Entrepreneur of the Year Jerry Ehrlich manufactures truck trailers with innovation, efficiency, and quality.
Entrepreneur of the Year Jerry Ehrlich manufactures truck trailers with innovation, efficiency, and quality.
Seven years ago Jerry Ehrlich started manufacturing truck trailers -- a commodity product in a declining industry. But by breaking out of the industry mold through innovation, partnerships with customers, and a flexible work force, Wabash National has become one of the largest companies of its kind in the world
It's hard to think of anything more prosaic than truck trailers. See one of these metal boxes on wheels hammering past you on the highway and you've seen them all. The product has "commodity" stamped all over it, and the industry that makes it is in a serious slide. Last year U.S. truck-trailer manufacturers produced 140,500 units, down from 214,300 in 1988. Compounding the woe, the buyout fever of the 1980s ravaged many manufacturers, leaving them hung over with debt and ill equipped to modernize their plants to meet the brave new world of manufacturing in the 1990s.
Donald J. "Jerry" Ehrlich saw all this up close as the president of Monon Corp., a $250-million trailer manufacturer in Monon, Ind., that was quietly doing its thing before the Wall Street sharks came swimming around. Monon was a subsidiary of a Rustbelt metal bender, Evans Products, whose principal stock in trade was making railcars. In 1983 Evans caught the attention of the predatory Victor Posner as an undervalued play. Posner bought Evans, using a lot of debt; then, to stay ahead of his junk-bond payments, he stripped off assets and sold them. As Ehrlich watched Monon, starved for working capital, decline, he repeatedly tried to liberate the division by getting Posner to sell it to him. And Posner repeatedly refused.
Ehrlich finally left Monon -- which continues to limp along -- and went 30 miles down the road to Lafayette to start up a new company, Wabash National. He took with him two fellow managers, and soon after, another 14 key employees would follow.
One early employee was Rod Ehrlich, Jerry's brother, now head of engineering at Wabash. He says of his brother, "Jerry sees through to the core of whatever the problem is. He grasps the basic concept and doesn't chase tangents." Jerry Ehrlich, a welder by trade and a college dropout by necessity, has spent the last 35 years of his life building trailers. In starting Wabash, Ehrlich, 55, cast his discerning eye past the industry's declining fortunes to focus on a more hopeful reality.
The transportation industry in the United States, at $360 billion in annual revenues, is mammoth, and trucking accounts for 80% of that. Trucking was once a very predictable and highly regulated industry. If you lacked the necessary permit from the Interstate Commerce Commission to truck, say, oranges from California to New York, then you were simply frozen out of that market.
But that ice jam finally broke in mid-June 1980, when Congress deregulated the industry, effectively allowing any carrier to truck any commodity anywhere it wanted. Although the overall truck-trailer industry wasn't growing by much, within it there was sudden and considerable jockeying for the myriad niches deregulation created. That created a demand for trailers that met the needs of a new breed of specialized shippers. And it was into this dynamic market that Ehrlich knew he could drive his company.
Ehrlich found manufacturing space in a factory that had been recently abandoned by a bankrupt builder of prefab houses and more recently used by nearby farmers to store their corn. In the summer of 1985 he and his fellow renegades from Monon built their first trailer on a set of sawhorses, having started Wabash earlier that year, on April Fools' Day. What then ensued proved to be no joke.Jerry Ehrlich figured that if Wabash turned out 5 or 6 trailers a day, he could make money -- and also have time to work on his golf game. Today Wabash cranks out 100 trailers a day, at its 58-acre, 740,000-square-foot Lafayette facility, making it the world's largest trailer-manufacturing site. Revenues this recessionary year will come in at almost $300 million, up from $191 million in 1991, with net margins at more than 6%, high for a mature manufacturer. For each of the first 1,000 days of its existence, Wabash added one employee and $100,000 in revenues, meaning that in less than three years it had become a $100-million company. This year sales per employee will equal $180,000.
Those are dramatic numbers, especially when you consider the industry's careening fortunes. In 1986 manufacturers produced 156,000 trailers, a figure that rose to 214,300 by 1988 -- and then plunged to 140,500 in 1991, an 11% decline during the five-year period. More significantly, the three leading manufacturers fared much worse. Fruehauf's production declined by 64% between 1986 and 1991; Great Dane and Strick were down 25%. Wabash's output rose by 150%, and its market share rose from 3.1% to 10.1%. The company, which didn't exist eight years ago, will this year produce close to 20,000 units -- likely making it the largest truck-trailer manufacturer in the world.
That signal success can be attributed in part to luck and contacts. The luck was simple; the company had the luxury of starting from scratch. "One advantage we had was that we were able to 'clean out the closet,' " says Ehrlich's other brother, Charlie, Wabash's head of manufacturing. "We knew we could learn from our past mistakes and build a product that was superior in design and manufacture."
As for the contacts, Wabash's first customer was a not-unheard-of retail chain by the name of Sears, Roebuck & Co., which had worked with the Ehrlichs at Monon. Sears ordered 10 trailers from Wabash, promising that if the company didn't blow it, it would order 370 more. That first job enabled Ehrlich to buy equipment -- much of it at fire-sale prices from bankrupt Rustbelt companies -- and start hiring.
Because Ehrlich had work from the outset, his cost of sales was negligible and he was able to start up, relatively speaking, on a shoestring: with $2 million in equity from outside investors who knew his reputation in the industry, an industrial revenue bond (essentially a tax abatement) worth $3 million, and a $5-million line of credit at the local bank. A year ago Ehrlich took the company public, raising $39 million. The initial public offering wiped out virtually all long-term debt, raised stockholder equity to $53 million, and by year's end had provided Wabash with $36 million in working capital.
But Wabash's success is more than just a case of a bunch of good old boys' being in the right place at the right time. A keener look reveals Wabash as a Rustbelt jewel, a company that knows how to manufacture, market, and build in barriers to entry. Wabash is a low-cost manufacturer with a flexible work force. It goes after the market with innovative products and relentlessly roots out inefficiency under its own roof. It is on those bedrock elements that Jerry Ehrlich has built his franchise.* * *
Walk into Wabash's sprawling plant and the senses suffer a frontal assault. The clang of aluminum sheet being run through mammoth stamping machines collides with the spit and hiss of pneumatic riveting guns. Dense with matter, spare of light, the plant has the same subterranean feel as other places of heavy manufacture, except here there is less clutter, more energy.
Wabash is a just-in-time manufacturer, stocking only four days' worth of inventory from outside vendors. But 70% of a Wabash trailer's components are fabricated in-house, and those are made within 24 hours of use. They are built in the fabrication shop by computer-controlled machine tools that can instantly change the shape of a part through "soft tooling," or the computer-generated design of a part, rather than by creating the traditional "dedicated" hard part to serve as a prototype. Soft tooling reduces the setup time on a machine tool from 30 minutes to 15 seconds. That enables a part to be made just prior to its use, and also allows for very limited production runs. Limited runs give Wabash the flexibility to routinely take on custom work -- and still keep costs down. "On any given day at Wabash you can see 15 different types of trailers for 15 different customers coming off the production lines," says Charlie Ehrlich.
Wabash's original 200,000-square-foot plant was designed to require just three forklifts to carry material around the plant. With the plant now nearly four times larger, the company has added only one more forklift. Parts fabricated in-house are often enhanced or modified at the "point of use" by the worker putting that part on the trailer. Having only one worker handle a part at the point of use not only saves time and increases productivity, but also keeps the worker more engaged, since he is performing a number of different tasks, not endlessly repeating the same one. Three years ago Wabash set up a line to produce "doubles," trailers that ride in tandem. Since then it has cut the number of hours needed to produce a double by 70%, through automation, improved material flow, and worker training. "We are producing trailers and selling them today below what our cost was four years ago," says Jerry Ehrlich. "And we're making more money."
The average trailer weighs 7.5 tons, and since Wabash builds 100 trailers a day, it runs 750 tons of material through its plant each day. A typical trailer might have 400 part numbers and 5,000 individual pieces. As materials account for 70% of a trailer's cost, Wabash's ability to manage its inventory has a big impact on productivity. (Wabash will produce 60% more units this year with 33% more workers than it had last year.) Ehrlich, who believes Wabash's waste exceeds last year's pretax profit of $11 million, says a time-lapse photo of the plant would likely reveal that 40% of the floor space is still dedicated to inventory that doesn't move within 24 hours. Eliminating that waste becomes a question of further refining systems and management ability.
Nevertheless, adds Ehrlich, "we continue to punch through economies of scale for our customers all the time. We are not trying to lower the price. We are trying to lower the cost." Wabash makes four basic types of trailers, but virtually all orders incorporate custom features. Each of the company's four production lines can make any trailer type the company offers, enabling Wabash to run a balanced mix of product through each line and keep each running as close to capacity as possible. Ehrlich, meanwhile, resists putting a number on capacity utilization because he believes that number to be virtually infinite. "We thought we were running at 100% capacity when we were at 10 trailers a day. Now, at 100, we think we can do another 30% at this location."
Wabash can already run full tilt -- and reconfigure a production line at the same time. To date, the company has made six such modifications. "From a manufacturing standpoint, you'd prefer no change -- just knock 'em out," says Ehrlich. "We've built a manufacturing operation that can accept change constantly -- because we've had to." When Wabash started up, management projected that one type of trailer, built with reinforced fiberglass, would account for the bulk of sales, but that trailer now accounts for only 10%. Another trailer, one that was still in the design phase seven years ago, now accounts for 75% of revenues. To ease such shifts, Wabash has 100 of its 1,700 employees in tooling and maintenance, designing and building all the changes in the company's manufacturing equipment. Charlie Ehrlich says that if Wabash went to outside vendors for such work, it would invite technological overkill. "We'd end up with a bulldozer to mow the front lawn. When we make it, we know we don't want to work any harder; we just want to be able to work smarter."
Wabash encourages its workers, who are nonunion, to move around within the plant, allowing them once a year to sign up for available positions elsewhere. All employees share 10% of pretax profit, and Ehrlich explains the company's financial performance in quarterly meetings held on the plant floor -- with the results projected onto the side of a trailer. More than 90% of eligible employees have voluntarily attended six hours of classes -- on their own time -- in finance, quality, and just-in-time manufacturing. Exemplary students may enroll in a rigorous two-year course that includes 120 hours of classroom instruction, 22 assignments, 1,200 pages of text, 12 tests, and a final team project. That course, taught by professors from nearby Purdue University, has thus far produced three "graduating" classes of about 35 students each.* * *
Wabash's adapting to change on the factory floor mirrors its efforts in the marketplace. The company courts a diverse customer base with specialized needs, which, in turn, drive Wabash to innovate. As a result, the company provides value-added product for customers who, once they've committed to Wabash, would be disinclined to take their business elsewhere. "We want to get to the point where we're producing 100% proprietary products and we're the single source of supply in 100% of the cases," says Jerry Ehrlich. Currently, about 70% of sales are noncommodity trailers, built to exacting customer requirements, and 82% are direct.
Wabash's strategy is to increase profitability by coupling the creation of proprietary products with the forging of long-term joint ventures with customers. Niche products typically yield high margins but low volume. Ehrlich hopes that if Wabash can sell niche products over an extended time frame, it can produce high margins and high volume. "We put our equipment into our customers' fleets and constantly monitor the performance," says Ehrlich. Similarly, customers share sensitive information with Wabash to give it a deeper appreciation of how their businesses run.
A case in point is Schneider National, based in Green Bay, Wis., one of the country's largest trucking companies, which buys about 4,000 trailers a year from Wabash. Jerry Ehrlich says he probably knows as much about Schneider's operations as its top managers do. CEO Don Schneider says, "We believe strongly in sole sourcing, because the more suppliers you have, the more wobble you get. It's just like a finely tuned machine. It runs best when all the parts are made the same way by the same people in the same place." Schneider periodically visits Wabash to address employees there to tell them how critical they are to his company's fortunes.
When customers come to trade in old trailers or to order new ones with Wabash, both parties now have a wealth of operating experience as a base for improving the product. (Wabash currently has about 40,000 trailers in customers' fleets.) "The highway is our proving ground," says head engineer Rod Ehrlich. The company has even designed and built trailers made from a fiberglass composite, which it has been testing with customers should the price of aluminum, the key material in most trailers, suddenly spike.
Wabash's information-intensive processes yield a product that commands a 5% premium over competitors' trailers. The backlog, meanwhile, has leapt from $48 million at the end of 1990 to its current level of $180 million, and the lead time for new customers is now five months, versus the 60 to 90 days standard in the industry.
Another satisfied Wabash customer is Russ Gerdin, the president of Heartland Express Inc., a major U.S. carrier based in Coralville, Iowa. Gerdin says that he, like Don Schneider, needs a product tailored closely to his needs. But often when he takes those needs to other manufacturers, he meets with a stock response: "It can't be done." "Wabash says, 'Let's see what we can do.' They let us talk to their engineers."
Trucking is a boom-and-bust business, leaving customers to worry persistently about the prospect of suppliers failing, spare parts disappearing, and warranty claims going unmet. For a long time Gerdin saw Wabash as a promising upstart -- but perhaps not a survivor. Finally, when the price of aluminum fell far enough, he took a chance and bought 400 trailers from Wabash. The payback was immediate. "I haven't had to add a single person to my shop," he says with surprise. Not only does Gerdin know that his maintenance costs are lower, but he's now convinced that the Wabash trailer should hold up three years longer than the industry average of seven years. Now Gerdin is off the fence -- and squarely on Wabash's side. As for certain competitors, he notes, "they're going to have to come up with something to win me back over, because the word is out -- Wabash makes good trailers."
Gerdin recently traded in his entire fleet of 1,400 trailers -- replacing them with Wabash product.* * *
It was innovation, in the form of a single product -- the aluminum-plate trailer -- that first allowed Wabash to break out of the pack and gave it the credibility it needed with customers. When Congress, nine years ago, allowed the width of trailers to increase from 96 inches to 102 inches, that got David Oren thinking. Oren, director of information systems at Dart Transit Co., a major national trucking company based in Eagan, Minn., realized that if he could get a manufacturer to reduce the thickness of each side wall of a trailer by an inch, he'd be in business. The extra 8 inches (including the 6 additional inches in the interior and one inch out of each side wall) would permit the loading of a lot more freight. Although the trailer width would increase by less than 5%, the amount of freight that trailer could haul would increase by as much as 40%. (That would be so because pallets -- designed around the specifications of pallet-handling equipment -- are a standard size of 44 inches by 56 inches. In a slightly larger trailer, they could be stacked more efficiently, resulting in less wasted space.)
At the time Oren had already placed an order for 250 trailers with a Wabash competitor. He then went to that company to request the change. "They told me, 'This isn't possible. You might as well forget it.' " Reducing the trailer walls from 1.5 inches to .5 inches thick would render them too flimsy, and the trailer would fly apart once it hit the road. Wabash, however, considered the problem and produced a modified design. Instead of the conventional construction -- overlapping thin sheets of aluminum with reinforced stiffeners -- Wabash proposed a number of consecutive four-foot-wide panels of aluminum butted together and riveted to a supporting "doubler," or post, on the outside of the trailer. The design worked.
"Our customers have a strong belief in the product," says Rod Ehrlich. With its thinner, more flexible walls, the plate trailer not only offers more capacity but also reduces maintenance. If a forklift or another trailer hits the trailer's side, it will flex, not rip. And even if it does puncture the trailer's skin, the damaged section of the wall can be easily replaced with a single panel. With the old design, in which the wall was just a single sheet of aluminum, a rip more than two feet long would threaten the structural integrity of the entire trailer.
For most customers, maintenance is a crucial consideration, notes Rod Ehrlich, since many trucking companies have their trucks in constant motion all over the country. Their shop people -- based at a central location -- may not see a vehicle for as much as nine months at a time. He notes that Wabash plate trailers have one-fifteenth as many claims from water damage to freight as competing trailer types do.
Meanwhile, the plate trailer has increased cubic capacity by about 3%, permitting the shipper to carry side by side three large appliances (such as washers, dryers, and refrigerators) instead of two -- a 50% increase in freight carried. The canning industry has found that by using the plate trailer, it can typically up loads by 12%.
The plate trailer also carries a number of patents that "cause our competitors to compromise their designs," says Jerry Ehrlich. Moreover, by making one seemingly trivial change -- using a slightly larger rivet (one-quarter of an inch instead of three-sixteenths) -- Wabash erected another large barrier to entry. The quarter-inch rivet creates a plate trailer with greater structural integrity and also requires heavier equipment to punch the larger holes in the aluminum plate. Wabash's competitors, most of them drowning in debt, have resisted making that investment.
Wabash's share of the plate-trailer market currently amounts to 90% -- 9 out of every 10 plate trailers on the road.* * *
One big reason behind the trailer's success is that customers "wanted to buy into it. They wanted it to work for a competitive edge," says Rod Ehrlich. "The word has gotten around that Wabash is a company that will entertain innovative ideas."
A quick trip around Wabash's plant bears Ehrlich out. Outside plant number two there sits a boxy, low-slung trailer, with each wheel individually suspended. That "axleless" technology was developed by Wabash in conjunction with Indianapolis-based DBX Engineering and the Walt Disney Co., which uses that type of trailer to haul laundry through low-clearance underground tunnels at Disney World. A cart of laundry weighs 2,000 pounds, and it is easy to roll it onto and off a trailer with its floor so close to ground level. Another customer is Mayflower Transit Inc., which, with this design, can move an entire household in one truckload rather than two.
Out in the sunshine sits a row of freshly painted Federal Express trailers, with rollers built into the floor of each to ease the loading of shipping containers. Farther back in the plant there sits a trailer Wabash developed in conjunction with Schneider National and Libbey Owens Ford, a major glass manufacturer. The trailer is designed around a deep well that can hold large sheets of glass to be transported from the plant. A floor then slides over the well so more conventional cargo can be carried on the return trip. The joint venture among the three companies began when Libbey Owens Ford decided to use Schneider, in part because Schneider tracks all its trucks by satellite and hence always knows where they are. Schneider, in turn, worked closely with Wabash. "So the three of us got together in a partnership arrangement and broke up the parts of the puzzle," says Rod Ehrlich. "Libbey Owens knew glass, Schneider knew trucking, and Wabash knew trailers."
The trailer Wabash designed for Libbey Owens is based on a patent uncovered by Rod Ehrlich and subsequently bought by Wabash. He knew the patent would be a valuable jumping-off point for a product Wabash could improve. "In building the trailer for Libbey Owens, we knew we could make improvements that would themselves be patentable," says Ehrlich. The glass-hauling trailer now carries five patents issued to Wabash.* *
Wabash, driven by Jerry Ehrlich's visionary bent, is continually looking for ideas it can bring in-house and rework. The latest such example involves Wabash's recent purchase of a promising technology. Dubbed RoadRailer, it is an "intermodal" design, a truck trailer that can be fitted directly onto a railroad bogie (the undercarriage of a railcar comprising the wheels and suspension), thus allowing a given container of freight to move with ease wherever roads or rails extend. The concept behind RoadRailer differs in one critical way from the idea of containerizing or piggybacking cargo: the trailer can simply be backed up and attached to a freight train -- anywhere road intersects with track. It requires no fixed multimillion-dollar loading site, complete with heavy-duty equipment to hoist the trailer onto the train. After buying the rights to the technology, Wabash has gone on to refine it, and RoadRailer now carries 70 separate Wabash patents. Since the company put RoadRailer into production, in August 1991, it has sold about 3,000 units in the United States and Europe. The market in Europe seems especially promising, says Jerry Ehrlich. There, owing to highway congestion and air pollution, governments are trying to push more freight onto rail. Ehrlich, who labels RoadRailer's potential "huge," has been selling units as far away as Thailand and Australia. He believes it is this technology that will drive much of Wabash's future growth -- and will someday turn it into a very large company.
The significance of RoadRailer is that it shows the imaginative leap Jerry Ehrlich was able to take, while others in his industry might not have seen the promise. Historically, rail transport and trucking have been adversaries in the United States, two industries driven by people of essentially divergent temperaments. Theirs is a rivalry that, Ehrlich believes, has led to a waste of resources, needless duplication of effort, and consequent environmental damage.
Ehrlich envisions a future in which the U.S. economy will not be able to afford such waste. RoadRailer represents an effort to position Wabash at the center of an inevitable alliance between two erstwhile competitive industries, thereby someday greatly broadening the company's market. Says Ehrlich: "In the past we said we were in the trailer business. Now we say we're in the transportation business. Our product isn't trailers, it's change."