December 1004 •  January 2005 • Vol. XXIII No. 2 • An Arnold Publication

Business Foresight
How a 35-Year-Old Silicon Valley Job Shop Stays On Top 
by Scanning the Future.  

Story and photos by C. H. Bush, editor

If you only had a crystal ball sitting on your desk or workbench, think how easy it would be to guide your business to success. Look in your crystal ball. You see a recession on the horizon. You make adjustments and keep on growing. Look again. You see waves of easy-to-do, high-volume, low-cost work rushing offshore to foreign countries. You make adjustments and keep on growing. Look again and see the kinds of work the remaining customers want changing shape. Again you make adjustments.

If you could do all that, running your business would be a piece of cake. Unfortunately, the crystal balls they sell at the local magic shop don’t work very well. In fact, when you look in one of them, all you see is a distorted picture of your own face staring back.

On the other hand, some business people seem to have solved the crystal ball problem by substituting a keen sense of business foresight. 
Take Richard Rossi, for example. Rossi is president and founder of Santa Clara, CA’s Master Precision Machining, Inc., a small machining job shop with 35 employees that, since its founding in 1969, has not only managed to walk safely through all the economic minefields in the silicon valley, but has maintained a steady growth in sales and 
profitability.

Foresight 1 - Disappearing Market
“In the beginning, our story wasn’t much different from the typical job shop,” Rossi says. “We started out building small, high-frequency aluminum parts for the microwave industry. It was all pretty close tolerance stuff for those days. But then one day I stopped and took a look at the future. I said to myself, ‘This market is going to disappear. I’d better make plans to do something else.’”

As it turned out, Rossi was right, but it didn’t happen overnight. He had seen far enough into the future that he had time to make the necessary changes in his company.

“We had a lot of customers,” he says. “But I could see that the technology was changing. Things were moving from certain types of engineering into chips. So, I went around looking for a kind of work that was adaptable to our company. All our equipment was small and we could do pretty tight tolerances. That’s when we found companies like Teledyne, Hewlett Packard and Agilent. But their work was different, very tight tolerances, tighter than we had been used to doing. I was tired of competing with everyone else for nickels and dimes. So, we went after them by making free sample parts for them to show them we could meet their tolerance requirements.”

Class Consciousness

Realizing that all work wasn’t the same, Rossi adopted from one of his customers a way of classifying jobs according to the level of precision they required. Class 4 work was the easiest to do, Class 3 a little tougher. Class 2 and Class 1 were very tight tolerances.

“Those classifications are really just convenient ways of talking about jobs, so that everyone in the company knows what’s involved,”Rossi explains. “Class one and Class two work are tolerances that are down to plus or minus a couple of tenths. Really close, true-precision tolerances that require you to build a part in a certain way or it won’t meet spec. That kind of work has to be temperature controlled or you won’t ever get it right.”

Master Precision had been in there competing with other shops for the easy Class 3 and 4 work. Once he realized that kind of work was going away and had decided to move into the more difficult classes, he realized he needed to do things differently.

“We had good employees,” he says, “but some of the equipment we had couldn’t even come close to doing what we needed. So we went out and bought some high-end equipment capable of meeting the tolerances. Then we put a team together and trained our employees to do the work. It required a different approach and attitude, but we made it happen. We started early enough that by the time the easy stuff was gone, we were successfully entrenched doing mostly the class two stuff and little class one.”

Foresight 2 - Beating the Recession

Rossi’s business foresight also includes the political and economic arenas. As a result, he was able to make moves before the last downturn that some people consider downright diabolical. 

Rossi: “I used to look at the tax breaks and who’s going to be in office and what the economy might do. Before the 2000 election, I saw the economy tanking. So we took some major steps to protect ourselves against a coming downturn.”

Rossi’s move was diabolical. He went to some of his best customers and made them offers they couldn’t refuse. 

“We went to a couple of our customers and offered annual discounts on our parts, if they would sign two-or-three year contracts with us. Our customers couldn’t believe their ears. They were saying, ‘You’ve got to be kidding.’ Everyone else was raising prices and people kept saying, ‘Why are you cutting prices? The economy’s going to be good.’ Well, the answer was, I knew that the next two or three years were going to be tough. I wanted a way to maintain our level of work and our cash flow, which I did.”

Rossi’s foresight turned out to be correct, of course. And, the interesting thing for him was that he stayed in business while some of his competitors got killed.

“The funny thing was that when things got tough, because of our contracts, our customers had to take work away from some of the other shops and give it to us,” he says. “Some people don’t like that, but we survived and have done well, and that’s what counts.” 

Foresight 3 - Beating the Offshore Rush

Another of Rossi’s business insights is the fact that the rush of work offshore will soon include his class 2 machining. And, to combat that, he has made several major internal adjustments to be sure his company remains safe.

“Eventually the offshore producers will get the class two work,” he says. “That’s because they’re buying better and better equipment and they’re learning, just as we have over the years. You're never going to beat them by making fun of them. You either have to find things they can’t do or join them.”

Rossi is taking both tacts. 

“One thing we’re doing is going out there and offering the companies our services,” he says. “We’re telling them that, if they can’t do the work, we can. We’re already getting a good percentage of our sales that way. I’m pretty sure that down the road they’ll start taking away the class two work, too, but that may not be for awhile, which gives us time to find ways to stay in the game.”

Rossi believes that class 1 work will stay in the U.S. for the foreseeable future. So, for the past few years he has been taking steps to position his company to be able to do it well and competitively. 

“We’ve done several things,” he says. “First, I brought in Rich Parchman as our general manage.r. Rich has considerable knowledge about what our customers want and he’s an expert in establishing and documenting business systems. Part of his job is to fill in the gap between me and the foreman and our customers, leaving me free to look to the future and manage the company.” 

Rossi sees customers doing more and more outsourcing both in the U.S. and offshore. 

“They’re trying to convert their fixed costs to variable,” he says, “but before they outsource, they want to be sure their vendor has the depth of skills and management to keep them safe. They don’t want phone calls saying they can’t get their delivery because someone at the vendor is home with the flu. We have the depth at Master Precision, but we didn’t have a way to prove it to our customers. So, one of Rich’s key tasks is to document our processes and depth and prove it to our customers. He’s done that. We’re now ISO 9001:2000 certified and we have a complete documented set of procedures.”

Setting Up for Class 1

Rossi has steadily added to the company’s arsenal of high-precision machining equipment, and now operates 2 Enshu S-400 VMCs with automatic pallet changer, 5 Enshu JE-40 HMCs, 2 Enshu S-300 VMC with automatic pallet changer, 3 Hermle C600 V 5-axis milling centers and 6 Kitamura Mycenters. In addition, he recently purchased a second Zeiss Contura automated CMM to be able to quickly inspect parts for the tight tolerances required in class 1 work.

“We have the machining capability to do class one work,” he says, “but it won’t do you much good if you can’t inspect it.”

Rossi says he bought the Contura for two reasons. 

“First, in my opinion Zeiss makes the best CMMs in the world,” he said. “Second, our customers were using Zeiss, so if they check our work and say it’s off, I want to be able to use the same machine and software to prove to them we’re right. I don’t want any kind of argument about apples and oranges. Our Zeiss is cutting edge, so it’s pretty hard to argue with. So far it has been great.”

The kinds of tolerances Master Precision checks on class 1 and 2 work are stringent. 

“If you want to go by words,” he explains, “Class one is difficult, class 2 is hard. But if you want numbers, class one and class two are basically defined by true-position tolerances on the prints. In both class one and class two, you are working with a 1,000ths true position, on which you hold one third of that from feature to feature. In class two this works out to be five to eight tenths. In class one this works out to be one to five tenths. That’s hard to inspect without the right equipment.”

Foresight for the Future

What does Rossi see as the next stage in the changing machine shop marketplace?

“I don’t think there’s too much doubt about the next demand we’ll have to meet,” he says. “What I see is customers implementing supply management inventory programs. If you’re going to be in the machine-shop business and you want to survive, you’d better get into SMI. That means you build parts for them, you plate them, you stock them, probably even do some assembly for them. It’s high risk work, but there’s always someone out there willing to take that risk. If you don’t do it, they will and you won’t be around anymore. We’re already moving in that direction. We haven’t come this far to drop dead next year. Whatever our customers want, that’s what we’ll give them.” 

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