. The 2019 answer for what keeps me up at night is improving on the profitability of the business that we have recently gained, and that’s just fundamental, necessary. In the long term, what keeps me up at night is the opportunities and threats that are around technology. As the auto industry becomes the mobility industry, the price of admission for everyone, especially smaller companies like ours, is very intimidating when we look at the profound change going on. … It’s basic things like front airbags. If you’re willing to smash a few million dollars worth of fire trucks, you can make advances in that. Well, that’s a big deal for companies like us, so we’re picking our battles in technology. It’s crucial to our long-term survival in this space.

Ermatinger: I would say that the thing that is heavy on me would be just some of the opportunities we’ve got out there to disrupt the way things are done in manufacturing. Potentially, it could cause us to grow exponentially at a level that’s unsustainable. We’ve got some quotes out there right now that are ten times our current sales. That’s the scary part. It just scares you that there are so many things out there that are massive game-changers, and how you respond to that. 

Jorritsma: I think in the near term it’s really being able to address all the demand from the truck OEMs. If they continue to maintain high levels, we’ve got to figure out ways that we’re not falling behind and keep ahead. It’s a focus on operational execution, being able to maintain the relationship with the customers and a lot of that is on-time delivery. We’re coming into a season in heavy truck where it’s crash season, so service parts are a large part of our business. You’re always making decisions on, ‘Am I doing production orders or am I doing service orders?’ So we got to make sure we’re ahead of both. And it’s the near-term things, like making sure the pipeline is active and we’re getting replacement business, we’re getting incremental business, in really all segments. 

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