Electrical Cooperative and Privately Owned Enterprise Build on Successful Joint Venture
April 11, 2016
Solomon Corporation and Texas Electric Cooperatives (TEC) announced the expansion of substation rebuild and repair services in their joint venture in Georgetown, Tex. Expanded services are a joint effort between the companies and will offer commercial, industrial and utility customers located on the Gulf Coast and in the southwest region the speed, quality and convenience they desire. The recent announcement is just one more page in the long, successful history of this alliance.
How it all Started
In 2005, Texas Electric Cooperatives (TEC) wanted to modernize its electrical transformer repair facility and improve its earnings from the assets employed at this location. TEC also was concerned about the number of skilled transformer employees approaching retirement age. Without qualified people, the division would be challenged to perform the specialized service. The business was important to its member cooperatives; closing it down was not an option.
Meanwhile, Solomon Corporation, of Solomon, Kan., was in the midst of growing its company. The five sibling owners had their eyes on Texas, a large market for the electric power industry. It would help tremendously to have a facility in Texas to grow its transformer repair volume. The headquarters facility in central Kansas was too far away to economically haul the large and heavy transformers back and forth.
Rebuild Recycle Repair
The two organizations decided to form a somewhat unusual union, a cooperative working hand-in-hand with a privately owned business. Together, they spawned a mutually beneficial joint venture (TEC Solomon Corporation Alliance) with a mission to rebuild, recycle and repair oil-filled transformers. Under the terms of the alliance, Solomon Corporation operates as a subcontractor of TEC and invoicing goes through TEC. With the terms of the agreement finalized in 2006, the joint venture began serving customers in January 2007.
Now in its eighth year of operation, the joint venture has grown to approximately $12 million in annual revenues from approximately $4 million annually before the joint venture. Additionally, the joint venture has returned thousands of dollars in earnings as “capital credits” to member cooperatives; rebuilt, recycled or repaired more thousands of electric transformers; and safely disposed of hundreds of PCB-contaminated transformers.
Began with a Phone Call
The origin of the joint venture dates to early 2006. Johnny Andrews, Chief Operating Officer, TEC Manufacturing & Distribution Services, knew of the Solomon Corporation and had just read an article in a trade journal about a recent acquisition by Solomon. The name of Tom Hemmer, currently the president of Solomon, appeared in the article.
“I called Tom Hemmer and asked what he thought about TEC and Solomon joining together to repair transformers, and Tom was very open to such a discussion. That’s how it began, with a simple phone call,” said Andrews.
“We immediately could envision the benefits to everyone in a joint venture. There were a few issues to work out, but we were able to do that relatively quickly and open the Georgetown, Texas facility after putting $1.5 million in plant improvements,” said Tom Hemmer.
Some Trepidation Along the Way
Partnering two, somewhat dissimilar, organizations became the most significant obstacle. Could TEC, with its rich history as part of the local, consumer-owned electric cooperative movement, join together with a privately owned enterprise?
Electric cooperatives are democratic, tax-paying, not-for-profit businesses governed by member-elected boards of directors. A privately owned enterprise, like Solomon, operates under a capitalistic model of profit maximization and pursues what is in its own best interest.
In fact, the two organizations discovered several similarities. Both operated in rural America; both had a culture of giving back to the community. Most importantly, strong trust existed between the people putting together the joint venture. And there was a shared belief that the joint venture could be a win for all: TEC, Solomon and the member electric cooperatives.
“I give all the credit to Johnny Andrews and Mike Williams (TEC’s president/CEO) for initiating the venture and following through by gaining the acceptance of their fellow cooperatives,” said Hemmer.
Some cooperatives were concerned that Solomon would immediately raise prices to squeeze more profits. “Solomon was able to keep prices at or near existing levels while increasing revenues by improving the manufacturing processes and building volume. And they did all that with about the same number of employees,” said Andrews.
Since Solomon would be operating the Georgetown facility, the two organizations agreed to transfer the transformer repair employees to Solomon. Forty TEC employees changed badges after the companies came up with solutions to resolve variations in compensation packages. TEC employees also kept their original TEC hire dates.
Lean Manufacturing System
The Georgetown facility employs the lean manufacturing system that empowers team members to optimize quality by constantly improving processes and eliminating unnecessary waste in natural, human and corporate resources.
Transformer repair shops are complicated and have high traffic goals. Making sure production processes occur on time and correctly can be difficult, and that’s where the Kanban, or signboard system, fit so well into the Georgetown processing system. Kanban is a sign-based scheduling system triggering the logistical chain of production and maintaining it at an optimal level.
The system in place conveys information between processes and automatically orders parts as needed. Every item that flows through the production process carries its own kanban. Kanbans come off items that have been used or transported and go back to the preceding processes as orders for additional items.
“The investment in new equipment was very important, but Solomon’s implementation of the lean manufacturing system is the real reason for the facility’s exceptional throughputs and quality,” said Andrews.
TEC expects the facility to grow from about $12 million to $25 million in the next five years. “We anticipate more business from member cooperatives, municipal utilities and investor- owned utilities. Large commercial organizations with onsite transformers are also potential customers,” said Andrews.
Solomon agrees with the significant potential in Texas, but also believes its successful joint venture could be replicated around the country. “We think cooperatives in other states or regions would make great partners, too,” said Hemmer.