RPM restructures, revs up sales after key source of work is lost

For RPM Technology Inc., losing its work from Advanced Energy Industries Inc. could have been akin to being orphaned.

But the contract manufacturer of electronic components took the hard knock from its largest customer, overhauled its operating model, and is now ramping up employment and its customer base.

RPM took over AE’s printed circuit board assembly operations in September 2003. The acquisition instantly grew the company from 20 employees in a 5,000-square-foot plant to 100 staffing a 30,000-square-foot facility.

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The boost proved to be temporary.

In recent years AE has been gradually realigning its manufacturing process, highlighted by establishment of a new high-volume manufacturing hub in Shenzhen, China. By the summer of 2005, Shenzhen was fully operational, and much of RPM’s work for Advanced Energy was moved offshore.

RPM would have to face coming out of several years of recession with a blow to its customer base.  At the peak of the partnership, AE represented 85 percent of RPM’s work.

“We certainly knew going into 2005 it was going to be a tough year,´ said Rob Malcom, president of RPM.

AE does not comment on service or materials providers, said Cathy Kawakami, director of corporate and investor relations. However, Kawakami pointed out that still conducts low-volume production in Fort Collins.

 “All power products are launched in Fort Collins until they’re volume-production-worthy,´ said Cathy Kawakami, AE’s director of corporate and investor relations.

AE’s in-house, domestic manufacturing of low-volume runs is part of the long-term plan, Kawakami said. New products are launched from a number of company facilities in the U.S., Europe and Asia.

RPM finds new gear

Rather than focusing on what to cut during a potentially grim year, RPM used 2005 to institute a number of changes to internal operations. The result was new customers, increased staff and improved efficiency.

One of the major changes for the company was the addition of an internal sales force. Previously, the company’s sales representatives were not actual staff members.

By fall, the company had its own sales force. RPM will also put in place a sales associate in Texas this quarter and one in the upper Midwest later this year.

“In the first quarter, we added three new customers outside of Colorado,” Malcom said.

RPM has been a contract manufacturer to some of Northern Colorado’s innovative start-up companies – including Optibrand Ltd. LLC of Fort Collins and Windsor-based Ice Energy LLC. However, the company is finding many new customers all over the country in a variety of industries.

A major aspect of the company’s growth plan is to focus on its core competencies in specific industries – such as medical, power supply and motors, according to David Pere, RPM’s business development manager. He added that RPM isn’t tied to any set of industries, but some are definite targets.

“I do not target semiconductor companies at all,” he said. “We are making some good strides in growing in other industries.”

Pere expects 50 percent to 60 percent growth this year, much of which is already established with customers picked up in the last six months.

With a variety of new customers, RPM is back on the hiring track. The company increased its staff by 20 since the start of the year, bringing it up to 150 employees. Malcom estimated the company will hire an additional 20 to 40 by the end of the year, still a far cry from the company’s peak at 260 employees.

But changes in operational excellence have made the company more efficient.

RPM has always tried to make data-driven decisions, according to Steve Ochsner, director of operations. RPM instituted a new Web-based data collection tool and 2005 saw the payoff from of the investment. During 2005, the company saw a 30 percent to 40 percent improvement in quality, in part due to the ability to track issues and respond accordingly.

Another data-driven measurable for RPM is on-time delivery. In early 2005, the company had an on-time delivery rate of 40 percent to 50 percent. After reviewing data related to on-time issues, the company was able to make vast improvements.

“Now, we’re well above 90 percent,” Ochsner said.

The improvements in quality and delivery time set up RPM well to serve new customers. In its quest to make itself available to customers from all geographies and in all industries, the company invested in becoming an early adopter of Europe’s RoHS directive. RoHS stands for “the restriction of the use of certain hazardous substances in electrical and electronic equipment.” It is meant to rid electrical components of materials such as lead and mercury to make the end-products safer for recycling or disposal.

“We added a line that services the RoHS customers,” Ochsner said. “It was definitely the most significant capital investment in the last six months.”

RoHS compliance for products in Europe takes effect on July 1. Ochsner said he is not sure how many other manufacturers the size of RPM have already become RoHS compliant, but that early tier-two adopters will likely have an advantage as such directives spread around the world. His prediction: California, which is known for cutting-edge environmental regulations, will be the next place to demand such products.