DENVER—Gates Corp. may have just celebrated its 100th birthday, but that doesn't mean the global rubber product giant isn't afraid to shake things up.
Organized since 2003 along product lines—hose, belts and automotive aftermarket—the Denver-headquartered firm has restructured based on five key end markets, with sales responsibilities divided into five geographic regions.
In the past, each of the individual product groups was responsible for sales and operations in its area of expertise. Company officials say the new organization—put into effect this summer—presents a “one face of Gates” to its customer base. Gates now is split into commercial and operations units, with executive vice presidents in charge of each, David Gau overseeing the commercial side and Ken Friedman heading up operations.
From the sales side, products are aimed at the several end markets: automotive; transportation; infrastructure and agriculture; 3E, standing for energy, extraction and exploration; and process and specialty. The new organization was split into five global regions—North America, South America, Asia, India, and Europe, Middle East and Africa (EMEA)—with responsibility to market the goods within those areas.
“This came out of some pretty clear messaging from the customer base that their businesses were focused on activities that for us became those five key end markets,” Gau said. “To some extent, they didn't understand how we were organized by product silos before. They really saw us as one company, and we thought it might be good to act like that.”
Evolution of a restructuring
Friedman said the revamping of Gates, brought down to simple terms, answers one basic question: “Why do we do it the way we do it and how can we improve upon it.” The firm then can determine what makes the best sense for serving the customers from both the front end and back end. “I think we've had a lot of good synergies already by doing what we've done,” the executive said.
Gau said the fact Gates was celebrating its centennial around the same time the firm's parent underwent an ownership change helped set the stage for reorganization. Tomkins P.L.C. was purchased by a consortium made up of Onex Corp. and the Canada Pension Plan Investment Board, a deal that closed in late 2010.
“We had done a really excellent job of weathering the recession and we came out of that in very good shape,” according to Gau.
“That provided us with a springboard to say, 'What's next? Where do we take the company from here?' ”
The new owners provided some input, but they weren't a driving force behind the changes, according to Gau.
“They just offered their opinion about what they thought our company was and then what they learned about us,” he said.
“They went and talked to customers and did their market intel, and said you have permission to be a better company than you are, and so we took that to heart.”
Gates hired a consulting firm that did a thorough “voice of the customer” study, gathering information from the direct customer base and the ultimate end users in each of the five market channels. The consultant asked customers about Gates, market trends, what they look for in a good supplier and which suppliers were doing a good job.
Gau emphasized the restructuring wasn't brought about because the prior product-driven system was broken or that Gates was going through a crisis.
“We were fine, but we felt like—especially listening to our customers—that we really had an opportunity to align ourselves internally how they wanted us to be,” he said, “which was a single Gates, focused on bringing solutions to the markets that they're attacking.”
Gates didn't just randomly pick five markets to target, Gau said. It chose things the firm is in now, but the sectors are weighted differently. Some were based on the overall size of the market, while others took into account what Gates offers its customers now versus what they can offer in the future.
“All five of them share the same attributes in that they are tied to or are supporting at a macro level all the attractive kind of growth factors that are happening in the world,” he said.
For example, automotive—the biggest of the end markets for Gates—suffered through a difficult 2009 but has excellent long-term prospects, particularly the growing buying capabilities for cars in India, South America and Asia, the Gates executive said.
Infrastructure and ag, he added, will support the global infrastructure building necessary for global growth. “It's happening in key emerging markets, and our customer base is very bullish,” Gau said.
The 3E business currently is a small area for Gates, but one that has extensive activity. “Whether it's oil, gas or precious metals, the global demand for those is not going to go down,” he said, “and the difficulty and cost of extracting them is going up, and so that's good for us.”
Gates' Process and Specialty end market is one that already has applications in place in factories around the world for the firm's power transmission and fluid power products.
“It's good for our proposition because it's easy to develop a relationship with those people,” Gau said. “We can help provide solutions that really keep their assets running, and that's what they're looking for.”
From a geographic standpoint, Gates is seeing growth in such areas as India, Asia and South America, and is putting a disproportionate amount of investment into those regions to make sure it has the structure and assets in place to meet that demand, he said.
India was given its own separate identity because Gates doesn't want it lumped into Asia, where China overshadows everything else.
“India is a very distinct region,” according to Gau. “It has strong relationships to the Middle East, Europe and into Asia. We just feel it's large and growing, and significant enough to get its own focus.”
With its global reach, the company is in a perfect position to service global customers who are looking for consistent quality and service standards wherever they operate. Gau said that's how the rubber product maker historically has grown, by following customers into emerging markets and increasing its business in the regions from there.
Impact on operations
The operations segment of the business entails procurement, planning, process technologies, manufacturing and distribution. The main impact of having it all under one umbrella primarily involves taking a uniform approach as to how the firm addresses best practices and measures itself on key operating indicators, according to Friedman.
Previously, he said, the hose side of Gates had more of a global focus, while the belt side followed a more regional business model. Belts traditionally were made closer to where the customer was, while the hose business had very little manufacturing left in Europe, so that was supported from other regions.
“We're a bit of a hybrid today,” Friedman said. “Our philosophy pretty much is we'd like to produce where we sell. So we have some gaps in Europe that we'll probably address over the midterm.”
Gates retains a large manufacturing footprint in North America, he said, for several reasons.
First, much of its sales still come from the continent, making it more difficult to manage the large range of products and sizes it sells from offshore. Gates also develops a significant amount of new technology in North America, such as molded micro-V belts and port-to-port hose assemblies.
Both Friedman and Gau said it's important that the commercial and operations sides work closely together. That includes frequent meetings to build a consensus production plan.
“We come backwards in from the market and we build that demand plan, and that's what gets loaded and that's what gets built,” Gau said. “We manage our inventory very carefully because it's cash, and we maintain 95 percent or above service level requirements.”
Friedman said the whole process is more systematic than in the past and has more math involved to reach a statistical target.
“It's a little based on history, a little based on lead times, a little bit on forecasting accuracy and scheduling accuracy,” he said. “You put that together and you come up with a target inventory and you work toward that.”
The operations chief said much of the new capacity Gates puts in will be focused on serving emerging markets, though there will be expansions in mature regions as well. The new system also will foster better collaboration between sites around the world and will enable easier sharing of best practices.