Astro Manufacturing Reinvents Product Line and Contributes to Northeast Ohio's Biomedical Industry

1/25/2010

Product development at most companies is an evolutionary process, but some manufacturers have found the leap to an entirely new product line a profitable move.

By Jonathan Katz (IndustryWeek)

The machining operation is modifying the 20-foot-long, 8-foot-wide metal boxes to fit CT scan machines from Philips Healthcare and ruggedizing the scanners so they can endure being transported across the rough battlefield terrain. The medical-device market comprises about 60% of the company's production, but it wasn't always that way.

Before 2000, Astro Manufacturing's primary product was automation and test systems for the auto industry, and its largest customer was Delphi. But in 1999, Delphi was spun off from General Motors Corp. and on the road to bankruptcy. The prospect of losing business from its main revenue source meant the company needed to retool its offerings. Astro Manufacturing's location near Cleveland and the region's burgeoning medical industry, anchored by the world-renowned Cleveland Clinic, made the medical-device industry a natural fit, says Rich Peterson, the company's vice president of business development.

Peterson arrived at Astro Manufacturing in 1997 after working at a local high-tech medical imaging company that was eventually acquired by Philips. His ties to the medical industry helped the company land a contract to complete construction of Philips' CT scanner beds. Astro Manufacturing's progress was dramatic. "We went from making 20 a month to 20 a week," Peterson recalls. "And that sort of made us realize in the 2003 timeframe that this is probably where we ought to position the company."

Around the same time Astro Manufacturing added medical-device manufacturing to its product mix, a northeast Ohio aerospace company decided to outsource some of its production and asked the company to produce the components. Now, in addition to making various medical systems ranging from surgery simulation equipment to orthopedic implants, Astro Manufacturing, with about $40 million in sales, also produces NASA space shuttle hatches and engine components for torpedoes.

Astro Manufacturing is the type of company many politicians and economic-development agencies would like to see other manufacturers emulate. U.S. Sen. Sherrod Brown, D-Ohio, has pushed for legislation that would provide loans to auto suppliers and other smaller manufacturers to help them transition to the clean-energy sector as they struggle to stay afloat amid the economic downturn. A few small auto suppliers have explored the possibilities. In August the Automotive Industry Action Group introduced a medical-device manufacturing program designed to help suppliers retool their product offerings. In the chip fabrication sector, Taiwan Semiconductor Manufacturing Co. announced plans in December to branch out into the solar and LED lighting industries as growth in the semiconductor industry has slowed (see "Taiwan Semiconductor Sees the Light").

But entering an entirely new industry might not be so easy for most manufacturers. Unless it's an application that can utilize the company's core competencies, switching gears to a new endeavor is unlikely, says Cliff Waldman, an economist with the Manufacturers Alliance/MAPI, an Arlington, Va., trade organization. "I would imagine it's fairly rare," he says. "People are not going to suddenly open up things brand new to them in a down economy."

Most manufacturers won't branch into new product categories because they require capital investments, expertise and careful planning. An exception to the case is manufacturers that can tweak their current product offerings to meet demand for a similar application in another industry, Waldman says. For instance, a manufacturer that makes gears for the auto industry might be able to transfer that knowledge to gears for wind turbines, says Nabil Nasr, director for the Golisano Institute of Sustainability at the Rochester Institute of Technology. "They are still in the same business but making that product for a different application," he says. In a sense, that's what Astro Manufacturing did. Being a machine shop, the company's transition did not require significant training but did involve more collaboration with the customer, including training on new machines (see "Cozy Up to Customers").

New Energy

On the surface the yacht-building business and wind-turbine industry don't seem to have much in common, but the composite materials used in both businesses caught the eye of David Slikkers, the CEO of Holland, Mich.-based S2 Yachts Inc. and now Energetx LLC. After more than 50 years in the yachting business, Slikkers formed Energetx in 2008 to produce wind turbine blades out of composite materials, which includes fibers and resins, such as Kevlar and polyester.

Slikkers began exploring alternatives in 1991 after the federal government imposed a luxury tax that impacted the yachting industry. The following dot.com bust and 9/11 market downturn prompted Slikkers to explore forming a new company. The growing wind-turbine industry presented Slikkers with a new opportunity and the impetus to form Energetx.

"As it turned out we had several core competencies that we could market and sell -- one of those was composite fabrication," Slikkers says. "We had recently made several advances in our own composite processing that we felt we would be able to leverage in other segments."

Slikkers is currently using excess capacity at his yacht-building business to accommodate his new enterprise, which has expanded to include the composite frames for the electric-vehicle market and exploration into light rail and electric commuter bus markets. He anticipates moderate growth in the beginning stages because of capital constraints. "The lending criteria are so stiff and almost punitive in nature that if you are a company that is in real need of cash and go to a bank, they'll laugh at you because they're not taking any risk," Slikkers says. "The banks have gone into a risk-averse mode and are absolutely running away from anyone that they consider a possible risk."

In the meantime, the marine industry will continue to be Slikkers' core business as he waits for the lending markets to loosen. In the event that the new markets pick up, he's partnered with local community colleges and training institutions to develop a talent pool for the company's new industries,

Lessons Learned

Based on his experience, Slikkers says diversification can be a slow-moving process that requires collaboration among members of various enterprisewide groups, including the marketing, manufacturing and engineering departments. For Astro Manufacturing the transition to the medical-device and aerospace markets meant the company had to adapt to different quality standards, new industry terminology, and adhering to more stringent "flow-down" requirements that ensure everyone in the supply chain is adhering to industry standards, Peterson says.

In some cases, the transition to a new industry will require volume adjustments, says Timothy Davis, director of iLabs at the Center for Innovation and Research at the University of Michigan, Dearborn. For instance, Davis says a company might produce millions of fasteners for the auto industry, but an aerospace manufacturer might demand a lighter material that meets different safety standards in smaller quantities, perhaps in the thousands.

Success for manufacturers that venture into new product areas could depend on the level of sophistication involved, Nasr says. Companies with excess capacity might be seeking ways to utilize their unused operations, but if the manufacturer doesn't have people who understand how to engage in other market sectors they'll likely have problems, he says. He notes that entering a new industry isn't something a manufacturer wants to do when it's struggling. "This is something you do when you're healthy because you are going to need some investment."

Peterson says producing intricate products has been Astro Manufacturing's key to remaining viable. "If the volume is high and the complexity is low, the parts go to China or offshore," he says. "If the volume is low and the complexity is high they stay in the United States, and if they're of any physical size where shipping is a factor they tend to stay very regional."

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