IT WAS QUITE A RIDE. From a standing start as a newly formed company in the mid 1980s, Wabash National Corporation grew into the largest trailer manufacturer in the world during the 1990s.
But difficulties popped up fast, too. And when the trailer market began to fall in 2000, Wabash was facing challenges that were becoming increasingly acute. Although other trailer manufacturers shared the pain as demand for trailers fell, the high-volume business Wabash developed made the company particularly vulnerable when the boom went bust.
Increasingly, the question began to be heard, “Will Wabash survive?”
After a year of changes, management at Wabash still sees plenty of work that needs to be done. But the company is confident that the worst is over and that good times are ahead.
During the past year, the company has:
Returned to profitability for the first time since 2000.
Reduced operating costs by $50 million
Reduced indebtedness $100 million during 2002.
Increased liquidity (cash on hand and availability under existing credit facilities) to $75 million at year-end, compared with approximately $24 million at the end of 2001.
Moved the mass of used trailers that the company had received in trades. Some dealers now report shortages of used trailers.
Restructured its product line.
Revised its approach to the market.
“This is a great company that had missed a few things,” says Bill Greubel, one year after taking over as president and chief executive officer. “They were focused on the customer and had great products, but they needed to find a way to make a profit.”
Hitting the numbers
Greubel and other members of the Wabash management team began to implement the principles Greubel had employed at other companies he had managed:
- Hit the numbers
- Operational excellence
- Focus on the customer
- Grow the business.
“This is not rocket science,” Greubel says. “You can apply this to any company in order keep the focus on what is important. And because it is simple for everyone to understand, it gets great results right off the bat.”
Perhaps the most important number for the company to hit was the one that counts the trailers the company finishes, rather than the number of trailers started.
“This was a cultural thing at Wabash,” Greubel says. “The number of trailers started per day was an important unit of measurement. But our focus now is the number of trailers completed per day — trailers that are billable the day they are completed.”
Another important number: profits.
“You don't make money on volume,” Greubel says. “You make it on your plant floor — on continuously improving the way you do things. Some of the things we accomplished were easy to implement. By refocusing what we were doing in the plant, we were able to pick some low-hanging fruit.”
The changes at Wabash are showing up on the bottom line. The company returned to profitability in the first quarter for the first time since the industry downturn.
“We did it with a small increase in volume, but with a lot of improvements in production,” Greubel says.
To help direct improvements in the way Wabash builds trailers, the company hired Dick Giromini as chief operating officer and Jerry Linzey as vice-president of manufacturing and continuous improvement.
“We have tried to create an environment that will make it easier for us to achieve our objectives,” Giromini says. “We have a great team that has come together. Most of the people here have been with Wabash for a long time. They had a lot to offer.”
The new management teamed up with the Wabash veterans to launch a continuous improvement program concurrently with a product standardization program. Noticing the “low-hanging fruit” that could be gathered, Linzey began by implementing lean manufacturing principles on Line 1. That is where Wabash produces its DuraPlate van, the company's highest-volume product. From there, the changes spread incrementally through the rest of the plant.
“It's something we have done line by line, station by station,” Linzey says. “We didn't try to do this all at once, but we didn't get the gains all at once, either. We are seeing gains almost daily.”
Do it better
Much of the progress Wabash has made in improving its manufacturing operation has been the result of continuous improvement events, generally three- to five-day sessions in which those involved in an operation focus on ways to do it better. Between November and April, Wabash conducted 160 of these continuous improvement events.
Each event produces ideas for improving safety, ergonomics, efficiency, and/or product quality in one specific area of the plant. Results of the event are wrapped up in a report that is sent to management, and participants receive recognition for their work.
“Our basic premise is that we are better than we were yesterday, and that we will be better tomorrow than we are today,” Linzey says.
Helping to drive the process is a series of improvement teams. They cover floor production, roofs, sidewalls, couplers, and DuraPlate.
Most of the changes Wabash has made are small, company-specific modifications, but the plant also has been revised in more general ways. For example, the team has worked to give the plant a “graphic user interface” in which visual devices give those in a particular area a good idea of where things are and what might be needed.
Examples of these graphic devices are squares painted on the floor that mark where things belong, status boards that quickly convey what has been happening at a station or department, and timers that say when the trailer being assembled should move down the line.
“We added a lot, but we also got rid of a lot,” Linzey says. “We took a thorough look at what we did and didn't need.”
Hunting down waste
Wabash searched the plant for the seven types of waste that have been identified by Taiichi Ohno, considered the father of the Toyota Production System, JIT, and patriarch of lean manufacturing. These sources of waste, according to Ohno, are:
This includes producing too much, producing it too early, or producing it with the idea of having it available just in case it is needed. Ohno considered this to be the most serious of all wastes.
This includes anytime that materials or components are not moving or having value added.
Moving materials within a plant costs time and money, and it exposes the material to potential damage and deterioration.
- Inappropriate processing
This involves using the wrong machines or tools that are not capable of quality output for the particular application. Ohno gives the example of using a hammer to crack a nut.
- Unnecessary inventory
Ohno calls inventory that exceeds the specified quantity limit “the enemy of quality and productivity.”
- Unnecessary motion
This refers to the ergonomics of the workplace. Wabash looked for too much bending, reaching, walking, or moving to do the job.
These result in scrap, rework, and customer complaints.
Linzey says the response has been enthusiastic, with improvement projects being completed ahead of schedule.
“We still have a long way to go,” Linzey says. “As much as we have done, we can get better. We need to shorten our production lines — they are far too long. And we need to take what we have learned here and see what we can do to apply this to our suppliers. We have been working internally so far, but we can gain a lot by improving the interaction between ourselves and our suppliers.”
Another major change at Wabash involves the products the company makes.
Last summer, management evaluated what the company offered its customers and decided to change its approach.
“Most trailer manufacturers — including Wabash — build exactly what the customer wants without questioning the specifications,” says Jamie Scarcelli, director of marketing. “We still do that, but we have determined that we can eliminate 50% of the options we have on the books, and still find effective solutions to fit each customer's needs. The result is better quality, more functionality, and streamlined ordering and production processes.”
Wabash plans to take these trailers to small- and mid-size fleets.
“In the past, we have specialized in producing trailers for larger fleets,” Scarcelli says. “Yet we have a strong network of branches and dealers that are really in a good position to serve small- and mid-size customers. These are fleets that can leverage our expertise, because they do not have the benefit of staffing trailer specing experts like larger fleets do. We want to go beyond having customers tell us what they want. It's our goal to understand the customer's needs and to recommend specifications that will give him a trailer that exceeds his expectations.”
Growing the business
Although the company has trimmed back some options, Wabash has expanded its line. The company announced several additions earlier this year, including:
A series of new flatbed and drop deck trailers through a partnership with Transcraft Corp. Under the terms of the agreement, Transcraft manufactures the trailers at its facilities in Anna, Illinois, and Mt Sterling, Kentucky. In all, eight models will be available in various all-steel or steel/aluminum compositions. Wabash will distribute the trailers exclusively through the company's factory-owned branch network, Wabash National Trailer Centers (WNTC). There are 31 Wabash National Trailer Center locations in the United States and Canada.
Until recently, Wabash National had not included flatbed trailers as part of its product offerings, following a decision in 2001 to close its manufacturing facility in Scott County, Tennessee.
The new FreightPro aluminum sheet-and-post van, which gives Wabash an alternative to its DuraPlate van in the dry-freight market.
“In terms of technology and performance, we have repackaged the traditional sheet-and-post trailer,” Greubel says.
The FreightPro has standard features such as an air ride suspension, premium brakes, and DuraPlate doors. It is designed to provide a lower cost of ownership over the life of the trailer. The FreightPro will be manufactured at Wabash National's Lafayette facility. Production capacity will eventually ramp up to 15,000 units annually in 2004, the company says.
“Our industry has a lot of opportunities to improve the sheet-and-post trailer,” says Rod Ehrlich, senior vice-president, product engineering and development. “For example, hardened steel fasteners have four times the shear strength of aluminum fasteners. The floor-to-sidewall joint is critical. We included steel fasteners in the FreightPro to make it less susceptible to damage when one trailer sideswipes another.”
A heavy-duty version of the DuraPlate trailer called the DuraPlate HD. Introduced along with the FreightPro at this year's Mid-America Trucking Show, the DuraPlate HD has a base plate design that provides an additional 22 inches of lower sidewall protection. It is here that an estimated 90% of all trailer damage occurs.
“The idea behind the HD is simple,” Ehrlich says. “It is far less likely to need repair because it has no posts, no splices, no rivets in the area most prone to damage. The only fastener is a 3/8" steel bolt.”
DuraPlate panels are made from a composite material, consisting of a polyethylene plastic core sandwiched between two sheets of pre-painted, high-strength galvanized steel. Approximately 25% of all new dry van purchases are DuraPlate trailers, Greubel says. More than 150,000 of them are on the road.
Just as Wabash has been working on continuous improvement in the plant, the same holds true in the engineering department.
“Trailers are constantly changing,” Ehrlich says. “Thin-wall vans, for example, are quickly evolving. Inside width of 101" is getting to be the standard spec for dry-freight vans. In the same way, the standard height used to be 106". That has changed to 110".”
Tackling used trailers
One of the major challenges Wabash has faced has been the large volume of used trailers the company took in as trades. An inventory of 10,000 used trailers had been a major cost to the company in terms of property rental and tied up capital.
“We put together an organization to reduce our used trailer inventory,” Greubel says. “We have it down to a three-month supply, but we need to reduce it another 30% to 40%. And we are maximizing the mix of used trailers that we have in inventory.”
Used trailers continue to be an industrywide concern, Greubel says. “There are a lot of different opinions in the industry about how to handle used trailers and no set model or formula. It's a balancing act — we need to be able to optimize the value for the customer while at the same time reduce the risk to the manufacturer.”
Wabash has relied heavily on its network of 31 branches and a used trailer center to handle the sales of used trailers. The company also has:
Worked with its large fleet customers to regulate the flow of used trailers
Developed a web site to sell used trailers on line.
With the used trailer issue subsiding, Wabash is changing the role of its branches.
“We had lost focus,” Greubel said. “Our branches had become more of a used car lot than a full-service trailer retail operation. But we are in the process of strengthening every aspect of their business — rental, leasing, parts, new and used trailer sales, and service. We are asking our branch people to be great entrepreneurs, yet within a corporate structure. That's really what's required to be successful at the branch level.”
Debt reduction has been another area Wabash has made progress during the past year.
“We are pleased with the covenant approvals we have received from our lenders,” Greubel says. “Covenants should not be a major issue in the future.”
The company shed some assets last year and has others on the market. They include the Apex rental and leasing operation, the wood products division, and Wabash National Parts.
“We probably will have opportunities to sell one or two of these,” Greubel says. “All are profitable operations. They are for sale because becoming debt free is an important goal for us. If we can achieve that before the next trough in the market, we will be a lot better off. The day we become debt free, we will celebrate with hot dogs and hamburgers.”
The changes Wabash has made, management believes, has made the company more competitive — despite the closing of two major manufacturing plants and centralizing production in Lafayette, Indiana.
“As the market comes back, we will be prepared with more efficient processes and better quality,” Scarcelli says.
Greubel is more specific. Despite the fact that the company has 1,100 fewer employees than it did during the boom, Greubel says that Wabash now has twice the DuraPlate capacity because of new methods and process improvements.
“Call it Six Sigma or whatever you want to call it,” Greubel says. “I call it Manufacturing 101. I'm not a big fan of the latest management theory, but I am a staunch advocate of building trailers the right way. You can accomplish a lot with a simple nuts-and-bolts approach.
“In a couple more months, we will have more capacity in this plant than we had with three facilities running 24/7,” he says. “By the third quarter, we will have the capacity to manufacture 66,000 trailers per year, even though we closed two plants.”
Wabash believes that the trailer market is in the process of turning around.
“The good news for our industry is that the worst is over, and we are in the beginning of an upswing,” Scarcelli says. “But our outlook is more conservative than some in the industry.”
Scarcelli lists several factors that are moderating his enthusiasm about the near-term prospects in the market. He believes the industry will ship between 170,000 and 175,000 trailers this year — less than some analysts predict. He believes that trailer manufacturers will need some help from the economy to ship more than 175,000 trailers this year and sees mixed signals from the economic indicators.
Still, carriers appear to be strengthening, despite the spike in fuel prices driven by the war with Iraq. Scarcelli points out that 14 of the 21 freight carriers that are public companies recently posted year-to-year gains.
Some of those gains are being spent on trailers. Schneider National, for example, announced in May that the company was placing additional orders for 53' DuraPlate HD trailers, bringing Schneider's 2003 trailer purchases to over $100 million.
Not all major carriers will be active in the trailer market, however.
“Long term, big fleets will continue to get stronger because of the assets they have,” Greubel says. “But only about half of them will be buying trailers this year.”
Greubel sees relatively flat sales now but steady growth for the next few years. The key word is steady.
“Fleets are a lot smarter this time around,” he says. “They are focused on income, not market share. They are saying, ‘Let's maintain margins’ as opposed to ‘Let's get a couple hundred trailers and see what we can do.’ If they can maintain that approach, that will help take some of the wild swings out of the market.”
And smooth out the ride for trailer manufacturers.