When Mel Pirchesky and his group of investors from Eagle Ventures acquired Dawar Technologies last summer, the small manufacturer of electronic membrane switches and printed switch membranes was making money and had the potential to make lots more.
As Pirchesky is fond of saying about his acquisition strategy, When we come into a company, theres nothing magic in what we do. The company is usually 90 percent there in what needs to happen to succeed. The other 10 percent is the trick.
In this case, though, Pirchesky just didnt expect that trick to rear its ugly head so quickly, and in such a potentially devastating way.
But quick action on the part of Pirchesky, other investors and top managers, a healthy dose of self-analysis and the adoption of a seemingly simple advanced manufacturing process aimed at eliminating bottlenecks ultimately saved the day. Heres what happened.
The 106-year-old company had survived years of changes as an offset typesetting and printing company. In its latest incarnation, it still provided printing services, except that it had identified a profitable niche in printing plastic graphic overlays for the membrane control panels of a host of electronic products. Recently, it began manufacturing the actual control switch panels for a number of manufacturing customers.
The company manufactured its products much the same way it did its printing jobs: It would get an order, set up its machines once and complete the entire order. Sometimes, that order would be for an entire years worth of components. Dawar stored the completed parts, getting paid for them throughout the year, once they were shipped to the customer.
The system, according to James Ocskay and his wife, Susan, who are part-owners and two of the companys top executives, yielded the 41-employee company a 15 percent annual growth rate and several million dollars in annual revenue.
One of the things we looked at was our turnaround time of three to four weeks, for instance, while others did it in six to eight weeks, says James Ocskay, president. And we had a lot of requests for stocking [finished product for customers]. When they gave us a purchase order, we thought it was as good as gold.
The company landed enough of those big orders that it had to turn down other orders because its machines were always in use, according to Susan Ocskay, vice president of administration.
Then in October, an odd thing happened. As James Ocskay says, the graphic overlay printing business dropped a little bit, while the switch business climbed to 35 percent of revenue for the month. Overall, revenue for the month had climbed.
But the company lost roughly $50,000 that month.
We call it Black October, James Ocskay says. It was a wake-up call, thats for sure.
This isnt a story about failure, however. As soon as Pirchesky, the investors, and the companys top management saw the numbers, they wasted little time in changing the companys surprising course.
The first thing Pirchesky did was contact Ronald Hawkins, who was president of Allegheny Container, another Eagle Ventures company, and an operating partner in the Dawar investment. Hawkins expertise was in the development and implementation of advanced manufacturing processes.
Hawkins first course of action: analyze and review all steps of the manufacturing process and figure out what needed to change.
What happens is that you have to try to steal time between 8 and 10 at night to do this, but we knew we didnt have three months to do this, Hawkins says of the exercise.
Adds James Ocskay: I looked at it as a crisis.
Nonetheless, Hawkins says he looked most closely at three parts of the process:
- Set-up times
- Through-put rates
- Units produced per hour and per day.
The key problem, all agree, was in the numerous bottlenecks created along the production process. With big orders being pushed through the process all at once, some steps could handle far more units per hour than others. Workers at one station would finish their work and have to wait on the rest before taking on another order.
Part of the thinking behind such traditional production methods, James Ocskay says, was that the company had tried to cut down on set-up costs by setting things up once and producing the entire order. But the company also had to continually buy large quantities of raw materials up front, even if it wasnt getting paid for the finished product for nine months.
It worked well enough to make money, but not enough to eliminate bottlenecks, he says.
Don Linzer, a partner at Pittsburgh accounting firm Schneider Downs who is chairman of the firms manufacturing focus group, says older small companies often manufacture products the way Dawar did, with lots of raw materials around.
Smaller companies dont always have the muscle and largess to manage cash flow by controlling inventory, he says. It can be very difficult. The old way is to have a lot of stuff around and not run out of inventory.
It didnt take Hawkins and the others long to realize that the answer was in eliminating the bottlenecking problem.
What we were really after was to get, in a quantifiable way, the rhythm of the processs eight to 10 steps, Hawkins says. We didnt want one step operating at a different rhythm than the rest.
Adds Pirchesky: The bottlenecks have to pace the production lines speed.
Then there was the cash flow. Dawar incurred significant costs up front to buy supplies to produce the years worth of orders for some customers and then store them. Meanwhile, customers only paid Dawar when it shipped them the products on demand.
The ultimate answer: a manufacturing process methodology Pirchesky calls J.E.T. manufacturing, or Just Enough Through-Put. Its a variation of a method known as Just In Time manufacturing. The ownership/management team spent hours developing a formula built around the bottlenecks that determined how many units each work station could produce per hour without creating bottlenecks and still meet customers demands. Then they figured out how much raw material they would need to produce those smaller quantities.
They cross-trained workers on a number of the process steps and based efficiency on each workers contribution to the overall process rather than on the capacity and speed of each step. And they no longer worried as much about set-up costs since they werent nearly as costly as the bottlenecks.
Its better to set up two to three times a year to do a years quantity than to do it all at once, James Ocskay says of the implementation of the J.E.T. method. Now everything runs smoother, and our lead time has been cut down from three or four weeks to one or two weeks.
Schneider Downs Linzer does caution, however, that you have to be careful implementing such a plan because you dont want to become too lean.
You can literally get too lean and shoot yourself in the foot, he says. If you have a line with 40 people and run out of a 50 cent part, youll have to send everyone home. So the logistics are very important.
But so far, the new system seems to be working well. In fact, thanks to such efficiencies, Dawar was able to pick up orders that it previously had to turn down. The result this past January was, as Susan Ocskay says, that we saved 10 percent on production hours, while having the second highest billing period ever. The change was dramatic, but it happened quickly. People in the shop didnt believe we could do it.
Pirchesky and his investment team, along with the companys top management, couldnt be happier.
It didnt cost us anything except for the time to plan it out, says Pirchesky, who hopes to grow the company to at least $10 million in revenue over the next several years. Applying this technology to manufacturing is a great way to stimulate job growth, even for little companies. Its not equipment. Its not R&D. Its just applying concepts that work out there and being willing to change.
How to reach:: Mel Pirchesky says Eagle Ventures is looking for other local small manufacturers to acquire. Call (412) 683-3400. The Ocskays can be reached at (412) 261-1904.