CINCINNATI (May 5, 10:40 a.m. EDT) — In the past five years, Milacron Inc. has made dramatic moves to reposition itself, first by selling its machine tool business in 1998. Last year Milacron sold three businesses that sell metal-cutting tools and products. The result: 85 percent of Milacron's 2002 sales of $693.2 million came from plastics machinery and mold components.
Harold Faig is a 36-year Milacron veteran. He served as vice president of the Plastics Technologies Group until last fall, when he was promoted to the No. 2 position in the company. Now, as president and chief operating officer, Faig works closely with Ronald Brown, chairman and chief executive officer.
As NPE 2003 nears, Milacron and other U.S. machinery makers are struggling to emerge from a three-year slump. Milacron imposed major job reductions, cutting 30 percent of Plastics Technology Group's total work force since 2000, Brown said. That included layoffs, early retirement and attrition. The company also slashed prices to clear out excess machinery.
Milacron lost money in 2001 and 2002, but the red ink in 2002 came mainly from a large goodwill write-down, losses from the discontinued metalworking operations and restructuring charges. The plastics-related businesses turned a profit, which includes the key North American market. Company executives expect Milacron to break even this year.
Faig and Brown discussed their plan to make Milacron more of a global manufacturer, including long-term plans for China, during a March 20 interview at Milacron's Cincinnati headquarters. Faig also gave his thoughts on what North American molders need to do to stay alive during one of the toughest manufacturing recessions in memory.
Q: Let's start with the decision to take zero machines to NPE. At the 2000 NPE, you had 37 pieces of equipment. You say this was a long-term decision, not simply made to save money. What do you say to people, competitors especially, who are skeptical about that explanation?
Faig: They can say whatever they want. The fact of the matter is very simple: that we want to invest money into our product development that really improves the competitiveness of our customers. That's the fundamental issue.
Plastics processors are struggling, and those are our customers. And why? Because there is an issue of competitiveness with Asia and they're not going to win in commodity kinds of products. They're going to win when they can become more competitive and more profitable. And that's what we want to focus on: What are the technologies that add value to their product?
Q: OK, say the economy picks up and we come to NPE 2006. Will you be back with 25 machines?
Faig: No. There is no need to take iron to the show. There are ways to show the features and benefits to customers without just having a piece of iron sitting there.
Q: Let's move to a big issue, of threats facing U.S. plastics processors: molding jobs moving to China, health-care costs skyrocketing, resin price hikes. What can they do?
Faig: I think there's no choice. If they're going to survive, they need to focus on value-added products. There's no choice. I sit on two outside boards that are both plastics processors, and that's their focus.
Q: That brings up an interesting NPE question. Will one of the big themes be to help processors better use technologies that are already out there, instead of rolling out radical new technologies?
Faig: [Yes.] Because you want to capitalize on technology where the investment has been made and it's in production. For instance, I think this issue of multicolor, multicomponent is a good example of that. That technology can add a lot of value to plastic parts. And that's in existence in Europe already. But few companies are using it here. In Europe they're using it in a way for their customers: to add value to the customers they serve. And our customers need to do the same.
Q: What are some other examples?
Faig: There's a whole myriad of technologies out there that have broader-range applicability: water injection, gas-assist, sandwich molding, gate shutoff technology in hot-runner systems. And what we're trying to do is get it in the hands of more customers.
Q: Why does Europe seem to be ahead of the United States in buying special machines?
Faig: The Europeans have been looking for ways to differentiate their product and add higher value. Because a lot of the issues they've faced are what we're facing today, where commodity kinds of products have gone offshore. Two out of three machines that are sold in Europe are sold with these technologies. Very few are sold over here this way.
Q: You've said it used to be that Milacron's typical U.S. customer never asked about these advanced technologies. But now they're interested.
Faig: I would say 70 percent are looking at it. And the reason is that every manufacturer out there is looking for competitive advantage.
Q: What kind of molding work is going to China?
Faig: The Chinese are looking to leapfrog. So not only do they want to take these commodity products, which they're getting already — I mean, it's going over there by the boatloads — but they want to add more value themselves. I'll give you one example. One Taiwanese company has four major plants, doing over a billion dollars in toothbrushes. Electric toothbrushes. The sonic toothbrush. The Colgate. All of that's made by them. Designed in-house. All of it has multicolor, multicomponent materials. Two-shot molding. It's being designed and produced in China.
Brown: Also, there are certain customers that are not going to be able to go to China. In packaging and automotive, for example. There are customers we have to get very close to and help them even better than we are today. We're doing a good job, but we need to serve them better. Some customers are going to China, and we're following them and serving them from there.
Q: What's the single issue that keeps you up at night?
Faig: The thing that I worry about the most is that customers, as an industry, really have to start focusing on a lot more value added.
Brown: It's this sense of urgency that [Milacron has] got a lot of change that we're trying to make. And just making certain we're doing it fast enough. It's a sense of urgency that we've got to accomplish a lot of change in a period of time.
Q: Are you disappointed with your low stock price?
Brown: Most manufacturing stocks are undervalued, and we're no exception, I'll tell you that.
Q: What word would you use to describe the overall machinery market today? Is “crisis” too strong?
Faig: If you look at the industry, from 2000 shipments to 2002, new business is down 40-plus percent. Shipments are down 40-plus percent. In my mind, that's a crisis. The mold-making components industry is also down significantly. That's a crisis.
Q: Milacron has faced tough times before. In the 1980s, you launched the Wolfpack strategy to fight the onslaught of Japanese machines. How does today's situation compare with the Wolfpack days?
Faig: I think that sense of urgency is just as much alive today as it was then. But I think the issues are different. Then, it was a competitive issue. Today, it's an industrywide issue. Our customers are not very healthy today. They are under competitive pressure, so as our customers suffer, we in the industry supplying them will suffer. That's why we've got to help them. And we've got to be as passionate about it and as willing to take risks as we were then.
Brown: There is a huge difference. Because then, it was a matter of making the same machine as a competitor, at a competitive cost. So then in order to survive, you had to be able to drive your manufacturing costs down. Today, from a standpoint of how we're serving the customer, it's more than just providing a low-cost, competitive machine. It has to be application-driven. As a result, you don't need the same machine as somebody else at the show. The key is to show that you've got applications expertise in terms of your people, and in terms of the technology that we've developed that help our customer.
Q: You currently make machines in the United States, Europe and India. Ron Brown, you were quoted in a Cincinnati newspaper saying it might be cheaper to source some parts from lower-cost countries. Can you elaborate?
Brown: Our customers, they don't really care where the components of our machines come from. All they want is a solution. And it's key for us to look at where we manufacture, what we manufacture, how we manufacture or where we source it. Strategically we need to determine how we use those facilities more effectively to benefit our customers.
Q: Are you still selling your Indigo injection press, made at your factory in India?
Faig: The Indigo was one of the first models that we introduced in India. It was modeled after our Vista Sentry machine over here. We've gone on with newer models.
Q: Are you selling India-made presses over here?
Faig: We're selling them all over the world, primarily in Asia and the U.S. I'll give you an example: Our two-platen machines are all built in India. Every one of them. This is our tie-barless machine, the Prowler. And then we bring them over and then we add controls to them and hydraulic systems to them and customer options.
Q: What about Milacron's goal to have a “global platform”?
Faig: It gets into this issue of competitiveness. If we get into a situation where a customer wants a quote and we quote it out of Germany, it's going to be a little higher, because it's got a little different technology base to it. We quote it out of the U.S., it's a little lower. But if they come back and said, 'Oh, we're quoting your machines built in the U.S. against machines built in Taiwan.' We say, 'Oh, no problem' and we now quote the machine out of India. And we've sold a lot of them that way. So we position it against the market.
Q: So you have actually achieved a global platform?
Faig: Yes, and they have different option contents. The German machines have different cladding. They have different performance features. For example, take the injection unit. You know we've pulled back our sprue all the time. We hold it in. The Germans and the Europeans, they pull it back and then push it in each time. So sprue break is automatic with each cycle. So that has different option content. But the platforms are the same.
Q: Let's talk about manufacturing in China. What operations do you currently have in China?
Faig: We have sales and service in Beijing, Shenzhen and Shanghai.
Q: Another trade magazine reported that Milacron, over the next three to five years, will look to source components and possibly set up manufacturing in China. At what stage is this effort?
Brown: The early stages. We're identifying and qualifying suppliers in China.
Q: Is that three- to five-year time frame accurate?
Q: Can you foresee sourcing major parts and subassemblies from China and sending them to your U.S. assembly plant in Batavia, Ohio?
Faig: Of course.
Q: Is that happening right now?
Faig: As Ron said, we're developing the relationships with the suppliers today. Just as we have built relationships in India, we're developing them in China.
Q: Should your employees in Batavia, or your machining operation in Mount Orab, Ohio, be afraid when they read this interview?
Brown: Our assembly people … want suppliers that have good quality and will get them something at a reasonable price, and it's there when they need it.
Q: Earlier this year, Milacron named Jay Woerner as vice president of global manufacturing and sourcing. Is that a new position?
Faig: Yes. Our China operation will report to him and our India operation reports to him. Why? Because we want to make sure that we're synergizing all of our manufacturing capability worldwide for everything — our machinery plus our mold-base components, to make sure that we're utilizing the resources in these lower-cost countries. … How do you optimize on a global basis our manufacturing capability and our sourcing capability? You have somebody focus on it. It's his full-time job.
Q: Ron Brown, you have told analysts that, despite the downturn, plastics machinery is a good place to be. Can you explain?
Brown: Long-term, I think that plastics is much better than overall machinery, because [the plastics] industry's going to grow faster than most any other industry.