HM Manufacturing is on the verge of collapse and the business needs to find a way to survive. The good news is that today, HM Manufacturing is once again on a growth trajectory. Nicole Wolter, daughter of the company’s founder, came in to a business that was on life support. If things didn’t turn around quickly they would be bankrupt. Here, Nicole shares in her own words what it was like and the actions that were needed to turn things around.
HM Manufacturing: In Nicole’s Words
Dan: So, first of all, tell me who you are, tell me about what you do and what your business is.
Nicole Wolter: I am Nicole Wolter, President and CEO of HM Manufacturing. My main responsibility is to do inside & outside sales, operations, manage, quoting and marketing. I do a little bit of HR but am trying to source that out. I travel a lot and go to conventions and see customers. I am very big on giving back to the community so I’m constantly in and out of the high schools that have manufacturing programs, in order to continue on with my internship and apprenticeship program, I started this year. But, as far as the business goes, we are a power transmission components provider. Which means anything that’s in a gearbox or belt driven. We have expanded our product line from just doing timing belt pulleys and gears to doing splines, shafts and sheaves and now doing a lot more 5-axis milling and assembly work; stuff that we haven’t done before. So pretty much doing everything from start to finish with a gearbox, which is an exciting thing.
Dan: How long has this company been around?
Nicole: 1979. My father started it and I came on board the latter half of 2009.
Dan: So what possessed him to start a gear company?
Nicole: He was the chief engineer at Wisconsin Tool and Stamping Inc. but he had a desire and passion for Formula 1 racing and that’s what he did in his spare time. He’s a modifier and an engineer, and he was constantly deciding he wanted to change gear ratios and make it faster. He would build his own prototypes and change things out of the engines and I think that’s what pretty much sparked the interest of, “You know what, I could do this.” I love this passion.
Dan: Okay. How what how long did it take you to move from that to doing regular automotive components at this point?
Nicole: He started in 79 in the basement and started to do some gearing and some prototypes. He had a good relationship, which at the time, the company was called Uniroyal, now known as Gates Metrol, doing belts. And so he was prototyping their belts with his timing belt pulley system to see how this was all going to work out and they did somewhat of a joint venture. Having a bigger company kind of fueled his network, and then when automotive started to die down a bit, he decided he was going to head in a different avenue. In the beginning, it was printing and automotive and then in the 2000s we switched gears to go into the food processing and beverage industry.
Dan: So you expanded it?
Nicole: We did, yeah. Automotive parts were no longer profitable-pennies to a dollar and my dad said that at times he felt like he was throwing a buck in the box every time he was shipping something. So, he needed to switch what he was doing.
Dan: Well, that’s a good sign of a pivot in your industry. What got you into the food side of things? What specifically do you offer there?
Nicole: We do a lot of pulleys.
Dan: So like conveyor systems.
Nicole: Exactly, a lot of that. Helping Gates Metrol at the time, prototyping for their posi clean plastic belts, generated the next big wave of the food processing and beverage.
Dan: Okay. So this is a family run company.
Nicole: It is.
Dan: Except you didn’t initially get into this to run the company.
Nicole: No, zero. There was never any inclination that I would be a part of the business. It was go to college, go find a career set. My mom being Colombian, she has this mindset of you need to be a doctor or a lawyer or a financier or whatever the case may be. But being in manufacturing, even at that time was considered a dirty job. No one really wanted to be in manufacturing even though it was booming at the time. I think just being a woman in the industry and not a lot of women were in it, I just don’t think that that was something that both my dad and mom were comfortable of me being involved in.
So I went off to college, I did chemical engineering and finance and that was my background. I was going to go do the whole finance route and go trade and do stocks. That was what I was geared to do. So when I got the call in 2008 that the business was suffering greatly, that was hard to hear. It was the recession, of course, like I’m coming out of college at that point and I needed to find a job and my dad said, you know, I would really like your help. I had to lay off a lot of people and I think that you would be good in a sales role. You do like talking to people, you’re fun, you’re bubbly, and I think you would grasp it. Having the engineering portion, he’s like, I think you’d be able to morph into it quickly. But he did say at that time, I don’t want you here just yet. I need you to go get kicked around a bit.
And with that, I went downtown, got a job at a securities firm. I definitely did get kicked around a bit. I’ve got really tough skin. Of course, as luck would have it, I did get fired because I’m quite fiery and opinionated. I was telling the guy who was running his firm how he was mismanaging it and of course you don’t really want to hear that from this 20 something year old kid, much less the girl who just thinks she knows everything. So, I got fired, and called my dad. I go, “is it time yet?” and lo and behold, it was time.
It was September when I came on-board and it was a slow process. I didn’t know anything about the business. I didn’t even know what we did, what our products were, or who our customers were. I knew absolutely nothing. So, to say that I was green is quite an understatement.
Nicole’s Trial by Fire
Dan: So how did you figure all that out? Did they have any sort of training process for you?
Nicole: For me, no.
Dan: Trial by fire then.
Nicole: It was absolutely trial by fire and I was okay with that. I’m a quick study. I process things by visually watching and I’m also very in tune with things. So, I’m very observant. I started out in the shipping and receiving role, just to kind of get a feel for what the shop was like. And obviously not having any machining ability, I wasn’t going to go on a machine. But just to kind of get a feel of what the shipping and receiving was all about and to see that process was good. That morphed into doing inventory, taking accounting of what inventory we had, flanges, set screws, bearings and current parts on the shelf. Learning, at that time, a super archaic system, but getting an idea of how this all works and how it functions, that was good too.
Then I came into the office doing more of the secretarial work, answering phones, doing time cards, data entry, writing up some orders and quotes. Having no idea what I’m writing up, just kind of winging it when a customer or prospects calls looking for a T5 aluminum or 32 XL pulley. And then fielding those calls. I moved on to accounting, which was super easy for me having the finance background, and did AP, AR, and payroll. And then after a while, I merged into quoting. That was very interesting because at that time, my dad was the one who was teaching me how to estimate. I was getting very frustrated because my dad knows what he’s doing and he would jump from a to z in a heartbeat. And I’d sit there puzzled like, no, no, I need a, b, c, d, e and a half, e and three quarters. I need you to slow it down.
He was not a good teacher for that. What I ended up doing to learn the processes, I would find something that was similar that was quoted by my dad and mock his quotes off of these new quotes. That’s how I learned how to quote, I wouldn’t say effectively, but at least a little bit more efficiently. I took the time to learn that and really study all these quotes and that in itself was huge. From there I decided to do cost analysis of what was quoted versus the realization to the job. And that’s when I found all the massive discrepancies that was going on in the shop at that time. That was 2010.
Dan: You started finding things that didn’t appear quite right. Could you go into some detail on that because I think there’s a lot of trust I find with business owners, they put people in charge and they expect things to be handled and typically when there’s money there, they don’t worry about things and that’s usually when all the problems first start occurring. Then you get to a situation like what you had which is we had a recession and there’s just natural reduction of business. Now all of a sudden all the, money hides a lot of problems and there’s no money so the problems start surfacing. What are some of the problems that you started seeing?
Nicole: What I started to see was costs not matching up to the job and we were really losing money. When I brought it up to my dad’s attention, I was like, we quoted this, so let’s just say, for example, 10 pieces at $50. I would say, I don’t know why it’s costing me now $95 to make. We’re not that busy. Our lead times are still aggressively long. I’m starting to see more scrap in the bin. Things just weren’t adding up. What I would do is after everybody was gone, I would take up the notion and do a walk through of the shop and take an accounting of what was at each bench. I really wanted to see what was going on. Check to see if there was back log on the machines, if there was anything. Looking at the time cards and questioning why saw cutting these pieces from nine to 10:30, why isn’t the employee also running something else during that time?
I was starting to see that people were really dogging it when it came time to what they were doing during the day. That was the first red flag…why aren’t people producing? Then when that started to not make sense…
The Numbers Don’t Add Up
Dan: Can I stop you there just for a second. I have noticed especially with kind of small and medium sized business owners because they don’t want to lose people, they tend to allow them to kind of sandbag a little bit in order to keep the hours. Was your dad aware that that was going on?
Nicole: He was aware. The thing is that he was always very cognizant of what was going on but I think he was also in denial of what was going on. Knowing that it’s the recession and you’re nervous about that and you’re trying to throw money at a problem and it’s really not fixing anything, and then you have this daughter who is super green and is asking all of these questions, I’m sure he was irritated with that because nothing was adding up. Then at that point I started looking at the scrap. The scrap was starting to build up and I’m starting to see that we’re ordering material when we don’t really need to be ordering material, we should have enough on the shelf especially at that time we were doing small lot sizes, small batches. At the time it was anywhere from one to 25 pieces, 50 at the most. Now our average is in the 300-400 range. So it’s a completely different situation of what we were back then to now.
It just didn’t add up. And so I continued to watch the scrap continue to pile up. I was also doing some purchasing, which helped me realize that between quoting, purchasing and overseeing the realization of the job when it was finished, that we had a big problem on our hands. A catastrophic one.
Dan: How many people did you have at that time that time versus?
Nicole: Now we have 22. At that time, we had about 8 and we let a couple go. So we were down to about six.
Dan: Okay. So you were probably 10 at one point down to six?
Nicole: Right; we were all tasked to do multiple jobs at that time, which helped me oversee boxes, packaging supplies and material depleting. Everything was starting to go at a rapid pace and it just didn’t seem to make sense. So I asked my dad what’s going on as a last ditch effort to get some knowledge. I told him that, I’m watching machine times skyrocket and our lead times were still long and scrap continue to pile up. We need to talk to someone, I just don’t think that this is right.
He told me, “it’s the recession, people don’t want to lose their jobs,” so I think what they’re doing is just dogging it. They’re extending their machine times. They’re really not running at a fast pace because they don’t see anything coming down the pipeline. As much as that made sense, it still was quite an alarm for me because it just seems like a very foolish way to run things. Since I was still doing sales and the quoting, I kept hearing over and over again a competitor’s name. They were beating us on lead time. Naturally, we were still at four weeks even though we had nothing down the pipeline. They were beating us to pennies on the dollar, which was super ironic. When I was charging $50, they were now at $49.98 for the exact same thing. And I thought that that was very, very weird. The thought of maybe I have a rat in here, maybe someone made a deal, someone cut a deal. Maybe they’re getting something on the back end, ran rampant in my mind. You start to go through all these scenarios.
The story is one you may have heard play out time and again. We allow inefficiencies because we fear losing talent. Now it’s getting costly. Other weird things are happening that don’t make sense. The evidence just doesn’t add up. In Part 3, Nicole will share what she discovered and the drastic measures she had to take to save the business. Stay tuned!