Second Wind

Using the latest ideas in lean manufacturing, this 93-year-old company has suddenly quintupled sales over the last five years

Photography by Dale MacMillan

The workers at Farr Canada call it a supermarket cart, but it’s unlike anything that can be found at a grocery store. A flat trolley about the size of four grocery carts has been loaded up with metal parts in various shapes and sizes. They’re destined for one spot in the huge Farr plant, where they will be put together for the making of a hydraulic power tong. Gathering these different parts together has reduced the distances that power tong components once travelled throughout the plant before the unit was completed.

It’s just one example of many in a process known as lean manufacturing – here the more efficient production of a piece of equipment that threads together segments of a drill or casing pipe used in the oilfield business. And it’s the brainchild of one Jim Rakievich, who has helped lead parent company McCoy Corporation into a period of skyrocketing growth ever since he became president and CEO five years ago.

It’s not that Rakievich himself came up with this particular method of producing those power tongs. But it was his idea to implement lean manufacturing throughout McCoy’s various divisions and companies that have propelled the corporation into a period of rapid growth.

“The only thing I’ll take credit for is learning about lean manufacturing and then finding someone who could go down that path,” Rakievich says. That move to greater productivity, combined with major acquisitions, has catapulted McCoy from a company with revenues of $28 million in 2002 to a conglomerate pulling in $148 million last year – a five-fold jump. This is particularly remarkable in that McCoy is no brash startup but rather a company with a long history and its share of ups and downs.

It started out in 1914 as a blacksmith operation. Now it is a publicly traded company that has diversified into three major segments: oilfield products and services, industrial trailer manufacturing and truck and trailer products and services.

So how did a relatively unknown firm with modest sales suddenly achieve its hyper growth and heightened prominence in the business community – this year winning a Business Achievement Award from the Edmonton Economic Development Corporation? A large part of the answer for the recent five-year sales surge stems from three major acquisitions, starting with an $11-million purchase of Peerless Ltd. in 2004, which turned McCoy into Western Canada’s largest supplier of custom heavy-duty industrial trailers. Then in 2005, McCoy bought Rebel Metal Manufacturers for $3.6 million. Rebel produces truck and trailer-mounted hydrovac and vacuum tanks, which use water pressure and vacuum to expose underground structures and to perform non-destructive excavation. That gave McCoy an expanded base in the oilfield business.

McCoy’s latest acquisition in August 2006 brought it into the rarefied world of chemicals used to prevent wear and tear on oilfield equipment – a $16.9-million purchase of Inotech Coatings and Hydraulics Inc. That has given McCoy exposure to the oilsands business, where the sands themselves can rapidly wear out all kinds of equipment.

These three acquisitions have accounted for about 65% of McCoy’s growth in the last five years, and in many ways were easier to achieve than organic growth, Rakievich concedes. “When you’re buying a business, you write a cheque and get going,” he says almost dismissively. Maybe he’s being a bit modest but, when prodded, he admits that there is more to it than that. All of the acquisitions suit a greater overall plan for McCoy – namely diversification. Acquiring Inotech, for example, allows McCoy to rely less on conventional oil and gas activity and to tap into the astronomical expansion of the oilsands. The conventional side of Alberta’s oilpatch has been declining in recent years, a fact well charted on McCoy’s presentations to investors and brokers.

But acquisitions are only part of the story, with 35% of the growth being generated internally. Lean manufacturing has been a key reason for that expansion, Rakievich says. The process involves steps such as minimizing the handling of parts, reducing inventories and making sure that components are continually moving through the assembly process. Efficiencies such as those have achieved dramatic changes, such as the production of trailers at one of McCoy’s divisions. For example, at the beginning of 2006, before lean manufacturing was implemented, it took about 30 days to produce one industrial trailer. By the end of the year after the process was adopted, it took two days to produce the same trailer. At Farr, production doubled in two years while staff levels increased only 50%.

“It’s amazing what you can get out of a plant if you eliminate wasteful steps,” Rakievich says. At Farr, it was calculated that some parts travelled 5,000 feet – nearly a mile – before they got into the assembly process, “which is ridiculous,” he adds. Because of the productivity gains from lean manufacturing, Farr has been able to offset the cost of the climbing Canadian dollar. That has been a challenge for the company because Farr’s products are priced in Canadian currency, which would normally have meant higher prices for foreign customers, which comprise 95% of Farr’s sales. But lower costs of production resulting from lean manufacturing have kept Farr competitive, Rakievich says.

It’s why the company chief has little sympathy for companies crying the blues over the dollar. “North American manufacturers could kick it up a notch in being more productive,” he says. “We can use the Canadian dollar as a crutch, but if we become more productive and world-class, we will be okay. We can’t control the dollar, but we can control how we conduct our business, so we should focus on that. There’s lots of room for improvement there.”

The fact that Rakievich has been preaching that message to other firms earns high praise from Brian McCready, Alberta vice-president of Canadian Manufacturers and Exporters, an industry group. “Jim Rakievich has embraced lean manufacturing, and we’ve had his leadership in this field,” McCready says. The McCoy president has led sessions outlining his company’s experience with lean manufacturing and has provided advice to firms who want to learn more about the process, McCready says. Companies that have introduced lean manufacturing have done very well in the marketplace, he adds.

As for other elements of McCoy’s success, Rakievich points to the company’s commitment to spending on new products and services that make its divisions leaders in their fields. For example, Farr developed software to accurately measure torque on drilling rigs. “We used to be a distributor for a competitive technology, but we got tired of hearing customers complain that they wanted improvements. So we came up with our own product, WinCatt,” he explains. Advances such as these are part of the $3 million that McCoy has been spending annually for design and development of new or improved products.

Taking it all together, then, research and development, lean manufacturing and acquisitions have been major elements in McCoy’s five-year growth spurt. And it’s all part of the strategy of turning the company into a major competitor in its various businesses.

“It’s my view that if you’re not in the top three in the marketplace, you’d better get there pretty quickly,” Rakievich says. “If you’re number five, it’s pretty tough to compete.” McCoy is in that upper echelon already. Farr, for example, is one of the top three manufacturers of power tongs in the world. The acquisition of Peerless, along with the already held Scona Trailer Manufacturing, turned McCoy into the largest heavy-duty industrial trailer manufacturer in Western Canada.

Diversification into international markets has also proven its value, says Ted Redmond, McCoy’s vice-president of oilfield products and services. For example, Farr’s power tongs and top-drive systems have been selling well in offshore markets, which are now running record numbers of rigs. And while drilling activity has decreased in Alberta this year, American numbers have jumped. “This is a good, stable source of business for us,” says Redmond, who joined the company last December following a position handling mergers and acquisitions for an investment bank. “I joined this company because of the great growth prospects,” Redmond says.

Rakievich, however, says he’s always worrying about unforeseen developments that could present threats to McCoy. “I worry about everything,” he says frankly. Even though it has been somewhat easier to recruit staff this year, he is focusing on a retention strategy, for example. The company employs 600 people in Alberta and another 200 elsewhere. Another concern is that international political developments might lead to a drop in oil prices. Still, Rakievich is hoping his past success can continue.

“I’ve openly told people that I want us to be a $300-million company in two years.” And the CEO says he will only be able to do that with top-notch employees and executives, whom he believes McCoy has been successful in attracting. “Our success is built on people who are dedicated to what they do.”

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