1/21/2009 | 3 MINUTE READ

Damn The Recession--Full Speed Ahead

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 Turning Point


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    I first met Fred Young in the fall of 1992. Fred is the owner and CEO of Forest City Gear (FCG), a classic family run company located in Roscoe, Ill. At the time of my visit, I was a young associate editor for Modern Machine Shop pursuing a grinding article assignment.

    The resulting article appeared in the December 1992 issue and was the beginning of an ongoing relationship between Fred and me. We have managed to keep in contact through the years, and I have published several more pieces on FCG in Production Machining.

    A press release from Fred recently came across my desk, and it seemed appropriate for mention in our Buyer’s Guide. You see, Fred is an outstanding example of what I consider a very smart shop owner—one who has developed a sophisticated and successful capital investment strategy.

    The lead of the release states that Forest City Gear announces a capital equipment investment of more than $6 million throughout the past 18 months. According to Fred, this reinvestment of revenue was made for a variety of reasons, but primarily to expand the company’s manufacturing capabilities and keep the company on the leading edge of manufacturing

    Having followed this company for the many years I’ve known it, this is not a one shot investment. “Our track record speaks for itself in this area as FCG has reinvested an average of between 25 and 40 percent of our annual revenue for the last 30 years in the purchase of gear-making machinery and ancillary equipment,” Fred says.

    He goes on to explain the company’s strategy in purchasing new, high technology equipment. “We always buy high-end equipment, not only because it affords us higher quality, service and training from our suppliers, but also because we realize better performance, lower maintenance requirements and more substantial depreciation allowances,” Fred continues. “We never wait until we get an order to buy machines with enhanced capability. We already have it and have it developed before we start exploring new opportunities. That’s a real competitive advantage for our company.”

    As I said, this is not a new strategy for Fred. Here is what I wrote in 1992:

    The 4-year average age of his equipment completely eclipses the domestic industry-wide average of 25 to 40 years (according to AGMA), and even the Japanese and Germans don’t come close with averages of 12- to 15-year-old equipment. So it’s more than competition that drives Mr. Young. Some might say he is an equipment junkie. But, he’s too pragmatic and successful for such an addiction. No, the truth is Mr. Young makes operating with new equipment a business asset rather than a liability.

    He trades machine tools like many people trade cars. And the strategic advantages of early trade-in work the same for both. What appears at first blush to be a tremendous outlay of capital—the sticker price—is actually much less because the trade-in allowance for a 4-year-old machine tool is much higher than it would be for a 25- or 30-year-old piece of equipment.

    Another strategic benefit of newer equipment is FCG has no maintenance department. Routine PM is done by its operator. Anything required beyond that is handled by factory technicians, and since most machines are under warranty, the price is right.

    I think Fred’s strategy is important to share because as the specter of hard times once again descends on manufacturing, it’s critical to have the confidence and the need to continue to raise the technological bar for your company and the industry in general. Fred has been through recessions before—he took over FCG from his parents in 1968—and when the inevitable upturn comes, each time his strategy has put his company in an even stronger competitive position.

    “Without the wherewithal to get better at our businesses, it’s over,” Fred says. “But we can’t look for some kind of manufacturing manna to fall on us from the sky and save us all. The answer is to maximize the resources at hand and develop a plan to enhance them ongoing.”