In October 2008, Mike O'Connor's insert-molding firm, Innovative Components Inc., saw its best sales month ever.
By January 2009, sales nearly ground to a stop, Innovative was at risk of closing and O'Connor found himself having to make some very tough decisions.
O'Connor is quick to say that his firm was far from the only one hit hard by the recession and other factors, and he maintains that the steps he took were not some new fiscal miracle he discovered but a series of improvements that are widely accepted.
But less than two years after those tough decisions, the company is stronger than ever with a firm financial foothold based on a cash-flow business.
There's no magic trick, he told fellow molders at the Manufacturers Association of Plastics Processors' Benchmarking and Best Practices conference in Indianapolis. There's no silver bullet. It was a whole lot of things that you had to do really, really fast.
O'Connor said he wanted to speak to other MAPP members to encourage them to take a hard look at their operations, and make improvements that must be done, even when they're not easy.
We'd gotten a little bit cocky, a little bit full of ourselves, he said at the Oct. 21-22 event. We needed to be open to criticism to take action as fast as we did.
The family-owned firm injection and insert molds industrial knobs and handles. It has annual sales of a little less than $10 million and nearly 100 employees. It expanded from its Schaumburg, Ill., headquarters to add an overseas plant in Cartago, Costa Rica, in 2006, which allowed it to provide lower-cost manufacturing without the shipping distances of production in Asia.
O'Connor says now there were issues creeping up at the time, including the new plant's cost. But with sales increasing, Innovative did not recognize the signs.
Then the recession hit and the firm's bank was unwilling to loan any more money.
The first thing O'Connor did was stop his own pay. His family also provided the firm with a personal loan for cash needed to continue operating.
And he needed to cut about half of the staff especially hard in a small firm where some employees had been with it from the beginning. He decided to make all the cuts at once. That gave dropped employees a head start in seeking out new jobs before the recession's worst layoffs took place and retained employees the job security to be more invested in the company, he said.
Innovative invested heavily in lean manufacturing, guided by Harbour Results Inc. of Royal Oak, Mich. Harbour oversaw a thorough assessment of Innovative's operations, allowing it to cut both costs and scrap rate while improving delivery.
O'Connor began focusing on a cash-flow business model rather than its traditional cost-driven system. He drew inspiration from the book The Goal, by business consultant Eliyahu Goldratt, buying copies for everyone in senior management. He even started a sort of a book club so that everyone was literally on the same page in understanding what needed to be done.
The company looked closely at its own inventory to raise cash. If something was in stock and paid for, it was on sale regardless of whether that meant selling those parts at a loss.
We offered nylon knobs for the price of polypropylene. We offered stainless-steel inserts for the price of standard steel, he said. It's amazing how energized you become when your house is on fire.
With cash starting to come in, the company looked for ways to grow sales. Already focused on proprietary products, it put more stress on creating new parts. Innovative has received four patents since January 2009.
Even as it cut other costs, the firm never cut the marketing budget, an investment that paid off: Innovative booked $1.3 million in new sales for 2010 through early October.
In terms of every normal measurement, 2010 will be the biggest year in the history of the company, O'Connor said.
Employment is back at pre-2009 levels, but with more value per employee hour through lean manufacturing techniques, and the company just added a new custom injection molding press.
You can transform your business, but you've got to do it fast and you've got to be brave, O'Connor said.