People, products, survival the focus of ultrasuccessful Phillips Plastics

The numbers coming out of molder Phillips Plastics are attractive enough to make competitors green with envy: 1996 market value $160 million; 1997 fiscal sales $173 million; 23 percent average return on equity in the last 33 years. It begs the question: "How did they do that?"

In a rare appearance before fellow molders at IMM's October Injection Molding Conference in Chicago, Phillips Plastics founder and CEO Robert Cervenka divulged a few secrets of his company's success. He also revealed some history. Although Phillips rose from meager beginnings, the culture and philosophy that drive this molder have been around for more than 30 years, paying dividends from day one.

First, the company's current status. Headquartered in Phillips, WI, Phillips Plastics is a privately owned firm with 14 business units, each established as its own operating company. The business units are spread mostly throughout Wisconsin. It employs 1610 people and molds primarily for the automotive, medical, information technology, and industrial markets. Phillips, Cervenka says, expects 1998 sales to be at or near $200 million. Now, how did Cervenka bring the company to such heights?

The company was formed in 1964 and did not immediately reveal the bright future that has developed. With one molding machine, a rented building, and just $52,000, the strategy early on was one of survival. Cervenka, who has a bachelor's degree in mechanical engineering from the University of Wisconsin, says he was glad just to make payroll early on. The first molding jobs were subcontracting projects for other molders. Phillips' first OEM molding job was for the dishwasher division of Hotpoint.

The management structure in 1964 was the epitome of flat and reflected Cervenka's philosophy that the survival of the company relied on everyone helping and working together - everywhere. "We didn't have managers or departments. Everybody rotated jobs and worked together," he explains. "I ran machines and unloaded trucks. People on the floor ran machines, swept the floor, and loaded the truck."

Survival Strategies

The strategy developed in the 1960s engendered the creativity and innovation that is the hallmark of the company today. Before just-in-time became the buzzword that it is, Phillips practiced it. Cervenka says he never ordered resin until he absolutely needed it. Then, after the molded products were delivered, he would give his customers a .5 percent discount if they paid within 10 days. By doing so, he had money in hand when the bills for the resin came due.

Cervenka also believes in the importance of his people and goes to great lengths to reward loyalty, commitment, and hard work. Although it's difficult to measure the value generous employee rewards and bonuses bring to a company, Cervenka says his people-centered philosophy is one of the reasons Phillips has enjoyed the success it has - and it's hard to argue otherwise.

"This is not feel-good stuff," he says. "This is stuff that produces profits." In the early 1970s, as sales approached $5 million, Phillips shared the wealth with cash bonuses and by establishing retirement programs. Later, the company instituted a pay raise system that paid 1 percent/year for each year of seniority at the company. Phillips also gives generously to local community and educational organizations. "Sharing the wealth is a big part of walking the walk," says Cervenka. "People are important."

Decentralization

In the mid-1970s, sales started to plateau and Phillips decided to decentralize into separate business units, with administrative support provided by the headquarters office in Phillips, WI. Business units were divided according to product and process. To avoid the isolation such decentralization tends to create, Phillips started the Steps to Profit program, designed to avoid each business unit duplicating efforts to cope with and solve engineering and manufacturing problems. This program established guidelines for documenting procedures and sharing information between business units. Such documentation lead naturally and easily years later to ISO 9000 certification.

Diversification

In the mid-1980s, with sales around $50 million, Cervenka says Phillips became concerned about its reliance on the success of its customers' products. The company decided to chart a new course by developing its own products. Until then, he says, Phillips enjoyed good banking relationships. "Banks liked us because we always did what we said we would," he says. But in 1990, as the planned diversification continued, the banks lost faith. Phillips was forced to borrow $15 million from an insurance company to get the cash it needed to make the transition. "The banks just did not understand the diversification," he says. Chances are they now wish they'd understood. In 1992, Phillips hit $100 million in sales, and hopes to double that by next year.

Diversification led Phillips into industrial design, powder metal molding, and other specialties. Product development also blossomed. Staying true to his product/process focus, Cervenka structured the Phillips sales organization based on market. "The sales force is now market driven, not geographically driven," he explains. The result is a sales force of 60 reps who report to one vice president of marketing and sales. "The market approach gives us the ability to create market managers who are dealing with one market," Cervenka explains. "Our customers are more comfortable with that as well."

Today the company participates in some alliance partnerships in which Phillips does the up-front product design, moldmaking, and proofing. The partner does the molding. Assembly and automation are value-added and account for about 15 percent of sales.

Each of Phillips existing 14 business units was a start-up and remains primarily process-specific. Acquisition so far has been avoided. Business unit specialization includes prototyping, technical training, new product development, precision decorating, powder metal molding, multishot molding, insert molding, short-run molding, cleanroom molding, and quality systems services.