Tom Pettit was hired in early 2020 as chief operations officer of Generac Power Systems to help the Town of Genesee-based generator manufacturer build the processes, capabilities, technology and talent needed for it to double its sales.
The plan was to double revenue over a five-year period. But with 2021’s topline trending toward a 67% increase compared to 2019, the company is likely to hit the target in just 2.5 years, putting the capabilities Pettit was tasked with developing to the test.
“It has been a rocket ship ride,” Pettit said.
The COVID-19 pandemic served as a catalyst for Generac’s booming home standby generator business, which has benefitted from extreme weather, ensuing power outages and what the company calls the “Home as a Sanctuary” trend.
Realizing its growth plans, amid shortages in raw materials and mounting supply chain disruptions, has been an enormous undertaking for the company, its suppliers and Pettit, who joined Generac as the company’s first COO about a month before the pandemic hit the U.S.
Generac has operated for years with the understanding that demand for its products comes in waves: A natural disaster occurs, and localized demand follows from customers who vow to never repeat the experience of being without power in today’s world.
The company and its suppliers stepped into the pandemic equipped with a playbook of how to scale production based on previous demand patterns. However, capturing the market opportunity meant scaling production in a pandemic environment where its suppliers, facing workforce shortages, have had to train office personnel how to operate machinery just to keep up.
All the while Generac is in the midst of a data-driven culture shift, solidifying its position in the clean energy space, acquiring several companies and integrating new technologies to make its products increasingly more intelligent.
[caption id="attachment_535777" align="alignnone" width="1280"]
Robots were added to Generac’s new alternator line in Whitewater to improve ergonomics.[/caption]
“It’s hard enough to do a transformation when you have 3% growth and a stable supply and labor base,” Pettit said. “It’s herculean when you have 50% growth and a 30-year flood of market disruption in materials, manpower and transportation.”
Since the onset of the pandemic, Generac has effectively doubled its manufacturing capacity in Wisconsin for home standby generators while increasing capacity for commercial and industrial products by 50%.
Pettit attributes a portion of the company’s growth to lean continuous improvement, a strategy that allowed Generac to double output from existing machinery by reengineering processes from the moment a customer places an order to product shipment and invoicing.
But the company also invested millions of dollars in new machinery and infrastructure, installing a new assembly line at its facility in Jefferson and a semi-automated engine line in Whitewater to keep pace with demand.
“There’s been a lot of work around machinery, and even within machinery, we wanted to apply more automation because we know labor is scarce and it’s becoming less skilled in general,” Pettit said.
Generac expected heightened demand from the pandemic, which is why the company looked to establish another production facility almost immediately. It ultimately purchased a 421,000-square-foot manufacturing facility in Trenton, South Carolina.
Knowing that its critical equipment for the operation had a one-year lead time, the manufacturer made capital investments for the project in April 2020 before having established the new facility’s address, Pettit added.
The South Carolina facility supports increased demand for standby generators and associated energy technologies while serving as a distribution center to consumers in the southeastern United States. Once fully scaled, Pettit expects the new operation will more than double standby generator production capacity when combined with the added capacity in Wisconsin.
[caption id="attachment_535776" align="alignnone" width="1280"]
A home standby generator being assembled on Generac’s new engine line in Whitewater.[/caption]
To fuel its growth plans, Generac is now investing $53 million across its Wisconsin facilities as part of a plan that is expected to create 700 jobs in the state by 2024.
Part of those plans include the company’s new customer contact facility in Pewaukee, a building that Generac recently acquired from American Family Insurance for $6.75 million. That facility now houses between 200 and 300 employees, several of whom were previously located at Generac’s headquarters in the Town of Genesee.
With additional space in Pewaukee, Generac now has room at its headquarters for the corporate and R&D employees it plans to hire. The company also expects to increase the footprint of its corporate campus by expanding its R&D lab, Pettit said.
The state is prepared to offer up to $9 million in Enterprise Zone tax credits if Generac meets certain capital investment and hiring goals by 2024, according to the Wisconsin Economic Development Corp.
Generac plans to hire “several hundred employees” and spend more than $10 million in capital equipment this year alone, Pettit added. The new jobs and capital investments could be at any of Generac’s six Wisconsin facilities, which are in Whitewater, Jefferson, Eagle, Oshkosh, Burlington and the Town of Genesee.
If Generac hires all 700 employees, it would have about 4,700 employees in the state and more than 8,500 globally.
Market opportunity
Areas with multiple hurricanes a year, including the eastern and southeastern parts of the United States, are where Generac has historically seen much of its demand. The pandemic also accelerated the “Home as a Sanctuary” trend as the population began working, schooling and entertaining from home. However, more frequent and disruptive weather events are unlocking new markets and strengthening existing ones for Generac, including Texas and California.
Texas became Generac’s second largest addressable market opportunity for standby generators after more than 4.5 million utility customers were left without power during the severe winter storm earlier this year. Meanwhile, wildfires causing blackouts in California continue to boost demand for generators there.
“Historically, three or four years ago, California had a reliable grid,” Pettit said. “But with wildfires and as (California) moved to more renewables, their underlying power grid was less stable, so they’ve had more rolling blackouts.”
[caption id="attachment_535775" align="alignnone" width="1280"]
An operator works on the Generac home standby generator line in Whitewater.[/caption]
Grid instability across the country has become the basis for Generac’s growing distributed energy response business, a segment of the company that was elevated by the technologies it acquired through Enbala Power Networks Inc. in October 2020.
Enbala’s technology takes energy from generators, battery packs, solar systems, wind turbines and other devices, making it available to utilities and energy markets when a grid is either completely tapped or stretched too thin.
This “Smart Grid Ready” technology was recently integrated with Generac’s legacy commercial, industrial and residential generators along with new products, including its new generators and battery storage units that use clean energy. While Generac’s products still function as backup power devices during outages, Smart Grid Ready enables customers to sell power back to the grid in times of peak demand.
With all of these products in the field, Generac is building a network of distributed energy resources (DERs) that can be aggregated into virtual power plants to create a digitized and decentralized means of distributing energy. The goal for Generac is to use its fleet of more than 1 million home standby generators and hundreds of thousands of commercial and industrial generators to build a virtual power grid, which it calls Grid 2.0.
In fact, Generac’s network of DERs is already making an impact, predominantly in the Pacific Northwest and Northeast, where extreme temperatures over the summer created demand spikes for power. In June, Enbala’s technology allowed Generac’s connected fleet to deploy hundreds of megawatts to supplement traditional power plants and maintain grid stability, Generac president and chief executive officer Aaron Jagdfeld said in a recent earnings call.
As the world trends towards electrified solutions for heating, cooling and transportation, Jagdfeld expects DER assets, like those produced by Generac, to become critical for utility companies and grid operators tasked with providing stability and resiliency across their networks, he said.
“Over the next 10 years, the way you get your power, where it comes from, how it gets generated and how you consume it and the knowledge and control you have over it is going to change pretty dramatically,” Jagdfeld said during the 2021 Wisconsin Manufacturing Summit.
[caption id="attachment_535773" align="alignnone" width="1280"]
Operators assemble home standby generators on Generac’s new engine line in Whitewater.[/caption]
Scaling to meet demand
It wasn’t a stroke of luck that Generac was able to occupy and ramp up operations at its South Carolina facility in 4.5 months, or for it to double generator capacity and company growth in under two years.
Generac designed its 3-to-5-year growth plan to account for an accelerated timeline, Pettit said, adding that in the years leading up, Generac laid the foundation for that plan incrementally. Although that process involved several steps, a large component for Generac was sizing its supply chain to meet demand. That strategy included building strategic partnerships with suppliers, establishing tertiary supply sources in some cases and asking suppliers the right questions, such as: what are their existing capabilities and are they willing to invest in machinery and manpower in advance to handle surge capacity?
“If you haven’t prepared, and growth is right in your face, it’s very difficult to respond with the speed that’s necessary to capture the market opportunity,” Pettit said. “Having that plan ahead of time will enable you to be in a position to out-execute your competition because you’ve out-planned your competition.”
In the case of South Carolina, Generac hired the plant manager for the facility six months in advance and then worked with local government and area technical colleges to recruit workers. The company then leveraged talent in Wisconsin to train its team members in South Carolina.
Now Generac is positioned to capture future growth with its South Carolina facility, which has enough room to double in size should conditions call for expansion, Jagdfeld said. But even with those expansion capabilities, Generac hasn’t ruled out other options.
“If we chose to (expand the South Carolina facility), we’d have to analyze whether or not that made sense or maybe if more of the growth is out West, it really kind of depends,” Jagdfeld said in the earnings call. “It might make more sense to have a facility located closer to wherever we see the demand growth.”
Scaling production to meet demand in today’s environment is certainly made easier for larger companies like Generac whose weight and abundant resources have allowed the company to accelerate its growth plans. However, two suppliers have shared their experiences operating in a pandemic environment for a company like Generac and how their processes and strategies allowed them to punch above their weight class.
[caption id="attachment_535768" align="alignright" width="300"]
Scott Mertens[/caption]
Manitowoc Tool & Manufacturing (MTM), for example, has made end panels for home standby generators as well as internal components and transfer switches for more than a decade. Although the company benefits from its experience with Generac, spikes in demand still require a quick reaction, said Scott Mertens, MTM president.
During the pandemic, MTM went from a two- and three-shift operation for Generac products to a 24/7 operation, which was a big undertaking in today’s limited labor market, Mertens said. In fact, the company trained managers and office personnel to run machinery on weekends until it could hire the labor it needed to run a 24/7 operation, he added.
“With Generac, that wasn’t enough. They still had more demand than that,” Mertens said. “What we had to do was really add staff to make ourselves, per individual, less efficient, but increase the output.”
Knowing that weekend shifts with office personnel was unsustainable, Mertens said MTM increased communication with its staff so that team members understood how the company was addressing its challenges from a labor and operational perspective.
In addition to labor, MTM’s ability to ramp up capacity was limited by its machinery, said Mertens, who pointed to the highly engineered stamping dies the company uses to produce Generac products. MTM invested in more robotics, purchased backup components for its stamping press as well as any auxiliary components needed to support its operations, Mertens added.
“That’s the risk that MTM took just to be able to conduct business correctly to make sure we weren’t letting them down,” Mertens said. “We couldn’t control that we only had one tool, but we could control many other things by having a backup for anything and everything that could possibly fail.”
[caption id="attachment_535765" align="alignright" width="300"]
Chris Conard[/caption]
As a Generac supplier, Bloomer-based metal fabricator PMI, LLC faced many of the same challenges as MTM. PMI has manufactured steel and aluminum enclosures that surround Generac’s standby generators for 17 years. Like MTM, PMI has multiple customers that have grown rapidly during the pandemic, with specialty truck manufacturer Oshkosh Defense being one example, said PMI president Chris Conard.
PMI spends a lot of time and resources mapping out “true capacity” not just in terms of equipment, but also labor. Conard says the company considers how capacity is affected when labor is missing due to talent shortages or factors like illness, he added.
To become a strategic partner for any company, analysis has to go beyond the four walls of the business. For PMI, it’s having a thorough understanding of a customer’s operations while having a pulse on the variables that generate demand for its customers.
Using California as an example, PMI knew how persistent blackouts would impact Generac and therefore influence their own operations. Forecasting and constant communication with sales and marketing teams are key, Conard said, but research and keeping tabs on trends to guide planning are just as important.
“We can’t guess what they’re doing, that would be dangerous,” Conard said. “We’re not as close to their market as they are so it just takes a ton of communication. You also rely on your own sense of what’s happening out there.”
[caption id="attachment_535778" align="alignnone" width="1280"]
Generac supplier Manitowoc Tool & Manufacturing uses a 660-ton Seyi stamping press to manufacture many of its products.[/caption]
Managing expectations
Scarcity and rising material costs also create extensive problems for suppliers managing spikes in demand. For example, to build Generac’s standby generator enclosures, PMI uses a special type of steel that is not only highly sought after by the automotive industry, but also suddenly became unavailable in February, Conard said.
To overcome this challenge, PMI began working with Generac’s engineers to identify alternative materials that provide similar attributes like rust resistance and the ability for paint to adhere properly, Conard said.
“That was a pretty big deal, and it went very well because Generac is open to working with their suppliers,” Conard said. “They opened up their engineers because we all know we’re in this together.”
