Rubber Manufacturing in America: Recession still affects small firms

There are great advantages to being a smaller rubber product manufacturer—if it's a solid, well-run operation—in the current marketplace.

Often a customer gets an energetic, focused, creative company that responds quickly to a client.

That is why the better small firms thrive, or at least don't drown in a sea of red ink, during difficult times, several industry veterans maintained. And that's a primary reason why the best are still around today despite the recession that began in 2007 in the U.S. and has lingered since.

Among those survivors are U.S.A. Drives Inc., Santa Fe Rubber Products Inc., Cascade Gasket and Co. Inc., Extreme Molding L.L.C. and Thombert Inc. Top officials from each company discussed their experiences over the last several years as well as what makes a small business strong.

All rely on their solid reputations in the various segments they serve to maintain a bank of repeat customers as the foundation for their businesses.

And, of course, it helps if a company is in a strong niche market, said Walt Smith, CEO and chairman of Thombert, a firm that dates back to 1946.

But it has been a tough period over the course of the last seven years where, Santa Fe Rubber President and CEO William Krames opinioned, merely surviving meant you had been successful.

Quality should be a given in the rubber industry, according to Mike Moran, general manager of Kent, Wash.-based Cascade, a custom manufacturer of molded rubber and foam products, die cut gaskets, sheet packing and metal shims for the aerospace, construction and other industries.

“Poor quality will get you a hefty penalty, usually much, much more than the original cost of the product,” he said. That's especially true in the aerospace industry where suppliers “are hyper-focused on quality.”

Price and responsiveness, Moran said, also stand out to customers.

He said Cascade has focused on trimming costs since 2004, and that has transformed the firm's culture. A company that is very cost effective and nimble has emerged.

He said “the business battlefield is changing as more global competition becomes engaged from countries that have not typically been in the aerospace side of the rubber market.” Fortunately, he said, Cascade has learned to do more with less and remain focused on its customers needs.

Competitors have doubled in volume since 2007, and the competition now includes global pricing considerations. Many customers have become accurate at understanding what a part should cost to produce, Moran said.

Krames agreed about the industry's changing landscape, noting that small manufacturers today are faced with substantial challenges, and pricing has become very competitive, to the extent that it's difficult to achieve a decent margin.

The recession impacted polyurethane product maker U.S.A. Drives, which had to downsize and reduce its work force during the worst part “because the replacement of products was not as fast as it was previously,” according to Vice President of Manufacturing James Schmidt. “But we did not lose customers.”

The firm provides customers with “the ability to change with the needs of the product and the customer,” he said. “Varying the products in hardness, color, elasticity, wear and compression of any of the properties that make urethane a fantastic product allows us to move quickly to meet the needs of our customers.”

He said “consistent quality, great response to needs and great delivery have been our trademark since we began in the late "80s.”

Products made by the Burr Ridge, Ill.-headquartered company are unique, Schmidt said, and the areas it serves are not ones that attract firms in foreign countries. “Food, robotics, dairy and packaging are going to be here in good times and bad, not in large quantities but specific niches that need to be filled.”

Schmidt said that through the recession, the company continued to make its specialty belts that help convey, move, package or grab products that need the qualities and resilience that urethanes provide. “Colors, static capabilities, good wear, great flexibility and consistency of materials” are qualities many of its customers are looking for in belting.

He said over the last two years things seem to be moving in a better direction, and the firm has hired a couple of employees to help handle new business and production increases in the products it produces.

In the case of Extreme Molding, the company was formed in 2002 with two experienced managers—co-owners Lynn Momrow and Joanne Moon—at the helm. That proved fortunate and gave it an edge as it set out to serve the medical, biotech, telecommunications, biotech and high-end consumer industries.

The economy isn't great now, Moon said, “but it wasn't a bed of roses back then, either.”

They knew that an agile, small company can gain a leg up on a big firm by responding quickly to a customer's needs with great service and quality, competitive pricing and the right technology.

That's why it's now a successful 12-year-old business.

“We have a reputation for handling the tougher jobs,” Momrow said. “We've done that since the beginning.” The firm deals with industries where time lines are very important and it responds quickly to customer requests, she said.

An injection molder and micromolder of goods made from rubber, thermoset rubber, thermoplastics and other materials, it focuses on niche businesses, including medical, biotech, telecommunications, biotech and high-end consumer. It has also become a virtual one-stop shop, she said. “The customer does the design, and we work from there.”

As more technology comes into play, Moon said, customers want more, “so we make the product, package it and ship all over the world. This has made us more competitive and saves them money.”

Extreme Molding doesn't have layers of management, Momrow noted, so it doesn't get bogged down with time lost in meetings and can be very responsive.

The people employed by the firm are talented and versatile. In fact, Moon and Momrow have strong backgrounds on the financial side of the business as well as in manufacturing and each day at least one, but often both, work on the production floor for at least half the day so they maintain a handle on that end of the operation, Momrow said.

“As a smaller company with few layers, we can be very responsive,” Moon said. “Decisions can be made by us quite quickly as Lynn and I are involved with the business on a daily basis. We pride ourselves in customer service, and if we make a commitment to do something, we make it happen.

“We are also committed to getting back to our customers' phone calls and emails in a very short period of time, even on the weekends.”

Santa Fe Rubber has been fortunate. Krames likes to put money aside for a rainy day, or in this case, many rainy days. Because of that, the company entered the recession with sufficient cash reserves and no debt, the executive said, which enabled it to weather the financial storm.

It was tough to adjust the business downward with a 30 percent decline in volume, which Krames said “seemed to be the loss of revenue most of my colleagues were experiencing, too.”

Santa Fe Rubber has recovered most of the lost revenue largely be generating new business, he said. “We have been most aggressive in pursuit of new opportunities. Of course, we experienced some recovery in our solid base of customers but we knew if we wanted to get back to where we were prior to the decline we would have to achieve that with new customers.”

That is exactly what the company did.

It focuses heavily on engineered products and recently added a substantial new account that has helped to add another 28 jobs to the firm's work force.

“We continue to concentrate our efforts on more demanding and special applications and have pretty well abandoned the high volume widget business that the off-shore suppliers are after,” he said.

“We have a good engineering department, and we are able to solve problems,” but he maintained the company can't chase everything and, instead, concentrates on what it's good at.

Krames admitted the firm's efforts have been costly because of new project startups, but he's confident the company will get a substantial return on its R&D investments in the future.

A custom molded rubber and liquid silicone rubber molder of numerous products for the automotive, aerospace, electronics, medical, oil, gas, plumbing and military markets, the Whittier, Calif.-based business has one disadvantage other companies across the U.S. don't face, he said.

“We're operating in California, the most business unfriendly state in the country. It offers additional challenges that others don't experience. We still have to try and cover significant increases in workers' compensation, utility and medical costs for our employees, which really cuts into our margin.”

Thombert, on the other hand, didn't face as many problems during most of the recent downturn as other manufacturers because it services a limited but strong customer base, Smith said.

However, the Newton, Iowa-headquartered maker of polyurethane tires and wheels primarily for the lift truck market saw sales plummet 20-25 percent in 2009, he said, but that turned out to be a blip.

By 2010, it not only returned to normal, but since then the company has experienced slight sales increases.

Thombert believes in taking care of what it has, in terms of customers and employees, and takes pride in its strong service operation. “We've had amazing longevity ... and great customer loyalty.”

“We're very specific and practice limited marketing,” Smith said. “We focus on authorized dealers, OEM customers or their replacement businesses. Very ethical and disciplined marketing is one of our hallmarks. That gives us a limited but solid customer base. We can't be opportunistic and just grab anything that comes along.”

Smith said the economy is still not very strong and interest rates remain low. “It's a great time to go buy a company because of the low rates, if the buyer qualifies for a loan,” he said.

The landscape for smaller companies has always been good, Smith said. Businesses “just need to take advantage of opportunities when they present themselves.”

Every small firm wants to be a bigger company, he said, but one of the advantages of a smaller sized business is that by just adding two or three new customers, it can double the rate of increase in the economy if it remains nimble. “A little means a lot for a small company.”

Santa Fe's Krames said to remain a survivor, a business must identify its strengths and draw from that. “I've learned you can't be everything to all people.

“Life in business is not always on the mountaintop, and you learn that there are business cycles and you have to be prepared to weather the downturns. However, this downturn has been the longest and deepest one I recall experiencing during my past 50 years in the rubber industry.”