November 6, 2013
As globalization took hold in recent decades, Tony Chirchirillo was keenly aware of how many viewed manufacturing. He decided to change that perception in an unconventional way—by forming a network of noncompeting, complementary companies.
Six years ago a Caterpillar executive gave a keynote address at FABTECH® in Chicago and asked his audience how many wanted their kids to grow up to be welders. Just a few hands went up. He then asked how many wanted their kids to go on to college. Almost everyone raised their hands.
Although he was addressing the skilled-labor crisis, the broader implication was clear. This was 2007, a peak year for many in metal fabrication. Despite this, some fabricators didn’t necessarily want their kids to get into manufacturing. Why, exactly?
It’s difficult to make a blanket statement, but anecdotal evidence from conversations with shop owners over the years suggests that the nature of this business fundamentally has changed for some. Decades ago relationships between fabricators and their customers lasted years, perhaps generations. Product life cycles were long. And thanks to lengthy apprenticeship programs, workers spent years building up specialized skills, like bending and welding, and earned enough to live a happy, middle-class life.
This view may be somewhat romantic; reality is a bit messier. Regardless, this perception exists.
Then globalization changed everything. Most of manufacturing, including metal fabrication, became viewed as a commodity. A public company touting the fact that it had an efficient and (most important) global supply chain made investors and Wall Street analysts smile. When it came to supplying a metal fabricated part, who and where weren’t important. Instead, it was about how much. It was all about the price. Here’s a request for quote (RFQ); how low can you go?
This is the environment Anthony L. Chirchirillo, CEO of Chirch Global® Manufacturing, north of Chicago, saw people in metal manufacturing living in for years. Hypercompetition forced everyone to keep their cards close to the chest, dig their trenches, and fight it out, trying to bid competitively while squeaking out a little margin. The best shops continued to improve operations, ensuring their cost reductions outpaced the relentless downward pricing pressure from customers. Shops that didn’t do this fell by the wayside.
Continuous improvement made sense to Chirchirillo, but was it enough? It reduced costs, but it didn’t tackle what he felt was the root cause of the problem: Manufacturing itself was being viewed as a commodity. To combat that perception, many fabricators have delved into design, and not just design-for-manufacturability, but true design assistance that starts with customers early on in product development.
But again, is this enough? After all, it’s usually impossible for a small shop to be all things to all people. At the same time, the metal manufacturing business still is dominated by small companies, many of them family-owned for generations. They have a core competency—be it stamping, sheet metal fabrication, machining, injection molding, powder coating, or anything else—that drives the business. And at their heart, these small shops aren’t just about making parts. They’re about family.
So last year Chirchirillo decided to pursue a new business model, one he thought would help small companies escape what he called the “commodity trap.” Whence came the Chirch Global® Manufacturing Network.
Chirchirillo has witnessed many sides of globalization. In the 1990s he owned several Milwaukee-area product-line manufacturing companies with a diverse mix of work, including welding rod drying ovens, lighting, and medical packaging equipment. In 2002 he sold those businesses and, with a classmate from Harvard Business School, launched Chirch Global LLC—not stateside, but with operations in China.
“Manufacturing in the U.S. over the past 20 years had been on a decline,” he said, “and I wanted to find a sustainable strategy for future growth.”
Long term, Chirchirillo saw that to be competitive in certain areas required a global presence. “To me, a business strategy always should be driven by the customer,” Chirchirillo said. “We were working with large global companies that have operations around the world. I thought it was strategically important to provide product to them wherever they happen to be.”
So with his Harvard classmate he formed a strategic alliance that supplied U.S. manufacturers with metal and plastic components from China. But over the next few years, Chirchirillo noticed the landscape changing. “I saw a shift in the business,” he said. “More work was coming back to the United States, and so it was necessary to have an operation here.”
So in 2008 he purchased a metal stamping company north of Chicago. Now with a home base in Cary, Ill., Chirch Global Manufacturing could offer prospects options: Did it make more sense to make the product in China or the U.S.? The company now could offer both.
Soon after acquiring the company, Chirchirillo made another move toward diversification. At the time the manufacturer specialized in precision prototyping and progressive stamping, effectively serving the low and high end of the volume range. Chirchirillo decided to go after the volumes in the middle, the quick-turnaround sheet metal fabrication of small and midsized runs. “I thought that, even within our own customer base, there were opportunities that we could go after,” he said.
The goal was to be able to offer a full range of sheet metal manufacturing options for the entire product life cycle, from prototype and low- and midvolume fabrication to tooling development and progressive-die stamping for high-volume production.
This was just before the financial crisis, and automotive companies had been hurting for a while. In retrospect, the diversification came just in time. “It was a good thing we made the [fabrication equipment] investment when we did,” Chirchirillo said. “You had major automakers going bankrupt, so the likelihood of companies investing in an expensive tool to ramp up production was slim to none. That’s where the decision to complement the existing high-volume business with the quick-turnaround fabrication really led to additional business for us.”
Still, was this enough to emerge from the “commodity trap,” to rise above the RFQ-bid-win-or-lose cycle? As Chirchirillo saw it, not really. True, his engineers could work with customers on projects as partners, providing design and manufacturability assistance, but the company was limited by the technology it had on the floor. Customers worked with Chirch Global for sheet metal parts that were still viewed as commodity items, a small piece of a much bigger, more important puzzle. To truly escape the commodity trap, Chirchirillo had to do something else.
During his years in Asia, he noticed how local businesses operated. Like in the U.S., small, family-owned companies dominate manufacturing, but they go to market in a different way. In the U.S., a metal fabricator may subcontract to a powder coater, machine shop, or metal galvanizer. In Asia, the connection between small firms can be closer, sometimes much closer. Noncompeting companies, each offering complementary manufacturing services, form local networks or clusters. When sales engineers visit customers or prospects, or exhibit at tradeshows, they represent not just their employer, but also every company in the network. This arrangement allows many small companies to go to market as one large organization.
Author Shelley Rigger noticed something similar in neighboring Taiwan. In her 2011 book Why Taiwan Matters, she explained the Asian “manufacturing cluster” this way: “Clustering small firms for joint manufacturing promoted cooperation among relatives, schoolmates, and friends. It also promoted flexibility and minimized marketing costs. SMEs [small and medium-size enterprises] learned to retool quickly to meet the demand for new products. Often, a whole cluster could get by with sending one representative to tradeshows to collect orders from foreign buyers. By keeping their business within close-knit networks … entrepreneurs were able to minimize risk while sharing know-how and capital.”
Consider a typical situation among various contract manufacturers and job shops. A fabricator might have to wait a week to get parts back from a subcontractor like a powder coater. Plating can add more time. So can machining. All that time can add significantly to a fabricator’s lead-time. And, of course, a late subcontractor can cause everybody else in the supply chain to be late as well.
Such variability always has been an issue in contract fabrication. According to this year’s Financial Ratios & Operational Benchmarking Survey from the Fabricators & Manufacturers Association International, the average metal fabricator’s on-time delivery rate is about 85 percent.
But with close collaboration among network companies, contract manufacturing may become more reliable because production schedules are coordinated. If a powder coater runs a certain color on Tuesday and Thursday, the sheet metal fabricator can adjust its own schedule to suit. Conversely, the powder coater may adjust its schedule to suit a changing product mix at the metal fabricator, machine shop, or other network companies.
Perhaps even more significant, the design assistance spans not just one niche in metal manufacturing. Sales engineers may work for one company, but if a customer has a question about a specific process, that information can be forwarded to anyone within the network of companies who has that expertise. Design becomes a collaborative effort involving machinists, metal fabricators, powder coaters, and more. This moves the focus away from the process and toward the project at hand—which, of course, is what the customer really cares about.
Would this business model work in the U.S.? Chirchirillo thought so, and started networking.
Chirchirillo knew he needed to convey this concept to a certain kind of company. He needed to work with owners that shared his goals of having long-term, sustainable, focused growth of a small, privately held family business. “We targeted companies that could bring to the table other services that weren’t our core competencies,” he said.
He wanted to leverage the advantages of a small business, including direct communication and lack of a burdensome bureaucracy. The disadvantages—few resources, limited range of manufacturing equipment, and so on—could be minimized through collaboration.
“The idea sparked my interest immediately,” said Tom Hacker, president of C&L Supreme, a machine shop in Des Plaines, Ill. Hacker had met Chirchirillo at a regional manufacturers’ meeting. “We don’t have a proprietary product, and we were in the continuing RFQ-and-bid cycle. The service was treated like a commodity, and it was price-driven. From a business standpoint, it just made sense. I liked Tony, and I found we shared a number of business values. There was really no trepidation.”
By the time the network formally launched last year, it had 14 companies that altogether have a process list that reads like the index of Machinery’s Handbook: machining, die casting, stamping, laser cutting, punching, welding, plating, induction heat treating, metal finishing, powder coating, roll forming, manual and robotic welding, plastic injection molding, cabling and electromechanical assembly, tube and pipe fabrication, as well as engineering services.
Each network company has its own niche. Some are obvious: C&L Supreme does precision CNC machining; Gatto Industrial Platers focuses on zinc plating and metal finishing; Induction Heat Treating Corp. focuses on (you guessed it) heat treating. But for others, the complementary aspects are a bit more subtle. For instance, CTECH Manufacturing in Weston, Wis., is like Chirch Global in that it does perform metal fabrication. But unlike Chirch, it has automated cutting and panel bending that can fabricate large workpieces extremely quickly, efficient for products like storage cabinets, including its major product line of portable tool drawers used in the racing industry.
“They’re very complementary to us,” Chirchirillo said. “They have a waterjet, they have panel bending. And we work together on projects where it makes the most sense.”
The network of firms employs 1,400 people working in 1 million square feet of manufacturing space and has an annual revenue of about $225 million. Individually, each company is much smaller. But as Chirchirillo explained, as a network, they can act big. For instance, the group contracts out as one entity to an electrical and facilities maintenance firm.
But the network wasn’t formed to be a buying group. Instead, it was formed to allow member companies to tackle work that they otherwise couldn’t. Company owners meet quarterly to discuss the current state of business and future opportunities. To coordinate daily, everyone in the network—management, sales, engineering, and operations—communicates using a web-based platform. Quality and sales teams from all companies meet regularly to discuss potential collaborations. And there is one nondisclosure agreement that covers every company in the network.
In the contract metal manufacturing world, a sales engineer works with his estimating team to bid on a project. If they win, engineering works with the drawing files, material is ordered, machined components are subcontracted, and away the fabricator goes.
A salesperson for the Chirch Global Manufacturing Network handles a potential order a little differently. Say a sales engineer finishes talking with a company that’s launching a new machine design. That machine has some parts that may be best produced with sheet metal, while other elements require precision machining, castings, and tubular parts. Still other parts require plastic components, electromechanical assembly, and powder coating.
That salesperson could recommend the design resources of Sterling Engineering and collaborate with the sales staff at Telefonix for the cable and electromechanical assembly; C&L Supreme for the machined components; Chicago White Metal for the castings; Pereles Bros. for the plastic injection molding; Chirch Global Manufacturing for the fabrication; MP Metal Products for the roll forming; ODM Tool and Manufacturing for the heavy gauge stampings; Vindee Industries for the tube bending; Reliable Plating Corp. and Gatto Industrial Platers for the metal plating; and Micron Metal Finishing for the powder coating.
Everyone is in on the ground floor to discuss details and prevent problems. For instance, say the machine is designed for outdoor use in cold weather, with frequent exposure to the snowmelt salt on northern highways. That would be a detail affecting paint, which would be where Micron’s experts would come into play.
Finally, the network reduces lead-times because each network company keeps tabs on each other’s production schedule, communicates regularly, and coordinates production. Say Chirchirillo’s metal fabrication operation has a job to be powder-coated white before a Friday ship date. He knows that the coater will do a color change to white on Tuesday, then back to another color on Thursday. So the companies coordinate to ensure that the part arrives to the coater by Tuesday afternoon, to avoid an unnecessary color change. All this happens on the front end, before the work order hits the floor. This effectively makes both operations more efficient and, ultimately, lowers overall costs.
In the marketing sense, the network shifts the focus away from the particular processes a company offers and toward customer demand. “A product could be stamped, fabricated, machined, or cast,” Chirchirillo said. “If our focus is always on what’s in the best interest of the customer, it really opens the door to a lot more business for everybody.”
From a cultural perspective, the network concept fundamentally shifts the core goals of a company.Network companies remain privately held, independent, family-run enterprises—an important and probably perennial part of metal manufacturing. But going to market as a collaborative group, and communicating regularly to gain operational efficiencies to shorten lead-times, changes their competitive position. It’s one that network company owners feel is more sustainable over the long term, one that can be passed down to future generations.
And that, Chirchirillo said, really is the crux of it all. “I’ve got three of my children and my son-in-law in the business. And nearly every one of the companies in the network is a family-owned business that has been around for generations.”
Perhaps the reason many owners didn’t raise their hand at FABTECH—even during 2007—was that some felt that a manufacturing business may not be sustainable over the long term. With the network business model, Chirchirillo hopes to change that perception.
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.