Custom plastics molder and assembler Tech Group Inc. will close its tool-building facility in Erie, Pa., reduce its 2,000-person workforce by approximately 250 and consolidate some production, engineering and administration operations in North America in an effort to reduce costs and increase efficiency.
The restructuring was only indirectly related to New York-based Pfizer Inc.'s decision in October to stop selling dry-powder human insulin, said Michael Anderson, vice president and treasurer of West Pharmaceutical Services Inc. in Lionville, Pa., which bought Tech Group in May 2005.
Tech Group, a leader in injectable medical devices for drug-delivery systems, is based in Scottsdale, Ariz., and was one of two companies that made the inhalers for that product. The Exubera business accounted for approximately $30 million, or 10 percent of Tech Group's projected $290 million to $300 million in sales in 2007, Anderson said.
For 2008, Anderson anticipates Tech Group will have approximately $270 million in sales, and will be more profitable ``if one disregards the restructuring charges,'' which the company estimates will be $2.5 million in 2007 and $9.5 million in 2008, mostly related to severance and lease termination costs.
In the first nine months of 2007, Tech Group had sales of $219 million and an operating profit of $9.1 million.
``The majority of the restructuring is only indirectly related to the loss of the Exubera business,'' Anderson said. ``But the loss of that very profitable business compels us to find other economies to stay competitive and profitable.''
Anderson said tooling will be consolidated at the company's 65,000-square-foot customer/engineering center in Scottsdale, which employs 175 and does production development, estimating, bidding, project management and tooling. He said the Erie facility that is closing has 20 workers.
The restructuring is designed to match the size of Tech Group's resources with the expected level of business, rearrange production so that plants are more focused on a single type of product, centralize design and engineering capabilities in Scottsdale, and combine and centralize more of the sales and administrative functions.
``Manufacturing consolidations will probably get under way early next year,'' Anderson said, without providing details. The company has nine plants in North America, including the Erie facility that will close; and one each in Puerto Rico and Ireland.
Anderson did not say how Tech Group will use its Tempe, Ariz., facility that was dedicated to making the Exubera product line and has a Class 100,000 molding and assembly clean room and 15 Netstal presses.
``We want to keep like products in like facilities because consumer customers require different kind of support than medical-device customers,'' Anderson said. ``Both use similar skill sets and operating procedures, but there is a difference in the way you package the products and [in] the clean room requirements.''
Anderson said Tech Group will be exiting some product lines, but did not say which ones.
Tech Group anticipates $3 million in cost savings in 2008 and annual operating savings of $7 million after that.
``These actions, while difficult, are essential to West to create the right operational footprint for the level of business we have today and ensure we remain competitive and financially strong for the future,'' said West Chairman and Chief Executive Officer Donald Morel Jr. in a news release.