In January 2002, Shiloh Industries was facing a crisis.
The engineered metal products manufacturer had tapped nearly all of its $290 million line of credit to fund growth and acquisitions in the 1990s and was in default.
Profitability was suffering, and the company, with annual revenue of $600 million, was burning cash at an alarming rate. The banks refused to extend further credit, and the independent auditors couldn’t give the company the unqualified opinion it needed without an additional banking agreement. SEC filings were due, and the closing of the 2001 fiscal year had been delayed to buy Shiloh a bit more time.
But there was no time left.
“We didn’t have years, we had days,” says Ted Zampetis, Shiloh’s president and CEO. “The transformation had to start immediately.”
Zampetis, a semi-retired executive who worked for The Standard Products Co. for 27 years, including as its president and COO, was a member of Shiloh’s board in 2002. He knew full well how bad things were. When things started looking critical, the board asked him to spend a month visiting the various Shiloh facilities to assess the situation, interview the people and report back to the board.
There were four questions that needed to be answered to provide a full diagnosis: Are the margins healthy? What is happening from an operational point of view? What is happening with leadership? How strong is the strategy of the company?
“Diagnosis is the most important tool because you have to understand what is happening,” says Zampetis, who immigrated to the United States from Greece at the age of 25. “The business strategy was not what we were led to believe at the board of directors level. Once that was diagnosed, I was able to come to the board quickly. Unfortunately, in all four areas we were suffering at Shiloh, suffering big time.
“I expressed the view that we were either going to turn it around fast or we were going to lose the company. There was no other way out.”
After Zampetis reported back, they knew change had to be made and that there was only one person who had the knowledge of Shiloh and the knowledge of the industry to pull off a quick turnaround.
With the company already burdened with a cash shortage, Zampetis offered to work the first three years for stock instead of a salary. The board readily agreed.
So on Jan. 28, 2002, Zampetis took over Shiloh Industries, and the turnaround process began.
Setting the tone
One of the first things Zampetis did after taking over was to rehire a receptionist. While it might sound like a pointless move with the company teetering on the edge of ruin, it set a tone with the employees — the receptionist was brought back at the same time 11 vice presidents were let go.
“It was unbelievable to see the structure of this company during that time,” says Zampetis. “We basically had fired the receptionist to save money. So if you wanted to call Shiloh, you were going around in circles until finally you’d get frustrated and say the heck with it.
“Firing the receptionist saved some money, but at the same time, they had 11 vice presidents they were paying a high amount of money to.”
Bringing back the receptionist sent the message that the company had a new focus on customer service. The 11 empty offices sent the message that Zampetis meant business.
Now that he had everyone’s attention, the sales process to get employees and customers to believe in him began.
“I had to stand up in front of everyone internally and externally and explain to them what was happening,” says Zampetis. “I had to explain why the company was in the shape it was in and, more importantly, how we were going to get the company out of that booby trap. I had to explain my role and the role of everyone else. That’s the start of a culture.
“For union, nonunion, hourly or salary, there is one story,” he says, wagging one finger in the air for emphasis, “not two different stories. The first thing is, there is one message that is common and consistent. You reinforce and support it, and you say it to everybody. You tell them the truth. My objective was to create clarity in the mind of everybody.
“Once you create clarity, you create unity. Then, if you create unity, the action plans you put in place will be executed with intensity.”
Employees were taught about process ownership and how they fit into the overall company and why their skills were important to the company.
Profit power
When Zampetis took over, he was the equivalent of a doctor working on a patient for which he had no X-rays, MRIs or vital signs. His experience gave him a good idea of what was wrong, but nursing Shiloh back to health required better data. With that data, he could start making changes that would make the company profitable again.
“You have to maximize the cash you generate from operations,” says Zampetis. “You cannot just cut costs and survive, profit and grow. Cutting costs saves some cash and helps for a few weeks or months, but if we are going to grow as a company and gain some self respect, then we better start focusing on profitability.”
Each day, plant managers are asked what they have done in the last 24 hours to improve on scrap, rework, chargebacks, environmental health and safety and quality.
“This takes place in front of everybody,” says Zampetis. “If there is a problem, I ask the others if there are any recommendations. They suddenly understood that I was holding them accountable, but also creating some teamwork to create a cohesiveness. The good plant managers love to jump in and help their fellow managers.”
Productivity also had to increase. Zampetis instituted a formula to measure it at each of the company’s plants, which can vary greatly in what manufacturing methods they use.
“We cannot create value if our productivity and waste costs are not what they should be,” he says.
In three years, productivity has improved by 50 percent. As a result of the productivity gains, Shiloh decreased its work force by 37 percent in that time period.
Manufacturing as a percent of revenue was also too high, according to Zampetis.
“Like every other company, manufacturing as a percent of revenue was 35 percent,” he says. “I told everybody we need to get below 30 percent. They looked at me like, ‘What is he smoking?’ I’ve never smoked anything in my life.”
In 2004, manufacturing as a percent of revenue was down to 28.5 percent, and Zampetis says they have good momentum going to take it even lower.
Six Sigma principles were adopted to optimize the performance of the company.
“The first thing you have to do is understand what value the company possesses and how are we going to unlock that hidden value,” says Zampetis. “That’s how we will create a capability that is different than anyone else in the eyes of the customer. Can we provide a competitive advantage they can’t refuse?
“I talked to the employees about certain aspects about what we have to do to optimize purchasing, customer relationships and strategy. Each and every customer is different. Each has different issues and needs. Some problems are common, but some are uniquely different. The common ones are easy to understand. The unique ones — if you know them — then you can manage them effectively. So we developed a strategy for every customer, then optimized our performance. There is no substitute to unlocking value like optimizing performance.”
Zampetis also faced the challenge of getting 11 plants and two technical centers to think like one company rather than individual components.
“I brought in our top 10 people and spent one week to develop our business strategy,” says Zampetis. “At that point in time, there was a lot of confusion. Shiloh is in the blanking, laser welding and stamping business. What’s our strategy? People who worked for years in blanking were pushing our focus to be blanking because we were good at it.
“People from the stamping part of the business were pushing stamping and so on.
“By the third day, I got them to see if we fragment strategical
ly
the core capabilities of Shiloh, we will be nothing but a commodity supplier until the cows come home, and one day the Chinese will obliterate us,” he says. “I got them to see the light. The strategic value of Shiloh and way we position ourselves is Shiloh has world-class expertise and capabilities in all these areas. You have to bring the capabilities together and integrate them to produce a product that is stronger –using laser welding — and lighter — using steel more efficiently and cheaper. The business strategy is not to look at Medina Blanking (or any of the other Shiloh facilities), but to look at Shiloh as an integrator of technology for the purpose of creating product leadership so the competition can’t touch us.”
The road ahead
Today, Zampetis has the data in place to monitor his patient. A wall in his office is covered with charts, graphs and numbers that illustrate the recovery process. The numbers show things are moving in the right direction. Revenue and profits are up, and 2005 looks promising.
“Am I finished? No,” says Zampetis about the transformation of Shiloh. “The big, big bleeding for Shiloh is repaired. We either plugged it or the cause is gone. The company was shrinking and people were worried, but sometimes you have to shrink before you can grow because otherwise, you have cancer and you are going to die. Like a tree, sometimes you have to prune it before you see it grow.”
To improve the company, Zampetis needed to understand it. To understand it, he needed to measure it. And when the measurements came in, the cause of the illness became apparent.
“We found out that Shiloh had some customers and some markets that were destroying the company,” he says. “We were losing more money in one-fifth of the business than we were making in the other four-fifths. We identified it so we can fix it or dump it.”
Part of fixing it meant going to one large customer and explaining that Shiloh could no longer do business under the terms the previous management team had agreed to, putting all future business with the customer at risk. It meant using Zampetis’ personal reputation to get the banking agreement the company desperately needed. It meant passing on material costs to smaller customers.
Thus far, everything has worked out for Zampetis and Shiloh. The debt has been paid down (Zampetis cut it almost in half in his first 24 months) and the big customer agreed to new terms. Employees have bought into the new culture.
“I knew I turned the corner when, within a month of me taking over, the announcement was made that the 11 vice presidents weren’t there anymore and the receptionist was back,” says Zampetis. “You have to put your money where your mouth is. We need a receptionist. When somebody calls, they hope to talk to a human that cares about the company. The employees got the message right there.
“The result of this enormous effort is an operational excellence that is creating cash flow that finances productivity and that creates customer loyalty. When a customer looks at Shiloh, we are not one of 500 companies, we are the benchmark.”
How to reach: Shiloh Industries, www.shiloh.com
