How a resilient small bolt maker survived the recession and started shipping to global markets

DETROIT -- Ed Lumm spoke quietly in a conference room at his pristine new plant in Auburn Hills, Mich., where days earlier, friends and customers celebrated with a St. Patrick's Day open house accented by live Irish melodies and the scent of corned beef.

In relaxed conversation, Lumm revealed financial details of his private company -- until he remembered that a reporter sat across the table from him.

"Can you leave that out?" he asked. "I don't want it to seem like I'm bragging."

But Lumm, CEO of Shannon Precision Fastener, has something to brag about. Seven years ago, Shannon was faltering when the recession hit. It survived by absorbing the operations of another troubled company.

In the past two years, the company has opened a second plant and invested in expensive machinery and technology to focus on quality. And, mastering global sales, it sells parts on six continents.

It's a story of the resilience of Detroit's small auto suppliers. Many folded during the recent recession. But Shannon survived and now is thriving.

"One of our strategies when we started the company was similar to going to war: Get the best people, give them the best equipment and send them there," Lumm said. "And that was really what we did."

As a small supplier, Shannon by itself probably would have failed during the recession, said Lumm, who is also one of the owners. But it acquired and absorbed a weakening supplier to find the stability it needed to stay in business.

Shannon manufactures what the industry calls fasteners, but they're not common screws or rivets. They are precise and durable bolts and related pieces that hold together high-stress parts in powertrain, body, chassis and seat-belt assemblies.

In 1998, Textron, an automotive, aircraft and industrial manufacturer, bought a Detroit company called Ring Screw Works -- now part of Acument Global Technologies. Chuck O'Brien, the CEO of Ring Screw and eventual founder of Shannon, stayed on with Textron.

But when global sales failed to grow as much as Textron wanted, O'Brien left the company. He bought one of Ring Screw's former buildings in Madison Heights, Mich., a Detroit suburb, from Textron. And in 2004, Shannon was born.

Lumm, now 50, joined the company in 2005.

The following year, Shannon bought a 49 percent stake in Detroit Heading, a minority-owned business that also made fasteners at its Detroit plant. O'Brien died in 2007.

In 2008, "things tumbled quickly," Lumm said.

The economy toppled so fast that Shannon stopped shipping parts the last week of 2008. In January, the plants closed for the entire month, Lumm said. The company had to make a decision:

"Two sick plants were not going to survive. Both, if they stayed on the same path by themselves, would have died," he said.

Shannon bought the remainder of Detroit Heading and closed the Detroit Heading plant.

To save more costs during the recession, Shannon's salaried employees took pay cuts and mandatory time off. Factory workers' hours were reduced.

So Shannon came out of the recession intact. To grow, it maintained its emphasis on quality and precision.

Auburn Hills plant manager Bob Allison says Shannon goes to extra lengths to make all bolts exactly the same.

For instance, three years ago, Shannon took a chance and signed up as the first customer of a San Francisco manufacturing analytics company called Sight Machine.

Shannon's "only differentiator [from other manufacturers] is quality, and they decided that they were going to be a leader in that," said Jon Sobel, CEO of Sight Machine.

Sight Machine developed a program to scan, measure and analyze Shannon's bolts' grain flow, which is the orientation of material grain. A strong part has a grain flow that is parallel to the outer surface.

Before working with the technology, Shannon, like many other manufacturers, used multiple pieces of equipment to take measurements by hand; results could vary depending on who was measuring.

Operators use Sight Machine at Shannon's Madison Heights plant and the new plant in Auburn Hills, which started initial production in April 2014.

Shannon ships the pieces to Ford Motor Co., General Motors, Fiat Chrysler and major suppliers.

Lumm said the recession created another challenge -- and opportunity -- for Shannon: Cost-cutting automakers reduced their engineering staffs, losing expertise in areas such as fasteners.

He said automakers "got rid of a lot of their talent, so we have to be the experts for them."

Growth has been steady since the recession. Shannon's work force has grown from about 50 people at the start to 168 today.

In 2009, Shannon shipped 184 million pieces to about 50 customers. Last year, the number of customers had more than tripled, and shipments totaled 456 million pieces, about 2 million per production day.

Although its plants are in the U.S., Shannon ships to six continents: North America, South America, Europe, Asia, Africa and Australia.

Many U.S. companies before and during the recession moved production overseas for lower labor costs. But Shannon was able to keep production in Michigan mainly because fastener production is capital-intensive, not labor-intensive. In other words, cheap overseas labor would not be a significant advantage for Shannon.

Twenty years ago, Lumm said, the industry thought fastener production would move to Japan; 10 years ago, it was Mexico; in the past five years, the industry thought China would be the hot spot.

Even production that does go abroad often comes back to the U.S. as wages rise overseas, Lumm said.

Plant manager Allison also believes that global production can erode quality.

"Having multiple suppliers of these critical fasteners just introduces variability," he said. So when customers "source them from one person, they need to be confident that they're getting that same part each time and that the outcome will be the same."

U.S. light-vehicle sales in 2014 were almost 60 percent higher than in 2009. Automakers downsized their engineering staffs during the recession and continued to order parts from Shannon when sales returned.

Allison said: "It was essentially the same [customers] that stuck with us."