June 17, 2014
The Illinois contract fabricator ramps up its efforts toward operational excellence.
As Steve Wiseman sees it, the road to profitability in contract metal fabrication isn’t a tough climb. Margins aren’t sky-high, some can be narrow, but they’re certainly sustainable. Cash flow, however, is an entirely different matter.
“The one thing that’s a challenge for any company in this business, those that really try to reinvest in the company at a fairly high level, is cash flow,” said Wiseman, vice president of operations at Des Plaines, Ill.-based Nu-Way Industries, No. 11 on this year’s FAB 40.
This fact has guided the fabricator’s recent transformation efforts. During the entire order-to-cash cycle—paying for materials in the beginning, paying for labor and operations in the middle, and waiting to get paid at the end—so much can go awry. Small missteps add up to a serious cash drain.
A customer miscommunication may lead to material purchasing problems. Material may be ordered too early for the job or part program, so raw stock goes up and cash drains away. During operations, disorganized part flow and overproducing to save on setup can lead to excess work-in-process. Parts get lost and may need to be remade, eating up machine capacity and, again, dumping more cash into material costs. After the order is shipped, collections can take longer than expected and the cash strain ensues again, this time in receivables.
As Wiseman explained, Nu-Way has remained a healthy enterprise thanks in part to its on-time delivery of quality products and, in turn, its handle on cash flow. If it didn’t, the small shop launched back in 1968 wouldn’t have grown to the 260-employee manufacturer it is today.
To scale up even further, though, Wiseman said the fabricator is taking a new approach. Nu-Way has restructured its management and in the coming months plans to transfer the company’s entire organization away from traditional departments and toward distinct value streams.
Last year it created a new position in senior management: a vice president of sales and marketing. “It was done with the intent of approaching that portion of the business a little differently than we have done in the past,” Wiseman said. “As a contract shop, I don’t think we’re much different from a lot of other contract shops. We have our key accounts, and we have the other 80 percent of our customers. Our sales team knocks on doors and performs a lot of account management activity, trying to penetrate the larger accounts to a greater degree and develop some of the smaller accounts. But in a lot of cases, we haven’t done it very strategically in the past. So the intent with the new hire was to get someone who could put together a multiple-year sales and marketing strategy for the organization.”
That strategy will entail not just a new website but also include social media and marketing research to expand beyond the company’s core customer base; specifically, customers from different markets that would benefit from Nu Way’s current offerings.
“We want to uncover who we really want to work with as a partner for the long term,” Wiseman said. “We’ll be focusing on specific industries and specific customers within those industries. We won’t be going about it haphazardly. Without a plan, it’s hard to do real business planning and forecasting, because you really don’t know what you’re going to have.”
The fabricator also hired a director of operational excellence. His direct reports include the cost accounting team; several industrial engineers; as well as an automation engineer involved in workcell development, integrating robotic and other automation where it makes sense to do so. The entire team, Wiseman said, has aggressive cost-reduction objectives.
The structure allows engineering to work closely with cost accounting to ensure an estimate for a job makes sense from a cost standpoint. With cost accounting, engineering, and operational excellence functions all talking to each other and on the same page, real improvements—those that make for a financially healthier company—can happen.
The operational excellence director has been involved heavily with implementing a new enterprise resource planning system from Epicor over the past several months. The fabricator is moving toward an environment driven by key performance indicators (KPIs). Any executive can log on to the ERP system to see where those indicators stand.
“We upgraded from a system that was 25 years old, one which we outgrew significantly,” Wiseman said. “We took the big plunge into a fully integrated ERP system, and it’s starting to pay some dividends.”
The company also has a new director of operations who is a Six Sigma black belt. The plant manager is a green belt, and the new quality assurance manager is a black belt. “We’re now taking a new approach as to who we want to hire,” Wiseman said. “In the past, we always felt it was extremely important to have someone with a lot of fabrication background. We’ve really disproved that theory with these recent hires. The guys we hired are all from manufacturing, but they came from larger corporate environments with more P&L responsibility.”
All these changes will culminate over the coming months. The company is splitting its operations, from both a planning and machine layout perspective, into two value streams: a make-to-stock replenishment factory and an engineered-to-order operation for low-volume products.
The two value streams really operate under distinct business models with different demand cycles and part flows. And, of course, prototypes and small volume work eventually can lead to higher-volume replenishment work. Wiseman added that this hybrid arrangement, with two business models under one roof, will help guide Nu-Way’s growth for years to come.
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