Helen Twose

Personal finance and KiwiSaver columnist at the NZ Herald

Success: High-tech grunt behind growth

IHL worker Chad Fawcett in the company's automated Christchurch factory. Photo / Lee Howell
IHL worker Chad Fawcett in the company's automated Christchurch factory. Photo / Lee Howell

A multimillion dollar investment in high-tech automation is the grunt behind growth for a local manufacturing firm.

Integrated Hydraulics Limited (IHL) has been creating essential components for hydraulic systems from its Christchurch base for 25 years.

Specialising in the design and manufacture of hydraulic manifolds, described as the heart and brains of hydraulic machinery, most of IHL's products are exported directly or tucked inside the products of other New Zealand firms.

Big-name industrial customers include Bosch Rexroth, Sandvik, HamiltonJet, Scott Technology and Steelbro, and the firm's products are used in the mining, electricity generation, forestry, transport and marine industries.

Over the past 10 years IHL has poured money into a state-of-the-art facility to ensure the more than 30,000 manifolds and machined parts produced each year can foot it with overseas competition.

IHL general manager Richard Craig, 35, says buying the equipment, including computer numerically controlled (CNC) machines, has created a robust and scaleable business. "The shortage of skilled staff is a real problem for us," Craig says. "We run some reasonably complex equipment that is not particularly common in New Zealand." He says you could "count on one hand" the people with the right experience, and generally, once they reach that skill level, they tend not to shift companies.

Instead, IHL has gone down the automation path, taking slow, manual processes that absorbed the time of its skilled staff and using automated machinery instead.

Production can be run overnight, unmanned, apart from monitoring by text message, with machinery that loads and unloads itself for as long as 16 hours.

"We had 10 people manually processing manifolds and now we're down to two and an automated plant. And where we used to have a week's worth of work as a backlog in front of those people, now it's off a machine, processed the next day, off to plating and out the door.

"Once you've automated the process then you get reliability within your quality control."

IHL bought its first machine in 2005, with more added in 2012. The latest machine cost $1.4 million and a further $300,000 in set-up costs - a big cheque to write for a firm turning over $8.5 million a year.

As well as short-circuiting the skills shortage, the investment has further spin-off benefits. Craig says automation and "lights out" production make it easy to increase and reduce manufacturing during economic peaks and troughs.

When the Australian mining sector hit its stride from 2006, IHL spent money on automation instead of scrabbling around to find the right staff.

The firm really felt it as the mining boom began to fade in 2011, Craig says, but instead of dropping staff it could cut back on lights-out hours.

Staff numbers are now 35, down from a peak of 55, but that number won't fluctuate as much as it did in the past, despite work picking up again. "Previously [staff numbers] followed our turnover growth pretty closely whereas now our turnover growth can move significantly before we need to employ more people."

It's a long way from IHL's beginnings in a blueberry packing shed in the late 1980s. Back then, IHL founder Dave Lawry worked with two staff, who are still with the company, to make manifolds to hand-drafted designs.

The firm is 100 per cent locally owned by the original founders and senior staff, and Craig says it proudly employs local people and supports local suppliers.

He says IHL has watched from the sidelines as other New Zealand firms have moved manufacturing to low-labour-cost economies and have suffered rather than thrived.

"We've seen about a five-year-cycle from when someone will take something offshore to when they bring it back."

Craig says in that time the company in question has usually lost control of its intellectual property, materials, design and supply chain, and has become just another low-cost supplier competing solely on price.

He says automation has meant IHL has been able to compete by offering a well-designed, high quality product that is not "horribly dissimilar" in price to the competition.

Creating intellectual property and products to sell under its own and other brands is part of a strategy to grow and diversify its business.

It's a way of smoothing the ups and downs in the hydraulic industry, says Craig, and also allows IHL to fill previously unused manufacturing hours with productive work.

It's carved out a tiny niche - Craig reckons it works out at 0.01 per cent of sales - designing and producing parts for mountain bikes under the brand Revolution Components.

What started as a way to ensure that a couple of staff members' bikes were track-ready for the weekend ride has become another way to make the most of IHL's design nous and engineering smarts.


For more on NZ business ambitions go to www.nzherald.co.nz/businessambition

- NZ Herald

© Copyright 2014, APN New Zealand Limited

Assembled by: (static) on red akl_a1 at 20 Sep 2014 20:13:23 Processing Time: 1097ms