CME – Surviving the transition

CME – Surviving the transition

Composite Materials Engineering (CME) is one of many local manufacturers that were left exposed when the major car-makers announced they would close their Australian manufacturing operations. On 18 October, CME Managing Director Brian Hughes addressed the Victorian Manufacturing Showcase and shared some of the lessons his company has learnt in managing the transition out of automotive. The following is an edited excerpt from his presentation.

It’s an honour to stand here and talk to a group of people about a business that we’ve owned since 1989, and talk through what we’ve been able to achieve. I’d like to preface something like this to say that this is just what we’ve done, it’s not at all what I’m telling anyone else they should do – it’s just some of the lessons and things that we’ve done over our journey.

CME (Composite Materials Engineering) is a family business and until last Thursday was a supplier to the Australian automotive industry. Our main customer was GM Holden, and we supplied everything in the boot of the Commodore except the carpet. This included a spare wheel tub, spare wheel cover, all the assemblies… you open the boot, it was us.

As you know, the last Commodore came off the line last Friday, meaning we’d supplied our last parts, and all the OEMs manufacturing in Australia have now moved to a distribution-only model. It’s a major blow to our company, and while the decision didn’t come as a surprise to us, I think most of us in the industry had been working to a 2020 timeframe – that’s when we thought those changes would come. What this meant to us is that we had to pull forward our future plans with increased urgency, because 80% of our business came from the auto sector.

We’d already started that transition 10 or 15 years ago, but we’d limited the non-automotive side of our growth because we decided that auto was the best place for us to function in. The transition is a continuous process, and at some point I think we all realised, just as I replace somebody, somebody will replace me. So we’ve always had a strategy of trying to find the next opportunity and moving to what we think the next level of technology is. I think if I’ve learnt nothing else over 30 years of having a business, the ability to replace yourself is something that we all really need to think about.

Today we’ve moved our business from 80% auto to 25% auto this September, and we’ll be between 5% and 8% during the month of October. We’ve been able to replace the sales that we’ve lost in the reduced automotive sector, as those sales have come off particularly since that announcement four years ago. Our sales are much broader, as we’ve focused more in the building industry and the food sector, mostly selling our own branded products,and these branded products represent about 60% of our sales, of which we now export about 30%.

There are many lessons in our journey and whilst it may sound easy, if I was a duck, I’m hoping the only thing you’d see is me gradually making my way across the pond, and not my feet and all the rubbish that comes underneath. Because the last four years have probably been the toughest four years in my years of business.

If I had to summarise the things I’ve learned in those four years, I’d take it down to four things. One of the first things we needed to do was understand our capabilities. We needed to write, a plan, we needed to trust it, and I want to talk a little bit about that trust and your role in that trust. You want to pick your customer, be specific with your customer and what his offerings are. And make sure you employ the right people.

In our strategy of diversification, we followed the same strategy we followed in auto when we started there in the late 1980s. We positioned CME as a technical business, and we focused around proven and well-developed technology and product offerings.

Generally, the things we do require some degree of engineering, and perform to a level which is difficult to copy or achieve in other forms of technology. We felt this gave us some protection long-term from competitors. Our investments are usually high, our customers blue-chip or leaders in their field, and we like to target these customers when we look for the new opportunities.

In looking at the new opportunities, one of the things that I learnt in the early days was to do your homework, stay focussed, and trust your judgement. It’s something I’ve become more comfortable with as I’ve become older. I actually turned 60 on the weekend and can’t believe that I was 30 when I started working for myself. When you talk about four years, 30 years goes quick; imagine how quick four years has gone! You need to listen to those around you, but you also need to trust your judgement.

Now I need to tell this story. Back in the late 80s when we bought our business, it was focussed on Ford – 80% of one product was supplied to Ford. Ford decided they were not going to use that technology going forward, so we needed to find some new product opportunities. Given that we were young guys and we weren’t too sure about how to do this, we decided that we’d focus on finding a product that we could readily market instead of trying to develop it ourselves. We really weren’t confident in our ability at the time to develop a product, and we were time-critical.

We found a product that a lot of you would see on the road today: it was called the Triton Road Barrier. It had recently been developed by a company called Energy Absorption Systems in the US, and it had Vicroads and the RTA showing great interest in it. It’s a plastic, water-filled barrier, which was developed, tested and approved as a crash barrier, and the only one of its type in the world. It fitted our core strategy: it had a technical element; it was a new product; it was fully tested and approved; it had a high barrier to entry; and the end-user was a blue-chip customer. We signed a distribution agreement, we did all the work about bringing this product to market.

About four years later we agreed that we’d sell the product. I had external partners at the time. During the time we distributed the product, we had no issues with its performance, it provided consistent sales, consistent margins, it was growing, and in my mind, the market was largely untapped. My financial controller and two external partners convinced me to sell and I agreed. The product is still being sold today, but not by us. The people that bought it went on to make all the money. We did all the work, but I didn’t trust my own judgement, and my judgement wasn’t flawed.

What I’m trying to reinforce is: we’re the leaders of the business; we need to set the strategy, we need to follow it, and we need to trust we’ve done the work and our strategy is in place and it will succeed. I live by that lesson now, and it’s helped me bring new products to market as we’ve moved mostly in the last four years from auto to non-auto.

Our customer base now includes products in food, transport and building, which in some cases we manufacture for the customer, and in a lot of cases, they’re our own products. They buy the products, and we’ve helped them develop the market and the product for them. We focus on these principles that we’ve learnt from the Triton Barrier, so long as it fits our parameters to invest. Not everyone will agree with you and everything that you bring, including your wife, your kids, your bank, and sometimes yourself when you look in the mirror.

But that’s ok – it’s ok to make a mistake. The biggest thing you’ve got to be careful of is not making one, because it means you’re not doing anything. And remember at some point in time, someone will replace you just as you’ve replaced them.

In saying that, if I had to redo some of the things in the last four years, there’s a couple of things I’d change. One of the things I’d do is I’d just go a bit slower. I’d look at what I was doing, I’d probably put more stable plans around it, and I’d just go a bit slower. Because if you try to do things too quick, you always seem to get it wrong. You miss something. It’s like preparing a speech – if you have to prepare a speech really quickly, you’ll finish and you’ll say: “I really wanted to tell them that, but I forgot about it.”

So I encourage you, go as quickly as you can, but just take your time. Make sure you have it all covered.

In concluding, I think the things I’d like to suggest to people that we’ve learned over the journey are, first, understand your business, what is stands for, what you want it to stand for. You love it and stay focussed on it. Make sure you’ve got the right people. Respect them as you need to respect your customers and your suppliers. Too many people don’t understand that. That to me is the key to being successful, in understanding what your suppliers, your customers and your people do. With that, you pick your customer and make sure when you give them something, they get the benefit just like you do. Respect them and always tell them the truth; stay focussed; believe in yourself, in your product, your people; and I think you’ll be okay.

As a last message, I’d encourage everybody to think that technology does move and just as you’re replacing somebody, somebody will replace you.
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