November 6, 2013
The management buyout of the Schott metal fabrication division was, for many employees, a quiet affair. But transitioning to become an independent enterprise did call for major changes behind the scenes.
The story of Schott Gemtron Corp. and Integrated Metal Solutions LLC is a case study in business adaptation. Both can trace their roots back to a Sweetwater, Tenn., plant that in the early 1970s made control panels for kitchen ranges. From here the company branched out into other products, many of which included both metal and glass components, most of them for the appliance industry.
Over the years the company ownership changed until 1989, when Schott Gemtron became a joint venture between Schott Corp. and AGC, two major players in the glass business and other sectors. Schott Gemtron’s headquarters remained in Sweetwater, but over the years the organization opened plants in Indiana, Canada, and Mexico.
Many of the glass products it produced required metal components. So by the turn of the century, managers decided that it made sense to bring metal fabrication in-house (see Figure 1). So in 2000 the company opened its own metal fabrication division in Madisonville, Ky., complete with laser cutting, punching, stamping, manual and robotic welding, stainless steel finishing and polishing, powder coating, assembly, and packaging. The plant served both as a sheet metal parts supplier to Schott Gemtron plants and as a contract metal fabricator to a few external customers.
The Madisonville plant operated pretty much as an independent organization. If another Schott Gemtron plant needed a new part, engineers and estimators in Madisonville would put together a quote, suggesting improvements to reduce costs. The Schott plant then would move ahead with a purchase order.
As Mark Brower, director of finance, recalled, “Even though we were part of a larger corporation, we were treated as a separate entity. So we still viewed [Schott Gemtron] as one of our customers.”
The metal fabrication division needed to meet certain revenue and margin goals set by the corporate parent. But day to day, when it came to the actual process of quoting work and scheduling jobs, the Madisonville facility effectively operated like a contract fabricator—just one with a large internal customer.
That’s why, according to sources, the management buyout of the Schott metal fabrication division was, for many employees, a quiet affair. Corporate executives approached division managers about a potential buyout early last year.
The buyout deal, which included a long-term supplier agreement, gave Schott Gemtron a reliable source of metal fabricated components it still required. It also gave managers at the Madisonville plant the freedom to grow as a contract metal fabricator. So on Nov. 1, 2012, the buyout transaction closed, and Integrated Metal Solutions (IMS) LLC was born.
Transitioning to become an independent enterprise did call for major changes behind the scenes. First, managers needed to set up systems and processes, especially in the front office, that previously were handled by the corporate parent. Second, they needed to change the shop floor to prepare for a growing business. Third, they needed to start to analyze what they had—their capacity, capabilities, and core competencies—and use that data to help grow the business.
The day IMS launched as an independent and now much smaller company, managers initiated policies to make the transition seamless. To accomplish this, they worked to launch various front-office functions, like accounting and HR, previously handled by the corporate parent. The company could no longer take advantage of their corporate parent’s size when it came to benefits like employee health care, though the increased benefits costs were mitigated by the fact that IMS, as a small business, now had a lot less overhead.
But what about information technology? IT is one of the most efficiently scalable business tools out there. Under Schott Gemtron, the metal division logged on to the corporate parent’s enterprise resource planning (ERP) system, and all data was off-site on a central server. Considering this, it’s no surprise that IMS managers chose a similar approach by going with a cloud-based ERP system. The Epicor system the company chose operates off of a remote server managed by the software vendor.
This cloud-based, software-as-a-service (SaaS) approach has become more common in recent years; and on some levels it makes a lot of sense for small businesses, and this now includes IMS. “We just didn’t want the overhead that came with having the hardware on-site, and having to worry about hardware issues and systems going down,” said Brower. “We were essentially running a cloud-based system before, running off of the server hardware at [Schott Gemtron’s] corporate headquarters, so continuing with a cloud-based system made a lot of sense to us.”
“It allowed us to focus on our core business,” said Alan Dockrey, company president.
“About six weeks before we went live, our materials manager and I got a hold of the software,” Brower said, “and we started transferring the data and got everything set up with the new ERP system. We went live the day the buyout closed, on Nov. 1.”
Before the buyout, the metals division shared a space with Schott Gemtron’s glass doors division in another part of the factory. This made sense because many of the company’s doors called for metal components. With the buyout, that business was moved to another facility, giving IMS about 50 percent more plant space—for a total of 150,000 square feet. This allowed at least one major change thus far: relocating the plant’s shipping department. The freed space allowed the shop to locate the shipping department just steps away from final assembly. Now parts flow linearly, from the cutting department to bending, welding, powder coating, final assembly, and packaging (see Figure 2).
Most significant, according to sources, is that this additional space gives the company, which now employs 75, room to grow. “Within three to five years, we plan to grow by about 50 percent from where we are now,” Dockrey said.
“For the first six months [after the buyout], we didn’t really go out and pursue additional business, because we needed to make sure we built a solid foundation here,” Dockrey said. “Now we’ve begun that effort in earnest, and it looks like we’ll have some major new customers soon, with work starting in the first quarter of 2014.
“From the start we’ve had capacity available for bringing on new customers and new business,” Dockrey continued. “We’re still primarily an appliance supplier, but we are going outside of that into other commercial areas.”
Driving the sales effort in part is data derived from the ERP system. For instance, managers can log on to the web-based system and sort sales trends by product number and track the up-and-down cycles of those orders. This is helping the company focus its sales efforts on businesses that would be complementary to its current product mix.
It’s impossible to balance a line perfectly in any contract metal fabrication shop, and IMS is no exception. It can’t control when customers pull the trigger for an order. But sorting and analyzing the sales data can at least help direct the sales efforts toward that ideal state of consistent demand—when work from one customer slows, others pick up the slack.
Today IMS maintains all of the supplier and customer relationships it had under the corporate umbrella. Part numbers didn’t change either, which eased the transition for everyone in the supply chain. Aside from additional plant floor space and new data management systems, the new entity isn’t all that different from the old (see Figure 3).
“The name and the ownership changed. And we have a new sign out front,” Dockrey said, “but the people, and their expertise, are all still here.”
The FABRICATOR® is North America's leading magazine for the metal forming and fabricating industry. The magazine delivers the news, technical articles, and case histories that enable fabricators to do their jobs more efficiently. The FABRICATOR has served the industry since 1971. Print subscriptions are free to qualified persons in North America involved in metal forming and fabricating.