PHOENIX (Feb. 12, 4 p.m. EST) — Daniel Ajamian was talking about the new Key Plastics LLC, a company that had been in turnaround and now is making a comeback.
He spoke of improved on-time deliveries, reduced parts-per-million defects and a laserlike focus on reducing costs everywhere in the manufacturing process.
But Ajamian, president of the Farmington Hills, Mich., automotive supplier, said the changes at Key had more intangible qualities. The re-emergence of the company, formerly under Chapter 11 bankruptcy protection, had everything to do with attitude.
“Every worker on the plant floor is focused on quality and delivery,” he said in a Jan. 28 interview at Plastics News' Executive Forum in Phoenix. “Not just for what they're doing that day but for the entire company as a whole. They know it will show up in their paycheck and in the fact that we will all still have jobs in the future.”
Ajamian said Key shares virtually every financial detail about the company, including profit statements, with each of its 5,400 employees. The bottom line also shows up in their incentive-laden, year-end bonuses, Ajamian said. Even in the company's first year under new ownership in 2001, employees received bonuses for boosting profit, he said.
“They were a bit surprised, but it helped them realize how they could contribute,” he said.
Several executives who spoke at an industry roundtable at the forum revealed they practice similar, aggressive approaches to management.
Besides Ajamian, the panelists included leaders of injection molder Cascade Engineering Inc., blow and injection molder Owens-Illinois Inc., and profile extruder Veka Inc.
Those companies grappled with similar issues of cost containment, customer givebacks, Internet bidding, technology investment and acquisitions.
W. Bruce Larsen, vice president of Owens-Illinois and general manager of food and beverage products within O-I's large plastics group, said his Toledo, Ohio-based firm constantly invests in new technology to break away from the pack in the cluttered packaging industry. Otherwise, he said, “you're only as smart as your dumbest competitor.”
“That's why it's sometimes acceptable for us to make a very marginal return on capital for some of our [technology] investments. You may lose a bundle of money now but eventually win the war.”
Ajamian came to Key with a limited automotive background, having held financial posts in the defense and aerospace industry for several of Key's sister companies under the Carlyle Management Group umbrella.
Upon entering the automotive market, the first thing that surprised him was the attitude of other suppliers, Ajamian said. He said he heard many complaints about carmakers, including the industry's reliance on cost givebacks and low margins.
“You don't complain about your customers in other industries,” Ajamian said. “The way the [auto] industry operates is just a fact of life that isn't going to change. You have to work with the system.”
Key launched a series of aggressive cost-control measures at its facilities, making each plant responsible for its own costs. Plant supervisors now control their own budgets, he said.
“Nothing bad comes from focusing on costs,” Ajamian said. “We're much more focused on everything we do to keep our powder dry. It has to start at the plant level. The people there make those decisions.”
Although he would not reveal profit numbers, the privately held company is showing an improved bottom line, Ajamian said. But the road still slopes uphill, he stressed.
Other processors can relate. Fellow panelist Michael Valz, president and chief operating officer at Grand Rapids, Mich.-based Cascade Engineering, said his company was “quite unsuccessful” working with a joint venture partner in Budapest, Hungary, when the business relationship got out of hand.
“You have to establish the proper framework in any business relationship,” Valz said. “Or it can be difficult getting cash out of the business.”
Acquisitions played a central role at the forum discussion. O-I's Larsen said his company takes a skeptical view of some outside acquisitions. “We don't want to buy old equipment or old technology,” he said.
Instead, his firm focuses on what Larsen called “patent poker,” putting its money in technology that can separate it from competitors in the long run. The packaging company has about 82 new patents on its books, he said.
“There are small barriers to entry in our industry,” he said. “The value for us going forward is in not being a commodity [producer]. That is an ongoing effort.”
Especially in PET bottles, where O-I is a major player, the firm would like to convert more products from glass and other materials to plastics, he said. O-I's large glass business is somewhat flat, while its plastics packaging operations continue to grow, he said.
Finding cash to invest in technology can be tricky when customers want retroactive cash givebacks. Valz at Cascade said the only way around that is to select whom to work with and provide full service to those customers, he said.
“You have to choose the better mousetrap by offering full service and select your customers based on that,” he said.
Still, there is no substitute for working to increase profit, said panelist Walter Stucky, president of Fombell, Pa.-based Veka, The door and window profile supplier serves large merchandise stores that constantly demand lower prices, he said. He must balance that with the need to buy extrusion equipment continually to meet capacity.
The fast-growing company now has 62 extrusion lines in Fombell, plus a plant in western Canada it purchased last summer. Meanwhile, Veka is doubling capacity to make window profiles at its 16-line Reno, Nev., plant.
Indicative of new business realities, Veka cut a deal a few years ago with competitor VinylSource Inc. of Girard, Ohio. VinylSource extrudes profiles for Veka's composite product line, while Veka brings its marketing and engineering guidance and die work to the party. Veka has no ownership interest in VinylSource.
The “coopetition” situation is not one he would recommend in all cases. But the extruder, owned by Veka AG of Sendenhorst, Germany, was attempting to build North American market share, according to Stucky. The partnering allows Veka to market its brand of composite decking, railing and fencing quickly, he said.
“There's a conflict, and you can't usually go to the market in a joint venture with the competition,” he said. “But we came to the U.S. with zero customers for our profile composites. It comes down to branding.”