Spun off from Telect Inc. three years ago, Logan Industries Inc. has had to grow up quickly.


During the past 18 months, the Spokane contract manufacturer has seen its revenues plummet by half, has slashed its work force by roughly two-thirds, and has spent a brief period under protection from creditors under Chapter 11 of the U.S. Bankruptcy Code.


Surviving what company executives hope was its bottoming out earlier this year, Logan Industries is trying to stabilize and is preparing for better timeswith or without a national economic recovery.


At the same time, the company has changed somewhat the way it does business to reduce its exposure now and during future economic downturns.


Were well-positioned for when the economy picks up, Logan President Harold Alexander says. Frankly, if the economy doesnt pick up, well still be in a better position than before.


Logans revenues have improved in recent months, coming far closer to meeting projections than they had earlier this year, Alexander says. Because of big shortfalls in sales early in the year, however, the company doesnt expect to meet the $8.4 million sales goal it had set for 2002, he says. This years revenues likely could be closer to $7.5 million, Alexander says.


In 2001, the company had sales of about $8.2 million, down dramatically from $14.9 million a year earlier.


Meantime, the company is closer to regaining consistent profitability. As sales have increased on a month-to-month basis, Logan has earned a profit some months and has broken even or been slightly in the red in others, Alexander says. Still, he says, the economic climate is better than it was earlier this year and in 2001, when profits consistently eluded the company.


Despite inconsistent profits, the company has remained cash-flow positive this year by liquidating some inventory and selling off some equipment, Alexander says.


Herb Jones, Logans vice president of business development, says that the company, which is located in the Spokane Business & Industrial Park, currently employs 70 people and has maintained that level for about a year, after laying off people earlier in 2001. Jones says the company for now wants to keep at least that many employees and is filling positions when an employee leaves.


Alexander says the company has kept its work force stable during the past year by cutting hours, rather than jobs, during slow periods. Permanent employees have been willing to work fewer hours to preserve their jobs. Now, during spikes in activity, some of them are working overtime.


The company also is bringing in temporary workers during busy times, rather than hiring permanent workers and later having to lay them off. Some of the temporary workers, however, are former Logan employees who had been laid off months ago.


Logan primarily assembles cable harnesses used in electronic devices, but also builds finished electronic assemblies. Its customers include Agilent Technologies Inc., Avista Labs, and Output Technology Corp., among others.


Logan has reworked business relationships with its large customers so it doesnt have as much exposure to inventory surpluses.


Managing inventory


For Loganand likely most other high-tech manufacturers, Alexander saysthe economic slowdown that started last year was made worse because customers had been stockpiling inventory for anticipated growth. With the slowdown, a Logan customer with three months worth of inventory at the end of 2000 saw that inventory suddenly become enough to cover six months to a years worth of demand in 2001.


In 2000 and early 2001, Logan had made commitments to buy parts from its suppliers so it could fill purchase orders for customers over the upcoming six months to a year. As the slowdown occurred, Alexander says, customers didnt need Logans components as quickly, if at all, so it had a surplus of parts it had bought and couldnt absorb.


To prevent that from happening again, the company has set up what it calls a supplier-managed inventory program, through which Logan contracts to provide a set volume of components to its customers. Through such agreements, Logan also contracts to manage its customers Logan-made component inventory.


The new arrangement involves less risk for Logan than it faced when working from current purchase orders, because it ensures that the company will get paid for a set volume of goods. At the same time, the company has access to its customers sales and inventory information, so it has a better sense for whether a customer needs more parts or is stockpiling inventory.


Before, Alexander says, the only information Logan had was its customers annual projections.


In general, he adds, the slowed economy has hurt all of Logans customers, and they have been more conservative in their projectionsand because of that, theyre keeping a smaller inventory of components on hand than they were two years ago.


Also, in an effort to bring in new business, Logan is trying to get a broader amount of work from its current clients.


Adding new customers has been more difficult, Jones says. He says most manufacturers have been loyal to their vendors during the nations economic downturn and arent jumping ship. That also has helped Logan retain its customer base.


Meanwhile, Logans established customers are ordering more now because they have absorbed stockpiled inventories, and that has accounted for the improved sales in recent months, Jones says.


An increase in capital spending by U.S. business, when it occurs, will be a more promising sign of recovery, since Logans products typically end up in larger devices that are considered capital purchases by end users.


When capital spending does pick up, Alexander says, Well see the benefits right away, and were not going to make the same mistakes in the future.


Hitting bottom


Due to the inventory surplus and subsequent slow sales, the company hit bottom early this year and found itself at odds with its main lender, Bank of America, to which it owed $2.1 million for equipment loans and a revolving line of credit. Logan had pledged to the bank as collateral nearly all of its assets, including its cash and receivables, and said in court documents that bank-mandated restrictions on those liquid assets would make it impossible for it to pay bills and to remain in business.


Logan filed for Chapter 11 protection from creditors as a result.


Late last spring, Logan and Bank of America reached a court-approved agreement that allowed Logan to maintain its cash flow and proceed with operations, so long as the company would pay off its Bank of America debt by the end of this year. Alexander says the company will have most of that debt paid off by year-end and will refinance the rest with another lending institution. The bankruptcy court dismissed the Chapter 11 filing in August at Logans request.


Alexander launched Logan in 1999, after buying Telects diversified-products group. Logan started with about 130 employees.