Facing eight-dollar-a-barrel oil and heavy debt, Calgary oilfield-equipment manufacturer KUDU Industries Inc. was, by March 1998, like a smoker warned by a doctor to quit and shed some weight, or suffer the consequences.
CEO Ray Mills admits it took a “near-death experience” for the producer of progressive cavity pumps (PCP) and related oilfield products to take lean manufacturing to heart, which allowed KUDU to survive and succeed at home and abroad.
The company traces its origins to the 1970s when Ray’s father, (and now company chairman) Robert Mills hit upon using PCPs (already employed to move oil on the surface) to assist underground recovery of viscous, heavy oil. Traditionally, once natural well pressure proved insufficient to bring oil to the surface, artificial lift was supplied by sucker-rod pumps; however, these iconic nodding horse-heads had a tendency to plug up.
By 1989, Mills Sr. had formed KUDU and was manufacturing PCPs in his Calgary garage. R&D has always been central to company success and KUDU has gone on to hold more than 20 patents. Innovation—increasingly gained from clients’ suggestions and joint research with majors such as Husky Energy—remains a KUDU cornerstone.
In the early 1990s, with oil prices high, the PCPs found added applications in medium- and light-grade crude recovery (and later in coalbed methane production and gas-well dewatering). Like its African antelope namesake, KUDU bounded along before getting snagged in 1998. As sales plummeted by 50% within months, KUDU halved staff (to 55 from 110) and closed half its distribution and servicing outlets.
“The roots of our problem lay there before the crash,” Ray Mills concedes. “We grew rapidly and beyond our ability to manage a company of the size it had become. We realized we had to manage the company differently and we discovered the Toyota Production System (TPS). It turned just about everything we understood about managing on its head in terms of what drove quality, cost and reduction of inventory.”
Until then, KUDU had followed the prevailing wisdom by outsourcing to specialty shops that could push out volume, while purportedly pushing down costs. KUDU had for the most part transformed into an assembly plant beholden to third-party suppliers and cushioned by a large parts inventory. In a business ruled by the oil patch’s vicissitudes and volatility, guessed forecasts more than actual demand tended to dictate the size of these debt-financed inventories.
Turning things on their head—partly with Industrial Research Assistance Program help—required buy-in by the remaining employees of a leaner, more efficient future. While still keeping up with ongoing customer demand, for 18 months it meant bringing staff up to speed on TPS and shifting the corporate culture.
Prior to 1998, observes Ray Mills: “We had lots of people who were very proud firefighters, who would handle several crises every day to get product to customers. We wanted to preserve that care while giving ourselves tools to do our job better.”
Reassuring staff meant convincing them that with a more efficient company, their jobs would be safeguarded through retraining and by bringing more production in-house. It meant adopting key elements of TPS and lean manufacturing. For instance, once headed down the TPS path and toward continuous improvement, the layout of the Calgary plant was changed three times in 18 months.
The company was organized along product rather than functional lines. Processes were documented and put into an ISO framework (another commitment of the recovery plan) while enterprise resource planning made processes as visual as possible. And work cells with easy access to parts and kanban ensured workers had a constant supply of crucial parts.
A simpler and more efficient system produced huge dividends. Within four years, a previously near-insolvent company had eliminated its debt. And says Mills: “From 250 lost sales in 1998 due to stock-out, we had five lost sales in 2003 due to stock-out, while carrying a third of the inventory.”
Money freed up by slashing inventories provided capital for new manufacturing equipment and acquisitions, as KUDU did with the 2002 purchase of Dynamic Pump and Chriscor Downhole Tools in 1999. TPS principles were applied as the company expanded and added products. Progressive cavity pumps remain central to the business but there are also several complementary products. They include remote power units and related downhole tools as well as computerized systems to mange them, plus other proprietary products. An example is Tough Coat, a spray metal coating introduced in 2007 to better resist corrosion and abrasion than typically using chrome rotors.
By 2000, with finances improved, privately held KUDU was investing in new production equipment that allowed it to machine and turn out more components in-house. New equipment, when combined with TPS, made the company leaner and greener by reducing waste. It lessened energy needs for heating floorspace, and for storing and moving supplies.
“A lot more manufacturing has happened within our plant—particularly in the last 10 years,” explains Mills. He estimates that about 95% of the manufacturing (including Tough Coat) now is done in-house at the Calgary plant that’s been home since 1993. A leaner approach freed up space but as output increased KUDU also absorbed space from neighbouring tenants. The Calgary operation—including offices, production and warehousing—covers 70,000 square feet and has about 110 employees. A further 100 work at 13 Canadian sales and service outlets (including Lloydminster, Alta., which does some manufacturing) and at its international offices in the US, Russia, Kazakhstan, Oman, Australia and Romania.
Growing export markets
KUDU distributes products in 32 countries. Exports are rising and now generate about a third of the company’s revenues. Leaner manufacturing has contributed to this growth but so has geology. About 40% of Canadian oilwells now rely on PCPs for artificial lift and Canada currently represents about 80% of world markets for such pumps. That’s partly because of our mature fields and heavy oil production where PCPs especially facilitate and extend production. Many foreign fields may not have reached comparable maturity but they too are aging and with that comes opportunity for PCP sales.
Export success led the Alberta division of Canadian Manufacturers and Exporters to recognize KUDU with a 2009 Alberta Export Award in the oil and gas manufacturing category and another kudo came as an Innovation Insights Award for Manufacturing Practices from the National Research Council of Canada. In 2008, it received the Calgary Manufacturing Industry’s Best Employer (for medium-sized manufacturers) Award.
Continuous improvement means there always are lessons to learn—even for KUDU where lean manufacturing has proven critical to its turnaround and survival.
“When a company is growing rapidly, you sometimes lose sight of what made it successful.” So, Mills concludes: “It’s important to maintain a critical mass of lean knowledge in a company by making sure that new people joining the company have lean training. We make sure that everyone on our executive team is educated in lean at least to the green belt (mid-range) level.”
Clearly more than just pump priming has resuscitated KUDU. Now the challenge is to stay pumped up and ready to optimize the opportunities presented by aging petroleum fields at home and abroad as they lose their vitality.
Nordahl Flakstad is an Edmonton-based freelance writer. E-mail [email protected]