Commercial Business

Cost control

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Cost control

Eight months into 2009, the retread business remains sluggish. Lack of freight movement, anemic tire consumption and excess inventory continue to squeeze many retread producers.

“This is the worst business environment I’ve ever seen,” says Garry Heintschel, vice president of Heintschel Tire & Service Inc. in Texarkana, Texas. Heintschel adds that the recession is having a profound impact on his customer base.

“We have several customers who don’t know if they will be in business one week from now, and they’ve been in business for 50 years.”

In such a harsh economic environment, controlling operating costs has become even more imperative. And keeping customers’ costs under control remains equally important. CTD recently spoke with several independent retreaders to find out what they’re doing to keep their costs in line as they ride out the recession. Here’s what’s working for them.

Garry Heintschel, vice president, Heintschel Tire & Service Inc. (Texarkana, Texas): “Number one, we’ve adjusted our plant down to handle the number of casings that are coming in. We’ve downsized a couple of people. We have our payroll in line. We’re controlling our overtime.

“We’ve always stayed close to our customers, but we’re really attached at the hip now. We’re trying to operate on as thin of an inventory as we can, almost just-in-time. And to do that, we have to be in tune with what our customers’ needs are.

“We’ve really cut our inventory back. We’re working on a two weeks’ supply. If we lose a customer or gain a customer, we try to anticipate that, instead of sitting on a casing for 60 days or 90 days. Inventory is a cash-eater. It burns cash. We’re operating on lower inventories without it affecting our business. And that’s daily management.

“We also watch our influx of casings. We try to stage our tires to where we’re consistently (producing retreads) every day, without the peaks and valleys. We’re not buying any casings from overseas or domestic casing suppliers.

“We’re working with our customers; if they have excess casings, we purchase casings from them. It ties us a little closer to them, and we can control our casings better. We don’t have to buy trailer loads or container loads.

“A lot of our casings (started as) products we sold new. So when it comes back into our retread stock, it’s a brand we’re familiar with. And our customers appreciate the fact we’re working with them to alleviate a problem they also have.

“A lot of times, we’ll buy (the casing) and apply the credit to their account, so in turn, to get that credit, they’ll have to buy from us. It keeps them tied to us, and it allows me to control my casing inventory. If I only need 50 casings, I don’t have to buy a 53-foot trailer full of casings I really don’t need.”

Heintschel ‘s customer base is changing quickly due to the recession. “The small fleets are gone and the medium-sized are now small. Some are selling out to larger fleets that have come into the area.

“We have new competitors coming into the market. You can tell the economy is bad when you start seeing people from outside markets who have never been in your market before.

“But we’re doing business the way we always have: service, service, service. We’re servicing the customer like we always have. We’re not taking them for granted.”

Brennan Pruss, general manager, Dale’s Tire & Retreading Inc. (Rapid City, S.D.): “We’ve reviewed all of our insurance policies and got more competitive bids on our insurance. What I’ve found this year is the (insurance) market is still soft, so companies are bidding stuff out more competitively.

“Between health insurance and our commercial business package — product liability, general liability, garage keeper’s insurance — we’ve saved over $90,000 this year. When you talk about our industry, with the low profit margins and the amount of sales you would need to recover that $90,000, it’s huge. So insurance has been a big area.

“We’ve also taken a hard look at the question of ‘If somebody leaves our company, do we need to hire that position back? Can we give the guys who are currently holding jobs more hours or keep them from having their hours cut?’ We’re very fortunate because we haven’t had to lay off anybody this year. Back in 2007, we streamlined our retread shop, so we’ve been able to do more with fewer people because our shop is better-configured to handle the flow.

“We continually look at our shop supplies to make sure we’re purchasing things at a competitive price. We try not to waste in our shop. We use what we need.

“Our sales are down, but we’ve been able to ride out the storm — partly because we’re a family-owned company that doesn’t have a lot of debt. We’re kind of unique in the sense that we didn’t take on a lot of debt to get where we are today.”

Bob Majewski, Sumerel Tire Service Inc. (Newport, Ky.): “In our plant, we (examined) each position. We eliminated people and made the areas more efficient. Maybe one guy is running two machines instead of two guys.

“Where we build tires, we’ve put in new pin barrels and have sped them up by 40%. We put in new measuring devices that are more accurate. The operator can get better readings and it allows him to move more quickly.

“We’re actually up in production, but with fewer people. We’ve probably reduced our minutes-per-tire by 15% to 18%.”

It’s important to move ahead with capital investments, even when times are tough, he says. “We’re not in precure; we’re in mold cure. We need presses to do more tires. We’re out buying rebuilt stuff instead of new. That way, the investment isn’t that hard.

“We’ve also done some creative things with hours — people working split shifts in the curing areas. In the wintertime, we eliminated Monday production as far as curing. But we built up our floors to where on Tuesday, Wednesday and Thursday we were very efficient. We were staging the flow so we didn’t have a lot of down time.

“We’re diversifying into other things, too. We got into wheel cleaning, which we never did before. We’re into more OTR. We were a big wholesaler for years, but we’ve kind of reversed and have gone in the other direction.

“Some of our competitors are bringing on low-cost retreads. So we’re building new products to compete with that. Our concept is that they’re going to be good-looking, but at a lower cost. But we’re not going to sell it as a premium product. We’re going to tell them it’s a price-point tire.”

Pat Duininck, president, Royal Tire Inc. (St. Cloud, Minn.): “Our retreading is experiencing a nice increase because of the way the economy is going. Some people who maybe never retreaded before are (using retreads) now.

“The only couple of things we’ve done are number one, we got our inventory under control. You have to keep your cash flow strong. We’re just spending more time on it.”

Duininck says he and his employees also have scrutinized all of his company’s expenses. “Six to eight months ago, we took every expense line that we had and put somebody in charge of figuring out a way to reduce it.

“We’ve been able to renegotiate contracts or basically cut certain things out. It might be our cell phone contract, it might be our copy machine contract — stuff that suppliers are willing to change on. The big thing is we took every single line item and said, ‘What can we do here?’ And if there was something we could do, we talked about it.

“People talk about cutting costs and that’s great, but you can cut too far. We really make our people stay out in front of the customer. We have to make our customers be successful, and if we do that, we become their partner. I don’t think there’s been any case where we’ve quit servicing a customer or calling on a customer.”    ■

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