Ship Shape

Ship Shape

Bill Michel's thriving boat parts company is still

growing in an industry that is rapidly doing the opposite. Accepting, not fighting, change has been a big key.

manufacturing by Mark Gordon | Managing Editor

By all accounts, William Michel should be preparing a chunk of his company's 24 employees for inevitable layoffs.

After all, the company, Sarasota-based Uflex USA, builds and sells parts used in boat manufacturing and repair, such as steering columns and bulkhead kits. And the boat industry has been sinking for the past year, the victim of rising gas prices, collapsing credit markets and a soft overall economy.

But Michel isn't getting ready to layoff anyone. While he isn't planning on hiring any new people, he is in the planning stages of a project that would nearly double the company's 40,000 square feet of manufacturing space.

And revenues are growing, too, albeit at a slow-and-steady annual rate of about 5%. The company, a subsidiary of the UltraFlex Group, a Genoa, Italy-based manufacturing and energy conglomerate, doesn't disclose revenues. But Michel said total sales for the U.S. operation are projected to pass $10 million in 2008.

"We've always been a lean company," says Michael. "So we are not having to make any knee-jerk responses to market conditions."

The company has been able to grow during the industry and economic slump for a multitude of big-picture reasons, from its recent move to make its product line more high-tech to improving its customer service procedures. "We make everything that makes the boat go backwards and forwards and side to side," says Michel. "Everything except the engine and the boat itself."

But two other, more specific reasons stand out for the company's recent success. First off, Michel has successfully fostered a company wide atmosphere that embraces change - no easy task at a company where some employees have tenures of more than 10 years. Says Michel: "If you have the entire team thinking about change for improvements, you get some phenomenal ideas."

Then there's the company's obsessive attention to detail. For example, an empty lot just outside the company's building, in an industrial park near the Sarasota-Manatee county line, is treated like a new home's front lawn. That's the spot where the company plans to expand and Michel pays extra to have it maintained, so it's not an eyesore for employees or visiting customers.

High costs

The good times, however, are tempered with the lingering worry that the troubled boating market will catch up to Uflex sooner or later. The boat industry collapse has been far-reaching, hitting just about every company from mom-and-pop boat builders to national powers.

On the Gulf Coast, for instance, Clearwater-based MarineMax shares were trading around $5 in early July, barely above its 52-week low. Shares were as high as $12 in May, so the slide has been recent, too.

"Continued deterioration in the marine retail environment, impacted by widely publicized pressures in the housing and credit markets, resulted in second quarter performance that fell below our expectations," Marine Max chairman, chief executive and president Bill McGill said in a May 1 statement regarding the company's second quarter earnings report.

Even though MarineMax isn't a major Uflex client, McGill's comments on his company's strategy to survive the downturn could prove to be an unfortunate trend for Michel, as MarineMax, despite its stock slide, is a market-share leader in the industry. Says McGill: "We are also further reducing our purchases from manufacturers to better align our inventory levels with sales trends."

Clients scaling back on purchases are just one of the potential challenges facing Uflex. The industry is going through a consolidation period, too, and the impact of that could be less business opportunities for Uflex.

And Uflex has been pounded on a daily basis by the high costs of materials and parts, including stainless steel, die-cast aluminum and zinc and a range of electronic components. Says Michel: "The ever-escalating cost of raw materials is forcing us to look at other options."

Like many other domestic manufacturers, Uflex has been buying parts and materials from factories in China for the past five years or so, as the costs savings were too good to pass up. But one flaw in the system has always been time - some boats take as long as six weeks to get from mainland China to Florida. And shipping parts in bulk by air is a pricier option that can defeat the initial cost savings.

So about six months ago, Michel assigned his purchasing manager, Rick Rice, to look into other sources for buying materials. Rice has since searched throughout North America for alternatives; he recently returned from a 12-day tour of 25 factories in Mexico, as well as a few in Ohio

While Rice says the trip was good for networking, it did nothing to knock China out of its preferred status. Most of the quotes Rice received from Mexico were about 30% higher than what Uflex is currently paying for materials.

Profitless in Seattle

These challenges and others Michel is seeing at Uflex differ significantly from his start at the company in 1996. Back then, Uflex was a three-person shop in Seattle that imported boat-manufacturing parts and products and distributed them on a small scale to boat builders, with the bulk of the shipments staying in the Pacific Northwest.

But the company wasn't very well thought of in the industry. In addition to being mostly a regional player, its products were some of the lowest-priced ones on the market, which led to questions about quality.

Michel, who had moved to Sarasota from Cincinnati with his family when he was 10 years old, was brought in by the UltraFlex Group to take Uflex USA national. He left a comfortable job as a product director with established Sarasota-based boat maker Wellcraft Marine and relocated to Seattle to work for what was basically a struggling startup. Uflex had only recently reached $1 million in sales and had yet to turn a profit.

Michel recalls that he started the Uflex job on April 1, a day where he thought seriously about who was being more foolish - him or the company. "In many respects it was a shellshock," says Michel, remembering that he went from an almost limitless budget at Wellcraft to nearly limitless headaches at Uflex. "It changed my focus."

But the gamble paid off. The company became profitable within three years after Michel took it over and its revenues have grown almost every year since 1996.

Michel's first step was to study Uflex's competition, looking at all of the parts other businesses sold, down to the nuts and bolts. He then re-wrote Uflex's product and pricing lines to make it more in tune with the industry, as well as internal profit margins.

Then Michel traveled nationwide to market and pitch Uflex to customers. A key moment happened in the late 1990s, says Michel, when boat repair shops started ordering Uflex parts to replace other companies' parts. That led to a significant growth in product orders. "The growth was so much," says Michel, "that we needed to expand our manufacturing facility."

With the blessing of Uflex's Italian parent company, Michel moved the company to Sarasota in 2002. The growth has since continued, to the point where Michel is working on future expansion plans, which include building more space for the company's top-selling hydraulic steering product line.

Michel is also leading the company through the process of becoming certified by the International Organization of Standardization - a coveted seal of approval that covers many angles of the manufacturing industry. The company expects to reach ISO certification by early next year.

"We are interested in the complexity of the manufacturing operation," Michel says. "It's an exciting byproduct of our growth."

REVIEW SUMMARY

Businesses. Uflex, Sarasota

Industry. Boating, manufacturing

Key. The slumping boating market is testing the company's growth potential.