Hytrol Conveyor Company: David Peacock

IndustrialSage

David Peacock, President of Hytrol Conveyor Company, returns to the Executive Series to share what’s changed in one year after the pandemic.

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Danny:

– Well hello and welcome to today’s IndustialSage Executive Series. I’m Danny Gonzales, and I am joined with Hytrol Conveyor Company, the president David Peacock of Hytrol. David, thank you so much for joining me today on the Executive Series for the second time.

David:

– Yeah, it’s a pleasure being here, Danny. Thank you.

Danny:

– Absolutely. Well I’m excited to get into it. It’s been a little bit. I think it’s been about a year or so since we spoke last. Obviously a lot of things have changed since then and continue to change. Before we get into all of that, I would like to, for those who aren’t familiar with Hytrol Conveyor Company, if you could just tell me and our audience for those who aren’t familiar what you guys do.

David:

– We’re a manufacturer of conveyor systems, whether it’s high-speed sortation or even basic gravity. Anything in between that is what we’re building. It’s the systems themselves, the solutions that we’re deploying. Primarily retail distribution; ecommerce is a big part of it. But it’s the systems that go into those warehouses.

Danny:

– Yeah, obviously that has had a massive impact over the last 12 to 18 months. When we spoke last, a couple big things that jumped out to me is one, you had a great—talking about how to make decisions when you don’t have a whole lot of information. That certainly was a huge piece of last year, and even now. You talked about how there was a lot of changes that had happened in the industry, obviously a lot of work from home and just trying to battle the supply chain and labor and trying to dodge around shutdowns and keep operations rolling. How has your business changed since the last time that we have spoken?

David:

– We were in the middle of a lot of change when we spoke last year. I think we’ve worked through a lot of those issues. We now have work from home as a standard practice, but it’s really a hybrid system now as people started to come back to work on July 1st of this year. As an example, our engineering team now works, published 60% from the office and 40% from home, and that varies from person to person. We’ve stabilized that a little bit. Probably the biggest change is, as disruptive as last year was, our supply chain was fairly solid. This year it’s much more fragile, and we have to spend a lot more time trying to figure out how to get the basic components that we need in to build our systems. That’s a big change for us this year.

Danny:

– Yeah, we’re hearing that across the board. It’s interesting that you say that last year, you felt like it was impacted, but this year seems to be significantly—what are some of the drivers that you’re seeing that are impacting that negatively?

David:

– One of them is, steel prices have gone up remarkably. If you look back historically over the last three years, steel has been just slightly north of $600 a ton, and right now it’s $1800 a ton. So it’s three times what it was this time last year. It’s not just the price; it’s availability. We’re in a pretty good position. We have a great partner that we work with. But a lot of our component suppliers have struggled. We have actually supplied steel to some of our component suppliers so that they can get us what we need to build products. That’s one of the big changes. I think it’s a result of the extended nature of the pandemic. Everybody had supply chains in place that would allow them to work through short-term disruptions. But we’ve been at this now for close to 18 months, and so a lot of those supply chains have really been impacted and haven’t been able to recover.

Danny:

– Yeah, absolutely. Obviously steel has been a story for a while, even way before the pandemic when you looked at a lot of the tariffs. Certainly depending on where you were sourcing that steel from and the different kind–were you impacted with that before? Were you not impacted?

David:

– No; well, we were slightly impacted. About 98% of our steel is domestic steel. We’re actually in the first congressional district of Arkansas which is the largest steel-producing district in the country. We’ve got Big River and Nucor are both huge representatives about 50 miles from us. And so we consume a lot of domestic steel, very little external steel, or international, but that still had an impact on pricing. When you put the tariffs in place, prices went up, but it was manageable last year. This year it’s a huge challenge for us.

Danny:

– Yeah, absolutely. Triple the cost, you’re saying; 600 to 18. Well at least one thing is nice; you said you’re 50 miles away from there, so from a transportation cost standpoint which I understand that has risen, and there’s a lot of challenges there. Hopefully that has had a minimal impact for you.

David:

– Yeah, I can’t imagine dealing with that on top of the price of the steel itself, too.

Danny:

– Yeah, it’s crazy. When did you start feeling those impacts this year? Was that January? What point?

David:

– Well the way we buy steel, we buy it in advance, and we hold it. So our steel supplier has three months’ supply. It started going up in late fourth quarter, but we all assumed, the projections were that by second quarter it would start to decrease, but it’s just continued to climb. So really March, April, May timeframe is, really started to have an impact, and it just continues to escalate.

Danny:

– Yeah, wow. Do you see a reversal at any time in the future? What are some thoughts there?

David:

– When it was at $1500 a ton, I said, “It’s going to go down. This is not sustainable.” And now it’s at $1800 a ton. You talk to the steel industry, they say it’s going to go higher. But at some point customers are going to stop buying our products and demand will drop off. And then the supply will greatly outweigh the demand, and that will drive the price down. It would be nice not to have to go through that cycle, that we could somehow come to a balance where demand and supply meet each other.

Danny:

– Right, you mentioned how you do a lot of work with warehousing and ecomm, and ecomm being a huge story. It was growing exponentially before the pandemic, but afterwards, obviously we threw gasoline on it. Are you seeing a massive uptick in demand, or at least conversations as people are trying to build out warehousing?

David:

– Yeah. Our backlog right now, the orders that we have in hand, are about four times what we have historically seen. Really changing the order patterns, if you place an order, the lead times are extended well beyond what is normal. It’s forcing people to place orders now for things that they don’t need until 2022 just so they can get in line. So we’ve seen a huge change in that to the point that, since we last spoke, we’ve opened a new facility in Fort Smith, Arkansas. We originally planned on having about 200 people work there and producing about $70 million. Now, just in the short period of time that it’s been open, we’ve doubled our expectations of what we need to bring from that facility. By the end of the year we hope to have four other people that work in that facility.

Danny:

– Wow. You’re saying that happened between the last time we had spoken. Was that in the works originally? It sounds like maybe it was, but it got fast-tracked?

David:

– It was in the works. We were doing a search on where it was that we wanted to go. The state of Arkansas has been a tremendous partner of ours, and so we decided to stay in the state and put a second facility here. We signed the leases on that building on December 23rd. We announced that we were going there on January 4th and told everybody we were going to be producing product by March 1st, so less than 60 days later. We ended up meeting those. We’re continuing to ramp up that schedule, and it’s gone so well with the team that we have in place there that about a month ago the board agreed with us that we needed to put more product in there to try to help our capacity. We can sell as much product as we can build, and so if we can do more at Fort Smith, then obviously that’s the best thing for our customers.

Danny:

– Yeah, absolutely. It sounds like there’s a lot going on here. Obviously there’s been a lot of changes. We’re talking about the increase in the price of steel, but we’re also talking about a massive demand, work from home options, all these different things. What, going forward, do you think will remain versus roll back? Let’s say specific to demand. Do you see that tapering down a little bit? Or five years, you think that’s just going to keep growing?

David:

– Well I don’t know that anybody’s willing to risk five years, but I can tell you that we know that based upon the conversations we’re in right now, 2022’s going to be just as strong. We expect to continue to see double-digit growth. I expect this rate of growth to continue for at least two to three years. If you forced me, I would say that I’m hoping that it’s going to continue to grow beyond that, but at least for the next two to three years it’s going to be a huge constraint on demand.

Danny:

– Yeah, that seems to be the story that we’re hearing, and it makes a lot of sense, especially as you have the supply chain issues that are all across the board, across all industries. I don’t care who you are, everybody’s got something. And because we’re so interdependent, it’s just holding up. Obviously the big one in the news is the chip makers for the automobile industry. There’s all kinds of things. That’s certainly interesting. What does the future of the industry look like to you?

David:

– I think we’re going to continue to see the transition of ecommerce grow. We’ve actually been surprised this year that brick-and-mortar is doing very well. But I think what we’ve seen over the last 12 months or maybe 18 months we’re seeing an increase in the transition to ecommerce. We’re going to continue to see that for some period of time until we reach that natural balance between retail distribution and a brick-and-mortar environment versus an ecommerce. That’s going to continue to be the driver. We’ve all learned and come to expect that you can order something, and if you’re in Atlanta, as an example, you can get it the same day. If you’re in Jonesboro, you’re going to get it tomorrow.

I tell everybody; I get a chance to meet our new employees every week when we’re going through orientation. I tell them the story of my daughter wanting a pair of Hunter boots for Christmas. I didn’t realize, and she told me less than a week before Christmas that’s what she wanted. Well they come out of the UK, but fortunately we got them two days before Christmas because they went through UPS’s Worldport in Louisville, and we’ve got a bunch of conveyors there, so our conveyors helped me make my daughter happy for Christmas two years ago. It’s those types of things that we’re going to see continue. We’ve all been trained that we can get something much quicker than we thought we could get it, even two or three years ago.

Danny:

– Absolutely, you’re 100% right. We are trained, whether it’s information or product, it’s boom, we have it. And so you’re 100% right. That makes a lot of sense. Let me ask you this: if you had a magic wand, and you could solve whatever industry challenge or problem or the opportunity, what would you solve?

David:

– First I would beg for two because there’s a short-term issue that needs to be solved, and a longer-term issue. The short-term is supply chain. The disruption’s at a place, whether it’s computer chips, tapered tubes, steel, all those things, we need to put some things in place so that we can eliminate some of the disruption being caused by the supply chain. But that’s short-term in nature. That’s going to need to work itself out. The bigger challenge—and if I only get one, it’s going to be in manpower. Employee development, the recruiting, the retention of folks, making sure that we have the people because those are the ones that are going to go solve the supply chain issues down the road. That’s what’s going to make us successful. We do a lot of things here. I can’t remember last time we spoke; we actually have a person on staff who manages our academic outreach. She deals with the universities. She deals with the technical colleges, and she even deals with the high schools to make sure that they understand what the workforce needs to look like from our perspective, but also helps us understand, what can we do to help them be successful? So it’s a two-way partnership. But it all comes down to having the people you need to be successful.

Danny:

– Yeah, absolutely. That makes a lot of sense. Again, that’s a big story we’ve heard. This was pre-pandemic, but obviously now with massive increases in demand, that makes it even that more important and challenging. And so yeah, absolutely, having the right people and having people trained and ready. Have you seen success in those programs where more people are coming in that are more—I guess would you say excited about working? Sometimes we hear that maybe they’re competing against people who might—I want to go work in Silicon Valley, or I want to go work over here. I want to work in these different areas. And I feel like, eh… Is that one of the challenges that you guys have faced?

David:

– You have to divide it into different skillsets. It’s a relay team; everybody has to do their part. Let’s talk about engineers for a second. In the last 18 months, we’ve lost one engineer out of a group of over 140 engineers. We’ve only had one engineer that left the company. So you can see that the work being done both to recruit the right people—we just finished last week; we finished our intern program for the summer. We had 10 folks that were here. We do things that—we pay for their apartments while they’re here, if they’re from out of the city. They obviously get paid. We have a very structured program. We give them a challenge that they get to go work on for that eight-week period of time. It has become a very competitive slot to become one of our interns, and that’s because of the work that the team is doing to attract the very best. We see that as the first opportunity to engage with those students, with the future engineers. Because of the success of the program, we’re getting the types of engineers that we want that feel challenged. And then we continue that same environment once they get on board. As a result our turnover has dropped to very little. Now I can be superstitious on occasion, so I hope I haven’t just jinxed us. But it has worked out very well for us.

And I think if we continue to do those things, then we’ll be successful. You get out in the shop—in the shop those folks are motivated in a different way. Not good, not bad, it’s just different. Their expectations are different, so how can we help them stay safe, make a good wage so that they can take care of their families, and create opportunities? And so we have a path for everybody who comes to work here. We don’t want you to be here for three months. We want you to be here for 30 years. And so we’ve laid out paths that if you come in and you work in the paint system, but you want to advance to something else, then we help you understand what’s required to make that happen and then help you move in that direction so that you continue to stay challenged in the organization. And so that has helped us in that situation as well.

I’ll tell you, in Jonesboro we’ve got 1400 people. We’ve hired 500 people so far this year, but we’ve also lost a significant number of folks because they come in for whatever reason; we don’t retain the folks that we need at the same level. So while we’ve only increased the headcount by about 125 people, we’ve had to hire 500 people to make that happen. That’s an ongoing challenge. Northeastern Arkansas, unemployment is below 4% again. It’s a very tight labor market already in northeast Arkansas that we’ve got to compete for. Even in Fort Smith, it’s a little bit better in terms of unemployment and recruiting folks, but we’re doing things. We put air conditioning in the facility. We’re the only manufacturer in Fort Smith that has an air-conditioned manufacturing facility.

Danny:

– Wow.

David:

– It costs money to do those types of things, but if we want the quality of people that we need to be successful, then it has to be a win on both sides of the equation.

Danny:

– Yeah, absolutely. That makes a lot of sense. We’ve been hearing a lot, very similar stories across the board, obviously. It sounds interesting if your unemployment rate is lowering a good bit. I know part of the story—good, bad, or indifferent with federal unemployment—that was a huge challenge with trying to, especially when we’re talking about more warehouse workers and working on the shop floor. That certainly was a challenge. Did you guys go through that at all?

David:

– Oh, absolutely. Trying to go out and recruit people has been challenging. For all the good intentions, some of the unemployment benefits have actually hampered us attracting the people that we need. You’ve got to make sure that people are taken care of, but the opportunities to work exist. And so let’s not incentivize them not. And that’s one of the challenges that we’ve been battling. Hopefully that’s going to resolve itself fairly quickly.

Danny:

– Have you seen that taper down a little bit now that—I know that unemployment’s supposed to be phased out in September. I believe it’s mid-September, so we’re probably six weeks out or so from that. Have you seen any things loosen up a little bit?

David:

– Well Arkansas was one of the states that opted out of that program in June, late June actually, the 26th. And so that has helped. There’s some back and forth about whether the courts have now weighed in, and so by September that should go away completely. And I think that people are starting to see that, hey, it’s not going to last forever, and so they’re not making the decisions on careers based upon that being a long-term program. So we are starting to see some benefit from that.

Danny:

– Yeah, obviously a lot of challenges. Who would’ve thought? I can only imagine because I haven’t done this, but running an organization your size is fraught with challenges to begin with. But you add in a pandemic and everything there—my hat’s off to you and to all leaders who have had to really face this. It reminds me of our conversation we had last time we talked about having to make those decisions with very little information and having to move and maybe sometimes you’re making them based off of gut with as much data as you can. But when you have incomplete data, what do you do? My hat’s off to you for that because I know that is not easy.

David:

– Well it helps to have a great team that supports those decisions. There’s not one single person that’s responsible, whether it’s my HR folks, the ops folks, the engineers across the whole organization, everybody’s working hand in hand. It’s how you develop your team leading up to the point that you need this. We’re being successful now because of the work that was done before the pandemic. If you’re in the middle of a crisis, that’s not the time to figure out how to work together as a team. The folks that I have here have done a remarkable job keeping us in operation.

Danny:

– That’s fantastic. That makes a lot of sense, absolutely. So as the leader of your organization, what have you done or what are you doing currently to stay on top of your game?

David:

– I need to understand where the industry’s going and what the customers are needing. But it goes back to the previous question we talked about, if I could fix one thing. It’s people and making sure that I have the right folks. And so I spend an awful lot of my time, rightly so, engaging with people in the shop, engaging with the engineering group, and just touching base, understanding what the challenges are that they’re facing. How can we help them be successful? But it’s really about staying connected, even outwardly. We have a fantastic network of integration partners, and going to visit those. We’re picking back up the pace on how often we go out. Tomorrow I get to go visit one of our IPs. I had dinner with one of our IPs last night. Later in two weeks I get to go and spend some time with about 20 different individuals. How do I stay plugged into those folks so that I understand the opportunities that they have and how we can help them be successful? It’s all about people, whether it’s internal or external.

Danny:

– Absolutely, yeah. Well David, I really appreciate your time with us today on the Executive Series. You’ve shared a lot of great insights and information. I know a lot of other leaders are going through the exact same thing, and I love your view on everything, and I love how you mentioned obviously one of the big challenges with being people, and how you’re actively engaged and just getting to know people, understanding their challenges, have some empathy, and then figure out, okay, how can we help solve those challenges? It’s all connected, right? For those who’d like to learn more about you, what’s your website? Where can they go visit you?

David:

– Our website is www.hytrol.com, and you get a chance to meet a lot of our folks if you go there. We’ve got a lot of great videos about the people who make up Hytrol. I would encourage you to go do that.

Danny:

– Excellent, alright. Well go do that if you’re interested in learning more about Hytrol. And you should because they’ve got a pretty impressive company. So David, thank you so much for your time today.

David:

– Thank you. Appreciate it, Danny.

Danny:

– Any time. Alright, well that wraps up today’s IndustrialSage Executive Series with Hytrol Conveyor Company with David Peacock who is the president.

So that’s all I’ve got for you today. Listen, if you are not subscribed, you need to go to IndustrialSage.com right now, and you need to go ahead and get on our email list so you don’t miss out on great interviews like this and other content so that you can learn from other leaders. You can see what’s going on in the industry, stay on top of your game, and just take advantage of all of the content that we have at IndustrialSage. So that’s all I’ve got for you today. Thank you so much for watching or listening. I’ll be back next week with another episode on IndustrialSage.

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