Workforce Management and Capital Equipment
This is Part 1 of a 3-part series on the advent of Manufacturing 5.0 focusing on workforce management and capital equipment. The interview is with David Hawkins, CFO of El Dorado Packaging, and Peter Washington, Director, CapX Partners.
PW. You have three plants across the country. Are you finding it hard to hire qualified workers for your operations? How has this affected your growth?
DH. Like many companies today, we’ve experienced difficulties with hiring, whether it’s due to a lack of training, skills, or simply that the competition for workers is strong. Each of our plants operates in different labor markets, but the challenges to hiring are similar. The employment situation has increased our focus on automating functions as quickly as possible, balancing capital required vs. productivity and quality improvements.
PW. You recently invested in several major pieces of capital equipment. How has this investment paid off?
DH. From a CFO’s perspective, funding major equipment is critical to the company and timing to meet the operating needs can be challenging. In our case, one plant was experiencing production constraints due to outdated equipment and that impacted the plant’s profitability and affected our corporate leverage profile. CapX was able to understand that the financial impact was transitory if we could install new equipment to get the plant running at a higher level of performance. That’s exactly what happened. With two major equipment installations, the new equipment is two to four times more efficient than the machines they replaced, with improved quality. We were able to take down several of our older production lines, reducing labor, cost of quality and maintenance and repair expenses. So far, the cost improvements have met our expectations.
PW. How has the process affected your customer satisfaction?
DH. The most critical requirements for customers are quality, on-time delivery and the flexibility to meet changing schedules. The new equipment has improved our production capacity and ability to meet on-time deliveries – with customers noticing this right away. The new equipment also requires much shorter setup or changeover time between jobs. This improves our flexibility when customers’ needs change. Most importantly, the higher levels of quality from the new equipment help us meet customers’ requirements on a consistent basis.
PW. How has this affected your employee satisfaction?
DH. An unexpected result of the new equipment acquisition was the impact on employee satisfaction. Our employees are excited to be working on new, high-tech equipment, and proud to be able to meet their production and quality targets consistently. There is also reduced downtown due to equipment malfunctions, so employees are not idled for hours on end. With fewer people required for running production lines, for quality inspection and maintenance, we were able to trim our workforce. The headcount reductions provided us with an opportunity to keep the most talented and reliable employees. The remaining employees enjoy the chance to be more productive and work in a positive, changing environment. Recruiting new employees is also more appealing, with the chance for them to work on new equipment. As an example, a key electrical maintenance employee who left a year ago rejoined the company to be part of this transformation.
PW. What other improvements are you making besides the new equipment?
DH. We are in the process of updating our information systems at that plant. We are implementing shop floor tracking, bar code scanning and an ERP system currently in use in our other plants. A customer portal is also available for customers to obtain real-time updates on their inventory, order status, invoicing and other relevant data. These improvements will add to employees’ productivity and provide greater visibility to our customers.
PW. Do you have any advice for someone that’s weighing the decision to fund new capital equipment that replaces aged/dated equipment?
DH. In a competitive environment for both customers and employees, there are significant benefits to upgrading equipment. Look beyond the immediate costs and realize the unexpected intangibles such as the renewed dedication of employees and higher productivity and quality from the new machines. Also, it is important to find and work with a trusted financing partner. We were fortunate that CapX understood our business and saw the potential impact this new equipment would provide.
El Dorado Packaging is a leader in multiwall and consumer bag packaging products and services. We create customized packaging solutions for seed, food, animal health products, bulk packaging and more. The company provides extensive design, manufacturing and printing expertise from our three locations in Arkansas, Minnesota and Nebraska.
Peter joined CapX Partners in June 2009 and is responsible for managing transaction underwriting and portfolio management.
Prior to CapX, he served in the commercial lending and institutional sales divisions at the Northern Trust Company. Before working at Northern Trust, Peter served as a High Grade/High Yield analyst for Banc of America Securities in New York, NY. Peter graduated magna cum laude from Florida A&M University with a B.A. in Business Administration and received his...