Why Some SMMs Are On The Rise

For many years, small and midsize manufacturers have competed by improving quality, lowering costs, finding operational efficiencies, and eliminating wastes.  They have relied on programs like Lean Manufacturing, Six Sigma, ISO 9000, and other internal strategies that were once pioneered by the giant, public manufacturing companies.

Despite the fact that we have reduced our costs and improved operational efficiencies, manufacturing is still in decline. Since 1986 American manufacturing has declined in terms of percent of GDP, total number of manufacturing plants and employees. But although these internal programs have kept some American manufacturers in the game, they have not led to top line sales growth. Many manufacturers are treading water in open ocean and barely keeping their heads above water. American manufacturing needs to grow and reverse these trends of decline. This means swimming towards land and focusing more on top line sales growth. 

The good news is that there is evidence of a resurging of growth and it is coming from America’s small and midsize manufacturers (SMMs). This resurgence in growth can be summed up in one word -- innovation. Innovation in the context of sales growth is described as new technologies, products and services. It also includes developing proprietary processes, finding new markets and licensing. The progressive SMMs who are now growing are not waiting for the government to save them; they have taken it upon themselves to find innovative ways to compete.

Diversifying Into New Markets
Some of these companies have found ways to transform their business by finding new market niches. Oregon Iron Works of Clackamas, Ore., began as a traditional welding and fabrication shop in 1945 fabricating miscellaneous metals and making parts for the dams on the Columbia River. In 1973, the company was purchased by Terry Aarnio and continued making fabricated parts for damns, bridges, and other construction projects and grew in complexity over the next 20 years.

Along the way their expertise in working with the Corps of Engineers, and other government agencies, on bid projects with extensive specs helped them learn to bid on some defense contracts. Eventually they landed a contract for an experimental naval vessel. Terry Aarnio, the president of OIW, said, “We pressed harder and harder to find new contract opportunities -- that meant getting the expertise to use more complex metals, machining operations, mechanical and electrical controls.”

During this time they developed a marketing plan that described growth objectives and new target markets they would like to pursue. They had to overcome another hurdle when they decided to bid on work in the nuclear industry. The paperwork and specifications for nuclear work were an immense undertaking by the company. But just as in defense contracts they learned the paperwork process inside and out.

Oregon Iron Works’ latest goal is to become the first American manufacturer of streetcars. This project was pioneered by V.P. Chandra Brown who led the development of a prototype streetcar and now has orders for 13 of the streetcars for two major U.S. cities. Brown estimates the total market for streetcars could be as much as 80 cities. Up until Brown’s work, no U.S. manufacturers had built street cars for American cities.

OIW also recently landed a contract to build the first ocean wave energy system. The company now serves niches in hydroelectric, nuclear containment, bridge girders, space launch systems, unmanned seaplanes, streetcars, and wave energy. OIW is a great example of a fabrication shop changing to a product manufacturer and a medium size manufacturer that knows how to diversify into other markets. The fabrication and welding shop had $850,000 in sales in 1975 and 12 employees, and has now grown to 400 employees and $120 million in sales in 2009.

Entering Foreign Markets
And then there are the manufacturers who are investing in finding foreign markets. Quality Float Works of Schaumburg, Ill., makes pump floats, a hollow metal ball that is used to level the amount of fluid going through a pump (think toilet float but industrial). The floats can be found in everything from coffeemakers to large pumps that drain water from New Orleans. Pump floats are not a new technology but they may be very new to countries that are interested in developing water purification systems.

In 2000, the company decided to market to foreign countries that were in need of water purification systems. Jason Speer, V.P. of Quality Float, embarked on a worldwide tour of 10 countries. Speer targeted the 10 countries to visit based on whether they were developed countries, such as Western Europe, and countries where the U.S. has Free Trade Agreements.

Speer also received help from the U.S. Commercial Services of the Department of Commerce. He said, “They were a great benefit, and we continue to use their services for new markets.”

Speer has now visited over 80 countries and uses distributors, foreign reps or direct sales to sell internationally.  Global sales have grown to 26 percent of total sales in 2009 and the company currently sells to China, Vietnam and eight other countries.

New Technologies and Patented Products
Another strategy is to invent a unique new product. A wrench doesn’t conjure up a vision of a 21st Century innovative product, but Dan Brown, President of Loggerhead Tools in Chicago, Ill., has recreated the traditional wrench into a product he calls the Bionic Wrench. Introduced in 2005, Brown’s product is unique in that one Bionic Wrench can replace 16 U.S. and metric wrenches. Based on its patented design, it is the first wrench that can distribute gripping force on all sides of a nut or bolt without slipping or rounding off the fastener.

According to Dan Brown, his differentiation strategy and decision to seek input from potential consumers were a big factor in the company’s success. He believes that to be able to differentiate your design and generate sales in the near term, that it is important to understand the user choice drivers and gather customer information and feedback on the design ideas. His ability to differentiate designs has been very successful and Brown currently holds more then 30 U.S. utility patents.

Dan Brown said his goal for LoggerHead was to introduce “one innovative new product to the world product every year.”

The Bionic Wrench won the Popular Mechanics EDITOR'S CHOICE Award - in recognition of outstanding achievement in new product design, along with 10 additional International Design Awards. The company sold 50,000 units its first year in 2005 and is hoping to break through the cumulative 1 million units in 2010. All of Logger Head Tool’s products are made in the USA.

Proprietary Processes
Nimet Industries, a 65-person job shop in South Bend, Ind., excels at licensing their proprietary processes. Nimet offers proprietary anodizing and electro-less nickel finishes. Harold Gerstenkorn founded Nimet Industries in 1964. He started Nimet’s unique branding strategy in the early 1970s with the development of Nituff, which provides a hard, durable, and self-lubricating finish for aluminum components.

One of Nimet’s primary strategies is to offer proprietary processes in finishing. Nimet has developed a family of NiTuff products and these proprietary processes provide them a significant competitive advantage in the marketplace. They plan to continue the development of these special processes and expand their current twelve product lines.

By the late 1970s, Gerstenkorn had expanded his branding strategy to the international scene. He first licensed Nimet’s proprietary processes to the Swiss company Altefco. Nimet’s president, Jim Abbott, attributes this rapid gain of awareness to the early proprietary branding strategy that still exists as a core marketing competency today.

Nimet supports their proprietary process licensing strategy with a comprehensive sales and marketing approach. The company has diversified their market and penetrated into new industries such as injection molds, medical devices, dental, pharmaceutical, food processing, fluid power, and electronics. This diversification has expanded their market base in addition to securing a steady revenue stream.

“The advantage for us is that when one industry segment is down it’s hardly a blip in our sales,” said Guy Ellis, the company’s vice president. “We really try to diversify as much as we can to minimize the impact of business cycles on our company.” 

Job shops involved in die-casting, injection molding, and machining industries have been hit hard by foreign competition. The old model of working for two or three major customers and only offering high-quality full-service work is no longer viable. Job shops must rethink their business strategies to ensure their customers perceive real value in their services. Branding proprietary core processes is a viable strategy to consider.

These stories make the point that American manufacturing can grow by focusing on innovation strategies. It’s time to shift gears from internal efficiencies to external strategies. The old adage that if you “don’t grow you are going to die” rings true in American manufacturing, and it is time to consider a new external focus on new customers and new markets. This can be done by investing more in new products, new services, proprietary processes and going after foreign markets.