Despite lingering uncertainty in the economy, management at the start-up contract manufacturer thinks now is a good time to start a company. How
did they do it?
By Bruce Morey
On one hand, 2012 may not have appeared to be the best time to start a new company in North America. Matt Rudd, president and CEO for Apex Precision Solutions (Mason, MI), acknowledged the difficulties. Economic uncertainties lingered, with small manufacturers continuing to find access to capital difficult. As a result, many smaller manufacturing players were exiting the field.
That made it a perfect time to rush in, according to Rudd. A key impetus was commercial airliner orders, which translates into demand for machined products. “The aerospace industry is strong right now, and growing,” said Rudd. Through 2012 and into 2013, the decline in manufacturing means OEMs are facing constraints in meeting this demand. He has already noticed this with new and potential customers, after opening for business in September 2012. Demand coupled with capacity constraint equals opportunity for a start-up. The only question is if it can deliver.
Focus is Fundamental
The key to success, he believes, is a focused business plan and the discipline to stick to that plan. “There are three fundamentals we as a start-up are building our company around,” he explained.
First are the basic offerings, which he describes as: end-item components; tooling to make the components; fixturing; and gaging. “All of our proposals fall into one of these four buckets and we focus solely on the aircraft engine,” he said.
Second is a fast response in delivering those offerings. “We aim to deliver in three to four weeks from the receipt of design approval,” said Rudd. This strains operational expertise. “[A fast response] does not mean putting in a load of equipment that is just sitting there waiting for the order. It is essential that we accept orders and go after business that we know we can deliver in that timeframe while keeping equipment active.” The company’s goal is keep spindles turning at least 20 hours per day over two shifts.
Third is quality, with systems and processes in place to both guarantee quality and satisfy customer’s needs for documentation. AS9100 certification figures prominently in this (more later).
Start-Up with a Head Start
Most start-ups work toward establishing a business plan and client base first before building out capability. Such was not the case with Apex. “We did not start with a vision that we wanted to do aerospace machining, then decide out how to accomplish that,” agrees Rudd. The core group at Apex Precision Solutions had the client base and a firm grasp of how to satisfy them. Rudd and his partners had worked at various times over the past 15 years for companies that in part served the aerospace market. “We already had the relationships with potential customers.” They also built the company with a number of trained and skilled machinists who were willing to join a start-up, bringing their years of experience with them, as did their quality manager.
“I think it is critical with any start-up to have some established customer relations, even getting some orders that you can subcontract before your own facilities are ready to do the work,” Rudd advised. “You establish that relationship by delivering through subcontracting.” He also noted that those few orders helped convince banks when it came time for financing.
Although he went through a local bank to finance the start-up, there is more to the story than simply applying for a loan in the normal manner. He credited two local government organizations dedicated to building up businesses that helped him with critical resources and advice. One was the Lansing Economic Area Partnership (LEAP) and the other was the Michigan Small Business Technology and Development Center (MI SBTDC). In fact, LEAP awarded a flat grant of $20,000 to the company to gain AS9100 certification.
“Tom Donaldson from MI SBTDC was very influential in providing business and banking advice,” Rudd said. Donaldson advised Apex in structuring the equity and debt of the business and helping the company find outside investment. MI SBTDC is funded in part through a cooperative agreement with the US Small Business Administration (SBA) as well as the Michigan Economic Development Corporation (MEDC) , a state-funded resource for businesses.
“They needed over $1.8 million in capital, and we helped them put together a pitch,” explained Donaldson a regional director of the MI SBTDC (Lansing, MI). While giving much of the credit to Rudd and his associates for their technical acumen, he steered them away from some of their initial start-up tactics. Donaldson advised against seeking venture capitalists or other forms of professional equity investors. “We don’t see a lot of VCs or angel investors in manufacturing,” he explained. “They are looking for much higher growth rates along with higher risk.”
Practical Financing, Friendly Investors
Given the technical depth of the start-up team for Apex, and the fact that they had customer orders in hand, he did steer them towards approaching potential investors among their existing contacts. “As it turns out, a number of their business acquaintances wanted to be a part of the business—people that understood the market and what they had to offer,” he explained.
Then, Donaldson organized a group of potential lenders to meet the Apex team. These were lenders with whom Donaldson had previous experience. He suspected they would be receptive to the business plan.
Four of the lenders submitted financing proposals to Apex.
“This gave Apex some opportunities to pick out the deal that was the best fit,” he said. While such competition in lending is a tad unusual these days, Donaldson pointed to the level of talent and skill at Apex. “Investors do not invest in companies, they invest in people,” he said. He felt Rudd and his team had made a desirable business case after covering the operations, financing, and sales and marketing functions in their messaging. Another selling point was the early equity investors who knew the market and the business and were backing it as well. “It said a lot to the banks that other people in manufacturing wanted to invest,” said Donaldson.
“Advice I might give to a start-up is work your close network first,” Donaldson said. “They know you and trust you and that then provides credibility to other lenders.”
The MI SBTDC is part of a national program. In addition to the SBA and the MEDC, 10 Michigan-based sources also provide funding. According to the organization, it helped raise $231 million to help 14,500 businesses in the state. “There is no fee for our services and we work on a confidential basis with businesses,” explained Donaldson. He noted that every state has an equivalent organization.
Equipment in Place—Planned Upgrades
That financing translated into a well-equipped start-up contract manufacturer. Besides machine tools, Apex Precision offers a full range of services, including engineering design capability to support its machining capabilities. Their engineers use Unigraphics NX6, along with Unigraphics Manufacturing, or CATIA V5 for CAD work. Machine programming is done with MasterCam X6. They also accept native CAD in most popular formats, including IGES, Parasolid, or Solid Works.
For machining tasks, Apex owns a three-axis YCM WV108A vertical machining center (VMC); a Hardinge GX1600 three-axis VMC with a fourth and fifth axis rotary table, an Okuma Genos L300-MW300 mm Multifunction CNC lathe (11.81″ [300-mm] turning diameter capacity), and an Okuma GENOS M560V three-axis VMC. A Hardinge Bridgeport GX 1600 VMC along with a Mitsubishi wire EDM rounds out the capabilities. Rudd reported that they will also add additional five-axis capacity with a five-axis Robo Drill and various three-axis milling equipment along with welding capabilities. A Zeiss Contura G2 CMM for dimensional measurement supports their quality and measurement programs.
Quality and Certification as Foundation
Many established companies use lean initiatives as ways of improving quality—on ‘fixing the business.’ In the case of Apex, starting a lean journey meant building the company from scratch on a foundation of best practices. For example, the company began its start-up phase with a full-time continuous improvement manager.
“We are focusing on three pillars of lean—5S, Total Productive Maintenance, and Standard Work,” Rudd explained. 5S is the lean term for organizing a workspace for efficiency, often described in English (translated from the Japanese) as sorting, set in order, systematic cleaning, standardizing, and sustaining. TPM is dedicated to improving machine availability and uptime through maintenance. Reducing uncertainty in machine availability through TPM is critical in achieving maximum efficiency.
They received their lean training through the nonprofit Michigan Manufacturing Technology Center (MMTC, Plymouth, MI). MMTC is helping them gain AS9100 certification, with their lean training as an initial step in that journey. “We chose to get AS9100-certified first because it is important in the aerospace market. Also, we will get ISO9001:2008 certification automatically along with it,” said Rudd. “Frankly, not having the AS9100 could be a barrier to entry. A number of customers are keen for us to complete our AS9100,” which he predicts will be by summer 2013.
“We do not normally work with start-ups,” said Mike Coast president of MMTC. “Most startups are not in a position to benefit from our help—typically we work with organizations that have at least 15 employees. We started writing the quality management systems they were going to use without even having the machinery in the building,” said Coast. “That was a little unique for us, but with their established business plan, they knew what kind of business they were in, what processes were going to support that, and therefore we could help them develop a quality system.” The machining equipment Apex was going to start with was in place by the time the MMTC consulting task was finished, so “everything worked out as planned,” according to Jim Rice, the engagement supervisor for MMTC.
Rice explained that MMTC helped Apex by defining what he terms the “upper tier” of a quality system, and from that developed specific instructions and details they would need to operate efficiently. “This meant developing the Quality Manual and mandatory procedures,” said Rice. From that emerged the three elements of Lean: 5S, TPM, and Standard Work Apex emphasizes. “Those were the three things that were most logical for the machining equipment he was putting in,” explained Rice.
While some elements make intuitive sense—such as the fact that a good 5S program will start the company with good habits in clean, well-organized workspaces—others might seem a bit incongruous for a contract manufacturer. Take Standard Work. The contract engineering business model requires a wide variety of parts and jobs, from low-volume complex parts to high-volume simple designs. “Standard Work makes sense if you take the approach of defining those tasks you always do, regardless of the project you are working on,” explained Rice. “You will have practices, such as organizing tasks from CAD drawings, each time you receive an order. It is those practices that we emphasized in the Standard Work instructions.”
What advice would Rice and Coast from MMTC offer for a start-up establishing a ground-up lean system? “You should have your basic business model, equipment selected, and layout so that you can establish a one-piece flow,” offered Coast. “At the same time, you need to set it up so that it is flexible and establish Standard Work that is simple—and keep it simple—until you start to grow. Then your quality system can grow with you.” ME
This article was first published in the March 2013 edition of Manufacturing Engineering magazine. Click here for PDF.
Published Date : 3/1/2013