The following article was published 10/24/2008 by Central Penn Business Journal

Central Penn Business Journal

Focused Growth

The credit crisis is no abstraction to the employees of Flinchbaugh Engineering Inc.

As part-owners of the company, they have peppered Michael D. Lehman, their president and chief executive officer, with questions during shift meetings. And they have stopped him around the office to ask how the company has prepared for any financial crunch.

"They’re worried," Lehman said. The 30-year-old company has operated under employee ownership since 2001.

But, Lehman said, Flinchbaugh taps a model for investing that should allow the manufacturer to continue growing despite the stiff economic headwinds forecast to blow for at least the next six months.

Economists expect the U.S. to slip into a recession this fall and winter as the country works its way out of a housing and financial crisis. Central Pennsylvania hasn’t escaped the downturn.

"We’ve seen some slowing, there’s no doubt," said Jim Gibson, chairman, president and chief executive officer of Integrity Bank in Camp Hill. But, he added, "It’s not dead."

Flinchbaugh operates out of three buildings in Hellam Township, York County, and employs about 260 people, twice as many as it did in 2003. Annual sales are $52 million, up from $16.9 million in 2003, according to Lehman.

The company has grown by focusing on precision-metal products with manufacturing that can’t be sent overseas, Lehman said. They include parts for heavy equipment and the energy industry, including components for wind turbines and oil refineries.

In addition, the company focuses on a core group of clients that numbers fewer than 30, Lehman said. "We’ve very careful not to become all things to all people."

Last year, Flinchbaugh invested about $3 million in its business, snapping up equipment that boosted efficiency by complementing the machinery already on its shop floor.

Flinchbaugh matches new equipment with old machines purchased cheaply from its customers. In a process dubbed "strategic cell migration," Flinchbaugh takes over selected manufacturing operations for its clients, often squeezing more life out of their old lathes, milling machines and other tools.

Indeed, Flinchbaugh still operates 30-year-old equipment transferred from the shop floor of its first client, Caterpillar Inc. The machines make pivot shafts, long steel bars that hold a tractor’s cab to the treads.

Clients need the parts, but they can get them more cheaply and reliably by shifting operations to Flinchbaugh, said Tom Frauman, the company’s business development manager. "They want a simple solution."

Clients agree to move the equipment because it is underused or they may need space in their factories for more profitable production runs.

Once Flinchbaugh has the equipment, the company enhances productivity by using the equipment for other clients and running it around the clock, Frauman added. He joined the company about a year ago.

To keep up with the new machinery, Flinchbaugh created an apprenticeship program, which currently trains 28 employees, said Steven M. Shank, the company’s operations vice president.

"That’s a pretty rigorous program, a four-year commitment," Shank said. "We don’t take that lightly."

Future efficiency gains could come from new machines that combine functions currently requiring two pieces of equipment, Shank said. Robotics is another area the company has researched.

Although Flinchbaugh anticipates growth this year, manufacturing and other sectors of the economy are expected to contract.

A recession is likely for the fourth quarter of 2008 and the first quarter of 2009, said Robert Dye, senior economist with PNC Financial Services Group Inc. in Pittsburgh. The country’s unemployment rate, he added, could peak around 7 percent.

Foreign economies also are expected to slow, Dye said. And that could crimp the one bright spot enjoyed by U.S. manufacturers.

A weak dollar has made American-made products more competitive internationally, Dye said. But as foreign economies slump, the dollar should grow stronger, and imports could decline.

On the bright side, the financial-bailout bill that became law in early October could tamp down interest rates and free up capital, Dye said.

Companies exploring energy also should continue to fare well, Dye said, even though oil prices have fallen roughly a third from their peak at around $150 per barrel.

"It is still a highly active sector of the economy," Dye said.

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