BGC Helps Breathe New Life into Phoenix Products

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CHALLENGE:
Say the words “Cleveland” and “manufacturer” together and what do most people envision? Empty factories, rusting hardware, and unemployment lines. Just a generation ago the region was renowned for steel plants and rubber yards, but now that the national media have (re)discovered the Rust Belt, conventional wisdom is that Ohio manufacturing is dead. You might think so, too, unless you are an Ohio manufacturer … or you happen to know Raymond Arth.

After 25 years in business—and with a company name signifying second chances—Raymond M. Arth wasn't ready to let Phoenix Products, a Cleveland-area producer and distributor of faucets, turn to rust. He had spent four years “chasing a market on the way down,” but Arth believed in his products and his people. The problem was, how could they compete with the bargain-basement prices of Asian manufacturers in an increasingly price-conscious marketplace?

SITUATION:
If Raymond Arth was asked to draw his family tree, it would probably be shaped like a faucet. Co-founder and President of Phoenix Products, Arth is the third generation of his family to manufacture and distribute faucets. The tradition began in 1894 when his grandfather and great-uncles started a brass foundry near Cleveland and continued through a series of successful businesses. In 1956, Raymond W. Arth (Raymond M.'s dad) founded Streamway Products and focused on two emerging markets, manufactured housing and recreational vehicles, which required specialized product lines. Many of the water delivery systems used in these markets today owe their original design to the first Raymond Arth.

Streamway became an industry leader and was sold in 1977, leaving brothers Raymond M. and Michael Arth with two lifetimes of experience in faucet production but no factory. With their brother-in-law, Kris Miller, they founded Phoenix Products and hired their dad as an engineer. Phoenix soon led the market in supplying faucets for manufactured housing and became a dominant player in the RV market as well, with the most extensive line of products and a reputation for quality among low-end faucet suppliers.

In 1998-99, a number of economic and market conditions led to an abrupt decline in the manufactured housing market. Production and sales of new homes fell by two-thirds from 1999 to 2003. In this environment, several major players faltered, consolidations occurred, and a number of manufactured home builders were pushed to the limit of their resources. As new Asian suppliers entered the market with low-cost products of acceptable quality, the premium pricing Phoenix had earned through its product quality and exceptional service eroded. Something had to change for Phoenix Products to survive. But with sales dwindling so rapidly, Raymond Arth didn't have room for trial and error. He needed to find the right solution and implement it fast.

THE BGC SOLUTION:
Following the recommendation of his banker, Arth called Andy Birol, who told him that having too many options is not a good thing. “Phoenix was suffering the same crisis that is happening to manufacturers all across the country,” noted Andy. “Raymond was truly committed to making it work, but he was anxious and ambivalent about what path he should take.” Recalling that meeting, Arth laughed. “Andy cut right through to the logical end of what we were doing and what the company needed,” he said. “He got me to focus on profits.

Andy then led Arth through a hard appraisal of what was happening with the company. A review of the company's “total delivery”—including order fill rates, lead time, packaging, product features, and servicing—revealed a wide disparity between what customers were getting and what they were paying for. “We found that some of the things we were delivering, our customers didn't value that much,” said Arth, “and some things they valued highly we were giving away for free. Until Andy showed us the money lying out there on the table, we didn't see it was there!”

As he examined the company, Andy's intent was to discover how Raymond Arth could develop clarity and conviction and turn them into a newly profitable business. Andy came up with two radically different options:

  1. Focus on distribution as the company's Best and Highest Use by applying its expertise in reporting, tracking, assembling, and warehousing to new industries.
  2. Focus on the core business—faucets—as the company's Best and Highest Use but make dramatic changes to restore profitability in a tough market.

Andy fleshed out several different action plans for each alternative. “We blew up little ideas into entire business models,” said Arth, “which helped me see what I would be facing in terms of time, energy, money, and potential for success.” In the end, Arth decided to stick with what he knew best: making and distributing faucets. “I finally achieved that clarity and conviction Andy talks about,” he said, “and I was handed a clear road map of what I needed to do to deliver specific results.”

CLIENT RESULTS:
Through alliances, cost reductions, and a new pricing scale for value-added services and features, Raymond Arth has improved his company's profitability without raising prices. “Our bottom line numbers are improving every month,” he said, “and we are much more focused on what we need to do as opposed to what we can do.” Admitting a “fair amount of reluctance,” Arth acted on Andy's recommendation to “leverage the status quo” by looking for ways to work with Asian competitors. By combining its expertise in design and production with Chinese labor, Phoenix Products has introduced a private line of inexpensive products. “This appeals to customers we couldn't service before,” said Arth. “It's opened up a whole new area for us. In fact, it's been a challenge to manage demand and keep the pipeline filled.”

Furthermore, the company has dramatically cut costs. Arth took the agonizing step of reducing staff, saving money and increasing productivity. Phoenix also targeted “extras” that customers didn't value and wouldn't pay for and is developing a fee scale for optional, customized services and features. This “pay to play” mentality has been hard for a company that wants to supply excellence, but it better serves the marketplace. “Sometimes you do things just because you can,” said Arth. “We have good people and good systems, and we all enjoyed our efforts to increase the level of service and quality we could provide to our customers.” But the cost savings and value-added sales have allowed Phoenix to keep its prices competitive—and its doors open. “It's a hard thing because you have to stop doing everything you could do,” said Arth, “but Andy showed us clearly that we had to change our thinking. If customers won't pay for it and it doesn't build loyalty, why bother? We had to learn to deliver what our customers want to buy without throwing in a lot of extras out of the goodness of our hearts.”

Now that the company is on a path to sustained growth, Arth has had time to reflect on his working relationship with Andy. He calls the experience “intense,” “exciting,” and “tiring” and has these words of advice for other owners: “You've got to be ready to pay attention because Andy moves so quickly … and not necessarily in a linear fashion. Some of the tangents he goes on during a brainstorming session are invaluable.” Arth appreciated Andy's laser-like ability to highlight problems and develop solutions from many different angles. “For as busy as he is,” said Arth, “he was completely focused on me and my company. He might be talking on the phone to two different people while driving down the highway, but as soon as that car stopped in front of my office, whatever was happening before was gone. It was time to talk about Phoenix Products. He's extremely high energy, and all of it was put toward improving my company.”



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