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How one firm survived the down housing market

Saint Paul Pioneer Press, Oct. 2, 2011

Mike Kinning looks out the window at the industrial park in Hastings and points out building after building that once held thriving businesses but now sit vacant. There was a packaging company over there. A building supply company there. An architectural business is long gone.

The backdrop is a startling example of what the recession has dealt many companies. Intek Plastics, where Kinning is president, is in the same industrial park, but it’s still churning out products despite being tied to one of the hardest-hit industries – the housing market. The locally owned company makes plastic components used in window trim and weather stripping – products that keep homes insulated and sealed around windows and doors.

Intek fought its way out of near collapse by making bold moves instead of waiting for the storm to blow over.

It broke into new markets outside of housing construction, cut its workforce in half and closed factories. Company employees armed with video cameras and stopwatches scrutinized – and changed – much of the operation, from the amount of time it took to locate a tool on a factory floor to the amount of scrap generated in production.

Today, Intek is a turnaround story: profitable and diversified, if much smaller.

The company buys raw plastic compounds and converts them into customized components used by manufacturers. Its customers are some of the country’s largest window and door makers – Andersen Corp., Marvin Windows and Doors and
Pella Corp.

The housing market crash affected sales at home building suppliers like Intek. The market went awry so quickly that a deal to sell the manufacturer fell to pieces before it could be finalized. Intek is owned by descendents of John S. Campbell, the founder of Malt-O-Meal Co.

At its peak in 2006, Intek’s revenue was $60 million. “Back in 2006, the housing market was at an all-time high so people were contacting us, asking if we would consider selling,” said John Penn, chairman of the board and a former chief executive officer.

When the housing market collapsed, demand for windows and doors evaporated. Suppliers to window and door makers saw their orders plummet. Intek executives were ready to sell to a Connecticut-based private equity firm that offered the “largest sum for the shareholders.” Though the deal was announced in March 2007, the financing collapsed.

“The numbers kept getting worse and worse, and we had no way of knowing where the bottom was on it,” said Steve Glienke, who runs the company along with Kinning. “Nobody could get comfortable with the numbers, so the deal just fell apart.”

Intek saw single-family housing construction, the primary market for its customers, plunge 80 percent from the peak in 2006, with 1.8 million housing starts, to the bottom in 2009, with 383,000.

For two years, the company lost money and maxed out its line of credit. Kinning sat in meetings at Andersen with other suppliers and asked the same questions. When would the market hit bottom? Nobody knew. “In 2007, sales and profits slipped,” Kinning said. “But it really hit home in 2008 and 2009 ,and we lost a significant amount of money.”

In 2007, the company had two plants in Hastings after closing a plant in Eau Claire. Even with one less plant, Intek was operating the two with 30 percent to 40 percent unused capacity. “We started to see we had too many eggs in one basket,” Kinning said.

Still, “Nobody predicted that it would fall to the depths it would, but we reacted and we reacted quickly.”

The following year, the company consolidated the two Hastings plants into one. Some production lines were closed and others were transferred to the remaining plant. The idled plant was sold.

At the same time, the company was searching for new markets outside of home building and acquired a smaller plant in Hawthorne, N.J. that makes plastic components for retail operations, the grippers that hold sales tags on shelves and other plastic displays for retailers in the greater New York area.

Through the recession, the plant’s union workers didn’t collect raises they had negotiated, the company 401(k) match was suspended, profit sharing was eliminated, management took a pay cut,
Tony Reuter, right, and Tom Strange set up for the production of a sliding door part. (Pioneer Press: Scott Takushi)
workers were laid off and those who remained had their hours cut to 32 per week.

Efforts to put in place lean manufacturing, a practice of evaluating minute details of production to shave time and expense from the process and boosting profit margins, took on new urgency. Clarence Chapman, a lead extruder who runs the machines that push hot, Play-Doh-like plastic into forms, recalls training a video camera on workers to examine the time it took to set up a piece of equipment for a new run.

“We would literally follow an operator around with a stop watch,” he said. After making changes to cut out wasteful steps, some start-up times were cut from two to three hours to one hour.

Even details such as where tools were placed were scrutinized. Spots for specific tools such as cutters and big saws were painted on floors, cutting the time of searching the 125,000- square-foot plant in some cases for an hour in order to find a tool that had been used by someone else, somewhere else. Permanent spots for things like garbage cans were plotted out, where their use could be maximized with fewer steps to and from workstations. The way deliveries were scheduled changed, so very little raw material or inventory sits in the factory.

Then, in its quest to cut costs even more, Intek put in place “green” initiatives. Through upgrades to its air and lighting systems, the company reduced its electrical consumption by more than 1 million kilowatt hours, or 17 percent, last year. It reduced its material scrap by 24 percent in the same period. Now, the remaining scrap is used again in its own products. Roughly 15 percent to 20 percent of the total pounds of extruded plastic last year were from recycled material.

As a result of the improvement process, workers have much more input. At a stand-up meeting before each shift, they address problems on the spot plucked from cards they’ve posted on the wall. In that way, solutions are worked out immediately instead of the old way, when they moved through – and often died in – a chain of command.

Bright visual charts on the factory floor now display daily specifics on output and productivity so everyone can see how the business is performing. Another chart displays scrap metal reduction efforts relative to goals.

Last year, workers were able to save $380,000 worth of scrap waste and recycle the remaining scrap into its materials. Because they met their goal, they were rewarded with $190,000, or $1,000 each, in bonus money for that effort alone last year.

The company remains tied to windows and doors. Last year, despite moving into new markets, windows and doors made up 70 percent of revenue, but that’s down from 95 percent in 2007. In time, the company hopes to cut to half the share of business from windows and doors as new markets generate new revenue. Now, it’s trying to win contracts in the commercial refrigeration business to provide sealing components on refrigeration units for grocery chains.

The company also sells composite covers for the boards surrounding NHL playing surfaces, including the Xcel Center, and at university rinks including Mariucci Arena at the University of Minnesota.

“We have worked diligently to diversify our company, and we have made some progress in other markets,” Penn said. Last year, the company was profitable again with sales of $33 million, up 25 percent from the previous year.

Profits came back, and so did profit sharing.

Pay and benefit levels have been restored, albeit it for a much smaller workforce. In 2004, there were 400 workers at two plants. Today, there are about 200 workers at plants in Hastings and New Jersey. Instead of having a president, chief executive and a whole senior management team, there are now just two: Kinning and Glienke.

Penn says he expects revenue growth of 5 percent to 10 percent a year.

Even with that expectation, the company is in no hurry to hire. Last year, when a few production workers left, their duties were divided among other workers. “I think we can handle growth in the near term with minimal additions to our workforce,” Penn said. “We found ways to do things better, and we have a nucleus of a workforce that is productive and can accomplish a lot.”

The companies thriving today used the downturn to find new markets and figure out ways to operate more efficiently, said Bob Kill, president of Enterprise Minnesota, a business consulting organization to small and medium-sized manufacturers in the state.

The common denominator among companies that weathered the recession best: “They had good operational efficiency practices in place before the recession and used their people to improve those processes and also break into new markets and find new uses for their products.”

Chapman, the lead extruder, recalled the old days of overtime and a lot of spending money.

“We were busy. We had all kinds of overtime. I was actually getting burned out on overtime.” At the time, people were buying homes or property. “We were living the high life back then,” he said. “The money was there, so people purchased cars, they purchased homes and they purchased vacation property.

“I’m glad that we were able to keep people working on the floor and keep people employed,” he said. “We had to lay off some people, which was unfortunate, but in order to keep the company going those things were needed.”

For those tied to the housing construction industry, the recession never really ended.

“I’m confident the company will survive this recession,” he said.

Julie Forster can be reached at 651-228-5189.

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