When it Comes to IGU Production, There is No One-Size-Fits-All Answer on Outsourcing

It seems that the door and window industries might have a dirty little secret. “It’s just not published or talked about,” says Dave Cooper, an independent consultant.

While industry data gathered by [DWM]’s parent company, Key Media & Research, shows that the smallest door and window manufacturers tend to purchase all of their insulating glass units (IGUs) from outside fabricators, more than half of medium-sized manufacturers (those with $10 to $100 million in annual sales) produce their IGUs in-house. Those numbers increase with company size, as nine out of 10 large-sized manufacturers make their own units.

It’s easy enough to do, suggests Jim Plavecsky, of Windowtech Sales Inc. Plavecsky, who sells materials and used IGU-related equipment, says his biggest clients also include IGU fabricators, giving him what he calls a “neutral” position. “I just tell them the pros and cons of either arrangement and then it’s up to them to make their own decision,” he says. In some cases, the investment into self-producing IGUs can be as simple as an application table and a heated roll-press. But that dirty little secret? It’s the failure rates for IGUs produced in-house, which “can be as high as several percent,” Cooper says—in some cases even sinking companies that get mired in insulating glass (IG) failures and class action lawsuits.

That doesn’t mean door and window companies should give up on making their own IGUs, though, nor has it stopped some from giving the option a closer eye amid COVID-19. “Every manufacturer has to look at this on a case-by-case basis,” Cooper says, adding that, “There are just so many factors that weigh in on the decision.”

High Time for Reevaluating

As companies experience supply chain issues stemming from COVID-19  and/or are forced to switch IGU providers, many are rethinking their strategies for how they source the glass to install in their products, Plavecsky says. Some consider investing in the latest equipment to help automate and ensure quality and availability by producing in-house; others wonder if social distancing and labor shortages (that are in many cases exacerbated by unemployment) necessitate outsourcing.

Even without a pandemic, there are times when it makes sense to reconsider strategies. For PGT Innovations, that moment arrived in the 1990s, when the company began processing its own impact-resistant laminated glass. As the market for energy efficient products took off in Florida, “We initially purchased our IGUs from a glass supplier,” says Bob Keller, president of the company’s southeast business unit. “However, we soon realized that the demand for IGUs was going to outpace availablity.” For his company, it was a matter of speed and capacity. As a result, “We chose to invest in and built a factory to produce laminated, impact-resistant glass and IGUs,” Keller adds. “It allowed us to be nimble.”

Ultimately, there is no simple answer to the question for whether to purchase or outsource, industry experts suggest. But according to companies that have made the leap one way or the other, it’s a decision worth re-evaluating every so often—with or without the pressures of an economic downturn.

Especially for smaller companies, once the equipment and processes are in place, nothing says they can’t switch between strategies, points out Hugo Ramirez, director of business development for Adler Windows in New York. Adler is just one of many companies that employ what could be described as a “hybrid” approach, by both purchasing and producing IGUs.

For PGT Innovations, for instance, “Outside factors, such as labor constraints, oftentimes influence changes to the strategy, as do things like production capacity and key investment points,” Keller says. “For example, if we insource our IGUs and we are running at max capacity during our first shift, we’d evaluate if we bring a second shift in or if we outsource the additional units needed.” Typically, the company outsources IGUs for doors and commercial products, he says.

According to KMR’s data, as much as half of large manufacturers take this hybrid approach, while up to 60% of smaller manufacturers report that they source all of their IGUs from outside fabricators. Often that decision comes down to dollars and cents, but, “There are other considerations beyond costs and cost savings,” Plavecsky says. From a window manufacturer’s standpoint, Ramirez says that it’s also a matter of weighing the complexities involved in offering various glass packages.

Times are Changing

From the 1980s through the early 2000s, Ramirez says Adler made its own IGUs. But as the catalogue of coatings, gases and other glass technologies increased, “We outgrew that business model,” he says. “In the 1980s, when there wasn’t really that much in the way of selections and low-E was new to the market, it was a lot easier. But now there are so many specifications that we’re held to.” The number and complexity of glass packages is only slated to increase, he says, with an added need for product performance. As a result, even though his company continues making small batches of the most basic insulating glass, if it were facing the decision today on whether or not to invest in making IGUs in-house, it would “go 100% outsource,” Ramirez says, mostly due to the complexity of products.

So far, higher-performing IGUs, such as triple-pane, “require a potentially complex and expensive redesign of the entire window,” says Steven Selkowitz, an affiliate of the Building Technology and Urban Systems Division at Lawrence Berkeley National Laboratory, leading some companies to stick with double-pane glass. As the possibilities for advancement of new double-pane technologies narrow, Selkowitz and other market experts suggest that—slowly but surely—offerings such as vacuum-insulating glass and a product known as thin-triple (which Selkowitz helped to develop and advance) will eventually become affordable enough to be mainstream offerings. With those changes, IGUs are set to become even more difficult to produce in-house.

Partly for this reason, “Getting into the market now, for a smaller or mid-tier company to start producing insulating glass products, I don’t think that’s the best approach,” Ramirez says. Instead, door and window producers should stick to what they do best, he thinks, while letting IGU fabricators tackle any newer and more complex products.

It’s All About Timing

Ramirez isn’t alone in his argument for specialization. Even though some of the bigger manufacturers have enough capital and resources to set up glass plants virtually overnight, he says, “they still choose not to do it.” That’s a concept that IGU fabricators lean on to promote their roles within the industry.

“We don’t focus on windows, we focus only on IG, so it allows us to provide a product that we feel—because that’s all we’re focusing on—gives you a higher level of confidence in quality,” says Jason Thomas, CEO of IGU provider Intigral Inc. At the same time, Thomas admits that there are plenty of instances in which it makes sense to produce IGUs in-house.
For instance, when a door and window company is in the start-up phase and produces a limited number of products, “at that point it probably doesn’t make sense to outsource,” he says. “Instead, pick one lane and run in it … you see companies all of the time that find that niche or sweet spot for them and they just mine it. And if you’ve got that type of focus, a lot of times it doesn’t make sense to outsource, because you can design and make that one window and attack.”

Often times, it’s only when those companies graduate to broader catalogues of glazing options that it’s time to reevaluate, he says, at which point, “Now, all of the sudden, your hit with competition for capital,” he explains. “Do you want to spend that money on marketing and maybe some new welders and a new profile, or do you want to spend millions on IG equipment so you can have that capability … for a lot of folks, that’s when we’re going to have a talk.”

The challenges for adapting to wider varieties of IG and future-proofing investments into in-house production are issues that can be solved via the right equipment, suggests Bill Briese, research and development and engineering manager for GED Integrated Solutions. For this reason, “If you’re going to buy an automation system and you’re going to make IG, you probably want to consider flexibility for that system,” he says. “Ten years ago, you bought an IG system that did that one thing. In order to have it do something different, that was another substantial capital outlay. You want to consider not only what you’re buying but what you think might be necessary next year, two years down the road and the modularity of that.” When it comes to producing a wide range of IG types, the bigger issue is in stock and space for wide-ranging materials, Briese says. “If it’s a matter of different glass SKUs, the equipment can handle that,” he adds. “Different versions of low-E, double strength glass, 4-mil, 5-mil … all of that can be handled by the equipment.”

Because today’s equipment is software driven, variations are handled by coding, Briese says. “Software is keeping pace with the maybe 1,000 different IG combinations that are being made in a week,” he says. “The software has risen to that challenge if you select the right system.”

But Briese and others suggest that there’s no reason companies can’t produce some IGUs in-house, while outsourcing others.

“Sometimes selective outsourcing makes the most sense,” Thomas says. “You can say, ‘Okay, I’m going to pick these pieces to make and be really great at them and the rest I’m going to outsource to somebody else. It’s still the same competition for capital, but on a different scale.”

For example, in order for producing thin-triple IGUs to be a feasible option, Selkowitz says that his calculations show a window company needs to produce around 250,000 sash units per year or more. By his estimates, high-speed, automated insulating glass production lines can produce IGUs at a rate of around 1,000 sashes per day. Modifying those existing lines or investing in new machinery to accommodate production of thin triple costs between $1 and $3 million, he says. “If you’re a window company you have to ask yourself, ‘Can I sell a quarter of a million [units with thin triple] a year?’” he says. On the other hand, “If you’re an IGU fabricator, you can ask, ‘Can I find 20 window companies that will between them buy a quarter of a million units per year?’”

But there’s a fine line separating the decision to source or outsource, Cooper says. Regarding the need to produce better glass, “That might be an occasion to say, ‘You know what? I can’t support manufacturing my own IGUs anymore, so I’m going to need to buy, because of these changing requirements,’” he says. “On the other hand,” he adds, “You might say, ‘I’m paying so much for IGUs and I’m going to have to pay more for components, so I better start thinking about making it myself. You have to do the analytics to figure out what makes the best sense.”

You may also have to revisit that decision on a regular basis, as any hiccup can upset a company’s operating plans. Take, for instance, the temporary shutdowns that occurred due to COVID-19—by relying on the backstock of IGU fabricators, some  door and window companies were able to get back to work without delays by relying on fabricators. “We continued working for most of those months and when our customers, especially those in New York, were ready to start back up, we had orders waiting on our docks, ready to ship,” says Randyl Helfrich, who is in IG sales for Vitro Architectural Glass.

Key Factors

Helping their clients to decide whether it’s best to produce IGUs in-house or to outsource isn’t always an exact science, consultants say, but there are key components that remain fairly universal. At the most basic level, door and window companies must consider the costs for materials and labor, then measure those expenses against the price for IGUs. In terms of personnel, there are glass cutters, grid assemblers, washers, IG assemblers and inspectors to consider. On the other hand, automated machinery is capable of producing 1,000 units per day via as few as three employees, but that doesn’t mean you’re off the hook for expertise. “If you have the money and the floor space, then you can go out and buy all of the necessary machinery … but at the end of the day you have to have some in-house expertise in order to know what you’re doing,” Plavecsky explains, “Otherwise, you aren’t going to produce good units, you’ll have failures and the business can go south fairly rapidly.” For a company producing 100 window units per day, it wouldn’t take long to bankrupt your company if a slew of IG failures cropped up, Plavecsky and others suggest. “A lot of bad IG can be made before it’s caught,” Cooper says. In the event of IG failures, “It’s a lot easier to go back to a supplier and say, ‘Hey, I’m having this issue and you’re going to have to cover it under your warranty,’” he points out. Conversely, “In house, when you run into a problem, now you’ve got to investigate,” he says. “You have to go out into the field, remove units, bring them back, evaluate them … getting to the root cause is often a little bit tricky.” For this reason, “There’s a balance sheet adjustment that companies can make when they transfer the warranty over to us,” Thomas suggests.

In the end, “There are just so many factors that weigh in on the decision,” Cooper says. It’s in the long-term that the cumulative effects point to right or wrong decisions.

“If companies really are clever and weigh all of the costs, including warranty costs and potential replacement costs, depreciation—either you’ve made a good decision or not,” he says.

The most important decision might include being whole-hearted about whichever direction you choose. “Either you’re making a good product and have the backing of all your suppliers, and are ready to jump in and do what’s necessary to ensure that the product reaching the field is always the best it can be,” Cooper says, or your better off leaving those measures to fabricators.

Provider Insight

As a provider of door, window and insulating glass components, and insulating glass (IG) and vinyl equipment, officials for Quanex point out that, “Plenty has changed about fenestration manufacturing in the past several years,” including the evolution of automated equipment.

As a result, when it comes to the question for outsourcing or making insulating glass units (IGUs), automated solutions for spacer application and IG assembly could be the deciding factor. With widespread availability—from partially-automated processes to fully-automated high-speed lines—window makers can efficiently create high-quality IGUs in-house, where they’re free to ensure quality and value, company officials suggest.

Benefits to in-house production, they say, includes:
Higher consistency—as reducing points of contact with products helps to boost quality and automated equipment eliminates human errors that can occur with manual handling;
Increased throughput—as automated equipment boosts volume, increasing the quantity of products that companies are able to deliver; and
A focus on what matters—as companies rely on automation in order to focus on other value points in their operations.

At the same time, the company suggests that by outsourcing low-value production items, like screens, workers can be reallocated to where they’re needed most.

New Hybrid Formula

Officials for H.B. Fuller say their company has produced reactive hot melts for more than 20 years, but it has a new “trick” up its sleeve. In July, the company unveiled to [DWM]’s editors the latest addition to its warm-applied reactive hot melt sealants: HL5180. According to company information, the new sealant combines the ease of handling and speed offered by hot-melt formulas with the physical properties of a polyurethane. The product differs from two-part, thermosetting sealants, primarily because it is a single-component system that can be used with multiple spacer systems, such as Intercept, flexible, foam and metal. The new PUR hybrid formula is suited to safe, low-temperature applications, and is designed to rival the cured strength of thermosets by offering high green strength and immediate processing of thermoplastics, combined with integrated chemical crosslinking.

Number Crunching

As door and window companies weigh the pros and cons for producing insulating glass units (IGUs) some turn to a hybrid approach—manufacturing their primary offerings in-house, while outsourcing a wider range of options. While GED’s equipment is capable of handling, “1,000 different IG combinations,” says Joe Shaheen, vice president of sales, even producing some IG in-house can produce significant benefits, he suggests.

By investing in the company’s equipment to produce “bread and butter products,” (approximately 75% of units sold), “No matter what number of units involved— whether it’s 10 units or 10 billion units—you’re going to save roughly 30-45% of the cost of that IG,” Shaheen says. At that rate, the payback for investing in the company’s equipment while producing 500-600 IGUs per day would be as little as two years, he says, adding, “We’ve seen paybacks within six to nine months for higher volume companies.”

In the end, however, it takes more than machines to make production truly viable.

“If you don’t have people who care about the product, the process and the equipment and do what it takes to maintain it, then it doesn’t matter what equipment you buy, you’re going to have a bad product at the end of the day,” Shaheen says.

Drew Vass is the editor of [DWM] magazine.

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