Controlling One's Destiny

Aug 20, 2023

Make, buy, or say “the heck with it” and go fishing? Attempting to “go vertical” presents many obstacles. Are you ready?

Work in manufacturing long enough and you’re sure to get an unpleasant phone call from those entrusted with your plating, grinding, welding or any other commonly subcontracted operations. “Sorry, but there’s a problem with your parts.”

Sure, the supplier will offer to run the next batch for free. Push hard enough and they might even compensate you for the scrap. But the fact remains that you now have to call your customer with the bad news, order more material, and find time to remake parts that were perfectly fine before leaving your facility.

So why not keep subcontracted operations in-house? There are many excellent reasons to do so, not the least of which is avoiding the sad story just told.

Vertical integration allows more control over a company’s future. Among the potential benefits are shorter lead times, greater responsiveness to customer demands, and (probably) lower costs.

Most intriguing of all is the potential to take some work away from the yahoos that keep messing up orders. But this likely will require expanding the company’s operations—in some cases substantially.

Ask Larry Lukis. In 1999, the now-retired engineer launched Protomold, a “quick-turn” provider of plastic injection-molded parts. Today, Proto Labs Inc. (Protolabs) is a publicly traded international manufacturer with annual revenues of nearly $500 million, 15 locations and more than 2,500 employees.

Headquartered in Maple Plain, Minn., Protolabs isn’t entirely vertical—very few manufacturers are—but it does provide machining, 3D-printing, plastic injection-molding and sheet-metal fabrication services, as well as numerous secondary processes such as vapor smoothing and laser engraving.

Some of these manufacturing systems Protolabs developed on its own. Others, such as Protolabs’ Hubs network of manufacturing service providers, were obtained through acquisition. In this instance, Dan Barsness, vice president of integration, is responsible for bringing that acquisition’s disparate employees and processes “into the Protolabs fold.”

It’s a big job, Barsness noted. “During my time at Protolabs, we have completed four acquisitions. Given our size and scale, we typically assemble subject matter experts to address various aspects of the acquisition process, which includes everything from finance, human resources and IT to our go-to-market strategies and online quoting capabilities. My role is to oversee the integration of these areas and lead the functional teams working on the transition, which we expect to take a couple of years due to its complexity.”

None of what he’s doing is unusual, and those considering a similar acquisition should take heed. As he indicated, getting everyone from two or more companies to sing from the same corporate hymnal is no small task. Many companies have adopted acquisitive growth strategies with dedicated teams to manage what is undoubtedly a disruptive time for all involved.

Examples include Danfoss A/S, which purchases industrial companies and integrates them under a unified operating system, and Cisco Systems Inc., which has significantly expanded its core capabilities over the past few decades through a series of acquisitions.

“This role is truly an art form, and there is always something new to learn,” Barsness said. “I recently attended a McKinsey forum that served as an educational boot camp on this topic, where I had the opportunity to learn from experts who had managed large deals. Despite its many challenges, it has been an enjoyable and insightful learning experience.”

Of course, Cisco and Danfoss are behemoths—as is Protolabs, at least compared to other manufacturers considering their first acquisition. Still, the takeaway remains that successful deals require much more than a pocketful of cash. In addition to equipment and technology, buyers assume the acquired company’s payroll and, unless the new owners want to see decades or perhaps centuries of combined experience walk out the door, they would do well to consider the people, many of whom might be upset over the change of ownership. Listening to employees will not only make the transition smoother, but may help educate and enrich the buyer. “Culture is an important piece of the puzzle,” Barsness underscored.

Anyone who loves to sleep outdoors (but not on the ground where bears might eat you) will like this next story. Go Fast Campers Inc. of Belgrade, Mont., is directly opposite Protolabs in terms of size and approach to vertical integration. And CEO Wiley Davis, along with co-founder Graeme MacPherson, are much like Larry Lukis was in 1999—headed upward.

In 2017, the pair launched Go Fast Campers, which manufactures rooftop campers for pickup trucks and SUVs. Shortly thereafter, they hired Stephan Morris, chief operating officer, who Davis noted is “absolutely a critical part of the success we’ve had to date.” Go Fast Campers is as much a tale about design for manufacturing and reinventing a company as it is about vertical integration. That’s because the initial launch was so successful that the company and its three dozen or so employees quickly built a nearly two-year backlog that was only getting longer.

“It was great to know that we had so much revenue coming in and that people really wanted our products,” Davis said. “But, at the same time, we needed to find a way to fulfill orders more quickly before we got a reputation for ridiculously long lead times.”

As a result, team members put their heads together and looked for ways to make rooftop tents more manufacturable, explained Skylar Sullivan, design engineer. He cited a long list of improvements, such as transitioning from notched and welded frames to ones that bolt together. Other enhancements included standardizing the shop’s cutting tools and workholding, switching to rotary trunnions to reduce handling, implementing in-process probing systems, and installing robots wherever possible.

As part of its newly formed engineering department, Go Fast Campers purchased Fusion 360 from Autodesk Inc. It also developed a parametric CAD model that cut design time on new builds from “a month or two down to under a week,” and is used to generate the toolpaths for a retooled milling process that completes several key components in a single operation.

Integration played a key role. Go Fast Campers automated its sawing operation, invested in laser-cutting tables for the fabric shells, and built its own heat-press machines to glue the pieces together.

And, as part of the emerging trend of Industry 4.0-focused manufacturing, Data Scientist Kelly Sullivan began generating Python scripts to integrate information flowing between the various workcenters. Most recently, Sullivan supported a team of six in revamping the company’s website and improving customer experience.

“Now when people place an order, they immediately get a unit number, a completion date, and a link to schedule their install if they like,” she said. “What’s more, everything flows into our scheduling system automatically. There’s integration between all the different parts of the business.”

“About the only process we don’t do in-house is powder coating, and we’re looking into that,” added Davis. “As a result of our continuous improvement activities, we’ve basically quadrupled our output and greatly shortened lead times, all with minimal increases to headcount and floor space. Stephan and I are fortunate to have such a great team.”

Sometimes, vertical integration begins at the first link of the supply chain: raw materials. So it is with Ceratizit USA Inc., Schaumburg, Illinois, where Mirko Merlo, president for the Americas at Ceratizit Group, explained that—aside from its extensive line of cutting tools—the company supplies a wide range of products for the wear parts sector including injectors, nozzles and various other components, as well as carbide powder and rod.

Merlo suggested that a truly integrated manufacturer must consider what happens to its products at the end of their life cycles. “Our company’s operations span from the initial mining stage to the recycling facilities, encompassing the entire lifecycle of the materials.”

Granted, companies such as Protolabs and Go Fast Campers can’t be expected to mine their own ore, concoct resins or weave fabrics. Nor should they be charged with taking back the products they sell when customers are finished with them. But given the high cost of carbide, its relative scarcity and the technical challenges that exist with repurposing this uber-hard metal, Ceratizit has built a sustainable business model that encompasses all aspects of the supply chain and beyond.

“We start with mined ore that we acquire from several global locations and use it to create virgin powder, but we also collect a large amount of scrap from the products we and our competitors sell, and completely recycle it to make new carbide,” Merlo said.

“We’ve operated this way for many, many years, and this focus on sustainability is now part of our company DNA, if you will,” he continued. “But there’s more to it than being green or environmentally responsible—managing the supply chain from cradle to grave offers opportunities for greater quality control. We can develop high-performance products that are not only more cost competitive, but more predictable and precise, and require less energy to produce besides. It’s a win-win for all involved.”

Vertical integration provides many benefits. There are fewer surprises, costs are generally lower and, above all, there’s less dependence on subcontractors. But again, developing in-house capabilities can be time consuming and expensive, resulting in a “make or buy” Catch-22 that’s seemingly unsolvable.

Or is it? Perhaps the problem isn’t subcontracting per se, but rather the quantity and quality of the available subcontractors. Enter North Bethesda, Md.-based Xometry Inc., a digital marketplace that CEO Randy Altschuler described as a leveler of the playing field for those in search of manufactured components.

“North America has hundreds of thousands of small manufacturers with exceptional capabilities,” he said. “However, these manufacturers and their customers alike face challenges due to the limited visibility of these smaller businesses.

“For instance, an aerospace company in California might not be aware of this great injection-molding house or sheet-metal fabricator in New Hampshire,” Merlo explained. “This results in customers being restricted to their known supplier base, which is typically very local, and prevents them from accessing the broader base that exists across the country. This issue also affects the manufacturer, as they become overly dependent on their local customer base and industries, limiting their growth potential and diversification.”

For the mom-and-pop shops out there, this last part is crucial. A machine shop in Troy, Mich., is probably all in on automotive work and suffers when the Big Three domestic automakers and their tier suppliers slow down. By having ready access to other markets, all the eggs are no longer in a single basket. “Before Xometry, there really wasn’t a place for a manufacturer to efficiently market their open capacity,” Altschuler asserted. “At the end of last year, we had 40,000 active buyers in our database.”

That’s great news for anyone who just received the unpleasant phone call described earlier—no more being held hostage by a limited base of mediocre subcontractors. It’s also great news for those with open capacity and a desire to cultivate new customers. However, new customers may have novel needs, which brings us full circle: Exactly how does a manufacturer tackle the oft-difficult task of vertical integration?

A great resource to help manufacturers start their integration journey is the national network of Manufacturing Extension Partnerships (MEP). Last year, MEPs interacted with more than 33,500 manufacturers, leading to $18.8 billion in sales, $2.5 billion in cost savings, $6.4 billion in new client investments, and helping create or retain more than 116,700 jobs, according to the National Institute of Standards and Technology (NIST), the government agency that sponsors the MEP program.

Cincinnati-based TechSolve Inc. is an MEP affiliate that serves southwest Ohio. The company could be a new best friend to any manufacturer aspiring to expand its offerings and achieve greater vertical integration, according to Radu Pavel, vice president and chief technology officer.

“For instance, we provide services that enable manufacturers to understand what challenges they might face when trying to machine new materials in-house and what are some of the solutions they could adopt, including new equipment, cutting parameters and tooling, fluids and so on,” he said.

“TechSolve owns a machining laboratory that emulates a small manufacturer’s shop floor, with multiple CNC machining centers, ancillary equipment, and instrumentation for data collection and analysis. New technologies can also be tested in this controlled environment, reducing the risk of adoption by the industrials.”

TechSolve and other MEPs can also assist with process plan development, he added, whether evaluating the capabilities of a manufacturer’s legacy machine tools or new, more complex equipment such as five-axis machining centers and CNC lathes that it might not yet own. Perhaps most attractive to a company struggling with its current workload is the ability to validate and demonstrate these processes or technology without affecting the manufacturer’s production schedule.

Such capabilities can be quite helpful to small- and medium-sized manufacturers that might not have the time or wherewithal to tackle previously subcontracted machining technologies on their own, Pavel pointed out.

As vertical integration grows, so does operational complexity, which is why any shop—complex or not—should begin laying the groundwork for a digital manufacturing strategy. As Go Fast Campers and many others have found, shop-wide systems integration returns significant benefits, as does Industrial Internet of Things (IIoT) connectivity, data collection, and analytics and automation of all kinds.

Here again, MEPs are there to assist. “We help accelerate the adoption of digital manufacturing technologies through awareness creation and employee education, evaluation and testing, and validation and demonstration of these technologies, as well as on-site assessments to collaboratively determine implementation opportunities and generate a roadmap,” Pavel noted.

In addition, TechSolve works with manufacturers on special studies and surveys, including technology surveys and scouting, state-of-the-art studies, and workforce development for various topics associated with smart manufacturing. “All of these can help a business grow its capabilities, whether they are striving to become more vertically integrated or not,” Pavel said.

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