As a new subsidiary of Automated Equipment LLC, Elektro Assemblies is embracing lean, achieving ISO certification, expanding its product line and selling a spirit of service to attract new customers in 2010.
BY ANDREA LAHOUZE
As recessionary woes hit manufacturers across the country in the summer of 2008, two Minnesota manufacturers were busy joining forces. It was an unusual match. In Red Wing, Automated Equipment LLC had found its niche in the restaurant industry by designing and manufacturing
the world's first automated french fry dispenser, invented by the company in the 1990s.
In Rochester, Elektro Assemblies had been in business since 1973, manufacturing wiring harnesses and cable assemblies for IBM and a handful of smaller customers. But in the mid 1990s, IBM began to source those components offshore, leaving Elektro Assemblies without its
principal customer. Lacking a diversified customer base, Elektro Assemblies' work force eventually dwindled from 120 employees to six. To survive, the company would have to attract an entirely new customer base spanning multiple markets.
As fast food restaurants saw profits rise in 2008, Automated Equipment was looking to foster growth within its operation in Red Wing. When the company discovered Elektro Assemblies through acquisition efforts, it seemed like the perfect fit.
David Muelken, Automated Equipment general manager and partner, says it was Elektro's size and capabilities that caught his attention. "When we found Elektro, it was just a great fit for us for several reasons," he says. "We use wire harnesses in all of the equipment that
Automated Equipment builds, so we instantly vertically integrated by purchasing Elektro, and Automated Equipment became a customer of Elektro Assemblies, which made sense. But Elektro Assemblies also fit well in our space ... so we were able to move the company up to Red Wing and
then use the resources we had here from purchasing, HR and management."
Elektro Assemblies and Automated Equipment operate under one roof with 40 employees. Ten of those employees are dedicated solely to Elektro Assemblies projects, and a few additional workers split their time between both companies.
Since the merger, Elektro Assemblies has dedicated itself to GreenLeanSM principles from the outset, some of which were necessary when moving to the Red Wing facility. When Elektro Assemblies moved from its original home in Rochester to Automated Equipment's headquarters, it had to
downsize its operating space by nearly 60 percent--from 12,000 square feet down to 5,000. While the downsize was a challenge, Elektro's smaller space made it necessary to become more deliberate about its equipment layout, which in turn has fostered greater process efficiency, says
Steve Yulga, director of business development.
"One of the biggest ways we have become lean is we forced ourselves into a smaller space," Yulga says. "We have set up clusters of like machines so people aren't walking back and forth, and the inventory storage is at use point, so where people are doing the work is where
we're storing the parts."
The company's lean commitment extends to its culture. Employees are encouraged to try any ideas they have to make production more efficient. "It's expensive to make mistakes, but it's also okay to make mistakes," Muelken says. "So if we're going to make them, let's make
them quick. If we're going to fail, [we want to] fail fast. It doesn't cost us a lot of money, we learn from it, and then we move on."
While employees responded to the idea of lean with some initial skepticism, empowering workers to apply their own improvements has fostered a greater understanding of and appreciation for its benefits. "[Lean] is change, and people resist change," Muelken says. "It's
human nature ... and you can't cram it down their throats. They need to be part of the solution, and we allow them to be part of the solution. They've really done a nice job. Now we're getting [workers suggesting], 'Hey, what if we do that?' They take ownership in it, and that's
really the culture we have here now."
Suppliers have taken ownership in the company's efforts as well, working to accommodate smaller, more frequent deliveries in order to keep inventory on the shelf to a minimum. Elektro Assemblies now receives weekly deliveries instead of monthly ones, and the company has been
able to reduce its monthly inventory by 15 percent, generating freer cash flow throughout the business.
Selling Superior Service
Muelken and Yulga agree that marketing Elektro's commitment to service has been essential in setting it apart from its competitors. "There are a lot of folks out there who make wire harnesses," Muelken says. "It's not rocket science, as you know, so it's very competitive.
The biggest thing is getting people to make the change. Even if they're not real happy with their current supplier, it's a lot of work to change suppliers."
To make switching suppliers worth the work for purchasing agents, Elektro offers value-added services such as design assistance and Kanban systems to help customers maximize availability of cash. The company has a compliance engineer on staff to ensure each product is in
compliance with any standard the customer might require, such as UL, CE, NSF or TUV certification.
As a subsidiary of Automated Equipment, Elektro Assemblies also has gained a 24-hour technical support line for the products that it sells, allowing the company to differentiate itself from its competition by working with customers throughout the entire process, from
conception to commercialization.
"Our goal is to make it easy for people and to be a one-stop shop for design and engineering, all the way through to the tech support," Muelken says. "We think that's probably our niche." Technical support is a particularly big differentiator, and "an area that we will
continue to market and say [to customers], 'We can make all your pain go away and we'll handle it for you.' That is the nail on the head. [We ask], 'What value can we provide to keep the customers we have and obtain new customers?' "
To that end, Elektro Assemblies is pursuing ISO and AS9100 certification to attract and retain customers in the defense, aerospace and medical device markets. For these strictly regulated markets, the certifications are becoming standard requirements of industry suppliers.
Elektro learned this the hard way when Shadin Avionics, a potential customer in the aerospace industry, walked away from a project because Elektro was not officially certified.
"They told us that they liked our work, but because we were not certified with AS9100, they just couldn't work with us because of their internal policies, which is fine," Yulga says. "They're going to be my first call as soon as we have our AS9100 certification."
Though Elektro Assemblies follows ISO and AS9100 protocols, it is working with Enterprise Minnesota to achieve formal certification. The company expects to be ISO and AS9100 certified by the end of March.
Elektro's "one-stop shop" approach is evident in the recent addition of control panels to its product offerings. Control panels are a natural fit for Elektro, because they work in conjunction with Elektro's wire harness and cable assembly products. Instead of outsourcing
the manufacturing of control panels for customers' orders, Elektro found it had the talent and resources to begin manufacturing them in-house. "Rather than sending it out to a panel shop, we felt that we could provide that much more value for our customer and gain that much more
market share from them," Yulga says.
As Muelken looks toward the future, he believes continuous lean improvements throughout the business will foster growth at a manageable pace. "We need to grow at the right pace, and lean is helping us do that," he says. "A lot of people want to get to a $50 million
company [as fast as possible]. We've got to be honest. We're not set up to manage a $50 million company; we're set up to manage a $10 million company. We want to get to 15 and then 20 and then 30."
Elektro's sales currently make up 15 percent of Automated Equipment's annual revenue. But with ISO and AS9100 certifications, a new product offering and an aggressive marketing strategy in place, Muelken believes the Elektro side of the business could grow to 20 percent of the
total revenue by the end of 2010, with a minimum five percent increase in annual sales thereafter.