U.S. Manufacturing Rebounds to 14-Month High
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TTI Inc. is known for keeping a low profile, but by 2017 it’s going to have a big footprint. The Fort Worth, Texas-based specialty distributor is embarking on its biggest operational expansion since its founding in 1971 by Paul Andrews.
Growth is the enviable reason behind TTI’s global development plans, which will be completed in 2017. “Global [sales] growth has certainly been a driver,” said Mike Morton, TTI president, global sales and marketing, “but more than anything else we are adding capacity in order to take on additional growth without operational capacity concerns.” The crown jewel of the expanded TTI facilities network will be a new 610,000-square-foot distribution center in Fort Worth.
Drawing of TTI's new Fort Worth warehouse
TTI, which has grown by as much as 20 percent CAGR during its 45-year-history, has managed to maintain a 12.1 percent CAGR during a recent decade of extreme market volatility. The interconnect, passives and electromechanical (IP&E) specialty distributor, which reported global sales of $1.95 billion in 2015, essentially operates as a private entity within the Berkshire Hathaway family of companies which also includes TTI subsidiaries Mouser Electronics and Sager Electronics. Publically traded distributors often face scrutiny from financial analysts when inventory levels begin to increase. TTI has always been committed to holding as much inventory as its customers need and to enable growth.
“Fortunately for us, both Paul Andrews and [Berkshire Hathaway CEO and Chairman Warren] Buffett look at us as a service organization and for service organizations such as TTI you have to maintain more than just adequate inventory in order to grow,” said Morton. “Andrews and Buffett are absolutely proponents of us carrying inventory levels required to sustain growth.”
TTI has opted to build a new distribution center on 45 acres of land it has recently acquired in Fort Worth. The distributor originally looked at existing facilities that could be repurposed but found that would require existing employees to significantly extend their commute or even relocate. While the footprint of the new distribution center will initially be 610,000 square feet, the actual operational square footage will be 790,000 with the use of 180,000 square feet of mezzanines. With the total property acquired the new facility will be able to expand upward to as much as 1,040,000 square feet.
Focus on green
The warehouse will be more automated than TTI’s existing facilities and is being built to the latest standards of environmental friendliness. “The grounds will be as green as possible using the least amount of water for landscaping,” said Morton. “The LED lighting inside and the power generation equipment is in the extreme efficiency category.”
TTI currently maintains two facilities in the Fort Worth area: a warehouse and headquarters combination building with a second warehouse. The plan was originally implemented because TTI outgrew its first facility and discovered during that period that interconnect products have different handling and value-added requirements than passives.
“Many of our connector products are managed in pallet-sized shipments as opposed to boxes of passives (P&E) materials. The receiving, stocking, picking, value-added, packaging and shipping requirements differ for each category of products,” Morton explained, and managing two separate warehouses was not a hardship.
“There were some economies gained by separating the product groups, but you do lose some productivity by not having a single warehouse,” Morton added. The plan all along has been to consolidate into one distribution facility. “Two years ago we began looking for a facility that was move in ready or could be repurposed,” Morton said. “We were not able to find one that suited our needs and be reasonably accessible to our employee base. So we bought 45 acres and to build our own facility.”
TTI will retain its existing headquarters and passives warehouse building and repurpose the warehouse portion for sales and product related functions, along with employee wellness features such as a new employee fitness center. TTI’s interconnect warehouse is on leased property where the lease is set to expire soon after relocation into the new facility.
The big picture
The Fort Worth expansion is only part of a much bigger story: In Germany, TTI is expanding its 200,000 square foot EMEA-service facility to 365,000 square feet; in Hong Kong, the 85,000 square foot operation will grow to 108,000 square feet; in Israel, capacity will grow from 15,000 to 28,000 square feet; and in Mexico, TTI will grow from five proximity warehouses to eight. All told, TTI operations will grow from 1.2 million square feet to more than 2 million square feet worldwide. “We’ve never taken on an expansion of this magnitude and certainly never expanded all facilities at the same time,” Morton said.
The 2015 electronics components market was not a great one for distribution but TTI believes in investing during a down market, Morton said. “If you wait and try to do these things during a robust year, the fact is it could interrupt business even when you are the most financially stable. In years that are leaner you have to have financial resources to expand. We do have the advantage of a parent company such as Berkshire Hathaway − they are willing to invest in capital expenditures when we feel like it is needed. It enables us to increase our inventory and in turn increase revenue: Berkshire Hathaway is very much in support of forward-looking investment.”
Historically TTI has not grown by making high-profile acquisitions: Mouser and Sager were acquired after the distribution industry’s consolidation heyday of the mid-to-late 1990s. “We will continue to look for acquisitions and I’ll say they are typically more unique acquisitions,” said Morton. “Our goal is not just to increase volume; we believe in the specialty distribution model and we look for acquisitions that fit that model.”
Nor do acquisitions have be folded into a parent company, Morton added. “Acquisitions can be standalone as long as they fit a niche. We have made over a dozen acquisitions that we didn’t announce, and of course we have kept Mouser and Sager—with the exception of a few administrative operations.
“We’d love to find another company with the management strength that came with both Mouser and Sager,” Morton concluded.
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