MACHINERY MAKERS LOOK FORWARD

By Brad Dawson, Rubber & Plastics News Staff

November 15, 2004

Machinery suppliers to the rubber industry were among the hardest hit along the supply chain by the recession that bared its teeth to the U.S. economy beginning in 2000.

Rubber processors canceled large capital purchases and expansions, yet relied on the machinery makers for maintenance, rebuilds and spare parts, according to equipment suppliers, which had to scramble in the meantime for ways to build revenues and, in many cases, change the way they did business to survive.

Some did it successfully, but some didn't.

Four years later, many companies have weathered the storm and are optimistic for better times. Among those firms, some already have seen improvements. Other companies, however, still are waiting for an upturn.

New approaches

As the recession dragged on, rubber machinery suppliers had to adjust to keep business afloat and revenues flowing. A common change was a renewed focus on maintenance and refurbishment work and the supply of spare parts for customers as opposed to new machinery.

Tom Glick, vice president of United States Autoclave Ltd. in Lima, Ohio, said his company is doing a lot more maintenance, parts supply and retrofitting than building new machines. The fact it isn't selling new autoclaves as frequently as before doesn't bother the firm because the specialized parts and services provide comparable monthly dollars, and since they provide higher margins, income generally is higher, he said.

Diversification is something Glick has seen as well in his other positions with Cedco, the equipment division of Hercules Tire & Rubber Co., and Spallinger Autoclave, even before the 2000 downturn hit and the aftereffects of 9/11. ``Sometimes when your bread-and-butter business is weak, you need to branch out for more.''

Customer service is even more important now, the machinery makers said. At USAutoclave, a new venture Glick formed earlier this year with former Cedco colleagues Kirk Fennell and Dave Holman, providing the best service possible is a big key.

``We go the extra mile in service, answering questions, troubleshooting, whatever it takes,'' Glick said. ``And we have to be on our toes technically.''

David Norman, vice president of sales at Kobelco Stewart Bolling Inc. in Hudson, Ohio, said his company has reduced costs and stopped hiring new people during the difficult down period but also learned to ``work smarter.''

Kobelco is an even more responsive company to customer requests than it was three to four years ago, Norman said. The firm has focused on improving quality as well.

Patience with customers and understanding their plight is also a necessity in leaner times, said Dean Armstrong, president of Roller Equipment Manufacturing Co., a roller machinery supplier based in Grandview, Mo. ``Potential customers spend a lot more time making their purchasing decisions,'' he said. ``The dollars aren't there to waste. They want to make sure there's a favorable cost-payback and there is total justification for any expenditure. They want to be certain the machinery they order will work as advertised.''

Technology development also is an important element when the economy is slowing, Armstrong said.

``We put a lot of time and effort into (research and development), and it's helped carry us when business has dropped off,'' he said. ``We always want to be ready to provide different products.''

Remco also has expanded outside of its core roller business, developing machines for hose, belting and other applications.

Tough transition

Like many machinery suppliers, SME Inc. in Fairlawn, Ohio, is seeing business bounce back. In fact, SME President John Fry expects the firm's sales will double in 2004 from last year. But that growth is a double-edged sword.

That's because over the last few years, SME reduced its inventories of spare parts as business declined, and with fewer sales didn't have its usual cash flow, Fry said. Now, with more work coming its way, the company has to make expenditures for parts and materials but without the cash it needs.

``It's difficult to brace for this kind of increase,'' he said.

One of the major problems is that, because some of the banks were hurt during the down periods, they've instituted tighter policies and are more hesitant to give affordable loans, Fry said. ``All we can do is work with the banks and the lines of credit they give to us,'' he said. ``We may be paying a higher interest rate than we'd like to, but we'll do what we have to do.''

The return to better business is a positive sign for SME, Fry said. But the irony of the situation isn't lost on him, either. ``During tough times we wonder what would happen if we just had cash flow,'' he said. ``Now here we are doubling sales, and I'm still wondering, `What if we had the cash?' ''

Fry called the first part of the first decade of the 21st century a lesson in ``Industrial Darwinism''-do what you can to survive. ``We did survive it,'' he said. ``If times stay good over three to four years, if it's not a blip, the banks will lock in our credit and the outlook will be very bright. Right now it's a difficult transition time.''

John L. Hettrick Jr., chairman of autoclave systems and pressure vessels supplier WSF Industries Inc. in Tonawanda, N.Y., said his company still is waiting for an upturn in its markets. Customers so far have sufficient capacity because rather than adding pieces to meet demand, they're running their current equipment continuously, he said.

WSF Industries also completed a supply contract last year with the U.S. Army, a deal that helped save jobs, Hettrick said. The company has done a lot of spare parts work to make ends meet, along with some rework projects on existing units. But overall it has cut about three-quarters of its work force since the recession began, he said.

The firm will have to weather the downturn and be ready for when the economy does turn around, Hettrick said. WSF Industries is hoping for more government work in the future and has done some quoting within the rubber industry, where it currently does about one-third of its business.

``Many potential customers are still uncertain,'' he said. ``They're looking for quotes more than they're buying.''

Going forward-and up

Things are going very well at Starlinger North America, according to David Duginski, president of the Hanover Park, Ill., subsidiary of Austrian machinery maker Maplan GmbH. He said unlike many equipment suppliers, Starlinger had only one real down year-2003-but has strong business this year and expects 2005 to be ``spectacular.''

The company's backlog is very large, and the last couple of months have been active, Duginski said, highlighted by some new product introductions at the K2004 Plastics and Rubber trade fair in Germany. ``We've had to be patient and we've watched our expenses, but we didn't have to make any staff cuts,'' he said. ``Now we're ready for an upturn.''

Midlands Millroom Supply Inc. in Canton, Ohio, has seen some significant recovery of late as well. Some big orders came in just past the midway point of 2004, and the company now is booked solid with business through the end of the year, said Peter F. Glasser, Midlands vice president of sales.

``I can say for the first time, with conviction, in a while that we're climbing out of it,'' he said. ``It's not quite like the mid-to-late '90s, but there's a sense of optimism.''

Glasser couldn't provide a reason as to why business is returning now-especially given a lingering economic malaise with rising oil and materials prices-other than some customers feel it's just time to put some money back into their equipment.

``Some of the weaker companies have died off, and the ones who are operating think it's time to retool,'' he said. ``We're feeling confident here. We'll be ending the year on a high note, and it will carry us through to the next quarter.''

Ron Soberay, president of Soberay & Sons Ltd. in Lakewood, Ohio, is optimistic but cautious. ``Things are looking up, but I'm not ready to breathe easy.''

Soberay has increased sales the past three years via liquidations and machinery sales at sites such as Bridgestone/Firestone's Decatur, Ill., tire plant and RBX Corp.'s Bedford, Va., facility. The return on equipment has increased up to 48 percent from two years ago, he said.

While he doesn't know if that business will stay firm-and there are questions about that if the economy does swing back-Soberay said he and the other machinery suppliers have to at least consider change if the market dictates it. ``I've seen every angle and I know what to do,'' he said. ``We've been able to make money the last few years, and we're confident we can keep going.''

Like SME's Fry, Soberay has his own take on Charles Darwin's thoughts on ``survival'' when it comes to doing business. ``Darwin didn't say it was the strongest or the smartest who survives, but the one who adapts. Sometimes you have to do that or get run over.''