Podcast: Operational and financial excellence in building materials manufacturing
Key takeaways
- Armstrong World Industries invests heavily in productivity and innovation to maintain profitability and avoid commodity pricing cycles.
- A hybrid supply chain model ensures flexibility, supporting inventory control and cash flow even during disruptions.
- Long-term growth comes from cultural stability combined with rapid adaptation and strategic reinvestment.
This episode of Great Question: A Manufacturing Podcast focuses on Armstrong World Industries, which set a goal nearly a decade ago to be an outlier, the kind of company that maintains 5% profit growth for five or more years. Those efforts have paid off with the ceiling-tile and architectural components making landing No. 2 in IndustryWeek’s annual IW U.S. 50 Best Manufacturers list.
Vic Grizzle, CEO of Armstrong, sat down with IndustryWeek’s Robert Schoenberger to discuss the management philosophy behind that performance.
Below is an except from the podcast:
IW: Usually when we talk to companies that are more highly engineered, inventory control becomes a problem. Because if the specifications are really tough, then getting the raw materials in, having the the stock– it doesn't move as quickly as with commodity products. But you had excellent performance on your inventory churn. How do you manage that to keep the flow from turning over when you're talking about the highly engineered, really highly specified products?
VG: It starts with one of our internal priorities: cash flow generation. And you can see that our cash flow per revenue dollar is one of the highest in all the building products. We pay attention to our cash flow and of course that really translates into your working capital and therefore your inventory. We really have an instinct on how we manage our inventory inside the company from the from the get go. That helps you have a real critical eye on what your inventorying and what you're not inventorying.
One of the things, again, if you separate the business into the core business, a lot of our products are highly engineered, but they have a broad application. They're not engineered for one particular space. They're engineered for a particular performance in a space. That allows you then to sell it into a maybe a K-12 classroom that is looking for unique performance, as the same in a healthcare facility or in an office environment. When you have that kind of standardization around performance requirements, I think it's not as custom and specialized as you might have in other types of businesses.
IW: We see that a lot from top performers across the manufacturing world, this dedication to continuous improvement to not just do the minimum to maintain facilities but to try to constantly find those efficiencies because they pay for themselves in the long run almost always so.
VG: You can't be too short sighted when it comes to that, right? If you're just managing for the quarter for the year, you'll shortchange that investment then it's harder in year 2 and year 3 to keep driving that that productivity in those efficiencies. ... The underlying management philosophy behind a lot of this is really important to how we think about capital and how we think about investment back in the business. Balancing the short, medium, and the long term.
I’ve been the CEO for 10 years now and the later I get into this, the more important the culture and tapping into the culture is really important to this type of performance and the consistency of this performance. It starts with building a culture at the company that values doing what it says it will do. Sometimes people call it integrity, but it's simply a company and an organization that says something and it’s really important to following through and doing exactly what it says. It values safety, it values winning, but it values winning as a team. That's where we get the collective multiplier effect: when the organization is working together as a team, and I think that's what we have here at Armstrong that's unique.
IW: As you look to the next five years to continue to ride this growth, you mentioned looking at some adjacencies. Anything you can share now about some of the parts of the building products market that seemed attractive and a good fit for you?
VG: I can tell you generally how we're going to think about this, is we put ourselves in a position to be a really high cash flow generator, a consistent generator, so we have the business problem of what do you do with the cash? We do have an appetite to look at adjacencies, and the way we're thinking about those is we've added through these small bets and doubling down on those bets over time. We've developed unique capabilities that now maybe we can take to new markets. And so we're going to continue to look around our existing core markets and say, where can we take our existing capabilities and create a competitive advantage somewhere else? That's how we're thinking about it.
I'll give you one example that we're already public about and we're just getting started with, and that's on the exterior architectural metal of a building. We have a very successful interior metal ceilings and specialty wall business that we've developed over the last 10 years. It's a really unique design and architectural capability that we can take to the outside of the building where we've never played before, and because it's a lot of the same skills – it's the architectural design, the coatings on metal, the bending and manufacturing of metal in a very efficient way – taking that to the outside of the building opens up another billion dollars of market opportunity that we weren't serving two years ago. That's how we're going to continue to grow our business, through leveraging existing capabilities and competencies.
About the Podcast
Great Question: A Manufacturing Podcast offers news and information for the people who make, store and move things and those who manage and maintain the facilities where that work gets done. Manufacturers from chemical producers to automakers to machine shops can listen for critical insights into the technologies, economic conditions and best practices that can influence how to best run facilities to reach operational excellence.