Strategy

Q&A: Celestica's Craig Muhlhauser

Celestica's CEO talks about the high-tech company's ongoing reformation.

Craig Muhlhauser mired in perpetual restructuring efforts since 2001, high-tech contract manufacturer Celestica may be finally finding its footing. Shares shot up 35% in April after the Toronto-based company posted an unexpected 13¢US-per-share profit in the first quarter. Since then, Celestica followed up with a solid Q2, despite declining revenue and a rocky tech sector. Credit goes to Cincinnati-born Craig Muhlhauser, a former aerospace and automotive industry executive who has instilled a fresh perspective in his 21 months as CEO. Muhlhauser spoke with Canadian Business senior writer Andrew Wahl about the company’s ongoing reformation.

Your first-quarter results surprised many analysts, especially your improved operating margins. What was the secret?

The surprising thing was the rate of improvement of the company. We had kept costs in the business longer than someone else might have in 2007 in order to fix things like the materials management in Mexico. So we have fixed the materials management, eliminated nine warehouses, reduced inventory by a factor of two, and as a result of that, we can close facilities, take people out. But at the same time, the business is now running better, so you get a kind of compounding effect rather than that one-time improvement, and then you start to stumble because you’ve taken out the wrong cost. You eliminate the losses and then you start to see the effect of the restructuring program the company has been undertaking in the last three years.

In what way has Celestica improved the most?

Focus. Celestica now is becoming a more focused company on what things are most important to our customers, what our customers are prepared to pay for, and our ability to turn that into plans. As a result, our execution has improved dramatically. And we’ve become more effective at eliminating the things that are wasting money, and have been able to tackle things like inventory. In the past, we were never able to really attack that nut.

You have talked about Celestica needing awhole new approach to customers. How is it going?

It’s a long journey. We didn’t think we could get to where we are going if we played the same game by the old rules, just delivering this stuff cheap. The markets have changed so dramatically that the flexibility that we offer ends up being a bigger opportunity than making stuff cheap in China. It’s less about our infrastructure, our facilities, the equipment we buy — if you look at our competitors, we look about the same. So changing the game is all about people, it’s not about what we make. Our orientation is all around solutions and problem-solving with flexibility, speed, predictability. The industry is called Electronics Manufacturing Services, and instead of emphasizing manufacturing, we’re emphasizing services. The challenge is, we are trying to change behaviour in a company of 40,000 people around the world.

What makes you confident that the turnaround is sustainable?

We are operating with more forward visibility. Instead of just looking at today, we’ve created a process to look at tomorrow, and therefore we are much better at anticipaing than we were in the past. Understanding the implications and the opportunities that the current economic situation presents is the biggest challenge now. Fuel and energy costs are at record highs, wage costs are continuing to escalate, labour laws are changing, there are foreign-exchange fluctuations, and with tightened capital markets, we have to make sure our suppliers and customers don’t represent a credit risk — it’s a long list. But the economics of shifting everything offshore needs to be re-evaluated, and for me, that is a huge opportunity, because everyone is looking at their supply chains. Look at Canada — the currency is escalating and hundreds of great technology companies up here want to get stuff into and out of the country. Why can’t we be like a big aggregator here and take advantage of our global network? I’m hoping we catch the wave here in terms of how these tough times create opportunities.

How do you divide your time?

The better part of half my time is spent with customers, 25% is managing internally, and 25% is working more aggressively in the investment market, looking at options and strategic alternatives. It’s my job to look out five, eight, 10 years and say, Where is this ship headed? Now that we’ve got it righted, should we look at expanding our market diversification, should we look at other options? We are building a cash war chest, and I’ll be spending more of my time on those questions in the future.