Made Here: Long-term loyalty makes the difference
Manufacturing in America is alive and well. In our new series “Made Here,” we talk to some of our manufacturing business clients and learn about how they’ve flourished in spite of some tough odds that have challenged this sector in recent years.Fleenor Paper Company, based in Alameda, California, makes packaging products for moving and storage companies, agriculture businesses, and restaurants. With $60 million in annual sales and 350 employees at facilities from California to Georgia, CEO Rebecca Fleenor says the company her father started in the 1960s is a high-volume, low-margin manufacturer that has survived ups and downs to become “the big dog” in its sector — thanks to a dedicated team, geographic diversification, and diligent management of costs and inventory.
In the Q&A below, I’m particularly impressed with Rebecca’s creativity around honing in on what’s really important for her business to grow sustainably.Q: Given all that we hear about the challenges for American manufacturing, how does Fleenor Paper Company succeed? A: We are successful because we do care about our employees. I have a lot of people who have been with me for 25-30 years. Also, the fact that we’ve been around since the early ’60s has helped us. We’re the big dog on the block, so when smaller paper converters have gone out of business, we have been able to stay around because we’ve had a big enough customer base and the loyalty of our customers, and we are geographically diverse. So how do you survive, given foreign competition?
Though our overall payroll is huge, our raw materials are probably 85-90% of the cost of our finished goods. Even if in China they can halve or quarter our cost of labor, it’s still not enough to be able to convince somebody to go with them and take the risk of working with someone overseas. The quality might be sketchy, and you could have long lead times or higher freight costs. I think generally American companies prefer to deal with American manufacturers if they can.What advice would you give someone thinking of manufacturing in America?
You have to have a niche that is really unique so you can pay the costs. If you’re going to do something like what I do, which is a commodity, it’s really hard. We have to do millions and millions and millions of units to make a little bit of money. Whereas if you’re manufacturing something that is maybe in biotech or higher-end with a bigger profit margin, then you can afford to pay people really well and easily comply with all the rules and regulations. But if you just wanted to start making something low-end with a low margin, I think it would be difficult.
My advice would be to keep your overhead really low. A lot of times people want to be in a place like where I am, overlooking San Francisco Bay in a beautiful park in Alameda. I worked for 20 years in an office trailer in East Oakland, behind barbed wire. That’s where a manufacturing plant should really be. I see manufacturing plants wanting to have the sweet digs, and you can’t. You have to be somewhere where the rents are cheap.How’s your business doing now versus a year ago?
Better. We’re doing better this year because we tightened our belts. We were growing at 15-20% per year and just kept doing that. We have finally held steady for a few years and are fine-tuning. We are doing better profit-wise. Our sales are about the same. We identified what we needed to tweak, and we tweaked those things. In any of the four main matrixes — sales, cost of goods, variable labor, and fixed expenses — if we tweak a little bit on those percentage-wise, it can make a huge difference in our bottom line.What’s your outlook for 2015?
We plan on not adding any facilities; we are expanding within the facilities we have. We are adding machinery. As we add those machines on, we will add more variable labor. It’s expansion within our footprint, and I will continue to dial in on my goals so we can make more money, with maybe a slight, 3-5% increase in sales.
This isn’t the time for us to go, “Let’s get ice sculptures and have big parties.” I’m guardedly optimistic. We do have a goal of making $1 million a year in before-tax-profit before we do anything extraordinary. That is what I need to keep the bank and my creditors, my vendors, happy first. I have a vendor who is giving me $1 million unsecured credit, so they see my financials. My goal is to always have that kind of profit coming in. We are an old manufacturing company, so that’s the kind of profit you look for.What is your biggest challenge?
Cash. We’ve built up some equity, but because we’ve grown so much it straps us for cash. If we had the cash, we’d be able to take advantage of things like discounts paying our vendors, and be able to be more efficient and save money. Because the company is old and is a manufacturing company, our profit margin is very low.
One of the things that we’ve done recently is reduced our inventory, and that frees up some cash for us to use internally. I do want more cash, but I want the cash generated by that $1 million (pre-tax profit) that we put into it. Having more cash is something I definitely think is going to make it more fun and a more comfortable place to work, but I think that has to be generated by profits as much as anything else.
For more information on how Bank of the West’s services can help manufacturing businesses, see this summary page on our site.