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Entrepreneur to the rescue.

This is the story of what an entrepreneur can do to turn around a small company fallen on hard times and immobilized by conglomerate rigor mortis. Jim Lambert was that man, and he recently explained to me why he jumped into this opportunity, and what all he's done in just a year's time to put the new Morse Tool (now part of LCI Inc, which also includes Morse International, Super Tool, and Hornet Industries) into the black.

When Gulf + Western announced in early '84 that they wanted to either close down their Morse Tool plant in New Bedford, MA, or sell it by that July, they created a lot of local concern about jobs. The New Bedford mayor claimed he was going to invoke eminent domain to take over the company and save it. Although this was just a PR ploy, it hit the Wall Street Journal with a big splash and put a lot of pressure on Gulf + Western.

Jim Lambert and his two partners, who had bought a small company from Gulf + Western in Whitmore Lake, MI, were offered a chance at Morse. "When we came here to evaluate Morse," Jim tells me, "I liked what I saw. I had been involved in a lot of turnarounds in the past. I thought the facilities here were good, and I liked the people. As bad as things had been for the last few years, Morse had a good track record of earnings through '79, '80, and '81. Then in '82, the bottom fell out of the cutting-tool market and they had a 13-week strike.

"I also liked the fact that the average age of Morse employees is 47. There are a lot of skills here that I would hate to have to go to Georgia and try to duplicate. And the product had a darned good name in the industry--we had checked that out beforehand."

But when they tried unsuccessfully to get wage concessions from the union, he and his two partners knew it was fish-or-cut-bait time. One had three young children and a cottage in Northern Michigan where he does a lot of skiing on weekends. He was blunt--"I really don't need these headaches!" And the other partner agreed. But Jim told them he wanted to continue pursuing it because of the good things he saw. "I felt this company could be saved," he recalls. "After all, when a lot of things aren't being done right, there's money to be made in every one you can fix."

So they decided that he would go ahead on his own, and if he got the company, he would resign from their Michigan company, which he finally did on August 24, 1984. "Because of all that the people here had been through, I could have been a two-headed monster and still come out looking like a hero, just from the appearances that there had been some resolution to the problem.

"Fortunately, the Northeast distributors meeting that October gave me a good chance to talk head-to-head with a lot of our important customers, and verify what I thought about Morse. Almost to a man, they each said, 'We took some of our business away because we weren't sure what was going to happen to you guys, and now that it's solidified, we will be bringing it back.'"

Entrepreneurial answers

And it did come back, not really big yet, but certainly not bad--the company has moved into the black already. Clearly, this is a business better run by an entrepreneur, particularly somebody more customer oriented. "G + W had brought in five staff CEOs in the last three or four years," Jim reports, "and two had heart attacks. They were losing money here, and none of these people really wanted to stay long. There was no continuity. Each made different decisions, and the customer was left wondering what the heck's coming next. Today, we may make a few wrong decisions, but at least we're much more consistent."

And the problems at Morse are typical to this industry, Jim believes. "With five conglomerates now owning cutting-tool companies, I'd bet that they're all in the same boat, and just now facing up to a lot of the same problems that Morse has already solved.

"There'll be a shakeout. Conglomerates can't last forever with a skinny margin at the top. That's not how they play ball. The big problem now is that they can't sell these companies to anybody. How many guys like me are dumb enough to get into this business?"

Industry-leader companies like Cleveland Twist Drill and Morse should own the cutting-tool business, Jim feels. "There was a time when nobody would buy a tool if it wasn't Cleveland or Morse. But they let it get away from them!"

With all the competition in the cutting-tool business, many companies have cut a lot of corners. "Morse Tool wasn't any different," he admits. "When I bought this company, our reputation on service was terrible, and we knew we had to get that fixed quickly. So we've added eight tech-service people who are constantly on the road, resolving customer problems (and also enhancing our reputation). I haven't heard anything but positive feedback on this.

"We also had problems with incoming calls. You can kill yourself on the telephone if you don't have the right people handling calls. So we made some changes and added some people so that calls don't go waiting, and it's really come around. One of the first compliments I heard was 'I don't know what you did to customer service, but we sure notice the difference!'"

Taking inventory

"Whether we like it or not," Jim points out, "this is an off-the-shelf business. 'If you ain't got it, you ain't gonna sell it,' it's just that simple. But try to explain that to a big conglomerate!

"Gulf + Western is no different than any other. They came out with corporate dictates on inventory reductions--things that don't really apply to a business like ours. Rockwell is the same way. When I was in charge of their service-parts division, they tried to run that division just like they ran manufacturing--10 to 12 inventory turnovers a year.

"You can't get that in service parts! If you can do four turns, you're doing great. We're at 2.7 right now, because we've plugged the leaks in this plant, but we're still trying to sort it all out. We had to take a lot of gut shots--beef up this category by 20 percent, that one 35 percent, etc. Now, we'll go back and get a little more sophisticated in the exact quantities we need. But we had to first stop the bleeding. For the past ten months, I haven't heard a complaint on delivery, and when I first came here, the phone rang off the wall!

"We purchased Hornet Industries Inc, Traverse City, MI, (in Jan '85) because we want to stay in the specials business. The easiest decision in the world is to get out of the specials business, as a lot of others have. We're gearing our company toward one-stop shopping. When a guy can come to us for almost anything he wants, this simplifies his purchasing decisions and gives him more leverage on us, and he commands our respect.

"In coatings, we don't have our own TiN process yet, so we farm that out--there's a lot of open capacity. TiN systems run $800,000 to $1 million, and if you can't fill that process up, it's darned hard to justify. But we can easily get it done outside--even with foreign tools--so we can supply them in any 'color or delicious flavor' you want."

Service with proof

Today, Jim tells me, everybody is looking for cutting tools with pizazz. "Sure, our tool geometry is a little different from others, but it takes more than that. You've got to have the test data to sit down with a manufacturing guy and make your case. You challenge him to put your tool on his machine and try it out, and that's how you sell it."

As Jim sees it, because tech service has dwindled, cutting-tool sales people haven't often gotten beyond the purchasing guy to the manufacturing engineer, and that's why they've been in a price battle, rather than a more traditional service struggle. "As a result, you don't really get exposed to the problems. I feel no one in this industry has really done enough testing to be able to prove anything to a potential customer. Although we do a lot of testing here, we haven't done a good job yet of putting all that data together and being able to say that this tool is better than that guy's for a given application. You have to be able to prove it. Just going in and saying your tool's better doesn't work anymore."

Import undercutting

One of Lambert's pet peeves was that a lot of US manufacturers were bringing in foreign cutting tools and selling them as if they were American, shaving the price just enough to undercut the market, and not passing any savings along to their distributors.

"I know what the margins are for foreign versus domestic cutting tools, and I'll match our work pace and number of machines our people can run against anyone in the industry. To be able to beat us by as much as 20 percent in price, a competitor has to be bringing in foreign cutting tools.

"So we decided to be a little different when we went with foreign sources. We get proven quality tools, with their dimensional characteristics and geometry all worked out to US requirements. When we bring them in, we inspect them all 100 percent, repackage them, assume liability, provide technical backup, and ours are marked with country of origin.

"This gives our distributors an entry into some markets where they couldn't compete before. Now, we can compete in both quality and price with anyone.

"Before we did this, however, I sat down with our union people and explained why I wanted to do this. I told them, 'The road to being competitive and getting profitable is a whole lot longer and harder if you just sit there and try to do it with only domestic product. Sure, we can pick up market share on tech service, quality, and delivery, but you still have that big price problem staring at you.'

"So I said, 'With anything we make on a foreign cutting tool, we will do two things: first, we'll split it right down the middle with the distributor, and second, we'll plug our half right back into our US plants to make them more cost effective. This way, our profitability stays in the US.'"

Hang on to your share

Lambert feels it's really unfortunate that this country has had so much of its manufacturing go elsewhere. "It's a really sad indication of how we run our businesses over here. It's darned scary!

"But, as far as our company is concerned, we don't make the marketplace, we just try to exist in it. A lot of the reason the machine-tool builders lost their market was their poor service. When I was on the user side of things, if I tried to get a service guy from a machine-tool supplier, I'd wait three or four weeks, get some guy who didn't know a screwdriver from a wrench, and end up doing it myself. This hurt the industry--cutting tools as well as machine tools--more than anything else. Price was only one part of the total equation.

"People talk about the wage difference being the big problem for manufacturers in this country. I think we have just been out-marketed."

In the worker area, Lambert has great respect for his veteran employees. "I would prefer not to lose retirees. In fact, I'd like to start a whole new plant with retirees. There was a story on TV a while back about the Avanti plant, which was once part of Studebaker. They don't make many cars there anymore--they're all hand made--but they've got people working flextime there who are 83 years old. If a guy wants to work four hours a day, he comes in and has a special pay scale, and it's worked out very well.

"So if we could develop the right arrangement, maybe a lot of our retirees would want to come back. People are living longer these days, and they don't really want to retire. Would you want to just sit there and look at your wife 24 hours a day? (I'd go bananas, and she'd get so tired of me, she'd want to kill me!)

"A couple of friends have asked me why I got into the cutting-tool business. Well, maybe I am crazy. We've got at least 40 competitors, not counting the foreign people. They ask me what I'm going to do if there's another economic downturn. And my answer is, 'It's really not my problem. I hope that doesn't happen, of course, but if I'm sitting there with 8 or 9 percent of the market, my problem is not the economic downturn, my problem is penetration. And how do you get that when you're all fairly close on price? You simply out-service the other guys!'"

Which is a winning philosophy if I ever heard one. If you would like information on Morse cutting tools, circle 549.
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Title Annotation:Jim Lambert
Publication:Tooling & Production
Date:Dec 1, 1985
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