Insourcing Helps Company Retake Control

Crain’s Chicago Business

November 18, 2011

Mike Baines grew up in the packaging industry. His father Jim started Prairie State Packaging Inc., a Batavia, IL-based packaging distributor, 24 years ago, and Mike joined the company after finishing college in 1997.

During his time at Prairie State, the younger Baines, 36, was intrigued by the inflatable packaging products that several manufacturers had attempted to bring to market. He believed the proper air-cushion technology would provide superior protection over traditional polystyrene and molded pulp packaging. And because the packaging would be flat, it would take up less shipping and storage space and use less material.

So, in 2004, with a $500,000 personal investment, Baines started Aerocell LLC and contracted with a manufacturer in Taiwan to produce its line of inflatable protective packaging. By 2007, revenue had reached $200,000. And in 2008, Baines created an R&D center at the company’s 5,000-square-foot headquarters. Revenue continued to climb, hitting $500,000 in 2009.

Despite that growth, Baines says the challenges of international manufacturing were taking their toll. “Long lead times, communication and trust were not in our favor,” he said. “We were not savvy enough at the time to have multilingual employees. We had limited resources, and we reacted to things as they were happening to us. Sales were strong, but the supply chain was fragile.”

Then, in 2008, the Taiwanese manufacturer brought in new investors. In March 2009, the new investors wanted Baines’ team out, a move he believes was an attempt to copy the product.

“That’s when the world changed for me,” he said. “We were 7,500 miles away, working with a business culture that was completely different than ours. Now, our key people were not involved, and I did not have control of the situation. I could have called it a day and rolled up my business. But we were committed to the product, and the only way to move forward was to take control. That meant manufacturing domestically.”

With $1 million in backing from his father and another partner, Baines spent the next year and a half moving Aerocell’s manufacturing to his Batavia site, including finding domestic sources for raw materials. The company began producing packaging products again in October 2010.

Relying last year on only previously produced inventory, revenue dropped by two-thirds, and several customers defected when the company could not fill orders. Complicating an already difficult process, Baines says the urgency of the relocation led to some poor—and ultimately expensive—decisions.

“In the rush of the situation, we made novice decisions regarding the manufacturing process that ultimately cost us time and money,” he said, adding that the experience has made him more insightful and cautious in making decisions.

For example, the company is focused on meeting customer demand in the toner cartridge and beverage industries, two markets they know well, and has held off requests to create packaging for the pharmaceutical and other industries.

“We’re not rushing to get ourselves into a market we’re not prepared to enter. I think about what my dad always says: ‘If it’s a good idea today, it will be a good idea tomorrow.’ Sometimes, you have to be reactive, but you also need to find time to manage and plan,” Baines said.

“When we started, manufacturing overseas was the right thing to do for the business. I was not financially or otherwise prepared to take on the manufacturing side of it, and I didn’t understand how big it could possibly be,” he said, adding that the company can be a $10 million business in five years. “We’re doing things with the product that we’d always envisioned, and now we’re implementing.”

For example, the company is launching a packaging product in November after a three-month development process, something that would have taken significantly longer with an overseas partner and without his oversight. “Real growth would not happen unless we did this,” Baines said. “Our story’s not finished yet.”