USGNN.com Exclusive Interview: Arch CEO
Jeff Leone Addresses Rumors Surrounding Business, UGC and Vitro
May 20, 2011
Over the past year many changes have occurred at Arch Aluminum and Glass and
numerous rumors concerning the future of the company have circulated
throughout the industry.
go through transitions. The construction industry was especially
affected when demand dropped, forcing everyone to rethink,”
said Jeff Leone, chief executive officer of Arch during an exclusive
interview this morning with USGNN.com™. Leone was brought
on last year to head the company after it was acquired by Sun
Capital. “Even good operators at these companies
have to think differently. The first [acquisition] platform
added was Arch, Arch was a bankrupt company, and that’s
the first part of the puzzle we started to put together. The
second was United
Glass Corp. (UGC), which is about 20-25 percent of Arch’s
size. We’re now integrating that into a one-face-to-the-customer
approach. And we still think there is room for further industry
consolidation and we’re actively looking at other acquisitions,
But Leone points out that the bottom line is all of these companies
had gone bankrupt and require change to get them profitable
“Just buying them is only part of the story. Getting them
integrated and making sure there’s good cash flow and
they’re profitable is the hard part. The new leadership
team is ready to do that," Leone says. "But it requires
thinking and operating differently.
Leone talked about some ways Arch is changing the way it thinks
and operates during our interview this morning. The culmination
of that conversation appears below.
USG: There have been many rumors circulating about
the future of Arch; in particular that the Tamarac facility
closing. Can you please tell me what’s happening with
Tamarac—are you moving, closing or staying there?
JL: Arch was a bankrupt company and had run out of cash. When
it was purchased, we could not keep doing more of the same,
we had to do things differently. [Some in] the industry had
gone to many small sites, and if you analyze some of our competitors
with single-site locations were quite successful. They are what
I call super centers tending to have a bit more, and handle
a wider geography. If you look at the acquisition of UGC, the
group in Atlanta, TGI, that’s how they operated. That
got us thinking, Florida is certainly a big market, but it’s
slowed. Is there another way to slice the pie? We have a very
nice facility in Miami and a nice facility in Orlando and Tamarac
as well. After a lot of thinking, we decided we could consolidate
into two sites rather than three. We are going to have Orlando
and Miami. Both are being expanded with equipment and people.
Will there be some net reduction in people? Yes, but it’s
not as significant as people want to think. As our lease comes
due in Orlando we would like to move to a new, bigger building
to create a super center. In Miami, we’re also expanding
and we’re putting very modern metal fabrication equipment
in a facility where we have our residential window business
so that gives us a lot of synergy there because residential
windows have a lot of metal fabrication in their processes.
Perhaps at some point we will move to a new facility, but we
think we’re okay there for now. Having multiple, little
sites is sub-optimized in our opinion.
USG: What will happen to the equipment in Tamarac?
JL: Much of the equipment has already moved or is in the process
of moving to Orlando or Miami. The equipment that is too big
to move into Orlando today will be held until the new facility
USG: What’s the expected completion date?
JL: In the next few weeks, no later than the middle of June.
USG: What about customers currently served by Tamarac?
JL: All orders will go into Orlando; Orlando is control central,
but both Miami and Orlando sites will be manufacturing. There
will be no change in service from the glaziers' prospective.
USG: And the staff in Tamarac?
JL: We of course wanted to retain our skilled workers. All were
asked to transfer - some will move to new sites; it’s
a bit far, Orlando from here, so some made a personal decision
they did not want to go.
USG: There was a rumor that Tamarac was a rental and
you didn’t expect to have to move?
JL: No, we own the building. At some point we’ll probably
sell this building, as we’re not likely to come back to
Tamarac. But that’s not why we made the decision. If you’re
a manufacturing guy you say, “Do I need multiple facilities
or can I consolidate?” And this decision was made around
USG: What about other locations, such as Villa Rica,
Ga. We’ve heard that’s closing. In total, how many
braches have closed and which ones?
JL: The first [consolidation] was in the Pittsburgh facility
[a UGC branch]. We’ve consolidated our Akron, Ohio, facility
with the Pittsburgh facility. No other changes up North are
expected. The next is Atlanta [UGC’s TGI branch and Arch’s
Villa Rica branch]; we have two facilities and they are both
within a drive of each other. We’re investigating whether
we can move into one or the other existing facilities or do
we move into a new location. What’s important is that
Atlanta is a core market and we are not exiting. We’re
looking at how we can better service Atlanta and create a super
center there. Then we’d have the super center in Orlando
and Atlanta and a bigger facility in Pittsburgh with more volume
going through it. Villa Rica was a nice site for Arch, but the
TGI guys ran a great site, too. They’ve got some great
people and a benefit of the acquisition is we’re getting
some very good additions into the family, making the whole network
a lot stronger.
USG: With these changes, how do you plan to continue
servicing customers that had been handled by those locations?
JL: We’re a data-driven organization. We have metrics
and the way we measure customer service is pretty digital. We
have two metrics we measure every day. Any complaint received
or credit we give a customer is tracked in great detail and
we do a review of those on a weekly and monthly basis to see
the need for a credit. If a customer is not getting many credits
you’re handling their expectations correctly the first
time. The second is our on-time delivery performance. We have
an integrated software platform so every order is tracked very
carefully and we can see exactly how we’re doing. Finally
the customers call and tell us how we’re doing. So at
the end of the day we’d like to be known in the industry
as the best at this. … You earn that respect in pennies
and when you don’t do it right you spend it in dollars.
USG: Arch also closed
two mirror lines; what is your involvement now with
the mirror industry? How are you serving customers with mirror?
JL: We are a full-service supplier of glass and metal, as well
as interior products. Mirror fits that interior piece. We have
found after thorough analysis that we can procure mirror from
a third party at the same quality and better cost than producing
it ourselves. We have rigorous standards on the mirror we accept
and it’s checked very carefully. We do still fabricate
mirror for customers, but we found that the basic mirror manufacture
was probably best for those who have a better integrated cost
structure - the companies that make the glass have a better
integrated cost structure and can do it more cost-effectively
than a down-stream player. It’s still a big part of our
business and I can’t say we’ve lost any business,
but we now have the ability to be more competitive and reliable
to customers from a cost standpoint
USG: With so many changes, what would you say is now
Arch’s core area of focus as far as products?
JL: I think there are two from the Arch-UGC integration. We’re
now into more medium and larger projects that include metal
and glass. The company is becoming more aligned to manage more
serious projects. The second is our interior glass, all-glass
entries, shower systems, has increased in its frequency and
we’re doing better at getting to the interior glass in
USG: How will Sun’s acquisition of UGC affect
Arch? What synergies do the companies have?
JL: Any time you acquire multiple companies in the same industry
space you get the opportunity to find the best players and your
team quality goes up. The challenge is that you have to harmonize
around the processes. No matter who we talk to in these acquisitions,
people in the industry know what it takes to be competitive.
The customer wants a quality product that is delivered on time.
USG: As far as the pending sale of Vitro, if that were
to go through for Sun, same question, what would that mean for
Arch and its customers and what could you combine with them
that would be a benefit?
JL: The strategic plan is to be the number one or two player
in this industry. We want to have a solid glass product line,
a solid metal line and we want the company to be solid financially
so it can ride through the industry peaks and valleys. Our acquisitions
are all directed at that direction.
Vitro has now gone bankrupt and we have an opportunity to look
at them, but if it does not work out, we have others on the
list we’re going to look to acquire.
USG: What characteristics does Sun look for when acquiring
companies in this industry?
JL: When investors likes Sun Capital acquire a company, they
are looking for a return on their investment. This is not a
short-term venture for Sun. The average time Sun owns a company
is over seven years. When Sun looks at an industry there is
a strategic discussion; is there fundamentally a good platform
here? Is there an industry space we want to invest in? Also,
do the companies we’re looking at have good people and
equipment that, with a bit of work and integrating the back
offices, you can make a viable operation? We go through a thorough
analysis. You have to look and fish in a lot of ponds to be
able to find the right companies to pull together.
USG: At one time there was talk that Apogee was acquiring
Arch. How do you respond to something like that and was it something
JL: No discussions at all. Viracon is owned by the Apogee group
and is a viable company on its own. There have been no discussions
between Arch and Apogee.
USG: How do you think the U.S. Aluminum bankruptcy will
JL: Arch has a vibrant, metal business. what it means immediately
is that we're getting a lot more phone calls. We're in a good
position throughout the U.S. to pick up and supply those customers.
We continue to invest in our metal business by improving our
metal operation in Texas, revitalizing the Pittsburgh location
and expansion of the metal facility in Florida. We're ripe and
ready to handle growth in metal. We have a great team here,
led by Jeff Ziesche. It's not just about volume in metal; you
must have the right engineering team to get it right. We think
we do and we're building onto it now.
USG: There are people out there who say Arch will not
survive; can you give us an update on the health of the company?
JL: The vibrancy of Arch is based upon us improving the system.
The reason Arch survives financially is that it’s growing
in sales, improving its quality and improving bottom line cash
flow because of better management of all the things you do to
manage cash. So I would say the Arch platform was in good shape
to absorb the UGC platform. Financially we’re just fine.
The owners at Sun Capital would not let Arch get into financial
distress again as it would not be in their financial interest
to let that occur.
USG: Anything else you’d like the industry to
know about the future of Arch?
JL: [Speaking from a construction industry standpoint] no one
in the [construction] industry is feeling very good right now.
The construction industry is still pretty abysmal. However,
there is light at the end of the tunnel and I believe we’re
at the bottom. It will only get better from here. It’s
not the time to give up on getting your company tuned up and
ready to handle growth. Now is the time to make sure your processes
[are right], you’ve invested in training and you’re
ready to handle the growth. I believe Arch, and now Arch combined
with UGC, is poised to do that. When you get up in the morning
you have to worry about the customer. Our customers are also
feeling the pain of the poor market. So the more we can get
the product to them quicker, the more we can make them competitive,
the better they will be and that will bring us more business.
It’s about delighting the customer and clearly measuring
that by [providing them with quality] and delivering on time.
We have to keep measuring that every single day. If we do, we
will be very successful at this.
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