Blinding Success

Dec. 21, 2004
Novo Industries' competitive advantages include vertical integration and a plant-floor management team of former minimum-wage workers.

Driving Northwest of Houston you'd be hard-pressed to find Novo Industries LP except for a sign near the entrance that advertises for workers in five languages: English, Spanish, Vietnamese, Bosnian, and Albanian. Yet just beyond that sign 1,100 people from more than 12 different cultures work side by side in a manufacturing complex that started 16 years ago with just three employees. Novo has parlayed virtual integration, do-it-yourself innovations, a policy of promoting machine operators to managers, and a culture of mutual respect into a U.S. market-leading position in PVC vertical blinds. Over 90% of Novo's nearly 40 manufacturing supervisors and 12 of its 15 department heads in manufacturing began as minimum-wage machine operators. "Our people know that we will reward them for their hard work with a promotion," says Ali A. Kashani, executive vice president of manufacturing. "They can see that it is not just talk, that it is reality in this company." Novo has come a long way since 1985 when Kashani started the company with two machines (only one of which worked) and a workforce consisting of himself and two machine operators. Today Kashani runs Novo's manufacturing operations and remains one of its top two executives. The company's success-sales have increased between 35% and 40% each year since 1995-hasn't changed the basic philosophies of Novo or Kashani, who takes visible pride in the manufacturing operation but little credit for Novo's success. "Basically, I assumed that if you worked hard in any given industry, tried to find a niche in the market, and worked very economically, success should come to you," he says. "We just looked at being efficient and kept our unit costs as low as possible. When you do that and have good quality, the market recognizes that." Indeed, industry sources estimate that $175 million Novo -- part of the Royal Window Coverings Group of Royal Group Technologies Ltd., Woodbridge, Ont., since November 1995 -- has between 17% and 21% of the U.S. PVC vertical-blind market, which Business Trends Analysis Inc., New York, estimated to be $725 million in 1999. (Novo's ready-made, cut-to-fit, and custom-made blinds are sold at retail under its two trademarked brands, Town & Country and U.S. Blinds, and a variety of other brands. It even makes some of the blinds its competitors sell.) In-House Strengths In an era when virtual manufacturing, subcontracting, and contract manufacturing are the rule, Novo has taken the opposite approach. It is almost completely vertically integrated. It gets the plastic hooks to which the blinds attach and the metal ends for the head rail (the steel top portion) of the blinds assembly from companies in the Royal family, but makes virtually everything else in-house. It does chemical compounding, extrudes pellets into blinds, performs injection molding, roll-forms steel into the head rails of the blinds, and has had its own machine shop since its second year of existence. "We are like 12 different companies in one," says Kashani. "We are both diversified and integrated [with] all the operations being in one place. That makes us very efficient and is what enables us to compete" with low-cost offshore manufacturers. "Every time we take an operation in-house we become more efficient, we reduce costs, we provide better service for our customers, and we get to promote someone to a manager," says Kashani. A case in point: Before Novo began to roll-form its own head rails four years ago, Kashani says that "no matter how regularly we placed business, every time we heard 'I don't have the capacity. I don't have the time.' Plus, we had to negotiate on price." Now that that operation is in-house, "we are ahead of production all the time" and can use a steel supplier "that is five miles away." That do-it-yourself philosophy also extends to building some of its own equipment and even to nonmanufacturing areas. "We do everything ourselves, including our own graphics for advertising and merchandising," says Novo's other top executive, Todd Markey, executive vice president and COO. He estimates that Novo saves "at least $1 million a year" by not outsourcing its graphics operations. "Plus, we bring that creativity in-house." Novo also designed and built both the tables where workers package the blinds components and the conveyers that transport the packaged blinds to shrink-wrap machines, where packages of blinds are consolidated for shipping to home centers, mass merchants, and blinds fabricators. In the last two years Novo also has designed and built two plastics extruding machines and its own shrink-wrap machine for packaging. "We keep redesigning the tools and machinery to give us high efficiency," says Kashani. "We make a lot of our machines because what we need is . . . not what others in the industry need. We design a machine the way that we need it to cut. If we bought our machines, they wouldn't be as efficient, they would be a lot more expensive, and we would just have to modify them." Another example of the company's innovation: Four years ago Novo started regrinding scrap plastics from its blind-making operation to make reusable PVC shipping cartons for its blinds. "You have to make things as simple as possible in every aspect of the operations," says Kashani. "Otherwise, you waste time, and time is money." That's apparent in Novo's choice of suppliers and the design of its manufacturing complex. At one end, rail cars deliver 70% of the raw materials used in manufacturing to some 60 storage silos. And, in order to create an efficient flow of goods from raw-materials arrival to finished-goods shipment (mostly by truck), manufacturing operations run parallel to warehousing. In addition, 75% of Novo's raw materials are purchased within a 50-mile radius. "That keeps us efficient. That keeps our inventories -- and costs -- down. It is a strategic advantage," says Markey. "It is all [these little] things that we pull together," asserts Kashani, "that is our competitive advantage and keeps us ahead of our competitors in China and the Far East" that also supply many of the brand-name blind companies in the U.S. To accommodate a growing interest in while-you-wait, cut-to-fit blinds, says Markey, Novo two years ago designed, patented, and built a machine that allows a retailer to cut blinds to customers' measurements while they shop in the store. The machine, which measures from 4 ft to 6 ft in width, replaces as many as four 10-ft-wide machines that retailers previously used. Novo also works hard to maintain a good working relationship with its employees. All management-team members, including Kashani, walk through the plant daily. There also are two to three monthly lunches with production employees. Novo offers traditional benefits as well as a semi-annual-bonus plan for all employees that is based on profits, on-time performance for customers, quality levels, and efficiency. And, Kashani says, the company pays attention to details that "often make the difference between a happy and an unhappy employee." The manufacturing operations, for example, are clean, bright, and air-conditioned. Each manufacturing area has its own large air-conditioned break room with picnic tables, refrigerators, microwaves, and an ice machine. "Anything . . . that makes sense and makes our employees comfortable, we do," says Kashani. Indeed, he proudly ushers visitors into clean, air-conditioned, spacious restroom facilities to illustrate that point. Kashani also insists that Novo policies apply equally to manufacturing and management employees. Since manufacturing workers get paid every Friday, so do the management team and white-collar workers. There are no private parking spots, and the trunk of every car leaving the company's parking lot, including visitors' vehicles, is checked. "You have to treat people with the same respect, from the CEO to the guy loading the truck," says Markey. "Then they will treat the people they work with in the same way." It is that attention to details both in manufacturing and with customers and employees that has enabled Novo to grow (a planned expansion project will increase manufacturing capacity by another 30%) in a market that is expanding by only 3% to 5% a year. Although the PVC vertical-blind market is growing slowly, Kashani says that Novo "plans to take a huge portion -- 50% to 60% -- of that 3% to 5% growth" by continuing to be a low-cost, high-quality producer. "We never wanted to have a production of 1,000 units at a 30% margin," says Kashani. "We wanted to produce [a lot of high-quality, low-priced] units at lower margins and make the same amount of money that way. If someone gives you the choice of a Mercedes-Benz or a Pinto at the same price, which one would you choose?"

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