MANUFACTURING   
     

Sidney Harrison's Industrial TurnAround Corp. is a job shop for manufacturers like Goldschmidt Chemical Co.

photo by Mark Rhodes

Goldschmidt makes chemicals used in suntan lotions, shampoos and foam insulation for cushions and car seats. The raw materials used to make those chemicals are delivered in 55-gallon drums or 100-pound bags. But to increase production and cut costs, company leaders wanted a system in which large tanker trucks would put the raw materials directly into storage tanks. They would be able to buy in bulk and could avoid the fuss of handling small quantities. It was a complicated change and one that Goldschmidt couldn't handle in-house. So company execs hired Itac engineers to design the pumps and the delivery and control systems. They'll also take care of the details, such as hose connections and safe transportation of raw materials from tanker to storage to production.

Major manufacturers haven't always outsourced such work. They used to be self-sufficient islands that would rely on in-house engineering teams to design and maintain machinery and systems. But keeping such teams on the payroll full time isn't always the best use of resources, nor does it always result in the best expertise. A job like the one Itac is taking on for Goldschmidt typically costs $1.5 million and requires eight to 10 engineers. Depending on the amount of specialized equipment, it could take from six to 18 months to complete, says Jon Loftis, Itac's vice president of operations.

Itac President Sidney Harrison is a former project manager for AlliedSignal's engineering division. That's where he first saw the need for industrial outsourcing -- he needed a way to hire experts for a specific project for a set period of time. So 12 years ago, he founded Itac with several colleagues. The company now has 57 employees. Itac isn't alone in its success. Industrial outsourcing firms have become one of the fastest-growing sectors of the Virginia economy as manufacturers race to adopt new advances and greater efficiencies.

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The workings of a manufacturing operation are more mysterious than the workings of a law firm or a retail shop. "My wife of 20 years still says, 'I didn't know you do that,'" says Les Hall, president of Amark, a Suffolk-based industrial contracting firm.

As a result, the rapid growth of industrial outsourcing has gone largely unnoticed. But companies riding this wave are jumping up onto lists like the Fantastic 50, the magazine's annual ranking of Virginia's fastest-growing private companies.

Amark, which cracked the list in 1997, installs and maintains equipment and process piping. When manufacturers need to expand or upgrade their equipment, Amark helps design the new systems and make them work. Among the company's 85 employees are riggers, carpenters, electricians, millwrights and pipefitters. They're trained in detailed work that a manufacturer doesn't often require. Cleaning or making modifications inside a tank, for example, requires special equipment and training.

By outsourcing, manufacturers are hiring, not only the contractors' skills, but their safety records. Amark's workers, for instance, are confined-space certified. Because they regularly work in small spaces, the company is a safety leader in the specialty, Hall says. "Many companies don't want to risk [injuring] their employees. ... It's easier for us to be safe when that's our entire focus."

Engineering is just one type of industrial outsourcing. Manufacturers also are turning to outside experts for factory automation equipment and design.

Factory automation was not part of the game plan when Synchrony formed six years ago in Roanoke. It started out making instrumentation for gas turbine engines. Then the company realized there was strong demand in Virginia for the type of systems integration Synchrony could provide, says CEO Victor Iannello. In this year's Fantastic 50, Synchrony was Virginia's fastest-growing company west of the Blue Ridge Mountains. Factory automation work accounted for more than half of last year's revenues.

Here's how a company like Synchrony works: A manufacturing client identifies the problem or goal. It might want to increase performance or limit waste, or there might be too much down time in changing from one product to another. Synchrony will design and build the system from start to finish -- mounting and wiring components and electrical panels, developing and installing software, and even training employees.

Iannello predicts factory automation will continue to explode in Virginia. Manufacturers want the new technology, and they need help implementing it. "Companies are realizing that they need to focus on those parts of the operation they know best, and they also realize it's incumbent upon them to automate since they're competing on a global basis," Iannello says. "Automation technology is a field that's experiencing a rapid revolution fueled by how quickly things are changing through personal computer technology."

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When hazardous waste regulations started taking effect nearly 20 years ago, businesses didn't know where to turn.

"The initial activities in our industries were the paperwork. Then that wave was followed by study phases, and then eventually it led to the fix-it phase," says Roger Hatcher, president of Hatcher-Sayre, a Richmond-based environmental engineering and consulting firm.

Industrial companies, however, don't want to hire one company to devise a solution and another to implement it. "So we take on the responsibility of hiring and managing subcontractors," Hatcher says. "It takes some of the liability off the client, and it simplifies the process."

The demand for environmental firms goes up when new regulations are issued. But "when it looks like a program is here to stay, the tendency is to bring it in house." Hatcher says. "For us, the challenge is to determine what are going to be the long-term opportunities."

Forward-looking companies are now looking for ways to gain environmental and economic benefits at the same time, says Scott Kroll, head of environmental services for Blacksburg-based Draper Aden Associates.

Engineering firms that can blend the two will build lasting relationships with major industrial clients. Wiley & Wilson, an architectural and engineering firm based in Lynchburg, thrives on relationship business, says Vice President Fred Armstrong. Last year, the company's 120 employees generated $9 million in revenues.

Richmond's Alliance Engineering also has quietly gotten big by building relationships with the likes of Amoco Oil, BI Chemical, White Oak Semiconductor, AlliedSignal and Coors Brewing. Alliance generated 1998 revenues of $5.5 million and has 65 employees. "Most of our work is for upgrades instead of new plants," notes President James Burnette. Recently, Alliance staff worked at Coors for more than a year. Among the projects it handled was writing a start-up and checkout procedure manual. "We had done some keg line improvements and miscellaneous projects. Normally, the procedure manual would have been done by the plant engineer, but engineering there had more projects than staff."

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Manufacturing operations have gotten lean and mean, which has translated into smaller engineering staffs. And industrial projects that would have been taken on by in-house engineers eventually bubble up for bid.

Capital projects -- those most likely to be outsourced -- are often slow to be funded. But when the money is allocated, the company wants the work done yesterday.

Alliance's Burnette says that fact of life is hard on the manufacturer and the outsourcer. "It's very difficult to balance the needs of many clients and coordinate the staffing. Most plants have only a minimum number of people there. Every time they get a peak overload, they call us. So we're constantly working at the high end of what they need. And it seems like when one client calls, two or three will call in the same week."

Because outsourcers work for a range of industries, they need to stand ready to respond to peaks in every business cycle. That's one of the reasons why these engineering companies can keep high-caliber employees. Unlike a single manufacturer, which might need to cut staff during lean times, an outsourcer is somewhat buffered. "All engineering goes in a cycle, but ours is steadier than at some of the plants," Burnette says. "My personal goal is to get a larger base of clients so when one isn't busy, another is."

That helps recruit and retain good employees. And leaders of industrial outsourcing companies are quick to point out that their employees can make or break their reputations. They have to compete with big firms, manufacturing plants and each other for the best workers. "In good economic times, it's hard to find the help," says Amark's Hall.

In fact, the labor market will likely give rise to some new outsourcing twists. Already "there are labor-leasing companies, where the company doesn't employ workers at all," says Roy Reynolds, vice president of the Virginia Manufacturers Association.

"Wondering whether this strong economy is going to last causes strategic planning problems. You don't want to bring on people who, in three or four months, you have to let go," Reynolds says. So by maintaining a core group of workers and contracting out for specific tasks, a manufacturer can maintain its image as a steady employer.

While outsourcing firms are getting bigger, even the small ones can succeed. The successful outsourcer will be the one that's right for the job. "If you need a tool shed built, there's no reason to hire a large construction company," says Reynolds. "They'll have to bring in a crew and set up a trailer. The guy in the pickup truck can build you a shed in a day."

© JULY 1999, Media General Business Publications Inc.,
publisher of Virginia Business Magazine