Of more than 150 employee ideas for cost-cutting, the most dramatic led to slashing the electricity bill by $8,000 a month or the equivalent of $100,000 a year.Sheryl Nadler
Etratech Inc. president Michael Desnoyers can pinpoint when the cash-flow crunch hit the maker of electronic switches and other control devices for the auto, marine and recreational vehicle markets.
The day after a rosy first-quarter board meeting in April, 2008, one of Etratech's biggest customers called with sombre news. The Swedish refrigerator maker had phoned to cancel orders because of plummeting demand for recreational vehicles - usually the first sign of a downturn - from the United States.
"We hit a cliff and it [the market]literally disappeared," he recalls. Over an 18-month period, during the worst recession for Canada in 60 years, Etratech's gross revenues fell to $15-million in 2009 from $27-million in 2007. The privately held company, co-founded by Mr. Desnoyers in 1989, had lived through downturns before but not at the speed or severity of this recession.
Today, the company counts itself among the survivors. Despite a loss in fiscal 2009, only its second in 20 years, Etratech is back in the black. For his survival tactics, Mr. Desnoyers outlines a stick-to-the-basics strategy: prompt cost-cutting, communication with employees and customers and vigilant monitoring of cash flow.
"There was never any doubt in my mind and I never communicated anything other to our employees [but]that we would survive this," he says. "Each time we came out of a recession [we became]stronger than when we entered because of the initiatives we took."
In April, 2008, the picture was not pretty. Within a week of the news from Sweden, Etratech cut production schedules even as it worked with suppliers to minimize disruptions caused by the abrupt loss of orders.
"The key was reaction time," he recalls. "We didn't take the approach that maybe this is a blip and things will get better tomorrow."
At the end of April, the non-union company held a special "all-hands" for its 110 employees. In the company cafeteria, Mr. Desnoyers unveiled a "Weather the Storm" initiative seeking ideas to reduce expenses. "I said, 'It sucks out there, things are really bad. But if we do all these things we will survive,'" he recalls.
Management promised to review and report back on every idea, no matter how trivial. Of more than 150 employee ideas for cost-cutting, the most dramatic led to slashing the electricity bill by $8,000 a month or the equivalent of $100,000 a year.
The company removed 54 per cent of fluorescent light bulbs from around the building, including some in the office of the president. The only off-limits areas were lighting for the assembly line and for health and safety reasons. As well, Etratech lowered the thermostat in winter by a degree or two and raised it slightly for air conditioning in the summer. Thirty minutes before the end of the last shift, the air conditioning was shut off to conserve energy without discomfort to the workers. Finally, the temperature of hot-water tanks on the production floor was cut to 120 from 140 degrees.
"Ideas like that helped us hugely to reduce our expenses," Mr. Desnoyers says.
That was not enough.
In addition to paring costs, managers were told to conserve cash - a move that kept the company within its debt-equity and debt-serving ratios on an operating line of credit with a major bank.
In the process, Mr. Desnoyers discovered new meaning to the adage "cash is king." When he asked for monthly reports on the amount of cash on a rolling basis, he found Etratech had enough cash to survive for 13 days without making changes. After cost cutting, product refinements and a redoubled sales effort, the company boosted its cash comfort zone to 96 days.
By November, 2008, with the global recession in full roar, Etratech cut back to a four-day week that equated to a 20 per cent pay cut for all employees. No one was spared, including managers and the board of directors.
The reduced week - the company briefly dropped down to a three-day production schedule - did not affect time-sensitive shipments. Two internal customer-support staff split their time so that one worked Monday to Thursday and the other Tuesday to Friday. Similarly, two shipper-receivers shared the week so products went out over the five-day period.
The company made changes on the production line to boost output without hurting quality.
With the shorter work week, the company signed up for a federal work-share program in January, 2009. Eligible Etratech employees received employment insurance benefits until the company returned to a five-day week last December. Mr. Desnoyers credits the "Weather the Storm" initiative and a subsequent cost-saving campaign for helping the company qualify for the wage-subsidy program.
Etratech's sales people were not eligible for the benefits. Instead, Mr. Desnoyers urged them to seek out new customers, especially those who might be receiving less service from suppliers who had cut staff. Despite the recession, Etratech won several new contracts.
For his part, Mr. Desnoyers wrote to Etratech customers to explain the production cutbacks and personally visited the largest buyers. With some, he even shared key financial ratios to demonstrate Etratech's financial health.
He put himself in the shoes of his customers. "Their concern would be that if we [Etratech]were to go bankrupt because of the recession where are they going to get the product," he said. "It was important to address that."
Etratech's largest and oldest customer, Dometic LLC of LaGrange, Ind., a manufacturer of refrigerators and air conditioners for the leisure market, was among those who received a letter and personal visit from Mr. Desnoyers.
"Michael's not been bashful about sharing some financial ratios about where his company is at," says Rick Baccari, director of purchasing for Dometic. "It's very unusual for suppliers to do that with you." As well, he said, Mr. Desnoyers "went after some new business [with us]very aggressively for some of the parts he didn't have with us." The net effect: new orders for Etratech.
In December, the company held a party for its workers to celebrate the end of the federal work-share program. Only one employee left during the downturn.
Last month, Etratech held its regular quarterly "all-hands" meeting. After a $250,000 loss in fiscal 2009, the company has returned to profitability, reports Mr. Desnoyers, with sales 28 per cent higher than a year ago and 12 per cent ahead of the budget for 2010.
"We didn't choose to reinvent ourselves," he says of the company's strategy. "We chose to go back and do what we do and do it really well."
Still, he urged employees to continue to leverage their hard work and sacrifice of the past two years. The recovery, he cautions, "is going to be a lot longer and a lot slower coming, but we are on the upturn."