Rising Above the Recession

Rising Above the Recession

Thanks to sound business strategies -- and some good fortune -- BraunAbility and KI overcame the recession and are poised for growth.

Ralph Braun, founder of BraunAbility, has been overcoming obstacles ever since he was diagnosed with spinal muscular atrophy as a child.

Frustrated by the challenges of navigating a college campus in a conventional wheelchair, Braun designed his own battery-powered scooter to get around. Later, when his employer moved its factory farther away from his own home and he needed more reliable transportation, Braun converted a Dodge full-size van so he could drive it from a wheelchair. The Winamac, Ind.-based company that bears his name started out in Braun's garage in the early 1970s and evolved into a global manufacturer with approximately $200 million in sales in 2008.

BraunAbility, which manufactures wheelchair lifts and converts vans and minivans for wheelchair accessibility, had the right strategies in place to overcome one of the worst global economic downturns in history. While sales dropped off slightly in 2009, the company improved its operating margin by 21% from the previous year and is forecasting "near double-digit" revenue growth for 2010, according to BraunAbility President Nick Gutwein.

In 2009, thanks to its emphasis on lean manufacturing practices, the company also reduced its inventory levels by 30% and improved its inventory turns by 31%, according to Gutwein.

Gutwein points to several strategies that helped the company boost its profits during the recession, including maintaining strong supplier partnerships and collaborating with its dealer network to manage costs.

He notes that much of the groundwork for its survival of the recession took place before the economy turned bad. For example, BraunAbility already had strong relationships with suppliers, which helped when the company turned to them for ideas on how to cut costs and be more efficient.

Winamac, Ind.-based BraunAbility makes wheelchair lifts and converts vans and minivans for wheelchair accessibility.
"When it comes time where you're seeing major discontinuity in a market -- in this case a recession -- that's not the time to start figuring this stuff out," Gutwein tells IndustryWeek.com. "You had better already have in place a supply chain management strategy that has guidelines, performance measures and partnerships with suppliers. So when the time comes, it's not like you have to suddenly say, 'Alright, we need to start working together on this.' It's more like, 'Here we are together. How do we deal with this?'"

Gutwein points out that all of BraunAbility's dealers survived the recession, thanks to a rightsizing initiative that took place in early 2008. He emphasizes that the restructuring of its dealer network was not prompted by the impending recession, but rather because "we had too many dealers, and if you have too many dealers, it's hard for some of them to survive."

"We did it because we wanted to get our structure right, and we wanted to have defined market areas for our dealers, and sets of guidelines for them," Gutwein explains.

After experiencing "a significant growth run" in the years leading up to the recession, a nearly 10% drop in sales in 2008 forced the company to take some "painful and necessary" steps -- in other words, downsize some of its workforce. While the company tried to slash costs by cutting back on overtime and reducing spending in areas such as consultant services and travel, the top-line pressures brought on by the recession prompted BraunAbility to lay off approximately 80 of its 800 workers, according to Gutwein.

"We tried desperately not to do this," Gutwein says, adding that the company brought some previously outsourced parts fabrication processes back in house as business slowed down. "But around March or April of 2008, it was just essential for us."

Gutwein notes that business began picking up again in mid-2009, and BraunAbility now is in a "hiring mode." He expects the company's employment ranks to climb to approximately 780 workers this year.

Despite having to downsize a portion of its workforce, BraunAbility's pains paled in comparison with the rest of the auto industry. Gutwein attributes that to having a "need-based" clientele. He also points out that BraunAbility's strong presence in the public transportation market, which "remained stable through the recession," helped soften the blow on the company's top line.

"Mobility is not a luxury -- it's a necessity for our customer base," Gutwein says. "So that is a key point because we're in a good space when it comes to a recession."

Vertical-Market Focus Keeps KI on Growth Trajectory

KI, a Green Bay, Wis.-based manufacturer of furniture and movable wall systems, also benefited from having a significant chunk of its business coming from public-sector customers. As part of KI's "vertical-market focus," the company targets its products to the corporate, education, health care and government markets, explains KI President Brian Krenke.

Krenke points out that the company's commitment to serving the education, health care and government markets left the company in better shape than competitors who "are heavily leveraged on the top-line revenue side in the business market."

"And that's not to say the business market isn't the focus of KI. However, we leverage a lot of our company's capital as well as overall resources in what we consider to be key vertical markets for us: education, health care and government," Krenke tells IndustryWeek.com. " So how those markets perform -- and we're sort of equally leveraged against all of those markets -- is how KI performs. With those institutional markets, you don't see the big peaks and valleys that you see in the business market, which was helpful for us last year."

KI's vertical market focus was "one of the key reasons we were somewhat protected by what happened in our industry" last year, Krenke asserts. While the overall U.S. office furniture market experienced a 29% drop in sales in 2009, according to statistics from the Business and Institutional Furniture Manufacturers Association (BIFMA), KI's sales dropped approximately 9.5%.

KI's vertical-market focus didn't happen by accident. In the late 1980s, the company determined that its plan at the time "can no longer sustain itself," and decided on a "very vertically market-focused strategy" in which the company would "market our products directly to the end user in a B-to-B-type transaction," Krenke says.

"And so in a lot of our markets and a lot of our vertical markets, we will market our product directly to our customers, unlike the rest of the industry, whose distribution is traditionally two-tier," Krenke explains.

The strategy has helped propel KI from the 25th-largest to the sixth-largest manufacturer in its industry, growing revenues from $45 million in the 1980s to more than $700 million in 2008, according to the company.

KI President Brian Krenke

As part of its vertical-market focus, KI boasts that roughly 20% of its business comes from sales of products that are customized to meet its clients' needs. Krenke estimates that most manufacturers in the industry generate between 1% and 31/2% of their annual sales from such customized products.

"It really is what sets us apart when we sit in front of a client and they're looking for something different," Krenke says.

Krenke notes that KI's "very, very vertically integrated" manufacturing process enables the company to produce "a SKU set of one as efficiently and effectively as we do a SKU set of a thousand."

"And our ability to do that allows us to respond to a client in a very quick and effective manner," he says. He adds that the company's goal is to respond to requests for customized product solutions within four hours. "And if we can't that information either through our supply chain or our factories within four hours, our goal is to be able to define to the client when in fact we're going to be able to revise a proposal or solution and bring it back to them.

While BIFMA projects that the overall U.S. office furniture market sales will dip 2.5% in 2010, KI is budgeting for revenue growth between 4% and 5% this year. Not surprisingly, Krenke points to KI's steadfast focus on its core markets as the key to its success.

"It's always interesting to see our competitors drift over from the business market, and then all of a sudden they have an education segment and they'll focus on education for a while. Then when the business market starts coming back, they'll come back over and focus on the business market," Krenke says. "We've been very focused and have made sure that we've maintained that focus over time, and it's what has made KI unique, and really has allowed the company to grow and be financially healthy for decades."

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