MGN Productivity: Diversification Decisions

Staying in business – and remaining profitable and productive – for a quarter of a century takes hard work, a committed workforce and some difficult decision-making. Next year ALM Engineering will be celebrating 25 years of manufacturing in the North East and Tony Thompson, who has run the business since Day 1, has had to make some very tough decisions to get where they are today.

There are two strands to the business today: ALM Products, its original architectural side, which delivers the company’s own products and designs for customers; and ALM Engineering Solutions which is its sub-contracting side. Today ALM is involved in five vertical market sectors: road and rail transportation; aerospace; oil and gas, OEM equipment, as well as the architectural work.

2008 was something of a watershed year for the company, as Tony Thompson explains: “We were hit quite hard by the recession, with about 40 per cent of our business disappearing almost overnight. We knew it might be tough but we surprised at how bad it actually was! This naturally gave us some cashflow challenges. At that time we had around 40 employees, so we consumed every drop of cash that we had to pay wages. We were proud of the fact that we had long-term staff and we didn’t want to lay them off. “

Tony developed a five-year plan which involved creating ALM Engineering, the sub-contracting side of the business. “We went from manufacturing our own products with a fairly low skill base to gaining ISO 9001, ISO 14001 and ISO 9100 in over the course of just 18 months. With these we felt we were able to turn our hands to anything.”

Around £500k was spent on this diversification programme at a time when they really could least afford it. But at that time the oil and gas industry was booming and so they positioned themselves to take advantage of this. However, this brought about a new set of challenges, not least the fact that they needed to introduce different skillsets into the business.

“We kept all the existing people and upskilled them but we also needed some high-level machinists. Most of these skilled people were centred at the time around Team Valley, including Rolls Royce. We offered a higher rate of pay and a better overall package than any other business but still struggled to attract them.”  But they toughed it out and eventually managed to get the people they needed. “It was stressful of course but we’re still here and thriving. If we hadn’t diversified, we would have eventually run out of cash.”

More decision-making was required three years ago when the oil price crashed. “We realised we didn’t want to put all our eggs into one basket again. So we decided to rationalise what we were doing, re-look at the business and the strategy of where we were going and do what was best for the business.”

The decision was taken to return to the company’s roots by starting to design some new architectural products. “We re-jigged our marketing material and went out to see our old customers to push some of these new products. As a result of that we were able to pick and choose the type of engineering work we wanted to do and to focus on the type of work that really suited us and, crucially, our skills.

“Much of the work that we do now is repeat work and comes through in batches which are much easier to manage. We produce around 60 per cent of our own products today, with 40 per cent being developed on a sub-contracting basis. And we now have a suite of components that belong to ALM that are always in stock for our customers. Being better organised we can be more productive and more profitable.”

Central to its productivity success is ALM’s strapline: ‘We deliver awesome service’ and is something Tony and his team passionately believe in. “We monitor our delivery performance on a daily basis – our target is to be at least 98 per cent on time. We also focus on our reliability. We won’t take work on if we don’t think we can deliver when a customer wants it. And we always communicate with customers as soon as there is a potential problem and that honest approach is really appreciated by them – and particularly with our oil and gas customers.

“And we will bend over backwards – and go that extra mile – to solve problems that might be created by our customers. It’s all part of the reliable service we provide. And it’s the reason we keep hold of customers. We always think of the lifetime of a customer – you may think they’re wrong about something but you need to remember what that customer is bringing for you long-term.”

Technology naturally plays a part in ALM’s growth. “We’re at the start of what is called the Fourth Industrial Revolution with AI and we’ve just taken a step on this by adding technology to five of our machines so we can monitor what’s happening with them. What we’re actually focusing on with this is the time when the machine isn’t doing anything. You get massive capacity gains by understanding how much time a machine isn’t working. So we’re identifying where the gaps are. By doing this we can react quicker and increase our capacity.”

ALM’s plans for the next three years are focused on growing the business by at least 30 per cent and they are on target to achieve that. Most of this will be new business and some will be increased business from existing customers through the addition of some new products and services. They also plan to grow the export side of the business Tony sees some real opportunities out there for them. “We’re currently investing to increase our capacity with our machinery and spending a lot of time and energy on lean processes and implementing 5S-type activities on hygiene.”

The company also invests in its people. “We’ve got an excellent team here and a lot of them have been here a long time, some over 20 years. We’ve worked with them to get the working patterns right – right for us and right for them. We’ve worked hard to maintain the culture of the business – and we have some strong values that underpin that culture. It’s important for us to know that everyone’s happy. We understand that the business revolves around the flexibility of our people. We work in a fast-moving market and we therefore need to move fast to react to things that happen in the market and the demands of our customers. We’ve been successful because we’ve always reacted to things quickly.”

Retaining customers and growing is a challenge for all businesses and ALM is no exception. “We always face competition which is trying to win business off us so we constantly try to be different. We always say that we need to do things for the customer that they don’t pay for and they don’t expect. That might be how we package things or how we respond or whatever.

“We look at all our customer ‘touch points’ and ask ourselves how we can make each of these touch points ‘awesome’. And I think those little things keep planting seeds with people. The challenge is to keep doing that. Customers naturally expect good quality and good prices – it’s the things they don’t expect that really make a difference.”

Tony Thompson has built ALM by taking tough, yet pragmatic, decisions and in doing so has learnt some valuable lessons along the way. “One of the phrases I took from some work I did with Durham Business School on their Growth Programme at one time was ‘You can if you think you can’ and that’s always stuck with me, especially when we’ve had difficult times.”

The Manufacturing Growth Network (MGN) is a quarterly publication sponsored by NRG, EY, Square One Law, Lloyds Bank and EEF and published by Insider Media.  MGN is FREE for North East manufacturing businesses to join, for further information on how your business can get involved contact Julie Mordue, client relationship manager at NRG.

*Article originally published by Insider Media.