Automation is no guarantee of success.
A fully automated plant that had earned Plastic Components Inc. a competitive edge and success for more than a decade did not keep the firm's customer base from falling apart and leaving North America for lower-cost regions in 2002 and 2003.
But the Germantown, Wis., custom injection molder rode it out by realigning engineering and resin procurement, outsourcing tooling, strengthening marketing and utilizing enterprise resource planning software.
The $10 million-in-sales company achieved 34.2 percent gross profit in 2005, way above the 18 percent industry average.
PCI Chief Executive Officer Tom Duffey shared his success story at Plastics News Survival Boot Camp, held Sept.13-14 in Rosemont. An M.B.A. graduate from Northwestern University, Duffey started PCI in 1989 with three presses and 10,000 square feet.
At the time, fully automated cell manufacturing was not fashionable, and Duffey's vision in eliminating labor from production made PCI unique. For its first 13 years, the firm thrived with an exclusive customer base within a 50-mile radius of Germantown. It expanded in 1994, 1996 and 1999.
``We never saw a need to change customer base,'' he said.
Yet, the change in business climate around 2003 made him realize a geographic-centric marketing strategy does not sustain itself. PCI needed again to distinguish itself from thousands of counterpart molders in North America and convey a message of commitment to its customers.
After turning down outside offers to buy PCI, Duffey began redefining the firm so customers would view it as distinct, unique and effective.
``If you are a molder without any particular distinguishing characteristic, your manufacturing strategy is adrift, you can't survive,'' he said.
Duffey said one of his best decisions was to install monitoring software for inventory control and plant management. The software helps to maximize PCI's resources: 650 active part numbers, 150 resin grades and colors, 40 presses from 35-300 tons, a 44,000-square-foot plant and 56 employees.
``We will ship 140 million parts this year. That's 12,000-13,000 different transactions, all done through IQMS [software],'' he said. The move required an investment of time and effort. But ``you need it if you want to grow and thrive,'' he said.
PCI will turn the inventory 20 times this year and 24 times in 2008, compared with an industry average of seven to nine times. Using electronic file transfer, mold flow analysis and other engineering capabilities, better part design and production processes have become PCI's core strength.
Duffey also transformed PCI's transaction-oriented resin purchasing system to a single-supplier model with PolyOne Corp. of Avon Lake, Ohio. The deal helped PCI secure reliable daily delivery, competitive pricing and tech support.
Despite its highly automated production, PCI had difficulties offering competitive prices because of noncompetitive tool expenses. ``We were losing business because of expensive tool costs four years ago,'' Duffey said.
Domestic tools were twice as expensive as imported ones, he said. After some costly learning-curve experiences, PCI now sources 176 tools from China with an established and growing supply base that currently consists of three Chinese toolmakers.
As PCI began this offshore initiative, it simultaneously decided to set up in-house tooling repair and maintain for outsourced molds. It bought out its former No. 1 tool supplier ``lock-stock-and-barrel'' and in a week, moved the entire operation into PCI's plant.
With that groundwork laid, PCI launched a formal marketing function and reshaped sales strategies to acquire customers.
Marketing manager Teresa Schell first conducted 30-minute telephone interviews with top customers and discovered customers want added-value, engineering support the most. She organized a customer advisory council at the plant with discussion focused on sourcing mechanisms, how to define a good supplier and the best way to reach out to a customer.
Today, Duffey said, the company spends around 3-4 percent of its sales on marketing communications.
Although automation doesn't guarantee success, it is indispensable. Each of PCI's 35 Toyo hydraulic and five Nissei all-electrics is surrounded with a complete cell of support equipmen: robots, packaging systems and automated handling. As a result, PCI's total direct and indirect labor cost accounts for just 15.7 percent of sales, Duffey said.
Currently the company is converting from hydraulic to electric presses and raising its tonnage.
``You need the best equipment. The turnout will be huge,'' he said.