Breaking The Coalition Mold

August 7, 2006
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Some of the coalitions created through the state's Tool and Die Recovery Zone program are challenging the boundaries of the collaborative model, forging initiatives for health care, purchasing, training and even export to Asia

A shining example is the Kent-County-based, eight-month-old Michigan Tooling Group, which has 15 members split between Kent, Allegan, Ottawa, Wexford and Gratiot counties. The group was incorporated as an LLC this month — and none too soon.

"Some of the programs we've been working on have already come to fruition," said Rocky Johnston, president of Bessey Tool & Die in Sparta and the coalition's inaugural president.

The Recovery Zone program was launched in 2004 to support a collaborative business model piloted by the Center for Automotive Research with 17 companies across the state. Likely the state's most controversial incentive package in recent history, the legislation allowed for the creation of up to 25 Recovery Zones providing the same benefits as a Renaissance Zone — excusing companies from most local and state taxes.

A Recovery Zone is awarded on a coalition basis: up to 20 firms with a minimum of four. Only companies with fewer than 50 employees were eligible during the first two years of the program, disqualifying more than half of the pilot United Tooling Coalition from participation. During the third round of applications, due Sept. 18, companies with up to 75 employees are eligible.

The collaborative model was founded on the premise of workload balancing, joint marketing, training and standard development, but the MTG has defined the coalition much more loosely. The first issues it tackled were not workload balancing and capacity sharing, as large companies such as Riviera Tool and Autodie International did when they helped forge the model five years ago. For members of the second-round coalition a more immediate problem was the growing costs of health care and raw materials.

Early in the year, Johnston's firm took a significant hit when one of its largest customers, Gill Tool & Die, consolidated its raw material purchases. It would maintain its tool sources, but purchase its own steel.

"Our prices went up, and Gill's went down tremendously," Johnston said. "I thought, 'There is no reason we can't do this with our suppliers.'"

With that, the MTG became a purchasing agent for its members. The group has achieved significant savings through a deal with Reid Tool Supply and is penning a similar agreement with a steel supplier. By shopping for health care as a group, Johnston expects members to save an average 13 percent this year.

The group has also received a grant with the help of MuskegonCommunity College for $330,000 worth of manufacturing training, primarily in lean principles. When that programming is complete, the group will be eligible to seek other grants for CAD and machine-specific training.

Member firms are also sharing work.

And none of these things are requirements of the Recovery Zone designation. The group is slowly tackling those, beginning with the joint sales efforts. The company is in line for a $15 million package from a local stamping firm to split among the members, the biggest of which isn't even a $5 million company.

Through NDI Sales & Consulting, the marketing firm brought in to help the group manage antitrust price-fixing regulations, the MTG is now working toward exporting its products to India, where progressive dies are not currently available.

"Over the past year, I've had maybe 10 people from across the state contact me," said Johnston, who is also president of the Grand Rapids Dart League and often travels to play. "When I was in Cleveland, I had some guys sit me down at a tournament. They'd read about MTG and wanted to join up."

Some of the Michigan companies had contacted him with hopes of joining a Recovery Zone, but many of the companies, particularly those from outside Michigan, were much larger than the coalition limits. The largest had 170 employees.

"I said, 'Why would you be interested in joining us? You're not going to get the tax benefits,'" Johnston said. "They said, 'Collaboration. We want the power and depth to go after $100 million programs instead of $20 million programs.'

"We didn't get into this for the tax savings," he added. "We got into this to build a team and to accomplish exactly what the state said: to keep outsourcing out of the U.S. to a minimum."

The seven members of the West Coast Tooling Coalition, another second-round Recovery Zone based in KentCounty, were collaborating before the zones were introduced.

West Michigan Precision Machining President Phil Allen heads the group and reported that it, too, has concentrated efforts toward health care costs, but has not taken the step to pool its purchasing. The group also works to share best practices, and rotates employees as part of a workload balancing program.

"If I go after a package that's larger than I can handle, I know I have the group to complete the package," Allen said.

John Czarnecki, the Michigan Economic Development Corp. vice president responsible for Recovery Zone monitoring, believes that some companies admittedly entered the coalition solely for the tax benefits, and have since become the program's most active participants.

"I was initially apprehensive they could all sit down and work together," he said. "But this was an eye-opener for them. They're struggling and have given it the benefit of the doubt. They're trying to standardize processes for five or six firms, and that's a big hurdle."

This was why the tax-free zones were necessary, he said. Most firms would not have attempted the difficult and costly transition to a collaborative model if not for the incentive.

"Tax savings alone won't save these companies," he said.

Jay Baron, CAR president and CEO and a driving force behind the collaborative model, believes the Recovery Zone program has not achieved its goal.

"This was a wonderful gift to this industry, but most of them have not been using it to change their businesses," he said.

By his estimate, none of the 125 companies in the Recovery Zone program have satisfied the coalition requirements, and only a handful have taken considerable steps toward doing so. He was especially surprised by the resistance some firms have to the program, with only 125 of a possible 500 slots filled — 90 percent of those from the west side of the state. 

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