Stan Youtt is CEO of Ranor, Inc., the primary subsidiary of TechPrecision Corporation, a publicly traded contract machining firm. They work in high-tech industries such as solar, nuclear and medical. They recently saw solar, their biggest client, go from 51 percent of their business to almost nothing. I wanted to understand how they operate their business in this environment.
Lloyd Graff: Stan, I want to talk to you about the nuts and bolts of running a contract machining business for high-tech products.
Stan Youtt: One thing about us that’s different from other contract manufacturing companies is that we’re both a fab- ricating shop and a machine shop all in one. This gives us the ability to start with raw plate and produce fabricated and machined products which we can also assemble and test. All of this is done under the presence of our quality assurance system, which has nuclear, military and commer- cial capabilities. So we are capable of providing complete manufacturing solutions for a wide variety of industries.
LG: In the recent stock analyst conference call, Mr. Fitzgerald, CFO of TechPrecision Corp., talked about wanting to try to move away from what he called auction or bid work to value-added work and to selling your intellectual property. I want to know how you’re attempting to do that within the framework of a contract machining company.
SY: Our customers generally design the products we build. In cases like our proton beam medical product, we work with a customer’s preliminary drawings and his design team to make the product more producible. At the end of the program, generally speaking, the design still belongs to our customer. However, the process by which we manufacture the product, which is documented in manufacturing routers, is our intellectual property.
LG: Do your clients want to get into manufacturing, or are they happy to send it to you or competitors of yours?
SY: I find that customers are moving away from manufacturing. Some of the major military customers, for example, believe that they save money by subcontracting a larger content of their product. Companies that are developing a new product from their own intellectual property often have no intention of manufacturing. This trend is clearly good for us.
LG: Can you give me some background on the medical proton beam product?
SY: We were involved with making advanced propulsion motors for the military that utilize compact, superconducting magnets. We found a commercial customer who was interested in using this type of technology to accomplish proton beam therapy. Our experience with related state of the art materials and manufacturing techniques was needed.
LG: How did the commercial customer find out about you?
SY: They are a Massachusetts-based company and some common people between the two projects brought us together. Ranor Inc. has been here for 53 years and there are a lot of interrelationships. A lot of our business comes from referrals.
LG: Stan, you run a job shop serving a variety of industries yet you reached a point last year when solar provided half your volume. What do you do when solar goes from 50 percent of your business to virtually nothing?
SY: We were never a solar company. We’re a manufacturing company that happened to be largely involved in servicing the solar business. The work cells that we used in the solar product industry had been used to build dry storage canisters for spent nuclear fuel. Right now, the object is to get that work cell active in other programs. We’ve had some success, but are still in the process of trying to get that team of people engaged in other projects.
LG: What if solar comes back strong? Would Ranor anticipate nearing 50 percent again with any particular customer or industry?
SY: It certainly could happen. We were aware of what we were doing when our business grew in solar. We’re more comfortable with a more diverse customer base at all times. I’m not saying we never would, but if we did, we would do it carefully knowing the risks.
LG: Your volume goes from $11 million to $3 million. What do you do with all the people?
SY: We certainly have had a layoff. Most of the remaining people have been transferred to other products and we’ve developed some other product lines to help fill the gaps.
LG: I’m interested in your growth into the nuclear refurbishing market. Can you talk a bit about that?
SY: We’ve been in the nuclear business for over 25 years during which time there has been very little new construction in the U.S. We build reactor components for new power plants for one customer, but most of these components over the last few decades have been for power plants in other countries. Right now, we’re in the process of shipping a fairly significant project for the Three Mile Island Power Plant, so there is ongoing after-market work for U.S. nuclear plants as well. Our company has always taken the long path where nuclear power is concerned. I think the [U.S.] is about to see a renaissance of nuclear power, and companies like ours with nuclear capability are likely to get a significant amount of that business.
LG: How many engineers do you have on staff? How do you divide up your staff between your office staff and your floor staff?
SY: We have six sales engineers who are involved with marketing, estimating and developing bid proposals for our customers. They also serve as the point of contact between us and our customers throughout the manufacturing process of each project. We also have eight manufacturing engineers who work with our customers to make designs more producible, and to develop a manufacturing process in collaboration with our quality department and our manufacturing team. The manufacturing process is documented in manufacturing routers. Our engineers develop a router for each component that we build. There may be many routers for a complete project. We maintain appropriate documentation and material traceability for each project including welding procedures, welder qualifications, dimensional data, etc. Our routers are always structured the same. Our quality system is always the same. If the customer needs a simple commercial product, there’s a lot less detail to be recorded. If the customer is military or nuclear, there’s a lot more detail.
LG: I’m curious about this router. Can you flesh that out a little more for me?
SY: It’s a manufacturing process that defines step-by-step how that particular product is going to be fabricated and/ or machined. Basically each step is defined and each step then is documented.
LG: The router is a process.
SY: It’s a process. It’s a book.
LG: How do you figure your costs?
SY: We have different cost rates for the various processes required to manufacture a product. There are rates for fabrication, machining, engineering and quality assurance. Everyone charges his time to the project that he works on, so if you multiply the labor hours by the appropriate rates, you can calculate the actual labor cost to produce a product. More complex projects like military or nuclear projects incur for example more quality assurance costs, and more engineering costs. Simpler commercial projects incur lower costs. When we create an estimate for a job we use the same process, only we estimate the labor hours we that will be required for each process. The hard part is to assess the amount of time it’s going to take to manufacture something that’s never been built before.
LG: Are your stockholders tolerant of that?
SY: I’m thinking about that.
LG: I look at contract machining as a very difficult place to make money and a contract machining company that goes public is an interesting idea to me. There haven’t been a lot of notable successes.
SY: Our business plan involves having manufacturing product lines and using our contract manufacturing capability to help a customer develop a prototype that leads to production. That doesn’t mean we don’t also do just the contract job, because we will. But using the skill of a contract manufacturing company to develop a customer’s prototype product and then producing the product in quantity, that’s what we’re very good at. We have two military product lines and had our solar product line, which isn’t necessarily gone for good. We are developing a product line with medical, the Still River Program.
LG: Do you ever go home at night and say, “Gee, I wish I had two Haases and a couple Mories and I’d go in business for myself and have one employee?”
SY: I think the former owners of this company felt that way. I know they are proud of what they did but they’re glad enough not to be doing it anymore.
LG: But how about you? You’re 62, you’ve got a wealth of knowledge. You know all kinds of stuff about fabricating and machining. You have access to a million customers.
SY: I’m committed to doing what I’m doing.