Ron Kirscht is celebrating the 30th anniversary of Donnelly Custom Manufacturing, a contract manufacturer with a 108,000-square-foot facility in Alexandria, Minn.
These are good times for Donnelly in many ways. The plastic-molding company hit the $32 million mark in annual sales for the first this past September. Donnelly has a skilled workforce, modern equipment, progressive management processes and a cadre of excellent clients.
But there is one thing that is “taking the fun out of the business,” says Kirscht, the company’s president, and that is regulation. “They are definitely adding cost and complexity to the business,” he says.
For example, Kirscht says his firm repeatedly is asked by customers about the possible presence of conflict minerals, regulated under the Dodd-Frank Act, in its products. While Donnelly doesn’t use much metal, its does have some metal inserts for fastening and rigidity that go into clients’ products.
“Each account requires days of research to fill out the complex templates that we are being given,” he said, estimating that one month of people time is going into compliance with this law. And Kirscht notes that compliance currently is focused on materials coming from the Republic of the Congo. What if it is expanded to other countries? “There is no limit to where this could go in terms of compliance,” he says.
Kirscht and his team are no strangers to complexity when it comes to the production floor. Donnelly operates 34 machines for the injection molding of thermoplastic resins. The 24/7 operation has 230 employees working on five shifts. The company specializes in short-run jobs and offers customers a variety of value-added services, from designing and decorating parts to parts joining and machining. Industrial customers are OEMs who manufacture hydraulic components, electronics, agricultural machinery and a host of other products.
“Our customers are typically leaders in their chosen industries but they don’t necessarily sell hundreds of thousands or millions of units a year,” Kirscht explains. Donnelly decided to focus on industrial customers with short-run needs because they offer more stable product lifecycles of 5 to 25 years. While most of the company’s customers are located in North America, Donnelly does export about 10% of its production, to countries such as Mexico, Brazil, China and India. That fills the needs of global companies where volumes don’t justify local sourcing of certain parts.
Why pick Donnelly as a supplier? Kirscht offers the example of manufacturing an industrial paint sprayer which might have 25 different parts that come out of 20 to 25 different injection molds.
“You don’t want to multi-source that because of stack tolerance and cosmetic issues,” he said. “You need a partner who has the capability to design and manage the build of a lot of molds.” Donnelly has supervised the build of over 5,000 molds in its history, Kirscht notes.
Currently, Donnelly produces 2,000 parts for 50 customers. Parts are made from more than 500 different resins. Producing all these different parts requires a sophisticated production system and expertise in managing large tooling programs. In the past fiscal year, for example, Donnelly did over 14,000 mold changeovers, the riskiest part of the business.
“The greatest risks to tool damage and quality is at the end of a run and the beginning of the next run,” Kirscht observes. “Everything has to be lined up with an almost symphonic consonance – right material, right mold, right process on the machine.“ In just one week, he adds, Donnelly may do 300 mold changes, more “than almost any other company on the face of the planet.”
Kirscht said Donnelly has to add about 100 new injection molds in order to grow $1 million in business. The company has a proprietary process to help ensure that the new tooling projects go smoothly. “We use project engineers that are sourced at the customer. We have a manufacturing launch team that is located in the plant to help translate those needs and requirements of the customer as we launch the tool into production.”
To “achieve perfection in a somewhat chaotic environment,” as Kirscht describes it, Donnelly utilizes daily review and planning meetings in a “manufacturing war room.” A cross-functional team made up of service, quality, production, maintenance, purchasing and other functions examines daily performance measures such as quality and utilization, reviews plant activities during the past 24 hours, identifies what went wrong and assigns a person the responsibility for resolving the issue on a permanent basis. Another 15-minute meeting looks forward to the next 24 hours and tries to identify risk points that could make jobs late.
Since starting the review process in April 1997, the company has assigned and closed over 5,000 corrective actions. The goal is to permanently solve them within 48 hours, and they are reviewed daily. Longer-term issues are also assigned to a person and reviewed weekly.
Kirscht says this process of continuous review and improvement is vital in Donnelly’s operation. “If you don’t have a process for managing the complexity of short run, you burn your people out” he states. “People want task interference and motivational inhibitors removed.“
To help ensure employees can work in this demanding environment, Donnelly implemented an internal training program in 1991. Kirscht says workers entering the company often lack manufacturing skills. “We have internal training programs to move them from beginning operator to advanced operator to certified molding operator so that they can do a wide array of value-added activities including mold changeovers, mold startups and processing when you have issues with the material or the parts,” he explains.
Kirscht notes that his company is both capital and energy intensive. The smallest injection molding machines in the firm have 20 tons per square inch of clamping force and the largest ones have 720 tons per square inch.
To maximize its energy efficiency, Donnelly has undertaken a variety of steps. The company has switched over the majority of its injection molding machines from hydraulic to electric, servo-driven models. The company tries to maintain a press fleet that is 10 years old or newer. Electric machines cost 10% to 20% more than hydraulic models, says Kirscht, but they use 30% less energy. They also create less heat and noise, and are more reliable.
Energy use also is high for drying machines that are needed for many resins. Donnelly adopted wheel dessicant dryers and a central drying system where multiple machines are fed from a single container of resin that is being dried.
Other energy saving measures have included:
- Investing in a closed-loop water system that cuts water usage from more than 250,000 gallons a year to 10,000 gallons or less.
- Purchasing slow-speed grinders for recycling of materials.
- Replacing 300 lighting fixtures with T8 bulbs and installing in its warehouse a limited-occupancy system that turns lights on only when motion is detected.
- Working with the local utility to upgrade its capacitor banks in order to level its demand load.
“One of the benefits of running 24/7 seven days a week is that you have a lot more constancy in your demand,” he said. Leveling its electricity demand allows the company to benefit from lower utility rates.
Despite all these efforts to hold down energy use, Kirscht says his company faces a “two-headed dragon” when it comes to energy regulation. In 2007, Minnesota enacted a Next Generation Energy Act which required utilities to generate 25% of their energy by 2025 from renewables – solar, wind, biofuels, biodiesel and hydroelectric projects that are 50 megawatts or less in size. There is also a provision that solar must account for 10% of renewable energy by 2030. Kirscht says solar currently accounts for less than 1% of energy generation.
Because solar and wind are variable energy sources, they require backup energy sources, primarily natural gas in Minnesota. Right now, Kirscht notes, the ratio in Minnesota is one megawatt of backup capacity for every megawatt of renewable power. This creates redundant capacity and an extra cost that is passed on to customers.
It is a traditional fuel – coal – that accounts for 46% of the electric power generation in Minnesota, according to the U.S. Energy Information Administration. Plans to expand capacity at the Big Stone coal facility on the Minnesota-South Dakota border were dropped when the 2007 energy law was passed. That power would have cost 8 cents per kilowatt. Instead, says Kirscht, a hydroelectric power project on the Des Moines river was done at a cost of 16 cents per kilowatt hour. As a result of this, industrial electric rates are going up 7.5% in the Alexandria area on January 1. That will cost Donnelly $30,000 a year. If Donnelly hadn’t taken the energy conservation measures it did, the company estimates the impact would have been $80,000 annually.
Kirscht says the nation’s lack of a cogent energy policy is a fundamental problem.
“A good starting point would be that given current technologies and focusing on market solutions, the goal would be that we want energy that is available, affordable and abundant.” Instead, he says, the nation is “pushing” in the opposite direction.
Donnelly said new environmental regulations are not only driving energy costs up for consumers and manufacturers, but also having the unintended effect of shifting production to nations where environmental laws are less strict, resulting in more rather than less pollution. He noted that coal exports from the U.S. have increased by 50% in recent years and much of that increase is going to Mexico and China.
Kirscht doesn’t buy arguments that the United States is an energy glutton. It has 5% of the population and consumes 24% of the energy, but he says that ignores the fact that the U.S. has 30% of global output. “By any measure, you would have to say that we are very efficient in terms of our conversion of energy into output,” he states.
Growing a Taste for Manufacturing
Kirscht grew up on a dairy farm but his father told him the family farm held no future for him. He went to college, got an accounting degree and started his career with Coopers & Lybrand. He became an auditor and through his job saw a lot of companies. His own interests gravitated to small-to-midsize manufacturers. During audits at such companies, he often spent a week or two at the firms, meeting managers and learning about the businesses.
Kirscht left Coopers for a job with a Swiss companies that was consolidating operations in Minnesota, then left to take a job with an injection molding company. In 1991, he was offered a job by Stan Donnelly as vice president of operations at Donnelly, which at the time had 55 employees and annual sales of $6 million. In May 2000, Kirscht became president of the company and acquired an ownership stake in the firm.
Kirscht says while manufacturing is only about 15% of the economy, it is the “backbone of the nation.” And like many others, he says the general impression of manufacturing is inaccurate.
“It isn’t dirty. It isn’t noisy. There is a lot of technology,” he says. He said his company and other firms in the area participate in manufacturing days, showing students and parents the advanced technology in use in these plants.
He also points to an atrium area in Alexandria’s new high school. There is glass wall on the end of the atrium that shows the industrial technology area. In that area are CNC milling machines, 3-D printers, metrology equipment, robotics and other advanced machinery. The school has a curriculum developed in cooperation with local manufacturers to help students learn about manufacturing and provide them hands-on experience.
"It is really creating a lot of excitement and interest in manufacturing," he said.
Kirscht said he sees lots of commonality between farming and manufacturing, not the least of which may be that both require hard work. And that's not bad, he says.
"Looking back at my business career, the things I remember most are not the easy times, the weeks and months when things fell together and you got great results without a lot of stress," he says. "Most of my cherished memories about business are those tough times we went through when you wonder, 'how did we survive?' Those war scars, that's when the memories are built."
Those challenging times produce more than just memories, he says. They lead to innovation, enhanced teamwork and the will to build new processes and work harder and smarter.
"In the next round of challenges you face, you approach them with the confidence, competence and commitment that you can get through it because you've been tested before."