By Sue McCraven
Editor’s Note: This is the second of a three-part series on product diversification and modernizing precast concrete plants. Part 1, in the November-December 2013 issue of Precast Inc., offers professional advice for assessing your business and planning for future growth. Here in Part 2, you’ll learn about the experiences of plant owners who branched out by investing in new plants and equipment. Diversify – Part 3, in the next issue of Precast Inc., will present marketing and sales strategies.
Now that you’ve assessed your current plant based on “Diversify – Part 1” and have done your due diligence with regard to capital investments, it’s time to learn from other producers who have modernized their production facilities. If “Hindsight is always 20-20,” then these six testimonies should prove to be eye-openers for your business strategy.
Focus on your rate of return
“In 2004, we had a shop with no room for growth and no room in the yard for an addition,” said Steve Olson, owner of Huffcutt Concrete Inc. in Chippewa Falls, Wis. “We were supplementing our concrete with ready-mix, because we couldn’t produce it fast enough to fill our orders for septic tanks, precast modular buildings and farm products.”
Olson made a large investment to expand his business, the inspiration coming from an NPCA-sponsored lecture. “I listened to an executive strategy presentation by Joan Blecha where she asked, ‘Where do you want to be 10 years from now?’” he said. “We felt confident at the time because of the consistent growth we had experienced through the 1990s and 2000s, and we expected future growth.” This confidence led to the purchase of land and a new plant that gave the company more interior production space. The price of Huffcutt Concrete’s investment? “It was huge – it had lots of zeros,” he said.
But then the economy took a dive. “In 2008, we took a big hit – about a 42% drop in business – like everyone else,” said Olson. “There was doubt at times in ‘08 and ‘09 if we had made a sound decision, but in hindsight, even double hindsight, I’m grateful for deciding to invest in 2004, because we have a more efficient plant. We expanded our existing product line, can produce concrete much faster and are able to control production costs much better.”
Even with an uncertain economy, Olson is confident about his business strategy, and in fact offers some advice for other precasters. “If you want to expand, you need to gather as much information as possible and know why you are buying,” he said. “Talk to financial people and accountants to understand the risks and the return on the investment.”
Don’t underestimate the SCC learning curve
“We wanted to solidify our current market,” said Derrick Eggleston, president of Valley Precast Inc. in Buena Vista, Colo., as the reason behind purchasing a new plant and equipment in 2009. “Regulations had been changing for wastewater products for three to four years, and we needed more indoor space to get out of the winter weather and to diversify with custom boxes and manholes.”
The planning began in 2008, and the decision to invest came in 2009. “Yes, the economy was terrible, but interest rates were down and we were able to save 30% on equipment costs,” explained Eggleston. Valley Precast purchased three weigh hoppers, a three-aggregate hopper including belt, a 1-yd Wiggert mixer and a control system from ACT, which provided the technical support to get the production crew up and running with SCC.
“We went from pouring from a truck to immersing ourselves in SCC technology,” said Eggleston. “We were nervous about a new process. Everything’s different with SCC – there’s a steep learning curve. It’s probably taken us one year to learn the system, especially moisture control, and we’re still growing in our understanding.” On the plus side, Valley Precast found huge labor savings, increased safety, and better production efficiency and product quality.
“We went from 4,000 psi to 6,000 psi, and we’ve saved on our labor costs and steel,” said Eggleston. “We’re able to better serve our existing customers.”
Eggleston’s advice:”Find a niche market and take care of your existing customers with the best-quality product you can produce.”
Small plant gets big results
“When you’re a small company like ours, the decision to invest in capital improvements can be particularly tough,” said David Daigle, president of Elm Street Vault Inc. in Biddeford, Maine. In 2011, the company saw an upturn in the local economy. “We clearly felt the impact of the recession, but not as strongly as some did. Because we are a small business and have always maintained low overhead and little debt, we were able to weather the storm more easily than others.”
After decades of using ready-mixed concrete, Daigle began looking at ways the company could improve production efficiencies and quality for its customers. He considered proposals from three different batch plant suppliers. “ACT did a great job minimizing the footprint of the new mixer and in dealing with the height constraints we had,” said Daigle. “We reused our cement silo, aggregate bins, conveyor – pretty much everything. That really helped keep the costs within our budget, yet provide the critical new equipment we needed to improve our operations.” A local fabricator made a custom mixer platform to suit space constraints.
The biggest impact of the equipment investment for Elm Street Vault was the speed with which production achieved specified strengths. Where specifications have allowed, the company has replaced wire mesh reinforcing with steel fibers in its vaults and manholes. “With our new system, we are planning to use SCC to increase our quality and market opportunities,” said Daigle.
Elm Street Vault also saves money in labor, set-up and materials. Where specifications have allowed, the company has replaced wire mesh reinforcing with steel fibers in its vaults and manholes. “With our new system, we are planning to use SCC to increase our quality and market opportunities,” said Daigle.
A case of want versus need
“Roman Stone needed to invest in flat tables and stackable magnet rails,” said Thomas Montalbine, president of Roman Stone Construction Co. in Bay Shore, N.Y. “In order to get the precision required for making precast concrete paving slabs with tight specified tolerances, we needed to invest in new formwork to make this a viable product.”
Montalbine makes a clear distinction between wishes and needs in business investing. “We already had a job in-house that paid for the forms, but we did not make any money on that job due to the initial cost of the formwork,” he said. “However, our subsequent jobs and the ability to use these forms for other products have made them a winning investment. It always pays to invest when you can cover the equipment cost with the initial job.”
Montalbine has no doubt that the Spillman magnetic rails and tilt and flat tables increased Roman Stone’s production efficiencies. “We also use the flat tables to expand our product line and are now making pre-engineered Easi-Set all-precast modular buildings,” he said.
“I think the best advice about investing in any economy came from another precaster I met through my affiliation with the NPCA,” recalled Montalbine. His advice was not to go into debt to finance your jobs. “Because Roman Stone did not have a large debt load, our company was able to ride out the economic downturn.”
“These past few years have been rough for most precasters, and we’ve seen several companies with leveraged debt go out of business,” said Montalbine. “Don’t get in over your head. Having some debt is good, but once your current asset-to-liabilities ratio gets down below 2, you need to question, ‘Do I really need that new equipment?’ It becomes a case of want versus need – just because you want it does not mean that you need it.”
In 2006, “Competitors were attacking, and our building site was too small to expand,” said Clay Prewitt, general manager of H2 Pre-Cast in East Wenatchee, Wash. “We had no room for product inventory, particularly new products, and we wanted to diversify – to begin producing 3- and 4-sided box culverts, 3-sided bridges and larger-diameter manholes.” But there was good news for H2: Interest rates were low in 2006 and 2007. “We took advantage of the low rates, borrowed money and built a new plant,” he said.
H2’s investment took them from a cramped, 5-acre site to 15 acres; from a 10,000-sq-ft facility to an H-shaped 50,000-sq-ft plant footprint; from one overhead crane to five; from a smaller wet/dry operation to a larger one; to adding new forms from Marks Metal and Helser Industries; and from an outdated mixer to two new Wiggert mixers with controlled custom batching for producing SCC.
Building a larger, more modern plant was a great business strategy, but not because Prewitt was following the lean-manufacturing admonition to limit inventory. “It didn’t take us long to figure out that lean on-site storage was not the way to go for us,” he said. “We needed product inventory, because competition was fierce. More contractors were bidding on less work, and they wanted to get stuff in the ground as fast as possible.” The new plant means that H2 can get more work, because it can supply its custom and standard products much faster than its competitors.
“Is there any good time to invest?” queries Prewitt. “Only if you have done your due diligence – we spent two years assessing our options – then you will have confidence in your plans to upgrade and branch out.”
OK, let’s talk dollars
“It was an easy decision,” said Leo Feuerstein, Western Precast Concrete Inc. in El Paso, Texas, of his company’s upgrade. “Our batch plant was outdated, and over the years, wear had taken its toll – it was becoming increasingly more difficult to accurately calibrate the use of all raw materials.”
If you’re thinking about investing half of a million dollars in a batch plant upgrade, also consider your cost for ready-mixed concrete, advised Feuerstein. When Western Precast began to batch its own concrete, it experienced a $20 to $30 savings per cubic yard. “That was an $800 to $1,000 savings per day, or a quarter of a million dollars in annual cost reductions,” he said.
But beyond cost considerations is product quality. “With our new mixer and batching system, we can strictly monitor the quality control of every batch we produce,” added Feuerstein. Western Precast maintains its high product quality standards and still gains greater efficiencies, output and cost savings because of its investment. “It was invaluable to have controls that do the checks and balances to make sure the amount of raw materials we are purchasing nets the tonnage of finished concrete anticipated.”
How would Feuerstein advise other producers? “That’s a tricky one!” he said. “Your first inclination in a down economy is to pull back and make do with what you have. This may well be the only option available, but if you have properly managed your profits from the boom years, you should have liquid capital.”
You also have to decide if you are going to be in it for the long haul or if you are looking for a way out. “After 67 years in this business and a successful second-generation transition, we see no choice but to continually invest back into our company for the future,” said Feuerstein.
“We are currently investing an average of $1 million a year back into our business in the form of capital improvements, forms, trucks, batch plants, technology, facilities and employee resources,” added Feuerstein. “It may be hard to see, but when times are slow, it is the best time to invest in your plant. This will place you in a position to be competitive and innovative when demand picks up. It may be a timing game, but you have to be ready to handle demand without hesitation, or the contractor will find someone who can.”
With a laugh, Feuerstein offered one final piece of advice about investing: “I would rather see my money in a new batch plant or crane truck than sitting in a CD at 0.5%.”
Sue McCraven, NPCA technical consultant and Precast Inc. technical editor, is a civil and environmental engineer.