William D. Morton was raised in Morton, Illinois. The fact that, after several years out of the area, he returned to own and operated a company by the same name is coincidental. The company was named after the community in which it grew.
When the Morton family decided to return home after seventeen years of working in places like Chicago, Salt Lake City, Orlando, and Washington, D.C., Bill began looking for a business to acquire. Morton Metalcraft Co. had been in existence for 25 years, and its founders were thinking about transitioning both its leadership and its ownership. A leveraged acquisition was structured in 1988 and completed in 1989.
For Bill, who has a mechanical engineering degree from the University of Illinois and had gone through Caterpillar’s co-op training program, coming home and getting involved in Morton Metalcraft Co. was a natural. He considers Morton an integral part of the Peoria marketplace and believes his company, in many ways, represents the values of his community.
Today, Morton Metalcraft has over 500 full-time employees in addition to part-time and temporary employees. The company has two locations in Morton operating from approximately 275,000 square feet of manufacturing space.
Your acquisition of Morton Metalcraft in 1989 was via a leveraged buyout. Leveraged buyouts have a very negative connotation to some people because of many of the ill-fated leveraged acquisitions of the 1980s. What makes a good LBO?
A leveraged buyout can work very well when proven management is in place, and then remains in place as part of the acquiring group of stockholders. The trouble with the leveraged buyouts of the 1980s is that in some cases, outsiders came into the businesses, leveraged them and had to learn how to run them. In our case, the management team was already in place at Morton Metalcraft. I had worked here for a year prior to our acquiring the business and our core management team had many years of service with the company. In my view, if the right team is in place, an LBO is a very effective way of transitioning ownership and re-energizing a company toward higher levels of accomplishment than it may have ever thought it could obtain without the change.
What kind of investor group did you put together in the buyout?
The ownership of Morton Metalcraft is about half our own management team, of which I am the principal stockholders, and the other half split between an investment banker in Chicago and a private individual in Boston. Both of these outside investors, in addition to putting equity into the business, have been positive influences on our company’s performance since the acquisition.
How would you describe your market niche?
Morton Metalcraft Co. is a contract manufacturer that specializes in sheet metal fabrications. We have no products of our own, but produce parts or sub-components for Original Equipment Manufacturers located throughout the Midwest. We target the leaders in their respective industries – like Caterpillar in the earthmoving and engine business, John Deere in the agricultural market, and Hallmark Cards in the social expression industry. By targeting them, we can ride on the success of their respective market shares. We then become primarily a manufacturing extension of their companies.
How many customers do you serve?
About five key customers represent a majority of our volume. Our largest customer, by far, is Caterpillar with John Deere, Hallmark, Gardner-Denver, and Bunn-O-Matic ranking next in volume.
Caterpillar and John Deere do compete in some product lines. Is there ever a conflict because of that?
There are some competitive product niches where we will make similar parts for both companies, but in the mainstream, we are not seeing a lot of conflict. We are very comfortable in serving what we consider to be two very quality companies in Caterpillar and John Deere.
How does Morton Metalcraft Co. profile a good potential customer?
The first thing we look for is a leader in their respective industry. We find that most leaders have very strong dealer or distribution networks. Deere’s agricultural dealer organization is the best in the world. Caterpillar’s earth moving equipment and engines are the best in the world. Hallmark has the leading market share in its industry, through its own stores and their share of national chains. A good distribution organization allows these companies to remain dominant in their industries even as the economy swings positive and negative.
In addition, we seek customers who are aggressive exporters – who are competing successfully in key markets throughout the world. We think those who are exporting successfully will remain leaders in their industries.
And finally, we consider carefully each company’s philosophy in working with suppliers. That is important in our kind of business because we become so involved in the day-to-day activities of our customers, working hand-in-hand in multiple disciplines – planning, engineering, purchasing, logistics, scheduling, and quality. When we get involved at all of these levels, it is very important to us how our customers work with us on a daily basis.
In today’s competitive world, suppliers to major manufacturers are finding themselves being squeezed more and more with demands for price considerations. What is your experience with that?
We accept this cost pressure as a way of life in American industry today. Our customers are experiencing competition from all areas of the world in a way they have never seen before. They pass that pressure on to all areas of the business, including their suppliers. Our focus is to work with them to get costs out of the system – costs that are sometimes generated by the way we work with each other. We accept this challenge as part o four responsibility in serving our customers, and we try to respond to it in an aggressive and positive way.
Some of the work you do for Caterpillar would be looked upon with disfavor by the United Auto Workers union. Does this create any problems?
In acquiring this company four years ago, we had to evaluate whether Caterpillar was both going to be a successful corporation in the long run and whether they would continue to purchase sheet metal fabrications from companies like ours.
The decision on whether work is done inside of Caterpillar is not one in which we participate. Once the decision is made that a niched supplier with expertise like we have is going to make certain parts, then we want to compete aggressively for that work. Our employees understand that even though we have received work, we must continue to do it very efficiently or we will lose it to one of our competitors. We will obtain and keep work only because of our ability to do it professionally and at the lowest cost possible on a continuous basis.
In response to Caterpillar’s long-term success, I think we all need to recognize the great job that all of the employees of Caterpillar have been doing for some time. There have been very few major manufacturing companies in the last decade or two that have not given up significant market share to other world competitors, usually the Japanese. Caterpillar has not only survived, but has continued to be a dominant leader throughout the world. I think the reorganization at Caterpillar into strategic business units has been very effective for them. I know it has improved their efficiency in dealing with us. I believe it has focused them on the right issues, and their employees and stockholders are going to be rewarded for that in the days ahead.
Are you getting the qualified, educated employees with the necessary technical skills locally?
We are getting most of our employees with an acceptable technical skill level needed, but we have to add training in additional areas on an on-going basis in order to continue to improve our performance. I think that’s a trend in our industry.
A company like ours sometimes appears on the outside to be somewhat of a low=tech company, when in reality we have a fairly high-tech environment. Everything we do is computer-oriented. Because of this, the technical skills we require are increasing on a daily basis. The level of sophistication required in delivering “just-in-time” materials to a major manufacturer is really quite high.
Tell us more about your “just-in-time” supplier operation and whether that kind of system is making American industry more efficient.
American industry is actually running leaner and meaner than most of us recognize. The downsizing and the rightsizing that’s been happening for a number of years is really the end of the process in improving efficiencies in our manufacturing sector.
Along the way, the supplier relationships have been increasingly more vital to the Original Equipment Manufacturers because of the interdependence of the various disciplines we mentioned before. One piece of that is the “just-in-time” delivery arrangement that exists between our company and our customers. What we make this afternoon will be used on an assembly line tomorrow. There will not be inventory in our system of in our customer’s system. That’s truly a lean and mean manufacturing environment and represents where I think American industries’ competitiveness is today.
What have been the greatest changes in American manufacturing over the past few years? What do you expect the next decade to bring?
Most big manufacturing companies aren’t growing. It’s the smaller companies that are expanding because they have the advantage of flexibility and a higher level of intensity that you can’t keep in a large corporation. Breaking the big company into smaller operating groups does improve their competitiveness. Almost every one of our customers has gone through a process that accomplishes that goal. It allows the smaller groups to be more responsive, more flexible, and to be able to deal with problems on a quicker basis.
We have made similar changes at Morton Metalcraft as part of changing the culture following the acquisition. Even though we are a relatively small company, we have divided our organization into four better defined units called focused factories. The responsiveness is truly greater, and we, therefore, operate that much closer to the customer.
These kinds of re-engineering efforts, coupled with a recovering world economy and further advancements in applying evolving technology, should make American manufacturing very strong for the next decade.
What are the keys to being a successful and profitable supplier in your industry?
The major key is understanding our customers and the needs that they have to be successful in serving in their marketplace. Because we do not have our own products, we are isolated somewhat from the final customer, so we spend a lot of time getting close and staying close to our manufacturing customers to see what we can do to help them accomplish their objectives.
We have invested heavily in our engineering department for instance, because it is an asset that can assist our customer. We have also invested heavily in our computer system because it allows us to respond quickly and creatively. We also have tried to improve our manufacturing process so we can become and remain the lowest cost provider in the world.
What are your thoughts on the quality initiatives so emphasized in American industry over the past few years? How does this movement effect your company?
The movement to a quality emphasis is the right movement for American industry. The auto industry is a good example of American business waiting for someone else to show them what real opportunities existed in the products we produce. I am very supportive of these kinds of quality efforts. What we have to do is make them substantial and not something we give lip service to.
As a contract manufacturer, we have quality expectations from each of our customers, which makes it difficult to select a total quality management program that meets all of their objectives. We have studied the Malcomb Baldridge Award, ISO 9000, TQM, and others. In our company, we think that the ISO 9000 registration process is the right way to go because it is a system-oriented quality program. We think we can use each of our customers’ quality expectations and efficiently match them to the system capabilities which ISO 9000 required us to put in place. We have already had our ISO 9000 pre-audit review and plan to have our final registration audit about mid-year 1994.
What is your philosophy of management?
Our philosophy of management comes down to focusing on what I call the three “P’s” of business: Purpose, People, and Profits. Purpose deals with satisfying the customers; People deals with creating the right environment for your employees; and Profits are the responsibility we have to make money and reinvest it back into our business. Operationally, we strive to make decisions that balance all three areas. Some companies emphasize one aspect over the other, which can put the entire company in jeopardy.
My mission as the CEO of this business is to focus our management team, in balance, on the right issues. We write a business place every year, revisiting our mission statement and recommitting ourselves to it. In my judgment, this company will succeed or fail based on our ability to keep what I believe is a group of pretty talented people in step with our values and focused on salient results.
What are your general observations about the Peoria area economy and business climate?
The economy in the Peoria area is stronger and more diverse than most of us realize. I think the leadership in Peoria has taken the community in the direction it has needed to go. There are a lot of opportunities ahead, including the riverfront development and the new proposed highway system. I’m bullish on the Peoria area and of course, Morton’s ability to be a contributor to it.
Is there a particular business issue about which you feel strongly?
This country has, for too long, been too excited about its service sector, and needs to get a bit more excited about its manufacturing capabilities. If you don’t actually make something, eventually you don’t need all of those lawyers, accountants, advertising agencies, and marketing people we currently employ.
There has been a perception for some time that American manufacturing is struggling, that U.S. manufacturers are losing jobs to foreign competitors, that the American work ethic has softened, that U.S. quality is sub-standard and that U.S. employees and management cannot work together. That is really a false message.
In reality, the U.S. manufacturing segment is prospering. Per employee output is up, with productivity improving 2-3 percent annually throughout the 1980s. Exports are up.
All of this has resulted from the application of technology and teamwork – getting employees empowered so the people who actually do the work make the decisions about how to do it better. Much of this has come from what I call rationalized management techniques – combining some of the best management styles and philosophies from around the world.
Today, even the American auto industry, which had its tail between its legs a few years ago, is acting as if it can compete all over the world. There’s more to this resurgence that just the value of the dollar. The productivity issue is causing foreign manufacturers to come to American to build plants. American industry is stronger than we thing and is getting even stronger.
If we could get government as lean and mean as American industry is becoming, this country would continue its dominance in the world for a long time to come. IBI