Lots of U.S. plastics processors feel pain when work moves to China. Mack Molding Co. did something about it - and now is Plastics News' Processor of the Year.
Mack leaders have reinvented the Arlington company to serve medical, office furniture and other new markets, while retaining core strengths such as complex molding and assembly.
Throughout the changes, Mack has held onto its hometown values of good employee relations, community involvement, strong customer relations and technological innovation - all important yardsticks that helped the firm become the Processor of the Year. Plastics News presented the award Feb. 27 during its Executive Forum in San Diego.
Mack grew dramatically in the 1990s, when it became one of the plastics industry's most well-known contract manufacturers. Mack's sales neared $500 million in the late 1990s - more than 10 times its level in the late 1980s.
The Internet was booming. Y2K was coming, fueling huge demand for new computer systems.
About 70 percent of Mack's business at that time came from molding and contract manufacturing of large computer equipment such as servers and mass storage devices for the electronics ``Big Three'' of Sun Microsystems Inc., Xerox Corp. and Hewlett-Packard Co.
Mack expanded its headquarters plant from 120,000 square feet to 310,000 square feet. In addition, Mack invested $5 million to bring sheet-metal fabrication in-house, buying high-end machines for laser welding and laser cutting, to make large enclosure racks.
``All of this was gearing up for the next wave of computer work. It was pretty dramatic. We had huge expectations,'' said President Donald S. Kendall III. ``Then everything changed overnight. The big computer companies started outsourcing offshore.''
The Internet bubble burst. Y2K fears fizzled, leaving a glut of computers on the market.
Mack officials were surprised when their big customers started moving production of servers and mass storage devices to China. Northern division President Jeff Somple said company leaders ``thought we were very clever'' throughout the 1990s by avoiding cell phones, personal computers and laptops - high labor-cost products that seemed destined for China or Mexico. But big servers, which are more expensive and require relatively little labor to make, seemed safe.
Unfortunately for Mack, the work did go offshore. Since many of the internal components were coming from China anyway, computer makers decided to produce the entire systems overseas, Somple said.
``We were riding the tidal wave of information in the '90s, when information technology was skyrocketing. It came to an end around 2000-01,'' Kendall said.
Executives held brainstorming sessions at the northern division, which includes injection molding operations in Arlington and Cavendish, Vt., and Gardner, Mass., and at the southern division, with molding in Inman, S.C., and Statesville, N.C.
``It was a real hard look in the mirror,'' Somple said. ``The first thing was, face the facts. `Look guys, this is going to go away.' You could see it coming. And once we did that, we got that kind of watershed moment - that yes, this 10-year run we've been on is over and is ending very, very quickly. Then we could get down to work.''
Mack's sales hit a low of $201 million in 2003. Making the first-ever major layoffs in Mack history was a painful experience, said company officials.
But the pain was a necessary part of diversifying Mack. Mack's sales have rebounded, to $277 million in fiscal 2006, ended June 30. Hiring has kept pace, as employment climbed to 1,850 today, from 1,250. Mack is profitable, although Kendall declined to get specific.
The company runs 121 injection molding machines.
Today, sales are pretty evenly divided between medical devices, transportation, office furniture, industrial products and business equipment. A 16-press plant in East Arlington turns out large storage containers for industrial batteries, a solid Mack business for decades.
``We really had to think about global trends: what business is going to stay in North America and what businesses are going to leave North America,'' Kendall said.
Kendall supported the strategy to move into new markets, which included buying some very large-tonnage injection presses for the southern division.
``It was easy to decide to do it. We had to, because we were faced with extinction if we didn't do it. But the hard part was the execution, actually doing it,'' said the soft-spoken Vermonter.
Some central beliefs have not changed. Manufacturing in China is not part of the plan.
``We don't want to be a big multinational,'' Somple said. ``We want to be a North American manufacturer.''
The goal was to build on Mack's strengths to make the company as China-proof as possible - concentrating on big, bulky parts that don't stack well for large trucks; office furniture calling for frequent color changes and technology such as gas-assisted molding; and complete medical devices fully assembled on a rolling cart. Mack put in a water-based paint line so it could efficiently handle color changes demanded by office furniture customers.
``Some of the products we do right now are so low-volume and so complex that, who in their right minds would want to do it in China?'' Somple said.
A key strength is Mack's longtime customer focus, through program-management teams that track each job from design through production. The contract manufacturer honed those skills for the big computer players, whose products can have life spans measured in mere months. For the new business, Mack has hired more people for program management, manufacturing engineering and quality management.
Somple, who headed Mack's move into medical devices, said those products have much longer life cycles, some of 10 years or even more.
Not an easy road
As more basic molding work moves to low-cost countries, scores of custom injection molders are looking to get into medical. However, Somple said, ``The medical market is not for the faint of heart.''
It takes money, people skills, meticulous record-keeping and above all, patience, Somple said.
``A lot of people aren't willing to pay the price. It's a huge price. And it's a long time to get your bona fides. We've been pursuing this for six years and just in the past year or two, we've been recognized. [Medical customers] want to see that you're in this game and you're committed to it,'' he said.
Company officials decided to stick with the strong point of delivering to customers finished, assembled products. Somple pointed to a knee kit, showing sample sizes of knee-replacement parts mounted on a laser-welded metal tray, made for Stryker Corp. The customer first came to Mack about a small program to overmold a soft-grip handle for a surgical instrument.
People from Stryker saw the sheet-metal equipment while on a routine tour of the Arlington plant.
``And the next thing you know, that little handle turned into this case and tray program,'' Somple said. High-tech machines originally bought for computer cabinets now are being used for medical parts.
Mack also makes Class III medical devices at its Arlington headquarters, which in November won approval under ISO 13485:2003. Somple said Class III is a designation for a device that sustains human life, the most demanding level.
Each Class III device must get pre-market approval from the Food and Drug Administration. ``The FDA will come in to the manufacturer and they will go through your entire process,'' Somple said. ``That's what makes it difficult and that's what makes it time-consuming. But that's what makes it a market that we're pretty excited about.''
The barrier to entry is high, cutting many potential competitors out of the picture. Mack spent two or three years working on one medical program that just recently came through. Workers prepared samples and went through clinical trials, while documenting every step, with no guarantee of a payoff.
``We have right now three or four programs that I would call in the incubator stage that are not at the market yet, and may never get to the market. ... So you have several of these going on, and hopefully one or two are moving to production,'' Somple said.
Mack's growing list of medical products includes fully assembled medical instruments such as a defibrillator, a heart monitor and a cart for delivering medications in hospitals. A blood-testing system for Johnson & Johnson's Therakos unit has the clean look of a copy machine on wheels.
Mack has beefed up its talent, hiring people with medical-device background and promoting key company veterans. Medical molding required hiring an FDA compliance officer.
The Arlington site does not have a formal clean room, but the company is installing an enclosed area on its molding floor to house new, small-tonnage injection machines, including one of Mack's first all-electrics, a Milacron Roboshot press with 55 tons of clamping force. A 390-ton Toshiba all-electric will be installed soon at Mack's plant in Cavendish.
The judges - Plastics News reporters and editors - gave Mack Molding strong marks in all of the seven criteria of financial performance, customer relations, quality, employee relations, environmental efforts, public service and technological innovation. Mack was nominated by Julie Horst, the company's communications director.