October 6, 2010
by Nordahl Flakstad
A KUDU progressing cavity pump installation. The systems are engineered to handle heavy, medium or light oil; coal bed methane; and dewatering applications.
Facing eight-dollar-a-barrel oil and heavy debt, Calgary oilfield-equipment manufacturer KUDU Industries Inc. was, by March 1998, like a smoker warned by a doctor to quit and shed some weight, or suffer the consequences.
CEO Ray Mills admits it took a “near-death experience” for the producer of progressive cavity pumps (PCP) and related oilfield products to take lean manufacturing to heart, which allowed KUDU to survive and succeed at home and abroad.
The company traces its origins to the 1970s when Ray’s father, (and now company chairman) Robert Mills hit upon using PCPs (already employed to move oil on the surface) to assist underground recovery of viscous, heavy oil. Traditionally, once natural well pressure proved insufficient to bring oil to the surface, artificial lift was supplied by sucker-rod pumps; however, these iconic nodding horse-heads had a tendency to plug up.
By 1989, Mills Sr. had formed KUDU and was manufacturing PCPs in his Calgary garage. R&D has always been central to company success and KUDU has gone on to hold more than 20 patents. Innovation—increasingly gained from clients’ suggestions and joint research with majors such as Husky Energy—remains a KUDU cornerstone.
In the early 1990s, with oil prices high, the PCPs found added applications in medium- and light-grade crude recovery (and later in coalbed methane production and gas-well dewatering). Like its African antelope namesake, KUDU bounded along before getting snagged in 1998. As sales plummeted by 50% within months, KUDU halved staff (to 55 from 110) and closed half its distribution and servicing outlets.
“The roots of our problem lay there before the crash,” Ray Mills concedes. “We grew rapidly and beyond our ability to manage a company of the size it had become. We realized we had to manage the company differently and we discovered the Toyota Production System (TPS). It turned just about everything we understood about managing on its head in terms of what drove quality, cost and reduction of inventory.”
Until then, KUDU had followed the prevailing wisdom by outsourcing to specialty shops that could push out volume, while purportedly pushing down costs. KUDU had for the most part transformed into an assembly plant beholden to third-party suppliers and cushioned by a large parts inventory. In a business ruled by the oil patch’s vicissitudes and volatility, guessed forecasts more than actual demand tended to dictate the size of these debt-financed inventories.