Kuhlman Electric Corporation has built a powerful business by reducing its lead times while maintaining its high quality standards. David Gill looks at how the company’s new e-commerce venture is reinforcing the company’s core competencies.
If there is one thing above all that utilities want from their vendors, it’s for those vendors to work reliably and fast. Consider: a tornado has knocked out an electric distribution circuit, cutting off the electricity to the utility’s customers (including places like hospitals for which a steady flow of power is literally a life-and-death matter). That utility’s commitment to its customers calls for it to restore service as close to immediately as possible — meaning that its vendors have to shift to their highest gears to produce and deliver what’s needed for that system.
In transformers, Kuhlman Electric Corporation (www.kuhlman.com) has established itself as the industry’s speed king. This manufacturer has accomplished some truly remarkable feats in situations similar to the above scenario. “Our facilities are capable of accommodating the emergency needs of our strategic customers,” says John Zvolensky Jr., president and chief executive officer. “In a storm or a major disaster, we dedicate manufacturing capacity and produce and ship products in just a few days. For customers who participate in our Emergency Response Program, we’ve even managed to have inventoried product delivered on site within 24 hours of the initial request.”
In the early 1990s, Kuhlman recognized how much more important to its customers the quick delivery of a quality product had become. Since then, it has conducted a number of initiatives to streamline its processes and reorient its core competencies around speed. The result, according to Zvolensky, is that “we can wait until very close to the delivery date before we lock and load what is to be manufactured. Our efforts also permit us to meet unplanned needs for both our long-term customers and the customers who come to us for a spot buy.”
Currently, Kuhlman is looking to distinguish itself even further in the fast lane through its ambitious e-commerce program. This business-to-business initiative, which has now been deployed, further enhances Kuhlman’s core competencies and creates an online culture governing all of the company’s customer relationship management (CRM).
Founded in 1894, Kuhlman manufactures a broad line of power, instrument and distribution transformers for utilities and other industrial and commercial electricity users, domestic and worldwide. Employing more than 700 people, Kuhlman operates manufacturing facilities in Versailles, Ky. (also its headquarters), and in Crystal Springs, Miss. Since 1998, Kuhlman has been owned by The Carlyle Group, (www.thecarlylegroup.com) a Washington-based private equity investment firm that manages more than $11 billion in global assets.
Kuhlman has three operating divisions. The Power Transformer Division manufactures medium-power transformers rated up to 70 megavolt-amperes, 161 kilovolts, for bulk power delivery. This division also provides field-engineering services on all makes and sizes of substation transformers, which helps reduce the utility’s total installation, operation and maintenance costs.
The Instrument Transformer Division manufactures transformers from 600 volts to 500 kilovolts, rated 5 through 50,000 amperes, and designed to meet all the metering and relay needs of electric generation, transmission and distribution utilities. The Distribution Transformer Division manufactures a full array of pole-type, pad-mount and submersible distribution transformers, all custom-built for the utility electric distribution system.
Kuhlman’s core competencies — short lead-time capability, a high rate of on-time deliveries, comprehensive engineering support and superior quality — extend across all three divisions. They have also combined to raise the velocity on Kuhlman’s production cycles, and to propel the company ahead of its competition in its markets. This process began in 1994, at a time in which Kuhlman derived the lion’s share of its business from the spot market. From that time to the present, says Brian O’Leary, vice president, sales and marketing, “Kuhlman has used its core competencies as the basis on which to build long-term relationships with our customers. These relationships now account for two-thirds of our business.”
Reliable cycle-time reduction has been crucial to Kuhlman’s success. “We greatly reduced our design time vs. the rest of the industry,” O’Leary explains. “This has been accomplished by continuously improving design software and by rationalizing manufacturing components. “This has worked well for Kuhlman in situations where our customer has needed to restore service quickly after an outage,” continues O’Leary. “Kuhlman’s ‘demand-pull’ manufacturing system, involving small-run quantities, has kept us focused on producing what the customer actually needs rather than on stockpiling inventories. This, in turn, enables more frequent customer deliveries and reduces customer inventory.”
Kuhlman engineering has also helped to reduce cycle times by increasing the company’s flexibility. Engineers in all three divisions can accommodate a wide variety of customer-specific designs, in short order if the need arises. Quality has been a hallmark of Kuhlman transformers since Day One. The company closely monitors its entire manufacturing process, including inspection of incoming supplier materials. Kuhlman is dedicated to supplying products and services that meet the requirements and exceed the expectations of its customers through continuous quality improvement.
Full Speed Ahead
Despite downturns in the general economy, the market for medium-power transformers, which Kuhlman has effectively developed as a niche specialty, remains strong throughout North America. “The medium-power market is driven by existing growth levels and the demand for electricity, as well as specific utility infrastructure needs,” says Paul Acheson, vice president and general manager of Kuhlman’s Power and Instrument Transformer Divisions, based in Crystal Springs.
“At present, hot weather exposes aging system transformers to failure-inducing conditions,” adds Acheson. “Some utilities replace units when they fail, while others have implemented strategic transformer replacement programs based on the in-service experience of the transformer and its expected future load requirements.”
These very compelling reasons led Kuhlman to expand its manufacturing capacity and capitalize on projected growth rates. A major expansion of the Crystal Springs manufacturing facility is currently under way, involving a multimillion-dollar investment over the next three years to improve the capacity, productivity and quality of the Power Transformer Division.
“The additional floor space will improve throughput management as the Power Division increases output,” Acheson says. “A new, state-of-the-art core-cutting machine is to be commissioned in March 2002. The expansion project will also create the finest winding and insulation rooms in North America. Moreover, the expansion continues the re-engineering of Kuhlman Electric’s Power Division into the 21st century.”
Leading the Race
Like so many other industrial sectors in the digital age, the electric utility industry that Kuhlman serves is changing rapidly and dramatically. Ever since states began deregulating electricity in the mid-1990s, the industry has been booming. With demand for energy rising, our nation’s electrical infrastructure is straining to meet the load.
At the same time, new and dynamic energy corporations are forming as a result of competition and consolidation, which often cross state lines. These new electricity companies bear very little resemblance to the monopolies of the old utility regulation days. “Deregulation, power plant construction, mandated metering requirements and ownership changes have and will continue to provide opportunities for growth in the Instrument Division. Power generation equipment demands are high, and less than half of the states have now embraced deregulation,” says Curtis Milton, vice president of global sales.
From manufacturing higher-accuracy metering instrument transformers to making its products easier to maintain and use in these new applications and customer requirements, Kuhlman has distinguished itself as the leader in providing innovative metering solutions in response to these new deregulation changes.
Web of Power
As fast to the market as Kuhlman has been, the company has further ramped up its speed with its recent B2B e-business venture. In 2000, Kuhlman launched this effort with a significant investment into developing partnerships with utility-industry Internet exchanges, selling transformers online, providing value-added online services and deepening and enhancing its long-term customer relationships. Kuhlman completed the first phase of this program in March 2001 by launching a completely redesigned Web site with advanced database integration and catalogue capability. This past July, the company finished the second phase of the initiative, introducing a variety of e-commerce and collaborative applications that make the company’s Web platform its customers’ single online entry point to access their transformer and service needs.
Zvolensky says, “This new e-business platform gives us the opportunity to provide both our strategic and spot customers with additional procurement functionality and value-added services through the application of efficient Web-based technologies.”
Citing the investments Kuhlman has infused into its e-commerce capabilities and technologies, Greg M. Power, vice president of e-business, says, “These investments include many of the time- and cost-saving features inherent in the design of our new Web site platform, which allows our customers unprecedented access to their product-ordering information and account histories while very effectively streamlining the entire transactional and procurement process, thereby significantly reducing their associated SCM (supply chain management) costs.”
Clearly, says Power, the e-commerce venture provides a tremendous service to the customer, as well as a growth opportunity for Kuhlman in the years ahead. “Despite the dot-com meltdown, B2B technologies and initiatives are still developing strongly where established companies are enhancing their already viable business models. The electric utility industry is going to e-procurement,” he states. “Partnering with utility exchanges creates the opportunity for collaborative arrangements by presenting our entire catalogue online and putting together complete customized packages of products and services for customers.”
O’Leary adds, “The business-to-business effort extends our core competencies and adds to our speed to market. We see growth opportunities from existing customers that are already fully online, and from new customers who are attracted to Kuhlman because of their desire to move their business processes on the Internet.”