Outsourcing: Brad Heath, CEO of VirTex Assembly Services (Part 1)

We often talk about how much technology has done to make our lives easier and our workflows faster. When we do, we aren’t usually thinking about the ways that Austin, Texas–based VirTex uses technology to make their customers’ lives easier. From RFID tags to medical training equipment to solar power monitoring, VirTex manufactures all kinds of things, even equipment that help farmers operate at lower costs. Although the company is based in the United States and has a U.S.-based clientele, it ships products all over world.

Sramana Mitra: Hi, Brad. Let’s start with some context about you and your company. Where are you located? How long have you been around? What is your business, what is the scale, and so forth?

Brad Heath: We’re a 12-year-old company based out of Austin, Texas. We started in October ’99 as strictly an outsourcing company where we were buying parts for people and managing products for them and having other people building. Within about six months, we were about 40% of one of our supplier’s capacity, and they decided they wanted to sell to us. We ended up buying that business, and we’ve been growing that ever since. We did around $24 million in revenue last year. We have 70 customers located throughout the United States, and we ship internationally. We also have a facility down in Juarez, Mexico.

SM: Would you tell us what kinds of products you work on?

BH: Sure. We do electronic manufacturing services. We build electronics for people, primarily in higher quality, higher reliability arenas, such as instrumentation, industrial controls, medical electronics, and a little bit of military or ruggedized type applications. Pretty much everything, except for automotive and consumer.

SM: What are some examples of your customers?

BH: We’ve got customers that do active RFID tags and ones who do solar power monitoring products. We have customers for whom we’re doing medical training devices for CPR and things like that. We gave macro printers for printing the decals that are overlaid on vehicles and products that optimize crop watering to minimize water use while maximizing crop yield.

SM: Is there a common theme among these industries? How do you describe the kind of expertise that you have?

BH: The common theme is our customers typically need what we call high-mix, low-volume, which is maybe 250 to 5,000 piece quantities. And they have much more fluctuating demand than the guys who deal with higher volume arenas where they may need a consistent 10,000 pieces a month, every month. Our customer might need 2,000 pieces right now, and then the following month they need 4,000 pieces. And the next month, they need only 500. So, we have a much more flexible model in terms of being able to react to their demands and pipeline the material for a lot of emerging customers. They have very dynamic sales models, and they’re not really consistent.

SM: How do you manage that? It sounds like that’s the core competency of being able to manage a flexible supply chain and a flexible manufacturing process. What is the secret sauce in doing that?

BH: The biggest thing is regular communication and interaction with the customers. We want to act as a part of their company. Basically, we become a virtual piece of their organization. We want to be involved in the planning. We want to be involved in the new product development. We want them to give us forecast information on what they think is going to happen so that we can try to pipeline everything with our supply chain to give them the highest likelihood of being able to meet those objectives but minimize their liability terms of excess material and things that they have firmly committed into the pipeline are.

SM: What you just said also was that your customers don’t always have that kind of visibility and predictability, which is what causes the need for flexibility in the supply chain. If you’re depending on them to be accurate, that’s not a very reliable process, is it?

BH: It’s not as reliable a process as some other options, but it’s the reality of today’s world in terms of wanting to minimize their capital outlays and minimize excess inventory. Demand does change quite a bit. With the current economic environment, people don’t want to go put six months of farm orders out there and then potentially have to eat or carry that for another six to twelve months. It’s all about the velocity of cash.

This segment is part 1 in the series : Outsourcing: Brad Heath, CEO of VirTex Assembly Services
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