Oehlke Sets Stage For Growth At Key Tronic New Ceo’s Strategy Is To Boost Market Share, Expand Original Design Manufacturing

Jack Oehlke had only been on the job three weeks at Key Tronic Corp. when he had to drive to the company’s Cheney manufacturing facility and announce to its 275 employees that the plant was being closed.

“I don’t know how you feel about those things,” Oehlke said recently, “but that’s not something very high on the list of things that I want to do.”

That was early in 1994, when Oehlke had just signed on as Key Tronic’s vice president of manufacturing. Today, Oehlke is the Spokane-based company’s president and chief executive officer.

And he looks back at that difficult task almost four years ago as perhaps the most critical turning point in Key Tronic’s history.

The Cheney production lines were shut down and shifted to Key Tronic’s newly-acquired manufacturing facility in Juarez, Mexico.

“And without Juarez,” says Oehlke, “we wouldn’t have a Key Tronic today. That’s what it comes down to. We are the last surviving domestic supplier of keyboards.”

Earlier this year, Key Tronic’s last domestic competitor - Lexmark International Group, now primarily a manufacturer of computer printers based in Kentucky - gave up on the computer keyboard business.

Lexmark’s exit, combined with Key Tronic’s careful nurturing of its Juarez facility, have put Key Tronic in a position to make some bold moves.

“Our goal is to grow our keyboard business and increase our market share,” says Oehlke.

Within the next year, he said, Key Tronic plans to increase keyboard sales by 20 percent, “which would make us the No. 1 or 2 supplier on a worldwide basis.”

The second phase of Key Tronic’s growth strategy is to move aggressively into the $70 billion original design manufacturing (ODM) market.

“Our goal is to have that market provide 50 percent of our business by the year 2000,” Oehlke says.

Oehlke comes to the task of achieving those goals through a succession of presidents and CEO’s who have wrestled over the years with the central Key Tronic dilemma: You must constantly increase your keyboard sales just to stay even, because the competitive marketplace constantly drives down the price of keyboards at an astounding rate.

Founded in 1969 by Lewis G. Zirkle Sr., Key Tronic was among Spokane’s first and most successful high-tech manufacturers. Zirkle presided over the company for most of its history. He led it to its peak in 1984 when it employed 2,500, most of them in Spokane, and produced $11 million in profits on sales of $131 million and a stock price of almost $15 per share.

That, however, was before the computer hardware industry began to mature, and competing manufacturers with low-cost facilities in Asia began to capture the market. In that atmosphere, Key Tronic foundered.

By 1992, losses had piled up, the stock prices had sunk close to $2, and analysts were saying the shareholders would realize more value if the company were liquidated.

At that point the Key Tronic board turned the company over to Stan Hiller, a corporate turnaround artist who had created near-miraculous recoveries for a succession of companies over a long career.

The Hiller magic worked again. He returned the company to profitability in 1995, and pushed the stock price to the $17 range at its peak.

The key to his strategy was the acquisition from Honeywell Corp. - another domestic keyboard competitor that decided to get out of the business - of its keyboard division. That division included the Juarez manufacturing plant, which at last gave Key Tronic a low-cost facility to go with the advanced engineering and research capabilities that Key Tronic’s foreign competitors could not match.

Hiller withdrew as president and CEO - he is still the company’s board chairman - in October 1995, and handed the company over to veteran corporate executive Fred Wenninger. But global markets and computer prices were not kind to Wenninger, and the company struggled for profitability during his tenure. The Key Tronic board replaced Wenninger with Oehlke in June.

“It caught me completely by surprise,” says Oehlke, 51.

The path that eventually led Oehlke to Spokane and Key Tronic began at the University of Wisconsin, where he obtained a mechanical engineering degree.

Prior to joining Key Tronic, Oehlke had spent a long career with Honeywell, beginning in 1968. After a succession of engineering jobs, Honeywell put Oehlke onto its management track where he had a broad variety of assignments. Eventually Honeywell sent him to Mars Hill, N.C., to oversee the start-up of a manufacturing facility.

The Oehlkes remained there while their children completed high school, but six months after his youngest daughter’s graduation, he and his wife decided to start looking.

“We liked the Mars Hill environment, but we hadn’t spent any time on the West Coast, so we said, ‘Let’s see what’s out there,”’ Oehlke recalls. That’s when Key Tronic made its offer.

From his initial position as vice president of manufacturing, Oehlke climbed to senior vice president of operations, then was promoted to chief operating officer.

In addition to expanding Key Tronic’s keyboard business, Oehlke’s principal task will be to carry out a strategy which has been in development for a couple of years.

Because of the volatility of the keyboard market, the company must establish a revenue stream beyond that market. That’s where original design manufacturing comes in.

One aspect of Zirkle’s legacy that Hiller had to overcome was Key Tronic’s vertical integration. Zirkle didn’t want to rely on outside suppliers for anything. In today’s market, though, a company like Key Tronic must turn to suppliers who specialize in specific components, at lower production costs than Key Tronic could achieve.

One aspect of Key Tronic’s vertical integration, though, has turned out to be a valuable asset upon which the ODM strategy will be based. Under Zirkle’s philosophy, Key Tronic mastered the technology of advanced plastics molding, something its competitors can’t do.

“If you look at the thing we are really good at,” Oehlke says, “it’s wrapping plastic around electronics.”

Key Tronic will offer its engineering and plastics expertise to companies that want non-keyboard electronic products designed and produced. The ODM market is much larger than the global keyboard market, and doesn’t face the same declining price dilemma.

Oehlke says Key Tronic is now 57th on the list of the world’s top 100 ODM suppliers. The goal is to move rapidly up that list.

Of course the plastics expertise continues to set Key Tronic apart in the keyboard aspect of its business as well. Oehlke says the company can offer customers far greater flexibility in keyboard design than its competitors.

A critical part of the company’s keyboard strategy, however, involves standardization of the design that goes inside the plastic.

In the past, when a customer came to Key Tronic with a request, its engineers started from scratch. Now, Oehlke says, all of Key Tronic’s keyboards are based on its standard Phoenix keyboard design. Exotic variations can be added - such as the company’s fingerprint recognition technology, or its work with smart cards - but having a standard base saves lots of money.

The company continues to look for expansion opportunities in Asia. Whether that solution will involve a partnership arrangement with an established Asian manufacturer, or Key Tronic’s own Asian manufacturing facility is still undecided.

But the real key to the company’s future, Oehlke says, centers on Key Tronic’s employees. Today, the company has 700 workers in Spokane, 2,200 in Juarez, 50 in Las Cruces, N.M., and about 60 in Dundalk, Ireland.

“The people we have are just amazing,” Oehlke says.

Oehlke’s philosophy, based on his long Honeywell experience, is to empower employees with the responsibilities and resources they need to accomplish the company’s goals, then give them the room to do it their way.

He says Key Tronic’s employees have risen to that challenge.

“I think we have all the basics in place,” Oehlke says. The reorganizations have been accomplished. The integration of Juarez into the whole operation is complete. Fat and inefficiencies have been cut away. Employees have been empowered to do their jobs.

Now, the concepts must be executed.

“I can only be successful through the people in the organization,” Oehlke says. “I can provide vision, direction and encouragement.

“But they are the ones who have to make it happen.”

, DataTimes ILLUSTRATION: Color Photo