One Company's Budget: Increasing Capital Investments in a Recession
BY Josh Spiro
Fusion Systems makes manufacturing equipment with a twist: they innovate new ways to make obsolete machines.
Many companies direct their creative energies towards emerging technology but Fusion Systems' secret weapon is that it turns its innovative focus on the obsolete. The company, which makes manufacturing equipment, has found a host of ways to turn the recession to its advantage. Namely, the company takes products that have a waning but existing demand, such as older electronics, and finds new ways to make them for companies looking to outsource part of that process. As Craig Zoberis, president and founder of the Burr Ridge, Illinois-based manufacturer explains, companies come to him and say, '‘We're going to focus on all our new products. Hey, Fusion, can you build all our old stuff?'' Zoberis started the company out of his garage in 2002 and it now has 32 employees and produces 60 different products for clients around the world. In the past year, they reinvested $125,000 of profits in their capital budget and now they're reaping the rewards.
CAPITAL BUDGET AS PERCENTAGE OF REVENUE
R&D LAB EQUIPMENT
In 2009, Fusion bumped up its equipment budget by $50,000, investing in tools called vertical milling centers: machines a little larger than your average refrigerator, that can cut, hone, and tweak any shape the company needs out of aluminum and steel. It then uses these parts to make the contraptions that it sells—which include the devices that inflate packing pillows and those that stamp labels on golf balls—in batches that range from 100 to 2,000. Each of these parts for the machines has to be inspected manually, so some of the additional money went to high-end quality equipment such as micrometers. Also, thanks to government tax breaks on capital purchases, known as Section 179, the company can write off the whole thing.
Building Improvements and Office Equipment
In a down economy there's a lot of talent floating around and Zoberis invested in a spiffier workplace to woo them to Fusion. He revamped the partitions and the furniture in the company's workspace, and repurposed the space he had to make new offices and conference rooms. The goal was to make it feel less like other manufacturing firms and more like a 'California-type progressive design firm.' And with eight new employees since the start of 2008, it seems like the plan is working.
R&D Lab Equipment
The research and development budget tends to stay pretty stable at Fusion, and that's because most of the company's innovation expenses fall on the customer. Zoberis estimates that clients have paid from $10,000 to $250,000 for R&D alone but the reason they don't seem to mind is because of Fusion's open-book management policy. Zoberis aims for complete transparency, showing his customers the cost of 'every item, every screw, every part' as well as the manpower and even the profit margin on each project. If Fusion makes more money than their initial forecast, they '¨tell their clients they will renegotiate the contract and lower their prices next time.