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Evapco SA: innovation is key

By Ilana Koegelenberg

Evapco SA has been locally manufacturing cooling towers for the past 35 years, constantly innovating its manufacturing processes to stay competitive in a challenging economic climate.

Evapco Inc. is an employee-owned manufacturing company with global resources and solutions for worldwide heat transfer applications. The business is dedicated to designing and manufacturing the highest quality heat transfer products for the evaporative cooling and industrial refrigeration markets around the globe, including the newly introduced dry cooling range.

LM001The Evapco premises in Isando.

Evapco supports its worldwide customers with manufacturing facilities and sales offices strategically located around the world. The company was founded in 1976 and its world headquarters is located in Taneytown, Maryland (US).

It is involved in the following markets:

  • Commercial HVAC
  • Industrial processes and mining
  • Power
  • Industrial refrigeration.

The company’s products are manufactured in 22 locations in 10 countries around the world and supplied through a sales network of over 170 offices.

Locally, Evapco SA is a subsidiary and licensee of Evapco Inc. and was established in South Africa in 1982. As a licensee company, Evapco SA has unlimited access to the engineering and research facilities of the corporate headquarters in the US.

Evapco SA was solely owned by Evapco Inc. until mid-1992, when John Stevens and Rutledge Boyes acquired shareholding and were subsequently appointed to the board of directors. Stevens and Boyes have approximately 63 years of combined experience in cooling and allied fields.

Both Stevens and Boyes have since relinquished their shareholding and directorships, but are still employed in sales and advisory capacities. Andre van der Merwe and Harald Vackier are the current appointed executive directors along with Alda Bell, the financial director.

Evapco SA offers the identical product range of evaporative cooling equipment as the other Evapco plants worldwide. Run as a family-style business, it has 80 employees working on the shop floor and a staff complement of 36 in the office. The products are marketed and sold in-house, as well as through a network of independent representative offices and agencies.

Times are tough
Although Evapco SA has been around since the 1980s, things are getting tougher each year for this local manufacturer in the current political and economic climate.

Andre van der Merwe, managing director of Evapco SA, explains that the real manufacturers that are left in the HVAC&R industry are around only because they have a niche product or, in Evapco SA’s case, the product is too bulky to import at the same price as manufacturing it locally.

South Africa was the second location outside of the US where Evapco set up manufacturing. At that stage, the rand was still stronger than the dollar, thanks to the big boom in the gold mining industry. Evapco SA used to represent about 20% of Evapco’s global turnover, but that is down to only about 1.5% currently. “Now we’ve increasingly become a small fish in a very big pond. Most manufacturers in South Africa have gone that way,” says Van der Merwe.

It has simply become too expensive. “Fifteen years ago, we were the cheapest producer in the Evapco group, but now we are the most expensive,” explains Van der Merwe. This is mainly due to material cost locally — and labour cost versus skill level competence and productivity.

Previously, the company could source most of its material requirements from local steel suppliers like ArcelorMittal (Iscor). But now it has to import a mix of material due to the grade of steel required on some products no longer being available from these local producers.


“Innovation is your best weapon against manufacturing costs and competitive prices.”


 

The problem with this is that they cannot buy directly and have to go through a third party vendor. This means that the pricing ends up being volatile, which is a challenge for manufacturing as you cannot exactly change your product prices from day to day.

All Evapco’s products are made up of about 90–95% local content, but items such as electric motors and pumps are fully imported as they are not made locally.

Staying competitive
The South African economy desperately needs increased and sustained local manufacturing to create and provide much-needed jobs. However, in our HVAC &R industry, for most products this is not feasible.

It makes no sense currently to set up a manufacturing facility for things like chillers or unitary equipment, as we simply do not have the volumes in the market to support the initial start-up and be competitive. It is still more cost-effective to import the components and then assemble locally, or to import the complete product.

According to the Refrigeration and Air-Conditioning Manufacturers and Suppliers Association (RAMSA), the number of local manufacturers has decreased by 50% over the past 20 years, while the number of registered full import suppliers has increased.

Local manufacturing offers the added benefit of the fastest lead times of 4–6 weeks, as compared to around 10–12 weeks on average for imported goods.

Within the international group, Evapco SA holds a territorial trade agreement for sub-Saharan Africa, including the Indian Ocean Islands. Van der Merwe states, “Although South Africa is our key and largest market, we are enjoying a healthy mix of business from the northern neighbours, but face tough low price competition from Indian and Chinese suppliers into the north-east markets, such as Kenya and Tanzania. Due to added logistics from the Far East, we are more competitive into the north-western regions of Africa, including countries such as Ghana and Nigeria.

“In general, we prefer a stronger rand; on the flip side, when the rand weakens, it does obviously increase our export competitiveness into Africa,” he says.

Challenges
“We’re always worried about labour unrest,” says Van der Merwe. “Especially this year with the looming metalworker strike. We don’t know what’s going to happen this year.

“Labour in South Africa is becoming more and more desperate, more vigilant and more violent, with increasing demands. They’ve been made unrealistic and irresponsible promises. These promises aren’t being delivered on and people are frustrated.

“When negotiating with labour unions, the request is there not to mechanise and not to automate, but at the end of the day, we have to run a successful commercial business,” explains Van der Merwe. “I can be as patriotic and sympathetic as I like, but at the end of the day, its rands and cents. South Africa cannot afford to be commercially uncompetitive. We must find a way to create a more attractive and competitive manufacturing environment in this country.

“We need relaxation on certain legislation and cooperative support from government,” he says, as things are tougher than ever with no incentives currently to manufacture locally and create jobs. Even the Proudly South African campaign that gave local companies preferential treatment when bidding for a project has fallen flat and holds no significance during adjudication — price rules!

Sheet metal and coil manufacturing area. Sheet metal manufacturing.The Evapco premises in Isando.Coil line bender.Shop floor assembly area. Panel manufacture.Cooling tower assembly. NC punching station.

There is no protection for local manufacturers; there is no import duty protection. “We should be getting preferential government procurement and subsidies for locally manufactured products,” says Van der Merwe. “There are only certain incentives for local manufacturers. Unbelievably, it’s more difficult to tender on a job as a local manufacturer than as a foreign importer; there actually are more legislative and binding requirements.”

“We used to have a lot more established manufacturing in our industry. We want to create jobs and manufacturing is where it’s happening. South Africa still has the capacity and the potential.”

Then, of course, there is the issue of complying with the ever-changing B-BBEE and employment equity requirements. “I’m not anti B-BBEE; I’m just frustrated with it. Not one of our five-year equity plans have been able to be realised. They keep changing the goalposts,” says Van der Merwe.

“For radical economic transformation to happen, other than stating the obvious issues of education and lack of skills, you need to relax laws and give more freedom to local manufacturers. You have to give subsidies and incentives to create jobs. Not pull the string tighter for manufacturers. That’s a challenge.”

Sheet metal and coil manufacturing area. Sheet metal manufacturing.The Evapco premises in Isando. Coil line bender.Shop floor assembly area. Panel manufacture.Cooling tower assembly. NC punching station.

The future
“Manufacturing in South Africa is becoming more challenging every year. As we are now being considered junk, we don’t know what comes next. If the government ups company tax, it will become even more challenging.”

However, as Evapco is dedicated to research and development (R&D) globally, it is continuously working to improve the product. Testament to this is the revolutionary range of eco wet/dry hybrid coolers, showcasing the company’s commitment to environmentally responsible product design. Of late, a massive amount of R&D has been focused on the manufacturing process of the product and not only engineering. This helps to increase manufacturing efficiency, knocking some time off the labour side of things, which help absorb and offset the increases in steel and the like.

For now, the company will continue running its business this way. “We have a commitment to not automate. But it works both ways. I’m happy to continue doing it with labour, but in return, we need efficiency and productivity,” explains Van der Merwe.

“We have a plan and the key to success is to execute the plan. We have a philosophy that execution is more important than the idea.”

Van der Merwe says his favourite quote comes from Peter Shultz, the former CEO of Porsche: “In a basic manufacturing business, excellent execution of an average idea will beat average execution of an excellent idea, every day of the week.”

“Change is inevitable and we must embrace change,” says Van der Merwe. “Our success will be greatly influenced by our ability to gain control of the future and predict what lies ahead.”

“Evapco is a service-based organisation, and our commitment to quality and service are our non-negotiable standout principles, but ultimately innovation is your best weapon against manufacturing costs and competitive prices,” says Van der Merwe.


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