4/16/2008 by Beth Bily

(Photo: Rodney Wood, director of northern operations in Grand Rapids, is one of just five managers reporting to the CEO in MDI’s flatter, restructured organization.)

Following a troubled 2007, MDI has recalled about two-thirds of its workers in Grand Rapids and Hibbing.

Executives report the nonprofit is slowly recovering with a leaner management structure in place, and yet another commitment to reduce dependence upon its largest customer.

With plastics manufacturing and assembly operations on the Iron Range, the St. Paul-based nonprofit has a history of financial ups and downs.

Those cycles stem from its heavy reliance on the United States Postal Service, long MDI’s biggest customer for mail totes.

MDI’s mission is providing employment opportunities to disadvantaged and disabled workers. The nonprofit laid off most of its workforce at both northern Minnesota operations in 2007, following a 65 percent downturn in postal service orders for the plastic corrugated totes it manufactures and assembles.

The layoffs followed revelations that senior executives enjoyed entertainment perks as they planned the downsizing, which cost former CEO Mark de Naray his job.

In early 2007, MDI employed about 360 full-time equivalent workers (FTEs) in Grand Rapids and Hibbing. By August, the two plants had just 30 workers each. All operations ceased for one month at the Hibbing plant, where the totes are assembled.

Since those layoffs, MDI has fundamentally restructured, said Rod Wood, MDI’s director of northern operations in Grand Rapids, and one of few executives retained. When de Naray resigned, MDI’s board of directors hired Minneapolis-based Manchester Cos., a turnaround firm, to manage the operations.

Under Interim CEO Pat Marso, a Manchester executive, MDI has shed many of its former senior executives and some unprofitable operations to get back on track.

A structure with six vice presidents and 10 directors during de Naray’s term has been replaced with a CEO, general manager, director of northern operations, a sales manager, financial manager and human resources manager.

Instead of 16 executives, just five managers now report to the CEO, Wood said.

Presumably, the leaner structure also has lightened the nonprofit’s executive compensation load. MDI’s 2005 income tax return shows de Naray and five other top executives received wage and benefit packages totaling about $1.14 million.

Meanwhile, money-losing operations also have been stripped away, with much of that impact in St. Paul. A 300,000 square-foot St. Paul plant has just two commercial packaging customers and stamp packaging operations. Its payroll has dropped from 171 FTEs last August to just 70.

Diversification long has been the nonprofit’s anecdote for the boom-bust cycles created by its reliance upon the Postal Service. After de Naray came to MDI in 2003, his efforts to attract more commercial business showed initial promise.

After several consecutive years of declining revenues, MDI’s share of Postal Service-related sales dropped from 90 percent to 80 percent in 2004.

Revenues jumped from $34 million in 2004 to $40.3 million by 2005, and the bottom line moved into the black. MDI made a $7.5 million capital investment in the two Range operations, financed with grants and low-interest loans. But boom turned to bust in 2007 when the Postal Service reduced its orders, once again signaling the effort to diversify had fallen far short.

Wood acknowledges diversification remains elusive. The company’s recent salvage of its workforce once again has come from its mainstay customer.

“The Postal Service was storing our product in warehouses and was getting the product from that inventory. That was one of the main factors causing the layoffs,” Wood said. “Now they have depleted those inventories and are back in ordering mode.”

Wood said MDI executives and the Postal Service are discussing ways to better balance orders and fulfillment schedules to minimize future workforce fluctuations.

The company recently completed a $1.85 million postal contract and has an extension order for another $2.4 million, he said.

That work and a $1 million extension on a contract with the South Texas Lighthouse for the Blind will help, but won’t put the company back in the black this year, Wood said. MDI’s 2007 results aren’t available, but revenues for the year will be “considerably less” than the $42.4 million in 2006, he said. Meanwhile, MDI again is dependent upon a single customer with postal orders accounting for about 93 percent of company sales, Wood said.

MDI won’t call back more employees in the near-term, he said.

It has 111 workers back on the job in Grand Rapids and 90 in Hibbing.

Most of those employees were brought back to work in late 2007 with the renewed postal service orders. The Hibbing plant is running two shifts and Grand Rapids is running three, Monday through Friday.

Current employment, however, is still short of the operations’ workforce in early 2007.

Companywide, 70 percent of MDI’s payroll qualifies as disadvantaged or disabled.

Even though MDI hasn’t rehired a third of its former workers on the Range, Peter McDermott, president of Itasca Economic Development Corp., believes the company is moving in the right direction. “They’ve regrouped and reorganized the whole company,” he said.

But, MDI again is hostage to a single large customer.

“Anytime a company’s got all their eggs in one basket, it’s a problem,” McDermott said, noting the general business rule that the largest customer should account for no more than 10 percent of total revenues.

“We’re still vulnerable to postal service order (changes),” Wood said. “But, now they are working with us instead of treating us as an on-again, off-again supplier. It’s in both of our interests to work together.”

Meanwhile, the nonprofit is looking for long-term leadership in a search for a permanent chief executive.

Wood envisions a nonprofit slowly broadening its customer base. But, that transition likely will come more slowly than de Naray and others at MDI once hoped.

Beth Bily is a freelance writer based in southern Itasca County.

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