Out of Crisis, Opportunity

By JOHN O’DELL

Sept. 25, 1996 12 AM PT

TIMES STAFF WRITER

SANTA ANA —

After missing several payrolls and cutting hours to as few as 16 a week, Clifford Gartung faced a brewing employee revolt last summer.

One of his managers had just told workers at Gartung’s ailing Santa Ana office furniture business, Pleion Corp., that they wouldn’t be getting paychecks before the four-day Fourth of July weekend.

Gartung hadn’t been able to get to the factory because he was tied up in the front office, but he says he heard from the manager that employees “were talking about sabotage, walking off the job, all kinds of things” that would have crippled the company just as it was about to emerge from an 18-month bankruptcy reorganization.

The revolt died when Gartung showed up at the factory the next morning to explain that a lender was withholding funds until some paperwork was revised and promised that paychecks would be issued right after the holiday. “They said that they just wanted to hear it from me,” he recalls. “They told me they’d take care of production and that I should just concentrate on getting us out of the bankruptcy.”

It was just one of the crises that Pleion, its workers and its 59-year-old founder and president have struggled through. But the hard work and high costs seem to have paid off.

After what Gartung described as a “top-to-bottom” restructuring that included redoing most of its manufacturing and management processes, Pleion this week emerged from the Chapter 11 bankruptcy it entered in March 1995.

Gartung says the future is bright, with a new, “just in time” inventory and manufacturing system that has slashed nearly $2 million a year from operating costs, a work force that has boosted productivity by 40% with 100 fewer employees than at the company’s peak in the late 1980s and a new sales system that has boosted revenue by putting Pleion’s modular office furniture systems into dealers’ showrooms for the first time in the company’s history.

Pleion’s revenue grew by 23% during its bankruptcy as the economies that had been put into play before the filing started making themselves felt.

Sales jumped from $12.8 million in fiscal 1995 to almost $16 million in fiscal 1996, which ended June 30. And Gartung said he expects revenue to hit $20 million this year.

The company’s recovery plan calls for it to pay creditors from 10% to 50% of their claims with cash from future sales, said Gartung. The exact amount depends on Pleion’s revenue over the next five years, he said.

More important than the partial repayment, though, is that by staying in business Pleion remains a customer for its vendors’ goods and services; provides continuing employment and income for its workers and is even poised to begin hiring at a time when manufacturing employment in the county is shrinking.

“That’s the value of a Chapter 11 reorganization,” said Newport Beach bankruptcy attorney Paul Couchot, whose partner handled Pleion’s case. “If the company goes into liquidation, the creditors get little or nothing.”

Pleion is one of several thousand businesses that file Chapter 11 bankruptcy petitions in Southern California each year. Bankruptcy attorneys say that while most are too small and too debt-ridden to survive, about 65% of the bigger businesses do make it out with a court-approved plan to repay creditors and continue operations.

As Gartung can attest, it is rarely an easy or inexpensive process. He figures that attorneys’ fees alone ate up $700,000--about 10% of the company’s total pre-bankruptcy indebtedness of $7 million.

Gartung said his business was pushed into bankruptcy because it had grown too fat and lazy with success in the 1980s and was unprepared to cope with a national recession that hit in the early 1990s. When word of the company’s financial troubles began circulating, he said, competitors started grabbing up its customers--who were wary of dealing with a supplier that might fold. In four years, revenue plunged from $24.3 million to $12.8 million.

Gartung said that as he struggled to fix things he laid off more than 150 workers and froze pay for the rest. He got rid of most of his management team and switched from direct sales to a network of independent distributors.

In 1992, almost 40% of Pleion’s 250 workers were in sales and administration. Today, there are just 15 people in the corporate office and 130 in the factory.

At one point, Gartung considered leaving California for a locale with cheaper labor and less expensive business costs.

But he says that he felt an obligation to his employees, most of whom would not have been able to uproot themselves and follow the company. He offered a group of sheet metal workers that he had recently laid off the chance to come back if they could get in-house production costs to match what an out-of-state contractor had bid to make parts for Pleion.

That started a process that turned the company around. In the past, the company had followed the accepted practice of making hundreds of the same parts at once and then storing the excess for future use. That meant that it often took five weeks to complete a customer’s order because Pleion would make enough parts for 200 desks when it had an order for 20. It cost $2.5 million a year just to store raw materials and unsold parts.

When managers and workers put their heads together to figure out a better way, Gartung said, they came up with a just-in-time system.

“Now we make parts for just two desks, if that’s what the order calls for,” said sheet metal team leader Danny Martinez. “We ship everything we make as soon as we make it.”

Materials storage costs have dropped to less than $400,000 a year, Gartung said, and the huge area once devoted to warehousing is being transformed into a new production area for an expansion of the company’s product line.

“It’s just great to be out [of bankruptcy] and to have the company back,” Gartung said.

“I wish we’d never had to do this, but I learned a lot from this. If things hadn’t gotten so bad, we’d have never gotten so good.”

(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)

Back From the Ashes

Pleion Crop. has emerged from an 18-month bankruptcy and is projecting its first $20-million revenue year since 1992. A look at the company and its financial fortunes:

Pleion Corp. at a Glance

Headquarters: Santa Ana

Founded: 1974

President & founder: Clifford W. Gartung

Business: Manufactures office furniture

Filed for bankruptcy protection: March 1995

Emerged from bankruptcy: September 1996

Employees: 145

Status: Private

Revenue Stream

Revenue for 1993 is for seven months because the company changed its fiscal year, which now ends on June 30; 1997 is projected. Amounts in millions:

1987: $25.0