Dave Ederer / Stack Metallurgical

Today we are excited about an interview with Mr. Dave Ederer, owner of commercial heat treat Stack Metallurgical in Portland, Oregon.

Dave I am particularly pleased to be able to ask you a few questions today as you have rather a unique insight into the industry. Correct me if I am wrong but I understand that you are a businessman with interests in a number of fields which means you can compare heat treating to other industries and also makes you a bit of a rarity. So my first question is could you share with us your business background and how you got involved in commercial heat treating?

“Thanks Gord. First of all a compliment—I really appreciate what you do for our industry. Your role provides a great deal of information that keep many of us a bit more coordinated about what we do. You describe me properly as a businessman, as opposed to an operator. By background I spent 10 years at Price Waterhouse focusing on merger and acquisition activities from 1965 to 1974. Over the years since I have been involved with over 30 purchases of companies spanning aircraft parts manufacturing, paperboard packaging manufacturing, building demolition and installation equipment for industrial kilns amongst others. My first purchase was in 1974. The company was Commercial Heat Treaters started in 1946 in Seattle. The owners were clients at PW, and when they decided to sell I decided to be the buyer. I was familiar with the business side but not the technical side.”

I have heard Stack Metallurgical described as the best run commercial in North America, a statement which might make you feel uncomfortable but I had to throw it out. What can you tell us about Stack? Size, processes, type of equipment etc.? Why has the company been so successful?

“The author of that statement was my good friend John Hubbard from Bodycote. I believe it is an exaggeration but sure love hearing it from him, a guy I have a GREAT deal of respect for. Having visited Solar and meeting Bill Jones I can assure you that we don’t consider ourselves to be the best, Bill has a great team and the resulting great company. The name Stack is well known in the Northwest industrial community. From Alaska to Spokane and from Seattle to Portland. Originally it was a Steel Service business. One of the best in the US. It was a business that was founded on providing additional services to the customer base. As a result one additional service was heat treating. We competed against them until 1981. At that time the opportunity arose to purchase the heat treating division which I did. We have been open in Portland since January 1, 1984. We have a 72,000 square foot facility and approximately 60 employees. We run 7 days a week and 24 hours a day. We offer a full complement of services but specialize in vacuum work along with the traditional atmosphere and aluminum work. Our vacuum equipment includes Ipsen, SECO and now our recently purchased Solar furnace. Surface has been our atmosphere equipment supplier. Our SECO furnace is an oil quench vacuum with a 10,000 pound capacity and an 86 inch vertical dimension. We have been told by SECO that this is the biggest in the world! I believe the success we have had is directly related to the skills of both our management teams over the years and the experienced operating crews we have had. There is a very clear understanding that our customers are very special and that supplying their needs is solely the reason we exist. I believe the innovation part of what we do has been a result of our willingness to buy really good equipment that others do not have. We have good competitors who we want to be successful so we try to do things they do not do.”

I gather Stack Metallurgical is not your only involvement in the industry. Could you please tell us what other commercial heat treats you are involved in?

“We are the sole supplier located in Spokane, Washington serving the eastern part of the state along with Idaho and Montana. In Seattle we serve the industrial base but oddly enough do not serve Boeing. In Salt Lake and Monterrey Mexico we are partners with Paul Chacon serving the aerospace industry.”

Going back to my first question of heat treating compared to other industries-what is unique about heat treating? For instance many times over the years I have heard heat treating described as basically a service industry with no inventory and no manufacturing. Is this your feeling and along the same lines what other differences do you see?

“This is a different business. It is a daily capacity driven business. Requiring very careful use of your equipment. The “empty hotel room” concept. An empty furnace is lost time forever. I believe that expertise is first, service is second and pricing is third. We are not a commodity. Maintenance as opposed to repairing is a critical decision requiring careful planning. Again one must pay attention to furnace uptime. Finally this is a highly “fixed cost” business. One does really well when at capacity but sure does struggle at low levels of work.”

How would you describe your management style? Micromanager, hands off or somewhere in between?

“Interesting question. You might ask our managers to see if they agree. I am involved on a daily basis with several areas—knowledge—I want information and I want the managers to have information. I like being part of the planning process, the capital decision process, the financing process and visiting customers. I love to visit the shops. I love seeing our people. It is important to know them. I like encouraging. So for the most part I encourage decision making and encourage using me as a sounding board.”

Last year Stack made a very major investment in the form of an enormous vacuum oil quench furnace, one of the largest in North America. What prompted you to make such a large investment and has it been a success?

“I believe this is the largest one in the world—so says SECO, the manufacturer. We are very pleased with the additional capacity. With this furnace we can be a part of our customers sale’s team as much as we are a part of their manufacturing team. This furnace allows them to bid on work that they previously could not bid on. We are looking forward to the upcoming maintenance cycle on the big wind turbine gears.”

Challenges are a fact of life in the business world. Out of all the challenges you face on a day to basis which is the one that causes you the most concern?

“Challenges vary from time to time and cycle to cycle. The biggest one for me now is the 16 trillion dollar debt and the lack of commitment to address this issue. The uncertainties surrounding this issue will affect every business in the US at some time. It is very difficult to think very far ahead with so little being accomplished at the federal government level. Another is the cost issue of employee medical. This is totally out of control for small businesses that provide good coverage to their employees. I am less concerned than before about global competition. I think the US is manufacturing again on a competitive basis.”

With this question we are veering off of the topic of heat treating to some extent but because we value your opinion as an individual with a great deal of business experience I would like to ask it anyway. Current wisdom has it that the USA for years has been exporting jobs to lower cost areas of business and that this will continue which quite obviously means less captive and commercial heat treating in the USA. My own personal opinion is that this is not entirely true but I would like to ask you what do you think? Is North American manufacturing abandoning the continent or is this a misconception?

“I answered question 7 before looking at 8. Think I covered that. I agree with you—our innovation abilities along with the increasing needs of 2.5 billion people coming into the international middle class (China and India) will tax the world’s manufacturing capability.”

Stack pretty much covers all the bases when it comes to processes offered, vacuum, vacuum carburizing, batch IQ, Induction, gas and Ion Nitriding and a few others. Which do you see growing the most and which excites you the most?

“Clearly vacuum. We have 11 pieces now and are still short. I think our customers’ products will demand increasing quality levels and therefore vacuum will expand the fastest.”

The debate about outsourcing (manufacturers sending all their heat treating requirements to commercials as opposed to doing it in house) has raged for years. MTI claims the share of heat treating at commercial shops is currently around 10% and rising, others say that they have not seen much change in the ratio of heat treating in house as compared to commercial. What is your feeling on this? More or less outsourcing?

“We have not seen much change in the northwest. Perhaps a customer or two each year walking through the decision. Typically when a customer’s equipment is in need of significant repair they make another “make/buy” decision. We find that the more complicated the parts are the less likely a customer is to wanting to be in the heat treating business.”

In my opinion many manufacturers attach little value to heat treating. A necessary but unwanted part of the manufacturing process that adds costs and distorts parts with the all suppliers being equal. Is it your feeling that many or most companies only consider the cost of heat treating or do many actually believe that all things are not equal amongst commercial shops and that you get what you pay for?

“We think it is real important to invest in customer relationships and equipment ONLY when a customer understands what we can do to add value to what they are doing. We do not invest in “commodity” mentality potential customers. We feel that other companies are better suited to use up their capacity on those customers.”

As we both know commercial heat treating in North America (and around the world for that matter) consists mainly of relatively small family owned businesses with just a handful of large players such as Bodycote, Bluewater, Paulo, Aalberts and a few others. Is this good or bad for the industry? Do you see the large chains getting larger through acquisitions or do you think this has largely run it’s course? Actually I will take this question one step further and ask you if you have ever actively considered growing Stack through acquisitions?

“We are a result of an acquisition strategy from the beginning. We have been very careful but our Seattle company is the result of the following—Commercial Heat Treaters, Stack Heat treating, Puget Sound Heat Treating, Scanco Heat Treating and Ram-Heat. So we have been active. I believe that our industry will continue to find a balance between the very very large and the rest of us. Our customer relationships are so personal that there will continue to be an important place for our size business.”

So what does the future hold for Stack? Any interesting changes coming up that you can share with us?

“Nothing planned. We are entrepreneurial so we prepare for and anticipate the unexpected. We want to be ready to be first to consider an opportunity, not fast followers, but fast leaders.”