Transcript
Speaker: How does a company stay strong at the core while expanding into new business and seizing new opportunities? We'll hear from a Michigan manufacturer that's done just that on the next episode of The Market That Moves America. Welcome to The Market That Moves America, a podcast from the National Center for the Middle Market, which will educate you about the challenges facing mid -sized companies and help you take advantage of new opportunities.
Speaker: On today's podcast, we're going to hear about a company that time and time again has shown how to take deep expertise and leverage it to seize new opportunities and is doing that once more in a world reshaped by the pandemic. I'm Tom Stewart. I'm the executive director of the National Center for the Middle Market at the Ohio State University Fisher College of Business.
Speaker: We're the nation's leading research group studying the mid -sized companies that account for a third of private sector employment in GDP and the lion's share of economic growth. It is indeed the market that moves America. The National Center for the Middle Market is a partnership between Ohio State and CHUB.
Speaker: Today, I'm talking to Jeff Simak. Jeff is the General Manager of RCO Engineering, and a member of the Aerospace Industries Association of Michigan, where RCO is headquartered. He's also on the board of FIRST Robotics, which is a K -12 robotics platform for students. It's a global platform, and he's on the board of that.
Speaker: But RCO, RCO engineering is a family owned business, started out in the design and prototype business for the auto industry and over 40 years has evolved into a highly sophisticated supplier to the auto aerospace and now the healthcare industries. Jeff Simic, welcome to the Market That Moves America.
Speaker: Tom, thank you for having me and I really enjoy your podcast. Thank you. Well, thank you. Thank you. Thank you. So listen, RCO opened in 1973 doing work for car makers. So that's quite a run. Talk a little bit about how the company started and how it evolved. You know, Tom, I'd like to ground the audience here a little bit and think about what was going on in 1973 in North America.
Speaker: in the auto industry, how many OEMs were out there, how many platforms were available to choose from. And, you know, RCO started in 73, essentially working here in Detroit, Michigan, bringing products to market. We took talent, technology, speed to market and productivity, and that's what we delivered. And we started out with foam blocks. We would literally go to the customers, get prints, and we were
Speaker: skiving foam blocks for seating applications, other cushions and backrests and things of that nature. And at that point your customers are basically the big three, right? Was American Motors still there?
Speaker: You know what, I'm not familiar. I mean, I was born in 1973. I was familiar, but I don't remember when American Motors disappeared, but Toyota and Honda and Nissan, they're just coming in. I mean, there's some European makers, but they're small shops at that point, right? Yeah, no, absolutely. One of our big customers at the time was General Motors.
Speaker: you know, we would run and get prints and come back and produce the foam that they needed and then deliver them and grab a new set of prints. And, you know, it was a continuous cycle. And, you know, and obviously we're talking about foam for seats. And so then it just continued to expand. And we ended up making plastic components for seats and making frames for seats and making, you know, leather trimmings and things of that nature. So a lot of the capital that
Speaker: you see at RCO today actually are things that originally involved the manufacturing and the development of seating. Over the course of time, we took those same assets to manufacture other products, primarily in the interior, but even some outside the exterior. In 1973 till now, there's just been an incredible thirst for differentiation.
Speaker: And that's ultimately what we do. We bring the technology and the speed to market to satisfy that thirst for differentiation that's been going on. And obviously, it's grown. So now, today, the number of OEMs, the number of platforms, it's really sort of mixed now. We have lots of cars to choose from, lots of types of interiors. And it's even going to grow into electrification and autonomy.
Speaker: in all of those really cool things. But we really delivered bringing differentiation to market. So you started out, though, as doing the prototyping more than the manufacturing RCO. Is that right? You would just sort of say, here are the specs. Here's what you can do with it. Now you guys go and make a ton of them. And then evolved into production itself. Is that right? That was sort of a first stage of the way the company changed? Yeah.
Speaker: Basically, right up through the early 2000s, we'd stopped shorter production. And as the available products in the market grew, obviously the volumes of each of those products turned a bit more high mix, lower volume in terms of what market was out there. There was no longer the 300 ,000 a year Chevy Malibu or those cars that
Speaker: they had super high volumes back in the day and now there's just more product in there offered and they're produced at lesser volumes. And so one of the things that we decided is that some of these lower volume applications we could actually go after and perform the production on those and it fit very well inside of our
Speaker: you know, operating principles. So still a big swap, a big change, isn't it? To go from to say, to go to, even if it's, even if it's relatively short runs is to go from designing and prototyping, say, you know, we're actually going to make the stuff that, I mean, that changes the business. It changes what you measure and manage that. Oh yeah, absolutely. I mean, the quality system, you know, obviously we had to go out and get certified to, you know, the latest automotive quality.
Speaker: IATF19649 is what it is today, but it's a huge disruption to your company across all the cross functions, whether it be finance and sales. Let's just talk about sales for a minute. On the prototype end, you might chase this particular customer for a couple of weeks and get the order. On the production end, you might be chasing it for several months before you actually get the order.
Speaker: And so it's different for sales, it was different for finance, it was different obviously for manufacturing. And so we all had to, in an uptime, the maintenance team, obviously you're just in time producing parts, so your maintenance system has to now align to the critical nature of producing and things of that nature. It's so interesting because when I'm thinking about this, you're a mid -sized company,
Speaker: One of the rules here is stay close to home, stay close to your core. That's a traditional thing. Don't try to expand too much and yet you'll want to grow.
Speaker: And I think it's fascinating that you seem to me, RCO seems to me to have grown in two dimensions. A, in, as you said, moving from prototyping to production, but you also started expanding into different industries as well, aerospace, so on and so forth. How do you manage to do that? I mean, that's a tricky act. You know, before, yes, and before we go there, I also want to say that
Speaker: We have also diversified our manufacturing capabilities. And we talked about the types of assets that you need and talent that you need to produce seating. And so when you look across our portfolio of manufacturing capabilities from sheet metal fabrication to additive to plastics injection molding, you name it, foam manufacturing. So that diversification is also key to know. So when you start looking at RCO,
Speaker: You know, we had an aerospace customer come into town or actually wasn't a customer of ours, but, you know, aerospace was looking to diversify and get new talent and new technology and automotive technology is obviously something that is always leading edge. And the aerospace company was looking for a new seating company and they went around to all the big name manufacturers of seats in the auto industry.
Speaker: but weren't getting a lot of attention. And essentially, the company was Gulfstream. And essentially, they came to RCO and said, hey, look, we're not going to buy a lot of seats here, but we need somebody to bring talent and technology and speed to market and get it in our products so our customers are happier. Because the reality is, somebody that owns a Gulfstream is getting out of their Bentley and getting in an aircraft.
Speaker: with a seat that really has super old technology and they were just looking for new differentiation. And so they were willing to work with RCO and groom us along and it turned out to be an excellent partnership. However, we had a huge learning curve because we were a bunch of automotive engineers basically trying to, we basically designed it like
Speaker: automotive seat, but when it came time to certify it, we had a lot of a learning curve to make happen. So it was challenging. So that's another issue here, which is the whole regulatory structure. Each of these industries having something regulatory and aerospace different from automotive. But I'm hearing you talked about talent, technology, and speed as three things you guys offer along with them.
Speaker: this ability to manufacture in short runs effectively. So you've got like, it's not a job shop, but really sophisticated short run manufacturing. But then you also have this fifth capability, I guess, talent technology, speed, short run manufacturing, and then this ability to navigate regulatory environments.
Speaker: Yes, an aircraft seat like a Gulfstream seat. I got to worry about I've got automobile safety standards for a seat, but I've got airline safety standards for a seat and they are going to be distant cousins, I guess. Yeah, no, they are distant, distant cousins. And one of the big distances is that the automotive is primarily and largely self -certifying. So most of, you know, your primary seat manufacturers, you know, they go to a test lab,
Speaker: They run the sled test on the seating. The next day, it's in the program report, pass or fail. Well, in aerospace, it's a lot longer process than that. Yes, the test takes the same amount of time. However, the evaluation of the data and things of that nature are largely overseen by FAA and designated engineers tied in with the FAA. So there are many differences
Speaker: Um, but you know, once you, it's a long play, um, and you have to fight and push through the disruption. Um, however, it was, it's a big, it's a big payoff in the end and it creates, it makes you stronger. I mean, if you think about from 1973, the amount of disruption in challenge and change that RCO has taken on, whether it be, you know, adding new manufacturing capabilities or, or, um,
Speaker: diversifying into aerospace or adding production and that disruption itself, that builds strength in the company, incredible strength to then, like you said, take on new regulation. How would you describe that strength? Well, the strength is it's really the need for passion because in the end, you have constant passion driving you.
Speaker: to get through this, you become less scared, if you will, about taking on something new. And because you've had so much exercise in the past of doing this. And to me, that's really the strength is that we have confidence that we can get past it.
Speaker: So, I'm thinking again, back to the history. You start by, in your old automotive segment, suddenly there are a huge number of new players who have got to introduce themselves to you. They don't know you. They don't necessarily think that suppliers to American OEMs are up to snuff, so you've got to prove your metal to them. Your metal and your foam and other things to them.
Speaker: then you've got a whole new industry coming in and you're also a step move from just prototyping to manufacturing. So really significant changes. Over that time, how big is RCO right now? Well, we're about 450 employees over 550 ,000 square feet in a campus environment. If I'm going to block out between 100 and 150 million in sales,
Speaker: Um.
Speaker: And let's see, what else would you like to know, Tom? No, that's sort of bigger than a bread box. But it's really interesting when you think about it. You still are small enough that you've got to worry about spreading yourselves too thin. So you've got this great ability to be inventive, creative. You can prototype, do all that good stuff. You can manufacture. You can move industries. You've done it before. So you've got some confidence in that. But you also.
Speaker: You don't want to, it's one thing to float like a butterfly, but you've also got to be able to sting like a bee, right? You can't just have the one. And now you have a whole new transition coming or a whole new set of opportunities that have come in the healthcare industry with COVID and also with its impact, I guess, on aerospace and automotive, but also with new opportunities. How are you guys thinking about that? Well, you know,
Speaker: You know, we started out in March, early March, before even the state of Michigan had shut down. We were noticing a lot of media and the stories coming out of the hospitals of the COVID patients. And of course, our frontline health care workers were not protected, and they weren't prepared. There was no supplies for PPE. So we started out thinking, OK, well, how can we help these folks?
Speaker: We weren't necessarily slow at the time, but we wanted to do something for the community. So we started printing additive plastic components that would tie into PPE, whether they be headbands that we'd attach a shield to, all sorts of different things. And we started making face shields, ANSI standard face shields. We actually had it tested later on downstream and it passed. So we started doing the additive plastics and we thought,
Speaker: You know, maybe, um, maybe we better turn this on a little bit and be a bit more productive. So we built an injection mold, a single cavity tool. And we thought, you know, we'll probably make 10 ,000 of these things. And we ended up in the end making over 2 million face shields. However, in the process, we ended up just adding cavitation. Uh, and so at one point in time, we were making, um, over 50 ,000 shields a day. Um, and we were just building tools.
Speaker: and continuing, we started, we went from a one cavity to an eight cavity to two 16 cavity tools in order to make that. And, you know, what's interesting about it is our ability to scale, right, which is so important. And, you know, part of we talk about the manufacturing capabilities, but every one of our manufacturing capabilities is supported by a core tooling team here at RCO, which, you know, we are the guys obviously in the past
Speaker: you know, bringing technology and speed to market, we build tools fast, and we know how to build a lot of aluminum and easy to machine materials. And so, you know, that was just one thing that, you know, the market needed help, and every one of our strengths and skills satisfied the need, and we just turned it all on in the spirit of the community. And, you know, we ended up
Speaker: selling them as well, obviously to recoup some of our costs in labor. But we employed, we pulled back because during the pandemic, we did have to shut down for a period of time until we had our emergency use authorization letters from different industries. However, we ended up calling back 60 people just to support the PPE market.
Speaker: You're going to stay there, do you think? Do you think this is a spring and summer of 2020 picture or rollout? It's two years from now. It's 2022. Do you now have a third line of business or third industry segment that you're serving? Yeah, I think we absolutely do. It's hard to envision us being a ventilator manufacturer, but I think we're certainly at a tier two level.
Speaker: that we could be an excellent supplier to some of the OEMs that are out there today. We're certainly, we're still making face shields today. The pandemic isn't over. Different parts of all over the world are having issues. And even in the nation, we started out with protecting the frontline healthcare workers, but now we're protecting the folks that are starting their economy again. Folks that are going to school,
Speaker: students, teachers, your hairdresser, all those things that are turning back on across the nation still need these supplies. So there's a second wave of that that we're in the middle of. And quite frankly, we're also hoping that at some point in time, the government, the federal government understands that we need to start being self -sufficient here in North America. And we need
Speaker: to help suppliers like RCO maintain capacity to make medical goods. We don't need to be looking to China
Speaker: to support us when we can do it here on our own land. And I've got a feeling that that also, without getting into like crazy economic nationalism, that that also goes back to other critical manufacturing technologies. I mean, not only the things you manufacture in terms of PPE and other things like that, but also just manufacturing capabilities.
Speaker: and the need to make sure that we have just as onshore enough capabilities in automotive and aerospace. I mean, obviously, the Pentagon has a program about that, but you can imagine that going through the whole automotive supply chain as well as from, you know, things like seats and things like that. Yeah, no, and I think, you know, the other thing, you know, so we, again, back to your question, yes, I do see us, RCO,
Speaker: being involved in the medical industry to what capacity is still unknown. PPE certainly, I think we are very competitive in that market, typically simple products. There are regulations tied to some of those. If you think about all the automotive engineers under the Defense Production Act here in Southeast Michigan, that we're sifting through regulation on ventilators, which is much higher than a face shield.
Speaker: and you think about everything that they've learned over the last six months, you know, are they completely just gonna drop out of that and forget about what they learned or are companies gonna spool up here in Southeast Michigan or across the entire state for that matter because, you know, ideas. Yeah. I mean, you know, if you can go south of the border too. Yeah, no, I hear you. Absolutely.
Speaker: So what I'm hearing, coming to the end of this conversation, which has been really, really fascinating to me, I like to think about mid -sized companies as being at this intersection of resilience and runway, resilience in the sense that they can
Speaker: take a licking and keep on ticking and runway in the sense that they've got room for room to grow and that sometimes smaller companies have the runway without the resilience and sometimes the big companies have the resilience but less runway. And what I'm hearing in the RCO story is a variation of that which is in that resilience bucket you also can connect, collect ideas like agility, the ability to pivot, the ability to
Speaker: to turn on a dime and come up with new ideas. The ability to say, gee, I'm used to dealing with the head of R &D as a customer, now I can deal with the head of operations as a customer and I can figure out how to do that. So that sort of agility, along with a set of capabilities
Speaker: And it seems to me that one of the things that RCO has done is just taken a set of capabilities that is expanded over time, but it is still a consistent set of capabilities and said, gee, with this, we can do new things. We're not spreading ourselves too thin. We're simply finding new ways to deploy the capabilities we have. In the process, we get a little more capable. That's sort of like resilience and runway, agility and opportunism, I guess.
Speaker: Is that a reasonable summary of the journey you guys have been on for the last, gosh, since 73 on the last nearly half a century? No, that absolutely is. And I think that what RCO is going to have and is making out of this is the ability to take on any industry. Because most people would say, well, gee, you're an aerospace company. Why would you bother to go into
Speaker: automotive industry, I guess. I said that backwards. But anyway, at the end, when you walk into a different industry, it's a different process, it's different resources, it's different values. And those are all disruptions to your company across all the cross functions in your company. But don't be scared of it. Go at it. The one thing that you'll have to do is put a heavyweight team in place for
Speaker: a particular segment of this business. And you may even need to take a portion of your company, and you may need to make it its own entity as a child's company, but put a heavyweight team on it and go after it. Because the more you become stronger and confident taking on a new industry, that confidence grows. And now, what we have is a company that can
Speaker: that can scale across industries and our procedures and policies are written and we've rewritten them and rewritten them. And now we have procedures and policies that govern our business that handle any industry. And when you get to that point, that's where the strength really, really starts to excel and grow and your legs get longer and you can run faster. And, you know, I think that
Speaker: We need, all companies need to diversify. It's very helpful when the auto industry is going up and down in the aerospace industries at a nice growth, or if it flips the other way, you know, the defense industry, consumers energy, medical, having all those eggs in a basket, definitely help from our sales revenue perspective and keep you alive.
Speaker: What a story. Jeff Simek, RCO Engineering, thank you so much for joining us. For more about Jeff and RCO Engineering, please check out their website, which is rcoeng .com. And thank you all for listening to The Market That Moves America. Never miss a new episode.
Speaker: You can subscribe to the podcast on iTunes, Stitcher, Google Play, or wherever fine podcasts are found. Or you can subscribe and learn more about us at our website, which is middlemarketcenter .org. Thank you and stay safe.
