ITW’s July 2006 acquisition of Kester (kester.com) has garnered perhaps less attention than other moves the conglomerate has made of late, but it was no less significant. In May, Bill Spring, Kester’s paste general manager, and Jeff King, general manager of metals and chemicals, described the cultural and strategic shifts taking place at one of the world’s largest solder companies to Circuits Assembly’s Mike Buetow. Excerpts.

CA: What can you tell us about Kester today?

BS: We’re taking an absolutely different approach [than in the past]. As you are probably aware, the ITW philosophy is all about 80/20. In a nutshell, it’s about focus and simplification. We aren’t trying to be everything to everybody. We’re trying to be focused and absolutely excellent at doing fewer things, but doing them very, very well. It’s grossly simple on the surface, but takes some energy to get people to think differently. It’s more of a cultural shift. Naturally, there’s some fallout and upheaval, but in the end, the company is stronger and more efficient than ever.

CA: What has the customer reaction been to 80/20?

BS: In the end – and it’s all about customers – they understand where we’re headed. They might not always like the changes as they happen, but they understand and appreciate what we’re doing and ultimately, they know it will be beneficial for them.

CA: We talk a lot about change and yet when it happens, the inclination is to resist. What are the biggest challenges you’ve encountered?

BS: The ITW formula works. It’s a question of getting everyone on board and getting everything in place. It doesn’t take place overnight. We’re patient with that – to a degree – but expectations are high. The result will come; we know that will happen. We’ve had a very good [2008], probably better than we thought it would be, given the economy. In that regard, our expectations for the balance of 2008 are conservative.

That said, the strategy of simplification absolutely works. We have spent time taking our internal people to other divisions to get them to understand how immensely powerful this strategy is. That way, they get a better sense of it than they would by just hearing it from management. Where we have to get better is in our ability to continue to perfect our quality – in solder, this is grossly important – and customer service. Everyone expects that.


CA: Having ITW as a parent must ease the uncertainty that hangs over companies owned by investment groups.

BS: People get nervous on any acquisition. There’s a relief at first that someone is going to invest in the company. With holding companies, typically, there’s a sense the business will be reshaped so someone will buy it. Since ITW took over, we’ve conducted some restructuring, but there was some that needed to be done. Last fall, we broke Kester into different units as part of our focus strategy, so we don’t get bogged down as we might in a bigger organization, and now can think “smaller” and react faster.

It’s a delicate balance to make that happen. We want to make it easier for our customers to do business with us. With smaller business units, we can be more flexible.

JK: I’d like to offer some background. When Northrop Grumman owned Kester, the group we were in had about $1 billion in annual sales. Northrop sold all those companies, and that’s when we were purchased by American Capital. ITW has a history of buying and holding companies and being a good owner. They have a history of buying companies that have great brand names and where they see great upside. What Kester provided was a strong basic platform for the company to grow.

BS: We will get tremendous support from ITW’s corporate management. They will invest in this business. They want us to have absolutely the best equipment. We want to make sure we have capacity, so they will help us invest in capacity, and not rely on inventory as a crutch. Most companies today probably believe that, and we definitely want to have the right capacity to handle the ups and downs as they take place. Our business is no different than most: it’s customer service and quality.

When ITW buys a company like Kester, there’s this thinking: The purpose is to use our ITW philosophies to grow the business profitably and exceed our customers’ expectations. Somewhere inside ITW, you could find parts of acquired businesses didn’t exactly fit, but the acquisition strategy is not to buy a business only to break it apart to resell it. ITW wants all their companies to be autonomous with defined niches, because we know that increases the chances to be successful with our customers.

CA: Most manufacturers define full capacity as 80% of available resources. Where do you stand on that?

BS: That’s the number we use: 80%. When we have an average of 80% of our demand going on with our capacity, we look at it at as time to invest in more capacity. You need time to expand, lead times for equipment, and by the time you start that, you are being pushed on capacity utilization.

JK: In the past 9 months, we have virtually squeezed late orders out of our systems. We’re in a position now where we have a lot of capacity to bring to bear – up to 120-130% of what’s needed in any given week.

CA: What can you tell us about the changes made to your plants?

BS: It starts with focus. By that, I mean a simplified product offering. We do fewer things, and do them really well. We can concentrate dedicated equipment. That was never done in the past. We pick up tremendous efficiency because of the way we dedicate people and equipment. There are always tons of things in manufacturing that can be improved. You take the easy ones first. It’s a continual process, and you do that repeatedly. You start with the right product offering that meets key customers’ needs (that doesn’t mean there might not be some small ones too). The narrowing of the product lines greatly helps simplify manufacturing. We try not to have a “shelf full of toothpaste offerings,” for example, that all do the same thing. We’d rather have just a few lines, but they are the best lines.

CA: Do you try to make product where it will be consumed?

JK: Typically, Kester will make the formulas locally. We don’t try to move a lot of finished goods around the world. As a global player, one advantage we do have is the ability to supply product locally.

BS: Obviously you can’t have a plant in every spot, but there’s a delicate balance to be well located to service your key customers. Having backup manufacturing facilities is always a reassurance for the customer.

CA: Within ITW, customer service is a big area of emphasis. Do you reassign staff in order to beef up that area?

BS: That depends. We kept customer service intact. We think that’s healthy for this division, so customers have one customer service hub. The specialization behind that is to let the business units do their own thing. As you segment and the business stands alone, the units are fully autonomous to decide what to do to grow.

JK: In November, we segmented our businesses internally. We now better understand our costs and what is sold in our business. We break problems down to smaller pieces and put people in charge to solve those problems. We’re sensitive to how customers want to do business in the field, however, and those wishes may or may not make sense to how we structure the internal business. Customers want to talk to the same people they’ve been talking to on their invoices, their products.

CA: What are your thoughts on whether SnCu will outdo SAC as the Pb-free alloy of choice?

JK: The groups I’m responsible for are metals (bar and wire) plus chemicals, K100LD bar among them [Ed.: K100LD is a eutectic SnCu solder]. All-tin product is all about getting away from silver, for which the price has gone up tremendously. This is a way to have a lower-cost alternative. SAC 305 is still the gold standard on a global basis. But it’s clear KLD bar and wire are making inroads. What’s interesting is the change started in Asia and Europe. The US has been slower to make that switch. At the same time, we’re selling KLD in bar and wire. I think there will be several alloys that will come to the forefront here.

CA: What many readers still don’t understand is how affected you are by the metals markets.

JK: It is a global market, like it or not. At one time I think people thought we could control pricing. As prices climb, we try to pass through metals so our customers can control costs. When everyone went to Pb-free, there were some pretty good jolts there.

We follow the metals market daily. We change prices weekly, depending on what the market does. We want to have stability because we deal with distributors and they want to be able to give a customer a quote. We let our price float on top of metal. We try not to speculate in the market: That’s a good way to go broke. One concern is China has gone from an exporter of tin to a net importer. I think tin will get nothing but higher as the price of the dollar goes down. We track that every day. Metal is our number one raw material and we try to follow that business closely.

BS: On the paste side, more and more people want lower silver content because it will lower the metals cost. But, they don’t want to start if they don’t have the full data. We see that over and over again. People are conservative there because they want a proven entity.

CA: Once the transition matures, what will be the percentage of use?

JK: Pb-free was driven by European legislation and the Japanese consumer electronics companies. Companies are switching to Pb-free everyday, and we supply people who make everything from car radios to toys. Less than half the market has switched, according to IPC data. What has become clear is that both lead and Pb-free alloys are going to be around for some time.

CA: Everyone talks about solder technology, but less is discussed on the flux side. What are you seeing in chemistries?

BS: ITW likes to be on the forefront of developing new products. I think there’s no question you’ll see more water-based fluxes. In Europe, water-based fluxes continue to grow because of legislation on green initiatives. We see that in California, too. We’re ready to make that switch. People are also talking about halide and halogen content … we have paste, wire, and fluxes ready to sell in this area. We see that as an opportunity.

CA: That involves some work, as it’s not just a drop-in.

JK: There’s no question, if you’ve been using alcohol-based fluxes and want to switch to water-based fluxes, there’s some equipment changes. If you go back 2 to 3 years, there was a steep learning curve, but I think we are over that now. For some customers, it was a question of capital equipment, for others, just a few parts to change. Our products have been proven in a variety of setups. Also, because we’re global, we have an advantage in that we can offer a product for trial in Germany and then supply that product to a variety of locations around the world. I think more and more customers want to deal with a company that can supply their needs regardless of where they choose to make their products in the world market, and still get the full complement of products: bar, wire, flux and paste.