Q & A: Rich Pogue
The president of Remmele Engineering discusses how a new focus on the supply chain helped transform his company – and how it do the same for yours
BY KEVIN FEATHERLY
Rich Pogue, president and CEO at Twin Cities-based manufacturing company Remmele Engineering, has been with his company since 2001. He remained in the position after the Remmele family sold the business they had owned since 1949 to private equity investment firm Goldner Hawn. Remmele Engineering is a leader in contract manufacturing and the design and build of custom equipment for leading edge companies worldwide.
Pogue has led the transformation of his company from its old model as a standard “job shop” into what he says is now a much more market-focused operation, one that recently began exploring opportunities on the Chinese mainland. One measure of his success is that Remmele is sitting on the biggest project backlog in its history, he says. Another is that it is about to report one of its most profitables year ever.
Part of that success has been seen through acquisition; earlier this year, Remmele bought another company, Minnesota-based medical device company El-Tronic Precision Inc. Part of it has been through divestiture. Once a three-pronged operation, Remmele has pared its mission down to just two, divesting itself of its custom automation efforts, a business that Pogue says is cyclical and tied to big-ticket items—meaning that it relied too much on customers’ capital-budgeting processes and, thus, too much on good economic times.
At a July 16 Enterprise Minnesota business event titled “Managing Your Supply Chain,” Pogue described how he guides his company’s relationships with a diverse and sophisticated assortment of customers. In a follow-up interview with Enterprise Minnesota magazine, Pogue spoke about his emphasis on forging long-lasting relationships with customers—and on letting them go when they do not share his company’s values.
Pogue, who spent 27 years in the cargo-handling-system business at the former TRW (now Goodrich), also offered his peers some pieces of advice on managing the supply chain and taking a hard look at the markets their companies are in and the markets they should be in.
Q: What do you look for in a customer? And when do you decide to “fire” a customer?
A: When we look for a customer, we look for a leader in our chosen market—the core competencies: marketing, product design, high-level product integration, a clear understanding of what brings value to their customers, discipline, quality, base product development process and willingness to share information. Essentially, they’re engaging suppliers in the development of their design process, who help them design a better product and design cost out of it.
I think we do a good job of looking for what kind of value that our customers are seeking. We engage on the front-end process with them. And we offer something more than just low price.
In fact, I would submit that companies who are leading with price—unless they are really set up to be the low-cost manufacturer, which implies, I think, an economy of scale—are really in trouble.
So when you say “firing your customers,” I guess we went out and looked at our customer base, and we looked at those customers that exhibited the behavior and the relationships that they had with their supplier base. And we sought to encourage or to win more business with those people, by engaging vertically and horizontally in that company. And by providing what we call “differentiators.”
Q: What do you mean by “differentiators?”
A: We’re looking for customers typically that have previously performed the type of work that we seek in house. They are focusing on design development, marketing and sales, and probably final assembly.
Q: It’s easy to understand how you would want to go through your supplier base and weed out people who aren’t doing the job. But you’re on the other end, looking for people who are paying some of your bills, but who aren’t the right fit.
A: I think too few people do that. You can’t be all things to all people.
We used to go out and sell capabilities. We have these machines and we can do these things for you. That was very much the strategy. What we’ve evolved to is a market-driven company. In other words, we have customers that have problems or issues that need a resolution. So we see our role as working with them to help resolve those problems and provide solutions to them.
And that may mean we have to develop some patented processes that have good applications.
Q: Did it feel like a risky thing to do, or even a scary thing to do, to go to customers who are paying your bills and say, “Thanks, but we need to move on”?
A: Well, you have to do that. You don’t just say it that way. (Laughs) I mean, there are some instances where it isn’t mutually beneficial or where they’re a pain to deal with. You go and you say, “The way our relationship is, and with our business philosophy and strategy, this isn’t working. We will help you find someone else.” And we’ll support them right to the end until they do find someone else.
Oftentimes what happens is that they start to listen to you about wanting to build the relationship. You start an open dialogue. And most of those customers have come back.
But the ones that don’t have enough volume, or that don’t recognize some of the values that we have to offer, we do just disengage. Is it risky? I think it’s far riskier to develop an overhead structure that focuses and concentrates on bidding work, 85 percent of which you don’t get. Can you imagine how expensive that is to an organization?
Q: Just about.
A: I think that’s far riskier than saying, “This kind of work and customer fits us, let’s go figure out how to work with them and develop a more mutually beneficial relationship.”
Q: Let’s talk about the supply chain. That is something that some people who read this might struggle with. If you were to give some counsel to those folks, where would you start?
A: It’s something that you do over years. You don’t do it in a couple of weeks. Because first of all, you have to change the behavior and the vision of your own company. And set out to do that.
You have to ask, which customers of yours really aren’t a good fit? Are you spending more time with them, when they are providing less margin? And are you arguing with them, or are you working with them so each of you benefits?
The other thing is, if your lead competitive differentiator—unless you are Intel or someone like that—is price, you’re probably already in trouble. Because unless you have something very unique and distinctive, customers can always buy cheaper somewhere else.
Q: That’s one of the problems that manufacturing is dealing with in the global economy. Price is being driven downward, so you have to find another way to compete.
A: And I think that there is a lot of soul searching going on. I think far too many companies focus and concentrate too much time on their weaknesses and not enough on their strengths. If you engage with your customers you can ask them why did they select you, what do you do well? Then you can focus on differentiating around that.
I think all too often, many companies see lean [manufacturing] as the answer. And it can be certainly part of the answer, especially if you’re not cost-competitive. You might have a lot of waste in your organization—I think probably most [organizations] do. But if that is your primary area of focus, the battle may already be over.
Q: When it comes to the supply chain, what is the mistake you see people making? What have you observed?
A: I think it’s important to recognize a business as a holistic enterprise. And I believe working the front end of the business is probably more important than working the back end of the business. And that is customer selection, it’s planning, it’s working on your strategy and developing a good niche where you have a competitive advantage.
I think far too many people are looking for the silver bullet. And I’m not sure there is one.
Q: What’s the fundamental difference that Goldner Hawn and you as part of that transition have brought to the company since it was bought out from family ownership?
A: Essentially, we are practicing the same vision that we had before. We have been encouraged to make acquisitions and divestitures that further our vision of the business. When you look at [the company] prior to Goldner Hawn, the stockholder/investor objectives were different. And rightly so.
There really wasn’t much of a fit between custom automation and the rest of the business. And we did divest that on July 1. That’s freed up cash that we can focus on growing our other markets, and it has freed up management time. We are also very seriously investigating expanding into Asia.
Q: Specifically China?
A: We’ve done some extensive market studies for aerospace and medical devices, and they were in China. But we’re not going there primarily for a low-cost strategy. We’re going there because we believe the time is right to expand with the growing markets in China. If you don’t have a presence there, you are going to be on the outside looking in.
Q: So the idea is to assemble and sell within China, take advantage of that market but remain in the United States?
A: Absolutely. Right. Our customers are going over there. And if we can be part of that supply chain and be a low-risk supplier—since we have a reputation—and secondly, we protect their intellectual property. We can develop the process here and take it there. When we do that, we will also be picking up local devices. The design for the two markets is different. So we want to be there so we can grow with the market in China.
Q: In your July 16 presentation, you emphasized “focus, focus, focus.” Rifle, you said, don’t shotgun. Is there a key moral to this story located in that bullet point?
A: You can relate that to several things, really. The first is, do you really want to spend all that much time bidding 100 RFQs [requests for quotations] when you’re only going to win 15 to 20 percent of them? So, focus on your customers, on your market segments. Go after the right things.
Focus on your competitive differentiators. How you are going to satisfy those needs and take your business forward? It’s more like shooting a rifle with a scope on it, as opposed to pointing a shotgun in the air and hoping something falls.
Q: Because what falls might be on the wrong end of the shotgun?
A: Right. So, you know, take aim. Be very deliberate about what you do, as opposed to trying a lot of things and hoping one of them works.
Q: Last question: Given everything we’ve talked about, how do you feel that Remmele is positioned to meet the future?
A: Well, I think we’re pretty well positioned. I think we have good, strong niches in our chosen markets. We have the best backlog we’ve ever had in the history of the company and we will have the best year that we’ve ever had. And we’re entering into a year where we have good market positions and good opportunities.
However, you can’t look back and focus your forward strategy on what made you successful yesterday. You have to be looking out at the trends happening five and 10 years out, and what we are doing to position ourselves to be competitive then. So I think we’re doing well. But we can’t be complacent. There are a lot of technological changes going on right now, and we have to be rapidly reinventing ourselves to be competitive five to 10 years from now.