RPM generates business in small doses

FORT COLLINS — “Go big or go home” is a bumper sticker philosophy that’s applicable to the sports world.

“Go small or go to Asia” may fit the contract manufacturing industry.

Large-volume contractors in the North America have been moving increasing portions of their business offshore in recent years to save on operating costs. That trend hit home in Northern Colorado last year when Flextronics shut down a plant in southwest Weld County, eliminating 400 jobs.

Rob Malcom, president of RPM Technology of Fort Collins, watches the offshore trend with professional interest. But his company, which bills itself as a “low-volume, high-mix” contract manufacturer, is staying small and staying put.

RPM, which recently relocated to Fort Collins from Windsor, invites business in small amounts. The company’s average lot size is 10-to-15 units per production run. Similar firms, such as Rantek in Loveland and Black Fox Technology in Longmont, are finding a healthy market for their services on the Front Range.

In fact, the low-volume, high-mix sector in electronics contract manufacturing should outpace the broader industry this year, said Pam Gordon, president of Technology Forecasters Inc. Gordon predicts 5 percent growth this year for the so-called EMS (electronics manufacturing services) industry. “I would say the low-volume, high-mix companies will probably grow a little bit faster,” Gordon said.

Smaller EMS companies are also more profitable because they can command premiums on the specialized, small-volume jobs.

“The average profitability for small-sized contract manufacturers in 2002 was 4 percent, compared to negative 1 percent for the full industry and negative 5 percent for the largest EMS companies,” Gordon said.

RPM’s customers vary from major corporations like Hewlett-Packard Co. to unknown start-ups on the Front Range trying to produce a prototype. The common platform for RPM’s clients is that each wants quick turnaround, attention to detail, and usually make small orders.

Furthermore, the large-volume manufacturers “don’t want our business,” said Larry Choate, co-founder of Ensign Solutions, a Loveland company that makes customer power supplies for military applications. Ensign outsources assembly of printed circuit boards used in its power supply units.

“We have a need for low-volume and high quality,” Choate said. “The big boys generally don’t want to talk to us.”

Larger contract manufacturers have geared their equipment to handle large production runs, so it’s not cost effective to readjust for small lots. “The difference is the large contract manufacturers have different processes that force them to do larger lot sizes,” Malcom said.

Choate, who has previously contracted with RPM, Rantek and Black Fox, said he likes to work with vendors in close proximity because “solving problems quickly is important to us.”

Ninety percent of RPM’s business comes from clients on the Front Range, Malcom said. He expects it stay that way. Malcom calls the region “an untapped market” for small contract manufacturers.

Acquisition triggers expansion

The low-volume niche has helped RPM grow quickly since it was founded in 2000. The company was already on pace for 20 percent revenue growth this year before this summer, when it took a leap of geometric proportions.

In July RPM acquired the printed circuit board assembly operations from Advanced Energry Industries, the Fort Collins-based company that makes power supplies for high-tech manufacturing equipment.

In the process, RPM took over Advanced Energy’s printed circuit board plant in south Fort Collins and absorbed dozens of former AE workers. RPM grew instantly from a 5,000-square-foot plant and 20 employees to more than 30,000 square feet and a staff of 100.

As part of the deal, Advanced Energy becomes RPM’s largest customer for printed circuit boards. Still, the nature of Advanced Energy’s products also call for a variety of small production runs, Malcom said.

The Advanced Energy deal will be digested over time. But RPM has designs one day on filling the plant — which is operating at 30 percent of production potential — with multitudes of customers.

“If you’re a large contract manufacturer, 15 or 20 customers will carry your business,” Malcom said. “We project us to be at 60 clients or more.”

Malcom has placed his faith in the inventiveness of American business, which he believes will generate the “high-mix” side of his business model.

“There’s a new wave of manufacturing in the U.S.,” he said. “Thirty-five percent of the world’s innovative products come out of the U.S.”

Which means a lot of potential customers for RPM and its competitors.

“Somebody has to do that work,” Malcom said.

Nor does RPM plan to let its customers outgrow it.

If a client begins to require large production lots, RPM offers a management service to switch manufacturing overseas to bigger plants.

“We want to be an entire solution,” Malcom said.

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