Copyright Patricia E. Moody 2013, All Rights Reserved

WIND POWER:

AND THEN THERE'S THIS NIGHTMARE VIDEO OF BURNING TURBINES......CLICK HERE

        Gloucester turbines located in industrial park above terminus of Rte. 128 across from shopping center.... and parking lots.... and people.   Hmmm.

CHECK OUT VIDEO - INSTALLATION OF BIG BABIES, 3 WIND TURBINES AT GLOUCESTER ENGINEERING SITE, projected to save City of Gloucester 500k per yr energy costs - http://goodmorninggloucester.wordpress.com/2013/01/04/must-watch-gloucester-engineering-wind-turbine-construction-video/

GOOD NEWS UPDATE from Mark Steele, Gloucester Engineering's turnaround CEO moving on to his next

Gloucester Engineering, Restarting An American Icon 

     When the explorer Samuel de Champlain navigated northwest to the New World in 1606, what he saw as he approached the mouth of a harbor south of Newfoundland drew him in. He found good enough flat land for cattle, deep water that he carefully recorded on his maps, plenty of fish, and a large and established native population who lived by farming – he could see that they had just completed their corn harvest - and fishing. He named this place “Le Beau Port,” hoping that it would become a fertile and prosperous site for later settlement as a fishing station.  In fact Gosnold, an English explorer of the New England coast, had noted in 1602 that the codfish were so thick that they “pestered” his ship!  But not until 1623 did Englishmen return to establish a fishing settlement intended to supply cod to a growing European market.  Less than 20 years after initial European contact, however, the native population had nearly disappeared, leaving clam shell heaps, burial grounds, curious and mellifluous place names and stone artifacts as sole reminders. 

    For over three hundred years thereafter Gloucester, as Le Beauport became known, grew and prospered by its connections to the sea.  Shipyards, fishing stations, processing plants attracted larger immigrant populations to The Island separated from mainland Massachusetts by the Annisquam River.  By the time codfish reserves were fished out, the Gloucester fisherman was on to new harvests and life on The Island was good.  And that’s when Gloucester Engineering got its start as a designer and manufacturer of highly-engineered, increasingly precise plastics production machines.  In 1961 the start-up produced its first winder and extruder and two years later its first garment bag machine established the company in the growing plastics industry as a great innovator that could custom design and build for any application.

    Gloucester Engineering had a great run, but like many equipment producers, after the crash of 2008 they were headed for trouble.  By 2010 orders were late or unpaid for, and the sheer exercise of closing the books to determine profits on a shipment exhausted cost accounting systems that were unable to generate accurate breakdowns.  Lay-off followed lay-off as the company shrunk, shedding once-loyal customers in its downhill spiral into bankruptcy.  The company that created entire segments of the plastic thin film industry struggled to make payroll.  A union shop, Gloucester, like so many other union factories, seemed doomed to finally closing its doors and auctioning off the equipment to pay creditors. Rumors flew and workers whispered that “many people,” perhaps referencing a previous executive whose Porsche parked by the entrance irked an already anxious workforce, “made a lot of money off Gloucester Engineering, but not us.”

 Bankruptcy followed by Private Equity Investment In stepped an Armenian union rep, one Mike Vartabedian, with a possible solution.  Might Gloucester Engineering find an angel investor that would buy them time to restructure and help them settle creditors’ claims?  Blue Wolf Capital Partners, a New York private-equity (pe) firm not inexperienced in dealing with unions and traditional manufacturing such as paper-making and heavy equipment, invested in the company and later bought controlling interest when it emerged under reorganization from bankruptcy in December 2010.  For $13M in unpaid bills creditors agreed to accept $514,000 in payments, according to the December 22, 2010, Gloucester Times. 

    A new management team headed by fifty-year old turnaround veteran Mark Steele, CEO, an engineer with an MBA and long list of troubled company rescues took over.  Steele recalled how one of his first industry jobs back in Pittsburgh on the site of Andrew Carnegie’s first furnace prepared him for the tough times ahead.  One of Steele’s strengths is team building and the consistent clear messaging that enables it.  He identified key players, Amanda Oelschlegel, VP of Operations and Adrian King CFO outlined an aggressive restructuring that moved equipment and inventories as well as the organization chart.

    The industry space that Gloucester occupied, where machine speeds and quality determine decimal point differences in possible profits, is tough.  At the bottom of the plastics industry hierarchy, machine producers had to constantly innovate, but their aftermarket service and replacement parts business were equally critical to build and retain solid customer base. 

    Steele felt, as did Blue Wolf before him, that he was working with outstanding engineering talent in a community that wanted Gloucester Engineering to succeed almost in spite of itself. But over its fifty years the company had developed operating problems that were identified in a pre-acquisition audit, problems that would have been obvious to a manufacturing plant visitor:

1. Technology infrastructure systems

The company struggled with a vintage IBM AS400 MRP system.  In the decades since it’s installation, pieces of the software, abandoned and misused on The Island, had rusted out and fallen off.  The Bill of Material structure, the heart of the M.R.P “meatgrinder” that breaks complex assemblies down to their lowest level parts, raw materials and labor so that they can be sourced and scheduled, had become overworked, disfigured and unclear.  As in many centers of engineering brilliance, complexity had over the years tangled the bill of material and cost systems as well as inventories.  Auditors noted problems with the general ledger; closing the books, an exercise that any company, especially a bankrupt one struggling to make and bill for product, took an unacceptably long 35 – 45 days. 

“Plus, it was impossible,” adds Adrian King, Gloucester’s new CFO, “to do cycle counting.” 

Boxes of paper timecards became the way to compute labor costs per job, but adding it all up and comparing one job to another similar one revealed a nightmare of discrepancies where, says V.P. Amanda Oelschlegel, there should have been none. It was difficult to tie invoices back to actual costs because the variances among quotes for the same products were abundant.  On a Power Panel, for instance, material costs recorded in the MRP system ranged from $0 to $177,889; likewise, assembly hours were unreadable, ranging from 0 to 610 hours.  The total costs for this single Power Panel ranged from zero dollars to $257, 655.  “We never really knew if or how much money we made on a shipment!” recalls Oelschlegel.  Clearly the system had gradually twisted and distorted to the point that it’s original intent and functionality were  unrecognizable.  Oelschlegel supplemented boxes of paper timecards with monster Excel spreadsheets to generate an extremely inflexible Master Schedule, a process that required multiple iterations anytime a worker was absent or a job moved up or down in the schedule.

On the Cloud - ERP

The answer?  Enter Cloud ERP SyteLine from Infor, as installed by Copley Consulting, a Boston-based integrator that helped Gloucester make the transition from their old IBM and manual systems to the new Cloud-based ERP.  “We went live October 17 after a six-months – incredibly fast – implementation,” recalls Oelshlegel. 

“We were looking at Oracle and Microsoft GP.  But what attracted us to Cloud ERP was right off the bat, just sitting in the selection meeting the general consensus as users making the selection was the intuitiveness of the system.  It looks like a Windows platform.  Microsoft GP was the very first quote-to- cash demo we saw and we fell in love with it – ‘cancel all the other appointments!’ we said, but the problem with Microsoft core functionality was that it was more scaled down.  But with SyteLine you get just about everything, so although Microsoft was intuitive and easy to look at, it required add-ins using 3d party integration to get the full functionality we needed - more complicated, more money, more time, greater risk. 

“So we went with SyteLine. The idea of the Cloud was attractive to us, and we knew it would be quicker, because a big issue for us was the management of the hardware we had on site – it was becoming a full time job.  We had to install air conditioners on side of the building that we didn’t use any more.  We spent tens of thousands of dollars for air conditioners and dehumidifiers so we could close the door and have a secure server room.  Now we are no longer responsible for that real estate!  We had a 60 x 80 foot room and the entire building was hardwired into that little room, so when we started looking at other systems, we wondered what we were going to do with that vacant side of the building where we had the servers.  At that point the room was totally insecure – any disgruntled employee armed with a screwdriver could have walked in and shut us down. It was that bad, but being up on the Cloud meant we could also work remotely, and here on The Island where we have occasional power interruptions, that made a lot of sense.

“But the best part is having full integration, which is also the hardest part of deployment.  This system is a complete quote-to-cash that also includes after-sales support.  The service segment of Gloucester’s business is a fully integrated module - we didn’t have to buy a separate service module, which reduces risk and cost. 

“Here’s the beauty of it.  We can generate a quote and you can flip that through entire system. Costing functionality is very powerful and we get up-to-the minute cost detail.  For example, if I add a $.20 washer to an assembly, I go to the system, issue it, hit refresh and the cumulative cost automatically goes up $.20!  How good is that? Accurate costing is absolutely essential to our business, so this is incredibly powerful functionality. 

And how does engineering feel about all these changes?  “It’s a cultural issue not a systems issue, but we failed as an ERP implementation team to educate the entire business about business processes.  One of our business failures is that we are sequential, we trained separate functions, but we didn’t do handoffs very well.  There were three training rooms – one for engineering, one for supply chain, and one for production, and we never switched those rooms around - so we lost the opportunity to train in the upstream and downstream cause and effect.  That was a problem when we went live. We’ve worked in the past few months to help everybody understand what everybody else does and the implications of upstream and downstream activities..  We’re doing core concept business process training.

“Bottom line is the new Cloud ERP system has done exactly what the system needs to do, and for us the functionality, the flexibility for us to be an ETO (engineer-to-order) business is powerful. The system allows us, for example, to have playgrounds for each of the functions.  We have an engineering playground, a production playground, a supply management playground.  We can aggregate demand, issue materials or  continue to do design work here while other things go on.

“Three months into it we’re working on integration, the hand-offs and awareness of upstream and downstream impact. 

Data integrity

A word about data integrity and implementation.  In a complex product environment whose Bill of Material structure has become distorted over time, the biggest challenge in system implementation may not be software installation.  Simply migrating data from the old system to the new one should not be that difficult.  However, when the Bill of Material has devolved into an unstructured parts list with odd part numbering scheme and redundancies, it will take time to do data scrubbing and formatting prior to feeding that product information into the system.  At Gloucester Engineering, this data clarification was a significant part of the entire six-month implementation process, and it could not be skipped.  If a part number or assembly, for instance, goes into a system as well as a repair order, there will be questions about how to structure the Bill of Material for that part, and those questions need to be resolved as part of getting the system ready to going live.  It’s essential at that stage of implementation for engineering and material planning/procurement people to collaborate on pre-installation work.

2. Inventories

In vintage fragmented ERP systems the inventories easily creep up either because of part numbering problems, bad linkage between procurement and production planning, or sometimes multiple stocking locations.  Gloucester Engineering had experienced all three problems with the resulting inventory accumulation a drag on cash reserves.

3. On the Shop floor, Lean Is An Assumption

Sadly, while Gloucester’s system infrastructure stalled and failed, the shop floor took on the usual signs of heavy industrial confusion and neglect.  Inventories were scattered in various stages of completion at two sites.  When Oelschlegel, a Green Belt certified in lean manufacturing practices, took on the shop floor transformation project she started by replacing the over 400 dead light bulbs on the ceiling.  Her team scrubbed and painted new lines separating cells; they set up supermarkets and visual scheduling whiteboards.  Tools were cleaned and hung precisely on wall racks.  She knew that visual systems were key to clarifying line of sight lean management and to building ownership on the floor.  Team leaders, for instance, can build complicated electronic/mechanical assemblies by using a Poloroid picture, rather than a drawing, as their guide.  Gradually Oelschlegel was able to work her way through various stockrooms to identify good inventory and separate it from the scrapped or undetermined pieces of metal that littered the shop.

In a company famed for its elegant and pristine machined equipment, Oelschlegel insisted on equivalent clean and orderly production cells.   “There were no brooms,” she recalls, “just a monster sweeper that came through periodically.  We got everybody brooms and it made an immediate difference.  And uniforms – when times got hard, the company stopped paying the uniform supplier bills, and the workers who put in paid $5.00 a week got stiffed.  So we stopped that too.”

Like Harley-Davidson and many aerospace companies, Gloucester has come to realize the high profit potential of its after-market spares business.  But, unless these valuable items are well-cataloged and shelved, the company will not be able to realize profits because in the service business delivery performance is key.  Oelschlegel consolidated and separated all after-market parts into one orderly, clean  stock area served by a single technician, “rather than two snarling pitbulls!”

4. Workforce

Employment at Gloucester dropped in five years from 425 workers to 52, but there were 54 job classifications!  As the company was building complexity in its products, complexity had crept into its designs and operations as well.  In a union shop represented by the International Association of Machinists the new management inherited a flexibility problem that not only complicated scheduling, but greatly limited the company’s responsiveness.  With 54 different job classifications Steele knew it would be difficult to build the kind of flexible and responsive teams that a smaller, more agile workforce demanded.  The answer was to negotiate the 54 down to 4 job classifications: mechanic, electrician, machinist, and general laborer.

5. Financials

Blue Wolf committed enormous capital at various stages of the restructuring, starting with $2M pre-bankruptcy, followed by debt financing and a current $7.5M revolver.

Blue Wolf and Steele’s team have big plans for this American icon.  Revenue will reach $20 - $25M for the year ending 2011 up from $8M in 2010.  “Gloucester’s revenue …could hit $35M in 2012,” according to Michael Ranson, Blue Wolf  partner (from Blue Wolf site, Shasha Dai, Nov 2, 2011). Steele also cites rising interest in the retrofit and refurbishing business, another niche for Gloucester to grow.  “The team is aspiring to ensure that after market and recurring revenues are sustainable in the revenue stream going forward,” says Steele.  “After market will no longer be an afterthought!”

 What’s it like to work with a private equity firm, we asked.  “Let me share with you my experience on these turnaround situations,” responded CEO Steele, contemplating the next few short months as Gloucester’s re-started engine begins to hum. “It’s a lot like marriages – sometimes they end very well, sometimes they end prematurely but not badly.  And sometimes there are terrible outcomes very early.”

One of the turnarounds he directed in California illustrates.  “We saved a business that had all the makings of a disaster – we fixed the broken parts and turned it all around just as the onset of the housing crash happened in 2007.  So if you took snapshots you would see brokenness, then health returning, but sadly the business had to be liquidated because conditions changed.”

“That’s the risk that private equity investors take on with their multi-million dollar investment.  “This business could,” he explains, “have a similar story – we could fix the business, but we sell capital equipment, so the worst thing would be for interest rates to inflate upwards.  And then, regardless of how good the business is, demand changes.  So we are going to do all the things to diversify, for instance we are growing our refurb and retrofit segments, but we may not do it fast enough.”

“I’m trying to get this business to an adequate scale to be successful, to attract customers, employees and acquisition candidates.  We now have three possibles.  We recognize that we must be viewed as leaders, because that gives customers confidence when they’re spending millions of dollars with us.  And Blue Wolf wants to grow it’s own base by racking up some more success stories, that’s where they generate their capital base.

“Working for a private equity firm like Blue Wolf is unlike working for my old employers - Kennametal for example. This is my sixth private equity firm doing turnaround and start-up work, and I have to say that the work is different. I love it because I’m an operator, not a consultant - I want my hands on the wheel.  I’m the driver, I make my own travel arrangements – we don’t have a cast of thousands here, we run lean.  I have to lead from the front with a sense of austerity and frugality – you won’t see a Porsche in our parking lot!  That guy should have leased a Jeep!

“You still have to be doing good things – if you don’t put in infrastructure and pursue lean, you won’t be successful and competitive.  You’d be surprised, but with some private equity guys you might get attitude about ERP, like ‘Now wait, if I spend half a million to put it in, it will do what?’ but we know that solid systems are just part of rebuilding the infrastructure. 

“The environment doesn’t cooperate.  All you have control of is the people aboard, helping them, training them, building cohesiveness and consistency.  We feel like we are getting the basics right, and we think we are turning the business around.  It is dangerous to assume success, however.  Whatever we do after this, every one of our employees because of what we are doing with the union will have a better time.  Because of how they behaved and what we all learned everybody is better equipped.” 

“Companies …are trying to squeeze every ounce of plastic they can out of their existing assets, they are also trying to increase their product flexibility, enhance quality, with minimal capital investment.”  President Carl Johnson, PlasticsToday, Heather Caliendo, Jan 12, 2012

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