Advanced Drainage Systems Inc., a maker of corrugated high density polyethylene pipe, is embarking on the largest expansion in its nearly 40-year history.
By the end of the year, ADS will open four new plants: one each in Philadelphia; Perry, Ga.; Mexico City; and Arecibo, Puerto Rico, adding roughly 400 employees and more than 160,000 square feet of production space. The firm already operates 21 domestic production sites and five international plants, with 28 distribution centers in the United States.
``We literally need the capacity, period,'' Joe Chlapaty, president and chief executive officer, said in a Jan. 19 interview at ADS headquarters in Hilliard. ``We're trying to stay ahead of the power curve.''
Officials will select a location in the Philadelphia region within the next 30 days to construct a 60,000-square-foot facility. Chlapaty said ADS needs a location with all the bells and whistles to accommodate pipe production: namely, rail access and 25 or more acres of land.
In Georgia, officials selected a 50,000-square-foot facility in Perry to replace a plant in nearby Montezuma, Ga. ADS wants to have the plant operational by September.
``The facility we have in Montezuma, we don't own,'' Chlapaty said. ``It's one of our old, original plants. We need to meet customer demand, and this facility just isn't conducive to the expansion plans that we were able to complete at other locations.''
ADS operates in Mexico via a joint venture called ADS-Mexicana. The venture is with a group of investors who want to remain private, Chlapaty said. Through that arrangement, ADS just opened its third production facility, with roughly 50,000 square feet of space, in the Mexico City area.
The company built its first plant in Mexico five years ago, Chlapaty said.
``Through the efforts of our local partner, ADS-Mexicana has created a strong demand for our N-12 pipe throughout Mexico and specifically Mexico City,'' he said.
It's a lot to digest at once, since the firm has been involved with expanding existing facilities as well. Since 1995, ADS has built five domestic and five international facilities, and substantially expanded every one of its existing plants.
In New Miami, Ohio, for instance, ADS is adding injection molding capacity.
``That's a major facility for us,'' Chlapaty said. ``We are doing more injection molding of components and parts, fittings, than we have historically. But in these [new] locations, we will not be doing it.''
The expansion news is significant for ADS, but the fact that the company's top executive agreed to an interview is almost as noteworthy. ADS normally is very private, even by the reticent standards of the plastic pipe sector: Although Plastics News has ranked ADS in the top 10 North American pipe firms for more than a decade, this is the first time the firm has agreed to a significant interview.
Asking Chlapaty about ADS' aggressive expansion plans is an invitation to a history lesson. In 1966, the two young engineers who started ADS saw the opportunity to use corrugated flexible conduit as an alternative to clay tile in agricultural field drainage.
``They literally caught the lightning in the bottle, and revolutionized an industry. The players at the time were clay tile companies and there were basically two choices: change, or go out of business. Some changed, some went out of business,'' Chlapaty said.
The corrugated HDPE pipe industry is not without its challenges, significant barriers that Chlapaty discussed openly. HDPE still is fighting other materials, such as concrete in the storm sewer market.
When ADS, along with other industry players, in the late 1980s developed a means of making corrugated pipe with a smooth interior, that provided the opportunity to match concrete in terms of velocity flow, he said.
``It's been an exciting but challenging effort because of the roadblocks that concrete historically has attempted to put up in front of our industry. Gaining approvals is a critical need, critical factor, but we've been successful at it,'' he said. ``We've been successful as a company and as an industry. And as the acceptance of corrugated plastic pipe and storm sewers is beginning to gain momentum, we have found the need to provide the additional capacity.''
According to Freedonia Group Inc. of Cleveland, the large-diameter pipe market in the United States will reach $7.6 billion in annual sales by 2007. Driving factors behind the growth include stricter water-management regulations, continued highway and street construction and the rehabilitation of aging or obsolete sewer, drainage and municipal drinking-water systems. Concrete pipe will remain dominant while plastic pipe grows the fastest, and storm sewers will remain the leading application.
Now, the biggest challenge for corrugated PE pipe producers can be summed up in just a few words: cost and availability of raw materials. Material consistency is critical in transportation projects, where specifications are set by the American Association of State Highway & Transportation Officials.
``It's a significant issue,'' Chlapaty said of raw material prices. ``At ADS, we believe we do a good job of minimizing, as best as we can, the cost of our raw materials without sacrificing any aspect of quality. Do we take advantage of proven techniques to reduce overall material costs? Of course. But we're not looking to do that, cannot do that, especially in these critical days when you have departments of transportation who are waivering in terms of giving us final approval. We can't afford to take a step back or make a big mistake and do something foolish with raw material content that could jeopardize the future growth of the industry by having some short-term solution that could cause a long-term problem.''
ADS remains bullish about the future, but wants to send the message that the market is not an easy entrance for new participants.
``Technology is not only rapidly changing, but the investment in equipment and technology is significant,'' he said. ``They may want to get in, but we're there, and we're going to be there in an intense way. And so they're going to face intense competition, if and when they decide to get into this business.''
Chlapaty would not disclose sales or other financial data related to the plant expansions. According to Plastics News' 2004 estimates, the firm had sales of $431 million and 97 extrusion lines.