June 1, 2010
NEX Solutions experiences double-digit growth during the worst economic climate in a generation. How did managers and employees achieve such performance? By adding value.
Two months ago Kevin Grossman arrived in Portland, Ore., to meet with a potential customer. Grossman is general manager of a contract metal fabricator, so one would assume he'd have a proposal at the ready, with what he hopes is a hard-to-beat price. One also would assume he drove into town from about 100 miles away at most.
Thing is, those assumptions would be wrong.
Grossman works for NEX Solutions, a fabricator more than 2,000 miles away, in Litchfield, a quintessential Midwestern hamlet surrounded by the farmland of south-central Michigan. That's right--Michigan. And for this trip Grossman flew all the way out not simply to offer a quote. He paid a visit to see how the company ticks and to discover additional ways NEX Solutions could provide more value, be it through powder coating, assembly, design suggestions, or even supply chain management.
"We've had double-digit growth each of the last four years," Grossman said. "We've been very fortunate to partner with some of the right customers."
Since 2004 the company has grown from 33 to 75 employees (see Figure 1). From its 100,000-square-foot plant, the company has produced a 58 percent compounded annual growth rate over four years and expects 2010 revenues to reach $10.8 million. The fact that a contract fabricator--in Michigan, of all places--can grow so dramatically through the worst economic downturn in a generation says that NEX Solutions must be doing something right.
NEX is young, launched in 2004, and over the past six years the company has transformed itself from a traditional job shop to a solution provider. Yes, it's a tired marketing buzz word, but it's one that NEX has put some teeth into. The approach strays from the traditional contract manufacturing model, where job shops swarm around RFQs, particularly ones promising substantial volumes--the makings of a brutal price battle. Through tough times, some shops have bid extraordinarily low, at cost or even less, just to bring the work in the door, mainly to keep the lights on and skilled workers employed. This is something Grossman and his team wanted to avoid.
From the beginning NEX's pitch involved offering comprehensive fabrication services, including plasma cutting, punching, bending, and welding. Still, managers knew that offering conventional metal fabrication alone wouldn't be enough to sustain the business through economic highs and lows.
So in 2004 they acquired the assets of a large powder coating operation. The massive line--with enough booth and oven space for 8-foot-high, 45-foot-long components--helped bring in more work. It also helped establish the company within what remain its three key markets: specialty vehicles, pool and spa construction, and material handling.
At the same time, managers dreamed up new sales strategies that would allow them to circumvent the RFQ swarm. Instead of submitting straightforward bids, NEX personnel would visit customer plants, talk not only to top managers but also manufacturing and finance personnel, ask what their challenges were, then offer a value package to fit their needs. That value package would be so different that it would get customers away from focusing on just price (though price, of course, never leaves the equation). Instead, they would begin to think not only about what NEX Solutions offered, but how the fabricator's offerings could change their own operations for the better. Over time this would garner more trust and transparency. Eventually, they thought, NEX would be brought in earlier, during product design stages. The contract manufacturer would transform from being just another bidder among a sea of job shops hungry for work to a customer's true business partner.
In large part, this has all come to pass.
Grossman recalled one manufacturer that had trouble juggling multiple suppliers for a motorized conveyor assembly. One supplier produced the plate and sheet, another the electronics, and yet another the drives and motors. Grossman proposed something that seemed radical at the time: NEX Solutions could supply the entire assembly--sheet metal, drives, motors, and the rest.
Today the company not only fabricates the sheet metal, but also manages the mini supply chain tied to the subassembly, working with motor and electronics suppliers. The end result: The conveyor OEM now receives an assembled package, and it no longer has the headache of trying to get multiple companies to supply components to the factory all at the right time. The OEM has one contact at NEX, and that's it.
As Grossman explained, When companies source from three, four, six, or more suppliers, it adds complexity and freight costs. They perhaps get different quality standards, different matches of paint, and so on. We propose that they deal with one company, one quality standard, perfectly matched paint, and a substantial reduction in freight costs." The final shipment of subassemblies may easily fill an entire container, whereas parts from myriad suppliers each may fill containers only partway, making shipping more expensive.
This wraparound service, Grossman said, is how NEX has broadened its customer footprint. A few decades ago a job shop could differentiate itself simply with new technology. In the 1980s and early 1990s a fabricator with a laser cutting system could get work from across the nation. The laser cutting center was a game-changing technology, and back then not many had one. Today, of course, is different. Modern equipment still is vital, but contract fabricators now must differentiate themselves with more than just having the latest and greatest machine. NEX's unique brand of presenting value--managing not only the manufacturing of a part but of an entire assembly or project--has kept the fabricator growing during the worst of times.
"We've really tried to get creative when putting some of these programs together," Grossman said. "Quite frankly, I'm surprised how many companies have embraced these out-of-the-box ideas. Our technical director, Rod Norris, has done a great job pointing out cost savings, where we can take weight out of a product, or eliminate a manufacturing operation.
"We'll also go to the customer's site every four or five weeks and talk to their program managers face-to-face, just to ensure everything is coming together correctly," Grossman continued. "We really try to get a lot of exposure to the customer's operations, and that's something I honestly feel a lot of manufacturing companies aren't doing."
The recession may even have helped the effort, he added. Companies have been under tremendous pressure to cut costs, and the people at NEX have helped them do just that.
Is this a silver bullet, the future of contract fabrication in this country? Upon hearing the question, Joe Chase, NEX's sales and marketing manager, chimed in with a reality check: "This didn't happen overnight. It took several years."
And it hasn't happened with every customer. For some accounts, NEX still abides by the old RFQ model, submitting bids to win business. But for a growing number of clients, the contract fabricator takes a consultative approach that leads to greater profits for all parties in the transaction.
Still, NEX takes this approach only with certain customers. "We have to analyze every opportunity," Chase said. "We can't take [this approach] with everybody. If you're not careful, you can lose a lot of money."
To determine the best approach, NEX salespeople ask pointed questions: How does this company work with other suppliers? How do they talk about the relationships? If they view their suppliers as providing a commodity service, NEX goes the RFQ route. Proposing anything more comprehensive likely wouldn't be welcome. Chase and Grossman added that they aren't judgmental. The company's sales strategy just recognizes that business philosophies differ, and NEX adapts its sales process to suit.
But if the potential customer seems open to new ideas and out-of-the-box proposals, NEX may send an engineer or even an entire team to the customer's plant. There, they analyze operations and identify ways NEX could help. This is time-consuming, which is why NEX's salespeople and engineers are careful not to overextend themselves. The possibility for a great return has to be there for both NEX and the potential customer.
This is partly why the company has integrated software common to many businesses in the service sector, but not so common in the metal fabrication arena: customer relationship management, or CRM. The company adopted a Web-based platform called Big Contacts earlier this year, and according to Chase, the software is showing results.
It allows NEX to automate the sales process--or, as Chase quipped, "at least the part of the sales process that salespeople hate to do." Using the software, Chase has identified specific steps in the sales process for customers in certain industries. From there, potential customers are separated into groups that characterize the leads. For instance, hot leads--those that need services immediately--are different from others that may require fabrication services at a later time.
Potential customers receive material customized for them. For instance, a story about fabricating, welding, assembling, and powder coating a 45-ft.-long chassis for a specialty vehicle manufacturer (something NEX does regularly) would pique the interest of those in the heavy equipment industry (see Figure 2). Not only is this effective marketing for customers in markets where the shop already has a presence, it's also helping NEX break into new sectors.
CRM doesn't automate the creation of this material, but it does automate the schedule that materials are released and the phone calls that are made. One customer may get a postcard, then a phone call 10 days later, when the CRM software will e-mail a salesperson a reminder to place the call. Five days after that, NEX may send out an e-mail newsletter, with content tailored for the prospect. More than anything, CRM ensures that salespeople don't get overburdened with rote procedures--sending out e-mails, marketing material, and the like--and concentrate on that consultative sales approach.
Besides, rote (and easily missed) procedures can snowball into big business. You might think forgetting to call a contact is no big deal, but that call could have been the start of a huge business opportunity.
The company hasn't concentrated all its improvement efforts on the sales process. For instance, it is in the middle of a significant 5S initiative. Also, the engineering department is transitioning to a 3-D design software environment and recently adopted software that will tie shop floor operations with the SolidWorks model. If any changes occur in the model, those changes will be updated automatically onto process screens on the floor.
Soon managers hope to replace traditional shop floor travelers and associated blueprints with this paperless system. Screens on the floor will show part data and a copy of the actual 3-D model that's always the latest revision. The model will show how a single part fits into the larger component, which will make for clear communication of fabrication and final assembly instructions. In essence, everyone--from plasma cutting operators to press brake personnel, welders, and powder coat line technicians--will be on the same page, because the latest revision of the solid model will be right in front of them (see Figure 3).
Managers said they believe such a system will be vital, because offering wraparound services makes the entire business more complex. It's not just about fabricating a component anymore. It's about managing an entire assembly and the suppliers tied to it. In a sense, NEX Solutions really has become a kind of a "sub" OEM, and the company's extensive quality assurance program has been adapted to fit that role (see Figure 4).
NEX's shop floor technology didn't catch the eye of those at the Michigan Manufacturing Technology Center, an organization set up to diversify and grow the state's struggling manufacturing base. The shop's machines are modern and efficient, but not terribly different from other operations' dotting the state. What really raised eyebrows at the MMTC were NEX's sales process and value-added services. The center's consultants plan to incorporate the concepts behind NEX's sales strategy into their curriculum.
According to company sources, the strategy has been the keystone to growth during tough times. Yes, the ideas behind lean manufacturing are vital for a shop's competitiveness, and NEX managers have adopted efficiencies with gusto. As shops become more efficient, they increase their capacity without adding equipment or people; they're producing more with less. But in the long run, something has to fill that increased capacity, and that can come only from increased sales.
The contract manufacturer has made some significant manufacturing technology investments; the floor now has several two-station robotic welding cells, for example (see Figure 5). Of course, the shop's biggest selling point is not this welding cell or that powder coat oven, but the fact that it can fabricate, assemble, and powder coat entire subassemblies--and make their customers' lives easier.
Despite its stellar growth, NEX Solutions still doesn't have a laser cutting system. Grossman said there's no need. The company has built a solid reputation for plate fabrication, and for this the plasma system suits just fine. When they do need a laser, managers partner with a laser shop just a few blocks away, which supplies exactly what they need at the right time. The value that shop provides is just too great to justify a large capital investment in a laser cutting system.
The same could be said of NEX's own customer relationships. If NEX couldn't meet the needs of its customers, they either would go elsewhere, perhaps even overseas if their production schedule could deal with longer lead-times and a hands-off approach, or the OEMs would bring fabrication in-house. But through hands-on consultation, which is difficult to do from across an ocean, the people at NEX essentially become the subject-matter experts on their customers' metal fabrication, powder coating, and assembly needs--something their clients, at least ideally, would never want to do without.
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