BGC Helps Ashtabula Rubber Go Global—and Grow Profitably

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CHALLENGE:
When can a business owner take a deep breath, put his feet up on the desk, and smile contentedly as customers line up to place order after order? This dream of effortless prosperity is shared by many owners who pour their passion, hard work, and time into growing their companies, but is it realistic? Does such a time ever come—and if so, how long can it last?

Nick Jammal is President of the Ashtabula Rubber Company (ARC). For decades his family-owned company, a manufacturer of mechanical rubber products, had simply caught all the business it could handle. ARC’s reputation for technical expertise was so strong that sales and marketing efforts seemed beside the point as loyal customers and positive word-of-mouth kept the factory humming. The company had a long tradition of doing everything right in terms of serving customers, but by the mid-1990s, Jammal felt the ground shifting beneath his feet. ARC produced components for major manufacturers and felt the impact of globalization affecting such industries as telecommunications, transportation, flow control and electrical transmission. Competition from the Far East was forcing these industries to undertake drastic cost cutting in order to reduce prices—and one way to “cut costs” was to buy rubber components made overseas. Was this an adjustment period, Jammal wondered, a simple economic cycle that would have to be endured? Or was it a permanent shift in the world’s economy? And, if the marketplace came to care only about price, what would that mean for his premium-service company?

SITUATION:
When Nick Jammal joined Ashtabula Rubber in 1978, he was stepping into a family tradition. In 1951, his grandfather, N.J. Jammal, had taken over the Hershberg Rubber Company from its founder, a friend who had been supplying the battery industry with hard rubber parts since 1945. Rubber was a relatively young industry and opportunities were everywhere. In 1965, when Joseph Jammal (Nick’s father) took over as President, supported by his sister Eleanor in the role of VP of Finance, the company was operating under the name Ashtabula Rubber and flourishing in several important markets including transportation, energy, and telecommunications. During the ‘60s, ‘70s, and ‘80s, the company produced crucial components for a variety of machines and systems such as standby power for computers, brakes for buses and trucks, water delivery, and electrical transmission. The company never made a systematic effort in sales and marketing because, said Nick Jammal, “We didn’t really have to. We did such a good job of servicing our major customers that we stood above our competition. As our major customers grew, so did we.”

When Nick Jammal became president in 1996, globalization was spurring changes in American business. Cost reduction became the focus for most of ARC’s major customers, who faced challenges from low-priced Far East manufacturers. Jammal responded in two ways. First, ARC made a commitment to improve efficiency and reduce its own costs through manufacturing innovation. Second, the company leveraged its technical expertise by helping customers achieve cost savings through changes in design, material, and formulations.

Yet, where ARC supplied commodity components to customers in mature markets, Nick Jammal knew there was a limit to the cost cutting and technical changes his company could make. By the late 1990’s, some formerly loyal customers had begun buying offshore. “I struggled with the dilemma on my own for a couple of years,” recalled Nick Jammal, but he felt his company was treading water during a sea change. An acquaintance who had worked with some clients of Birol Growth Consulting suggested that Nick call Andy Birol.

THE BGC SOLUTION:
Andy quickly erased any doubts Jammal had about the permanency of the changes in the marketplace. “The first thing he helped us do is realize that the game had really changed,” said Jammal, “and that we had to respond because simply doing more of the same was not going to significantly alter our situation.” Andy interviewed customers who bought and used ARC products, traveled to trade shows, and talked with some people who were purchasing from the company’s competitors. His conclusion? The major reason the company was losing commodity product business was price. “The customers were happy with ARC,” said Andy, “even as they were relocating to China.” The question was, how much business was ARC going to lose? Even a vital sales and marketing program could not restore the same kind of business it had lost. Yet, Andy saw great value in the way ARC served its customers. “They have a fantastic ability to take a problem that a customer brings to them and engineer some kind of technical solution,” Andy noted, “and that’s a service you can’t get offshore.”

When Andy and Nick Jammal brought the rest of the management team on board, the first task was to convince everyone that China wasn’t going to go away. The second was to realign the company so that it could meet an array of customer needs, with one condition: all changes must be designed to help the company be profitable and grow. “As we worked with Andy,” said Jammal, “what evolved was our recognition that within our own four walls we were dealing with products along the entire life cycle,” from technical innovations to improved manufacturing, and then to large-scale commodity production. It was only at this late stage that Ashtabula Rubber could not compete with overseas manufacturers. “We also discovered that many of our larger customers wanted us to manage the full spectrum of products,” said Jammal. The company’s mission became clear: it needed to provide engineering and materials expertise when customers needed it, and world market prices the rest of the time.

Andy proposed a three-tiered approach to meet these customer needs:

  • The “A” business focuses on finding business through the engineering of new applications and prototypes.
  • The “B” business continues the company’s domestic manufacturing with strong emphasis on lean manufacturing to reduce costs and improve margins.
  • The “C” business seeks partnerships with Chinese producers in order to provide customers with low-cost commodities and the bonus of having a “back-up” domestic manufacturer when needed.

Andy’s solution was rooted in the fact of Far East manufacturing, but he stressed that the rise of Chinese production does not equal the death of U.S. companies. “He helped us transfer this problem into an ability for our company,” said Jammal. “He challenged us to make it a core competency to find manufacturers in China in order to serve our customers.”

CLIENT RESULTS:
Over the past year, Nick Jammal has presided over a revitalized lean manufacturing company and two “new” businesses, all within the walls of Ashtabula Rubber. A new emphasis on sales and marketing began with the hiring of a vice president to oversee those efforts. Jammal made other staffing changes to reorganize the company around its tripartite business model. “We’re developing, really for the first time, a true sales and marketing system,” Jammal said, “and Andy has helped us leverage the strengths of our team by putting people into key places where they can do their best work.”

And how is the “Alphabet system” working? “The “B” business was what we all knew,” said Jammal, “so that part of the company is doing very well.” Improved efficiency has lowered costs, enhanced margins, and profitability is up. Jammal also formed a relationship with a Chinese company, a daunting task. “It is not like bringing on just another supplier,” he said. “There is a tremendous amount of detail that must be worked out, but we’ve managed it well on a small scale. Now that we know it can be done, we’re ready to expand our efforts. It’s starting to take off.” The most challenging task has come in “A” business since it involves finding new customers and innovating solutions. “It’s an essential piece of our strategy,” said Jammal. “If we don’t stay at the forefront of production and technology, we have no more to offer than distributors of rubber products made overseas.” Although progress hasn’t kept pace with the other areas, Jammal knows that the expertise ARC can provide will become the foundation of its future success. “We come to the table with a full array of services,” he said, “and that helps us in seeking new customers. The beauty is that we can go into a company selling our technical and engineering expertise,” he added, “but when we see the company’s commodities, we can pitch those as well.”

Andy Birol agrees. “What’s so great about Ashtabula Rubber now is that they can do anything,” he said, “and make money doing it.” Nick Jammal expresses a calm confidence in the direction his company is taking. “I’m conservative in my assessments, but I feel a world of difference from where I was before I met Andy,” he said. “We have three solid directions and a viable strategy to give our customers the most comprehensive service in the industry.”



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