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Lane Parts Co.: Many Rebuilders Are In A State Of Transition

By Dave Wooldridge

It seems that many rebuilders are in a state of transition. Whether it's due to changing ownership, technology, products or markets, almost all machine shops and engine rebuilders are facing increasing competition in an increasingly consolidated market.

Lane Parts Co., Eugene, OR, Automotive Rebuilder's 1996 Machine Shop of the Year, is no exception. This Northwest heavy duty machine shop began life in the early '50s supplying machine services and parts primarily to the timber industry. But a lot has changed since then.

Today Lane Parts caters to the needs of the industrial, agricultural, marine, trucking, construction and automotive markets, in addition to the logging industry. New company president, Mike Jeffries, who purchased the firm along with his wife Niki a little more than a year ago, has some specific ideas on what Lane Parts needs to do in order to grow the business. Primarily, Jeffries says the company must focus on cultivating business with sales and service organizations that can help expand the reach of Lane Parts' products into a broader geographic area.

"Eugene is a small market town of just 300,000 people," said Jeffries. "If we're going to grow, we'll have to expand by developing relationships with distribution businesses, as well as with our local dealer business." And by distribution businesses Jeffries means independent and OEM forklift, industrial, agricultural and other sales and service dealers who handle accounts in their own specific markets.

One of Lane Parts' largest accounts of this type is Hyster Sales, Co., Coburg, OR, which services the forklift business from Alaska to Southern California. Where once Hyster Sales only serviced OEM Hyster products, it now is independently owned, having expanded sales and service into other OEM forklift engines, including Yale, Toyota, Cat and others.

On the OEM heavy duty engine dealer side of the ledger, Jeffries sees similar types of trends occurring as those impacting some of the forklift sales and service businesses. "I think some of these OEM dealerships are beginning to see that they can get better quality products from us and at a lower cost," said Jeffries. "Take such things as cylinder head machine work or crack repair. We can provide better quality, good turnaround and a better price than they often can get directly from the OEM dealer.

"Although we're looking primarily to sales and service organizations that sell new equipment, but also provide parts and service, to grow our business, it's all part of a business philosophy which asks, 'Where is the business concentrated and how do I use my expertise to service it?' "

That's a question which is often easier to ask than it is to answer. And even when you know who your customers should be, there's the problem of finding and implementing a business and marketing strategy on everything from production to products to pricing to make it all work.

Lane Parts presently has a target customer base of sales and service accounts to which it supplies complete engines, primarily smaller industrial engine applications. It's second major customer base consists of local dealer business, e.g., fleet accounts, truck repair outlets, agricultural dealers, etc., to which it provides primarily machine work and parts.

As a fully integrated machine shop, in a small-market town, Lane Parts can't afford to be a specialist in just one or two markets or product line segments, it must become a generalist specializing in multiple customers, markets and product line offerings. To do that, Jeffries says that Lane Parts has to work closer with its customers to provide the service and products they require.

"Our focus is to know the business of our local dealers and our sales and service organization accounts," said Jeffries. "We have to understand their markets and where the trends lie. A competitive marketplace is forcing us to look at each of our customers individually, and then to develop products and services that meet their needs."

For example, Jeffries says that his company has undertaken surveys of some of the largest service and fleet operators in his market to inventory the equipment they are using and when it will come out of warranty. Then it is up to Lane Parts to determine what specific engines and services will be in demand and to provide those products and services when needed. It is also an opportunity to sell that expertise to other customers.

"We run close, cooperative stocking arrangements with our sales and service organization accounts," said Jeffries. "We analyze the turns on specific engines and determine how many they should stock, how many we should stock, and any other customer concerns that they might have."

Those concerns, says Jeffries, range from labeling, to packaging to the preparation of parts. "Many customers are very specific about how they want the product prepped, packaged and delivered," he said. "Consequently, we have to tailor our product and services and continually professionalize our procedures if we want to keep or obtain their business."

To accomplish that goal, Lane Parts has begun what Jeffries calls "visioning" exercises, where employees sit down together to define the processes they currently follow and to look at better procedures or methods to get the job done. "It's a method for transferring responsibility and ownership (of the work that we do) from me to our employees," said Jeffries. "The bottom line is that if we are going to compete with the specialists out there, we are going to have to have a better cost structure and/or provide higher value."

Jeffries smiles when he notes that not everyone is always in agreement about the direction the company should move in, the equipment that should be purchased, or the procedures that should be implemented.

"People in our shop sometimes have different ideas of what direction the company should go," explained Jeffries. "One of the biggest discussions now is how much light industrial versus heavy duty truck, how much complete engine rebuilding versus machine work we should be doing. But we're not dealing with problems here that nobody else is dealing with. We're becoming better at understanding what the real issues are and attacking them."

There are very few markets that are not extremely competitive today. But Jeffries' business background has helped him to realize that there has to be sound planning for not only the customers, products and services chosen by a machine shop, but also the pricing of those products and services to specific customers.

"You really need to know what the value of your products are to your customer and to your customer's customers," said Jeffries. "You can't just put any price on it and throw it out in the market. Your pricing has to be based on your costs, the quality and the value that your products provide the customer."

For example, Jeffries says that shortly after purchasing the business he undertook a profit analysis comparison on the two primary divisions of Lane Parts, i.e., complete engine rebuilds versus machine work and parts sales. The analysis looked at all of the costs - overhead, labor, etc., in order to establish what the break-even points and variable margins were for complete engines versus machine work and parts sales.

What Jeffries discovered was that net return on sales of complete engines was 3% versus 11% for machine work and parts sales. To some, including several employees within Lane Parts, that was information enough to signal it was time to reduce or exit the complete engine rebuild business. However, to Jeffries it signified there was a need to change policy regarding the pricing and marketing of complete engines.

"Our fastest growing segment of the business is actually our least profitable," explained Jeffries. "So the question is, how do we manage that? If we are to continue to be in it we have to be more selective on pricing policies to specific customers. That may mean selling at higher prices to smaller volume customers who can still compete for an engine sale because they have lower overheads, sales costs, etc. than our higher volume customers."

It may also mean tailoring service and warranty policies based on the volume levels and price points that specific customers buy at. "We have to be able to understand the profitability of each of the products we sell on a cost basis," said Jeffries. "We have to keep looking for where our inefficiencies are and keep driving them out. The high profit companies find a way to do this."

In fact, Jeffries says that one of the biggest disappointments he has experienced in the rebuilding business is the lack of cost-based, activities-based software available to machine shops and engine and small parts rebuilders. "It's really just not available," said Jeffries. "It is difficult for most shop owners to understand where they are spending most of their time on a job, and how much it is actually costing them to do a job."

Jeffries is the first to admit that operating a business in the machine shop/rebuilding market has presented continuing challenges for him. Prior to purchasing Lane Parts, Jeffries took his BA degree in chemistry and his MBA in business administration and cultivated a 21-year career with Exxon Chemical. The last 15 years with Exxon was spent in new business development. So he understands markets and economics and the importance of proper alignment of all the factors that contribute to a business' success.

Jeffries said he wasn't at Lane Parts long before he realized two very important characteristics of the machine shop/rebuilding industry. "Two things amazed me," explained Jeffries. "The difficulty and complexity of remanufacturing versus new manufacturing, and second, the detail and skill levels required to do it right. It didn't take me long to understand that it's the people, experience and skill level that separates one rebuilder from another.

"Every time there is a problem or a customer has a complaint, we essentially have a training session," he continued. "Keeping up with the evolution of products and technology today is a lot like succession planning. You have to continue to implement systems and procedures to address it."

Fortunately, Jeffries can depend on 19-year veteran Tom O'Callahan, operations manager for Lane Parts, to oversee continuing improvements in customer contact, shop scheduling, training and a variety of other related shop issues. Along with general manager Bud Cummins, who has been with Lane Parts for more than 37 years, and handles outside customer training, service and engine sales, the two men are helping to implement procedures and policies designed to improve both profit margins and quality.

Jeffries says that Lane Parts has targeted three business "systems" that need to be improved in order to achieve long range production and marketing targets. These are: 1) Find the right people for the job; 2) Locate the correct engine rebuilding specifications and then add and keep track of specific customer machining requirements; 3) Distribute the rebuilding knowledge base across a broader spectrum of employees.

"Development of our employees in terms of their skill level and turnaround times are critically important," said Jeffries. "We're working towards cross-training employees in three skill areas with the goal of having three employees qualified at every skill position in the shop." Jeffries says the idea is not to generate "skill level redundancies" but rather to ensure job completion dates are never missed and quality levels are maintained.

A variety of procedures and policies have been implemented in an effort to improve turnaround times and customer satisfaction. Meeting customer expectations is harder today than it has ever been. The same issues that make rebuilding increasingly difficult for machine shops, e.g., evolving product line and vehicle systems technology, part number proliferation, etc., also make it difficult for the service garage and fleet mechanic.

"Our customers in many instances are less knowledgeable yet more demanding when it comes to a problem with a rebuilt engine installation," explained Jeffries. "Because of such things as electronic ignition, computer controls, etc., often times our customers have a difficult time figuring out where the problems actually lie."

So providing customer satisfaction becomes a two-pronged approach where in-the-field diagnostic expertise is combined with internal systems designed to keep quality and efficiency levels high. The internal systems are also designed to convey information to employees concerning the cost of mistakes, as well as to provide documentation of employee productivity.

Much of this is accomplished through monthly shop adjustment and productivity performance records which are posted for all employees to see. The shop adjustment sheets provide detailed information on monthly warranty returns. The specific engine and problem which occurred are described, who was responsible for the work, what needs to be done to keep the problem from occurring again, and the total dollars lost as a result of the mistakes. Employees have been educated to realize that warranty work results in lower net dollars earned per hour worked, says Jeffries.

The productivity performance sheets record billing dollars produced by each employee in eight company departments. The results are provided monthly and also include total company production for the month, shop adjustments made, net production earned, as well as the target earnings established for each month. Employees look at it closely. It's definitely a motivating tool, says Jeffries.

In order to achieve improvements in all of the above areas, Jeffries says that he and his employees have targeted three priorities for the business. First, to research and match equipment purchases to the type of work being done. For example, Lane Parts plans to eventually purchase a smaller crankshaft grinder to accommodate quicker setup times on the increasing number of smaller industrial engines being done. A new three-angle valve seat machine was recently purchased to improve speed and quality levels.

Second, to continue to update and implement employee policies designed to improve quality and enhance efficiency. And third, to construct a new facility designed to accommodate better material flow, and increased production. For that to happen the company has established profitability and efficiency goals which must first be met. However, Jeffries is optimistic that Lane Parts will begin building new facilities towards the end of this year or early in 1997.

In the meantime, Lane Parts, under Jeffries' guidance, is making noticeable progress. The company does twice the business today that it did seven to eight years ago, generating nearly $2 million in annual sales from its present 11,000 sq. ft. facility.

With 28 total employees, 20 of whom are directly involved in the shop and parts operations, 40 to 50 engines are produced monthly in addition to $50,000 to $60,000 in monthly parts sales.

"This is definitely a company in transition," said Jeffries. But it is a company making that transition under capable leadership which is working a solid business plan designed to maximize profits and customer satisfaction.

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