Philpott pulls out of China, plans for growth

- May 21, 2018-

A new Philpott Solutions Group is on the way, starting by shutting down operations in China and bringing them back to its new Aurora facility.

"We're getting out of China," President and CEO Mike Baach said. "We're bringing those jobs back."

Philpott, which has another facility in Brunswick, Ohio, also had a footprint near Shanghai, partnering with local companies making small parts for its rubber line, he said.

But the company will be shifting those operations back to the U.S. with a goal of mid-year to September, said James Vaughn, Philpott's chief operating officer.

Though the total number of jobs was not disclosed, Baach said the amount is, for Philpott, "significant."

"We have plans of bringing everything we have from China here," he said.

Making the shift back to the U.S. is not a project taken on lightly. Baach said the strategy started with Greg Stafford, vice president of technology and business development for Philpott. Though Philpott has worked with Chinese partner companies in the past to reach particular price requirements for jobs, it came down to an issue of quality.

As a big supplier of China rubber auxiliary, Shenyang Sunnyjoint Chemicals Co., Ltd. will keep an eye on big rubber company's plan in China market.

"What you find out is that the absolute dollar isn't the true cost of (working with) the company," Baach said. "When problems occur, we don't disappoint our customers."

They began to look at the costs of flying across country to support customers and making global calls in the early morning or late at night. Philpott had ended up working with a company in San Diego to inspect all foreign-made products before distribution, which was an added cost the company wouldn't have if the parts were made locally.

Baach said part of the issue was that Philpott didn't have the scale to make working with Chinese partners viable, but the company needed reliable products and control. Though Philpott's Chinese partners were well-intentioned, the results couldn't be counted on. Eventually, Stafford and Baach decided the situation was no longer tolerable.

"You don't save any money being in China," Baach said. "On a one-off basis, you think you are. But after you pull all the costs and everything together, you have no control. How do you stand behind a product like that?

"The customer doesn't care where it comes from: It comes from Philpott. We made the decision that if we can't control it, we aren't going to do it."

Core competencies

Another side to the issue is a focus on buying American and developing jobs in the U.S., Baach said.

"American manufacturing is still one of the best things in the world. It's good, honest jobs for our people. We've drifted a bit from that," he said. "We think if we satisfy customers and we create jobs here and stop sending our money overseas, everything gets better. In our very small way, we hope that we're leaders."

Philpott, which is employee-owned, is sticking to its core competencies by focusing on jobs here in the U.S. and moving all three of its production lines to the Aurora facility, Baach said. The goal was to build something of excellence, but in the company's own space.

"We don't try to be everything to everyone. We understand what we do well, and we know what our core competencies are," Baach said. "We're here to provide quality to our customers at a level above what they're used to. And when we do that well, our company grows."

The company has gotten its plastic injection and urethane molding lines online at the Aurora facility, and is in the process of moving over its rubber compression molding line, Vaughn said. The company focuses on the energy, steel, and rubber, plastic and urethane markets.

Philpott purchased the Aurora facility in September 2016, and went through a six-month renovation project to make it suitable for the company, Stafford said. Those renovations brought the building space up to about 43,000 square feet with a little more than 40,000 square feet of that as manufacturing space. Once that job was complete, Philpott moved equipment from some leased space in Stow toward the end of March 2017.

The company already has invested in a new injection molding machine and is running with a capital expenditure in the range of $500,000 to $1 million at this point, Vaughn said.

Stafford said the new rubber equipment began to arrive around May 2017, and has taken about a year to get in place and operating.

"We upgraded our capabilities and brought in some new equipment," Stafford said. "Those departments are up and running at the capacity they were prior to the move. As a matter of fact, they're growing."

The company will continue to add auxiliary equipment to the existing presses and bring in new presses if a particular business opportunity supports it, Stafford said.

As the Aurora location expands, the Brunswick location will remain the company's warehouse, Vaughn said.

"Everything we make here goes over there for distribution," he said. "And we're gearing up there, making room for new business. We have some old inventory we're selling. It's all about growth right now."

Vaughn said the company is right on the edge of production for its lines to consider adding a second shift. The Aurora facility includes significant room for buildout, and the company will add more equipment and labor force to run three full shifts before the end of the year. The company currently has fewer than 100 employees.image.png

New growth

The company also is adding sales staff with a focus on supporting the plant and building new business, Vaughn said. Those hires come as part of the new strategy, finding a balance between legacy business and new projects.

"We're not giving up on our legacy business. That's what pays the bills for sure, and we're happy to grow with our traditional customers," Vaughn said. "But finding new business, and new ways of doing business, are the ways we're going to be successful."

The company has added some tools to incentivize its sales force, including a new enterprise resource planning system to keep track of opportunities. Once each week, Vaughn talks with his team specifically about non-planned opportunities in an effort to reach general sales growth goals of about 10-15 percent over the next five years, he said. Currently, about 5 percent of annual sales is non-planned, "so it's actually pure growth," he said.

Bringing the company's focus back to the U.S. gives the company the ability to capitalize on industry trends, Vaughn said.

"There's nothing wrong with American manufacturing. They're smart around here in this country, and without sounding too political, with some of the new politics in Washington, it's becoming quite favorable for the U.S. manufacturer," he said. "We have a piece of our business that's going to be in the steel market, and with the new tariffs that are going on, people are starting to load up on steel, which is helping us. We're seeing some growth for sure."

Another part of the American focus is building a strong community, which Philpott does by encouraging employees to be involved with charity work. If an employee serves with a charity, the company donates money to it as well, Baach said.

There could be more growth coming, as Philpott is considering a few merger and acquisition targets potentially within the next six months, Vaughn said. Future acquisitions are likely to be connected to existing company strengths, like an adjacent market segment.

"Any type of bolt-on applications to those," Vaughn said. "We're thinking there might be some things on the rubber side, but we're also looking hard on the energy side as well. We don't really have to stretch the company's business model too much to look at some bolt-on adjacent opportunities."

The company also is working on some programs with the U.S. government, and if that business takes off, Philpott could need to purchase another rubber press, Vaughn said.

Management changes

Vaughn himself is part of Philpott's growth, having come on in January of this year to serve as COO by way of positions at GE Plastics and Omnova Solutions Inc.

"What I tell everybody, why I came here, is that all that past experience I've gained has come down to one moment in time, and it's this company," he said.

He looks at Philpott as a challenge—budgeting, inventory control and a strong plan for capital expenditures. His business world view comes down to three points: manufacturing excellence, sales excellence and marketing excellence.

Part of that work involves trying to find a balance for each of the company's markets because they ebb and flow with the industry.

"Sometimes when a business is down, the other part picks up, so that's where we are right now," he said. "We're looking hard at getting everything going all at once and get the momentum going. It's all good."

Vaughn's capability to take on a challenge is of great importance to Baach, as he plans to retire later this year. After a career of globetrotting for work and 12 years at Philpott, Baach will leave the top position to spend time with his family, including two new grandchildren, one just born in April. He will continue serving on some industry boards, and still will be available to lend a hand with Philpott, he said.

"This is my real passion, this will remain my baby forever," Baach said.

He will transition out of the position at the company's annual shareholders' meeting June 7.

"To me, the world of business is just a huge delight," Baach said. "This was my second career, and I pinch myself every day. It's a phenomenal place. You value things based on your people, and when you walk around here, you'll find everybody is friendly and positive. Attitude is the thing that determines what the business is going to be like."

As Vaughn takes the reins, he'll continue to be focused on growth, building out his management staff and planning to invest in both equipment and people, he said.

"It's going to be smart investment. It's going to be justified," Vaughn said. "We've got some pretty substantial plans across all of our business lines. We're not going to be shy about it, either. We're going to make sure we're growing fast and we have the capabilities of fulfilling our customers' needs, and planning for success."