Ametek: Industrial Strength

Located just inside Germany’s border with the Netherlands and a short distance from the storied Rhine River, Kleve is a pleasant and quiet place in the country’s northwest. The town itself—which claims the ill-fated wife of Henry VIII, Anne of Cleves, as its most famous resident—is made up of concentric circles, with the middle occupied by its historic center, complete with an impressive castle, and the outer ring boasting plenty of bustling industrial parks. Beyond those rings, the countryside turns green and cows populate the pasturelands.

In one of those industrial parks is Spectro Analytical Instruments. Founded in 1979, Spectro was purchased in 2005 by AMETEK, Inc., a diversified global manufacturing company. Today, Spectro employs more than 400 workers at its site, most of them highly skilled, and leads the market with its line of precision materials analyzers. Since its inception, Spectro has produced and delivered more than 30,000 instruments, from handheld spectrometers to fully automatic sample preparation and analysis systems. All of the Spectro instruments incorporate advanced precision technology.

Manfred Bergsch is the company’s business manager. “AMETEK acquired us in 2005 and since then Spectro has done very well,” he says. “We have benefitted by being part of a large company and have leveraged AMETEK’s global reach and capabilities.”

Rainier Petry, vice president of operations at Spectro and a 25-year veteran of the company, proudly introduces the finely tuned precision instruments produced at the site. “We specialize in developing mobile instruments like you see here behind me,” he says, pointing to a laptop-type product, with a space-age appearance. “This instrument was made so that our customers can bring the laboratory to the material they want to analyze, not the other way around.”

“The Kleve facility is a key location for AMETEK, so we wanted to make sure we had sufficient business continuity planning in place, as well as adequate risk protection,” says Mark Pave, director, corporate treasury for AMETEK.

Spectro plays a major role in AMETEK’s business plans. “Strategically it is an important business from a technology and product standpoint,” says Bob Mandos, AMETEK’s chief financial officer. “From an enterprise risk management standpoint, we look at the relative profitability of our businesses, particularly when the business’s primary manufacturing is at one site. In the case of Spectro the profitability largely resides in that single location.”

They also put in place a business continuity plan. Unfortunately, data confirmed that the fastest Spectro could feasibly recover from a disaster was three months. In that time, they’d lose market share, not to mention customer confidence, in what is a competitive marketplace. “When our customers make decisions to buy such instruments,” says Petry, “they want to have the instrument immediately. You cannot tell them that they will have it in 12 weeks.”

What Mandos, Pave and AMETEK executives determined was that the biggest risk facing Spectro was insufficient fire protection. “We didn’t think it was practical to devote the resources necessary to create a backup site,” says Pave, “so we focused on protecting the assets through a fire-suppression system.”

That’s when AMETEK and Spectro brought in the engineering team at FM Global to begin deeper discussions about sprinklering the facility.

Talking about sprinklers in Germany
The Kleve project dates back nearly a decade, to the time when AMETEK first acquired Spectro. Its first engineering review with FM Global identified an opportunity to improve loss prevention there, primarily the sprinkler protection program. “Acquisitions are an integral part of AMETEK’s growth strategy,” says Pave. “We realized that we needed to strategize better how we were growing and what resources we needed to employ in key locations. We obviously needed to minimize our risk and exposure, not just for AMETEK, but also for our shareholders, in the event of a catastrophe.”

But retrofitting a sprinkler system at a facility in Germany isn’t simply business as usual. Bergsch acknowledges the cultural disconnect between German industry and sprinkler protection. “I think that fire protection here is not as developed as it is in other countries, at least from the production point of view. Everybody knows these protection systems are in hotels and areas like that where a lot of people congregate. But not that many sprinklers are used in production areas. In Germany, we take care in the production areas not to have too many flammable products around. Plus, you make sure the fire brigade is well informed and well trained.”

In Kleve, as in other small cities in Germany, there’s a volunteer fire brigade, and in this case many of those volunteers comprise Spectro employees, so they certainly know their way around the site. On the other hand, it’s not completely certain that in the event something happens, people will be on hand—nights and weekends, for example—to address the situation. As with anything unpredictable, nothing is easy. Still, Spectro executives and management needed further convincing on the benefits of sprinklering.

“At the very beginning of the discussions,” says Bergsch, “we were not 100-percent convinced that a sprinkler system was really needed. On the other hand, profit protection needed to be in place.”

Another turning point in the debate came when engineers explained to Spectro personnel that the new fire protection systems were not at all like the old fire protection systems. Michael Both, an FM Global field engineer, was one of those people. “All of the loss prevention concepts—like control of hot work, handling smoking areas, storing flammable liquid—were already at a high level at Spectro. But they didn’t know that sprinklers, which they had rejected consistently since we first visited a number of years ago, had become much more refined. It should also be noted that they were not legally required to install a sprinkler system at all.”

The impact on us for not completing this recommendation in the event there was a catastrophic failure or fire at this facility would greatly outweigh the cost of the installation. The overall impact on AMETEK shareholder value was a critical factor that helped sell this project.

Mark Scheuer Director of compliance, Ametek

Other challenges
The first challenge was that the sprinkler installation, should it take place, would be a retrofit. This meant that dealing with the existing construction was the only option. The second challenge was that the production process could not be interrupted, for obvious reasons. The third challenge, and arguably the biggest one, was that there were three cleanrooms on-site included in the sprinkler plan. “You cannot just open a cleanroom, install some sprinklers, and close it again and still have a ‘clean’ room,” says Both. “So there were very intense discussions among FM Global, the sprinkler contractor and the employees on-site from various departments to find solutions to get the sprinkler system installed, even in the cleanrooms.”

All of this resulted in a substantial price tag. Despite that, Spectro and AMETEK decided it was in the company and shareholders’ best interest to move forward. “The investment we made in Kleve around the sprinkler system was by far one of our larger investments, as it relates to risk mitigation,” says Pave. “We looked at how much the system would cost and how we could do it in a way that was cost-efficient for us and completed over an extended period of time.”

Mark Scheuer, director, compliance, agrees. “The sprinkler project in Kleve was not cheap. To justify the project, we took a look, with the help of FM Global’s engineering and account service group, at the value of the property and, more importantly, the business interruption cost to that facility to see how that would impact AMETEK. The impact on us for not completing this recommendation in the event of catastrophic failure or fire at this facility would greatly outweigh the cost of the installation. The overall impact on AMETEK shareholder value was a critical factor that helped sell this project.”

As part of its fiscal analysis, AMETEK looked at each aspect of its risk mitigation strategy to make certain it was investing in the right project at the right time. This is a complicated endeavor, considering AMETEK has more than 120 manufacturing locations around the world and a decentralized corporate structure, with a 50/50 revenue split between domestic and international sales. “We have a lot of touch points throughout the world,” says Pave. “We have so many different locations, with no single location accounting for a significant portion of our revenue. It becomes a really collaborative effort to make contact with all of those locations.”

The one-year project
AMETEK and Spectro management figured that it was easier, both financially and logistically, to break the project into two phases. That translated into some engineering work up front, and morphed into some site capital the first year. Phase two would be the completion of the project.

Rainier Petry knows another reason why the project took some time. “We are a high-tech company, and we have three different cleanrooms where we can’t have any dust,” he says. “And to install a sprinkler system here, well, it’s not easy without creating dust. We certainly couldn’t stop production.” In fact, Spectro didn’t allow the installation to take place during working hours. Employees work from seven in the morning to four in the afternoon. After that, sprinkler work could commence.

Wolfgang Lingner managed the logistics of the sprinkler installation with FM Global engineers and created the definitive manual to accompany the installation. Part of his job was to explain to skeptical employees why a sprinkler system was even necessary.

“I created a manual that covers the entire sprinkler system, the motor and all its attachments” he says, “and we issued the manual companywide. We track weekly, monthly, quarterly and yearly maintenance, and we record all of the information we get from that maintenance. We’ve worked hard, going into the smallest details to describe everything, as we feel that the whole equipment is dependent on its parts. Lots of people still have the impression that, now that we have sprinkler equipment, if I open a sprinkler at one location, the whole site will be affected. We needed to take that out of people’s heads and explain that no, it will only affect the zone that I previously pointed out and where the head of the sprinkler is located.”

In conclusion
The way we look at the investment in Kleve is the way we look at investments in other units of our company,” says Mandos. “We have to fund growth, while funding our risk management approach at the same time. We look at facilities around the globe, understand if they have the same attributes as the Kleve facility, and comprehend what kind of investment we need to make in a similar sprinkler system. Certainly, if we believe there is a risk we wouldn’t want to put on a given business, we’ll make the investment.”

AMETEK has grown from less than US$1 billion in sales in 1998 to more than US$4 billion today. Its manufacturing footprint has increased from under 40 facilities to more than 120. Managing growth is key for the company. “Our relationship with FM Global has helped us capitalize on this growth,” says Pave. “It is a key partnership for us, from the onset of an acquisition to post-acquisition, where we can utilize its engineering services to help us better understand all of our risks even before we enter into discussions with a facility. I think as we’ve grown, I can safely say that the relationship with FM Global has grown as well.”

All of the discussions, the strategy and the planning have certainly worked in Kleve, where Spectro has a highly protected facility to call its own. Michael Both, who more than any other FM Global representative was on site during the installation, is proud of Spectro’s accomplishment. “There is not an area in this building and the associated buildings that is unprotected. Whenever, wherever something might happen, despite what the ignition source might be, there is overall sprinkler protection. So what we really know, what we believe and trust in, is that even if something were to happen on-site, the sprinkler system would operate, and one, two, maybe three sprinkler heads will be needed to control the fire. We’d still need the fire department; it would come and do its job. But we’re pretty sure the next day the site goes back into production with no impact to Spectro’s customers.”