The Charles Machine Works, Inc.

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The Charles Machine Works, Inc.

1959 West Fir Avenue
Perry, Oklahoma 73077
U.S.A.
Telephone: (580) 336-4402
Toll Free: (800) 654-6481
Fax: (580) 572-3527
Web site: http://www.ditchwitch.com

Private Company
Incorporated: 1958
Employees: 1,000
Sales: $180 million (2002)
NAIC: 333120 Construction Machinery Manufacturing

The Charles Machine Works, Inc. is headquartered in the small town of Perry, Oklahoma (located 60 miles north of Oklahoma City), where the company is commonly known as Ditch Witch, the name of its signature trench-digging machine. Charles Machine offers six categories of equipment. The company's trenchers and plows include pedestrian, walk-behind models for use in laying utility and communications lines; compact, maneuverable trenchers and plows designed to be used in confined areas; and heavy duty models for larger trenching projects, as well as vibratory plowing and pavement cutting. To meet a variety of underground construction needs, Charles Machine's offers a line of trenchless products, including directional drills, fluid management products, piercing tools for boring projects and pipe pushing and pulling, and rod pushers. The company's electronic products are used to located and identify buried services, as well as to track directional drilling tools and locate power and communication faults. To haul Ditch Witch equipment, Charles Machine also sells a line of custom-designed trailers. In addition, the company manufactures vacuum excavation equipment and compact utility machines such as a mini skid steer, a mini excavator, and a combination excavator and tool carrier. Almost all of the products offered by Charles Machine are researched, designed, and manufactured by the company. A key to distribution is a worldwide network of independently owned Ditch Witch dealerships, which are devoted exclusively to the sale of Ditch Witch products and also offer service and maintenance training. Charles Machine is a closely held corporation, majority-owned by its chairman, Edwin Malzahn. The employees own 30 percent of the company.

Early 20th Century Origins

Charles Machine traces its heritage to Carl Frederick Malzahn, who emigrated to America from Germany, according to his grandson Edwin Malzahn, to avoid service in the army. He then moved his family to Perry, Oklahoma, in 1902 to avoid the brutal winters of Minnesota. He set up a blacksmith shop in Perry some five years before Oklahoma became a state. He was assisted by his sons Gus and Charles, instilling in them a pride of craftsmanship and establishing a focus on quality and value that would be passed on to later generations. The shop was successful, but when Oklahoma underwent an oil boom, the Malzahns were able to transition away from smithing, which had no future, to specializing in performing repairs to the equipment used in the nearby oil fields. Charles Malzahn, father of Edwin, eventually took over the business, which became known as Charlie's Machine Shop.

Growing up, Edwin Malzahn gained practical experience working in his father's machine shop, then rounded off his knowledge by earning a degree in mechanical engineering at Oklahoma State University. After graduating in 1943, he returned to Perry eagerly "in search of things to make." Inspiration would visit the young man one day while watching several plumber's helpers using picks and shovels to dig a 50-foot trench in order to install a water line. Malzahn was convinced he could invent a machine that could do the job easier, shared the idea with his father, and the two went to work developing a compact machine that could dig a shallow, narrow trench, ideally four inches wide and 24 inches deep. There were already large trenchers designed for the installation of distribution lines for plumbing and other utilities, but these machines were ill-suited for digging the trenches between individual homes and trunk lines. At first, the Malzahns tried to make a miniature version of the larger wheel trenching machines, but the concept failed to work. Instead, they pursued a self-propelled ladder-type ditcher that relied on a vertical line of buckets with teeth that could gouge out dirt at one end of a conveyor chain and deposit it in neat piles along the trench. An innovative gear box allowed the machine to simultaneously power the digging operation and provide self propulsion.

By 1949, the Malzahns had a production model of their first service-line trencher, the DWP, which stood for Ditch Witch Power. At the time, Charlie's Machine Shop employed just ten men. It was now renamed The Charles Machine Works. To drum up business for his new product, which was priced around $750, Edwin Malzahn used his car to tow the first Ditch Witch around the state of Oklahoma, demonstrating it to plumbers. By 1951, the Ditch Witch accounted for 10 percent of Charles Machine's annual sales.

Incorporation and Expansion: 1950s–80s

Malzahn grew the Ditch Witch business through the 1950s, as the machine was instrumental in making the installation of indoor plumbing affordable to many households. It also launched a niche industry. In 1955, Malzahn received a patent for the endless conveyor ditch digging machine. During his lifetime, Malzahn would receive several other patents and develop a number of product ideas that had nothing to do with trenching machines. He sold these product ideas to other companies, opting to focus the family business on the Ditch Witch. The company was incorporated in 1958. The Ditch Witch was proving so successful that a year later the company moved out of the downtown Perry building that had housed the original blacksmith shop and opened a new 24,000-square-foot manufacturing plant, as well as an 8,000-square-foot office complex, on land a few miles west of Perry. At this stage, annual sales were in the $1.5 million range, and Ditch Witch sales accounted for 98 percent of Charles Machine's business. For a time, the company continued to repair oil field equipment, but they did this mostly as a convenience to long-time customers. The future of the business lay squarely with the growth of the Ditch Witch business. Charles Malzahn would not live to see the full extent of the success achieved by Ditch Witch, however. Several months after the ribbon-cutting ceremony for the new facilities, held on July 6, 1959, he succumbed to the long-term effects of leukemia and diabetes.

Over the next 25 years, the company grew at a steady pace, although there was a difficult stretch during the recession of the early 1970s that necessitated the laying off of 70 employees in 1974. The business recovered and by 1984 reached the $75 million mark in reported sales. It topped $100 million in 1987, when Charles Machine shipped some 5,400 Ditch Witch trenchers, which now came in 18 models, ranging in power from five horsepower to 100 horsepower. In addition, the company had expanded its product offerings to include vibratory plows, backhoes, earth saw, road wideners, trailers, rammer, plate compactors, boring units, and earth augers. It even sold a chemical, Perma-Soil, that could be mixed with soil in order to stabilize it. In the late 1980s, it became involved in directional drills by buying the navigational boring system of Pierce Arrow. The Ditch Witch machine was honored in 1988 when it was named by Fortune magazine as one of the "100 products America makes best." Charles Machine now employed approximately 700 people, a significant increase over the 56 employees who worked for the company when it was incorporated in 1958. Moreover, the company had built up a network of 105 dealers spread across the United states and Canada, and another 25 overseas dealers located in 22 countries.

Charles Machine grew even faster in the 1990s after the economy picked up following a recession. According to press estimates, the company reached $170 million in sales in 1994 and a year later approached $200 million, about half of which came from the sale of trenchers. Nevertheless, management did not necessarily see the firm as a trencher manufacturer, viewing it more as a business that installed underground utilities. In this way, Charles Machine was not threatened by new trenchless technologies and became involved in products that could be considered a threat to its traditional product line. The company was also forward looking in its approach to design and manufacturing. Long gone were the days when the design staff would develop a product, then simply hand it over to the manufacturing side to produce. Instead, the company adopted a cross-functional team approach that brought in as many people as possible—from manufacturing, marketing, product support, and service—as soon as possible in the design process. As this approach evolved, input from major vendors would be sought. Manufacturing also employed important new tools, such as computer-aided capabilities and statistical process control. In addition, Charles Machine made a commitment to service. In the early 1990s, the company opened a new Ditch Witch Training Center in Perry to train factory and dealer personnel as well as owners of Ditch Witch equipment, especially the new trenchless technology products.

Company Perspectives:

You can see Ditch Witch quality in the overall productivity of the equipment. You can feel it in the ease and comfort of the operator's station. You can experience it in the reliable levels of power and performance.

From Hiring Spree to Lay Offs:
Late 1990s and Beyond

Business for Charles Machine thrived in the late 1990s, spurred in large part by the efforts of telecommunications companies to lay dramatically increasing numbers of fiber optic lines. Charles Machine went on a hiring spree, adding some 500 new people in a short period of time. Employment peaked at 1,700. In early 2000, the company announced that it planned to hire another 1,000 workers to its headquarters in Perry, a town of little more than 5,000 people. About 70 percent of the employees already had to commute to Perry. The company conducted a survey on the town and concluded that Perry could support 900 new single-family houses, 250 single-family rental houses, 190 mobile homes, and more than 350 apartments, as well as two more motels and five more restaurants. In April 2000, Charles Machines and the city of Perry hosted a conference for builders, architects, developers, and contractors to promote new building in Perry to meet the needs of the community when hundreds of more people came to work at Charles Machine.

Plans for expanding Charles Machine and its hometown would soon be put on hold, however, as the company experienced a severe drop in business, the result of a downturn in the economy that had a particularly adverse impact on telecommunications firms, some of Charles Machine's most important customers. In addition, the telecommunications industry was now laying fewer land lines because of earlier overbuilding, a situation exacerbated by the rising popularity of wireless products that cut into land line sales and produced the trickle down effect of eliminating the need to buy new Ditch Witch equipment. In May 2001, Charles Machine cut 75 temporary and part-time jobs, and 75 full-time positions were eliminated after employees were offered an early retirement package. Subcontract work was also brought back to the Perry Plant. Later in the same month, the company laid off 225 full-time workers. Five months later, in October 2001, another 250 employees were laid off, including plant and office personnel, dropping total employment to just over 1,000.

Charles Machine also faced the issue of succession, as Malzahn reached 80 years. Although he remained highly active with the company, in June 2001 he turned over the chief executive officer role to David O. Woods, who had been serving as the chief operating officer since 1995. Woods joined Charles Machine after graduating from Oklahoma State University in 1980 with a degree in business management. Malzahn held onto the presidency and chairmanship, thus continuing to be very much in charge. In the meantime, members of his family were also moving up in the ranks of the organization. His son served as vice-chairman; a granddaughter, Tiffany Sewell-Howard, who held an MBA from Oklahoma State University, was the head of information technology; and a grandson was involved in product development.

In February 2003, only two years after becoming CEO, Woods resigned to pursue other business opportunities, according to a company spokesperson. Despite his advanced years, Malzahn added the duties of the chief executive officer to those of president and chairman. He maintained that coming to work was, in fact, his favorite hobby, better than fishing or golf. His granddaughter, Sewell-Howard, took over the chief operating officer position. A year later, in February 2004, she was named Charles Machine's new chief executive officer, after joining the company just four years earlier. She faced some challenges ahead, as the company attempted to recover from the lingering effects of a recession. Charles Machine was already looking to further diversify its business, bringing out the mini skid steer and five mini excavators, but there was also considerable untapped potential for the traditional Ditch Witch products. Most of the world lacked the kind of underground infrastructure enjoyed by the United States. It was very likely that the greatest opportunities for Charles Machine in the future lay overseas.

Principal Competitors

Astec Industries, Inc.; CNH Global N.V.; Vermeer Manufacturing Company.

Key Dates:

1902:
Carl Frederick Malzahn opens a blacksmith shop in Perry, Oklahoma, with sons Gus and Charles.: 1949:
Charlie's Machine Shop becomes Charles Machine Works with the introduction of the Ditch Witch.: 1955:
A patent is received on the Ditch Witch.: 1958:
The company is incorporated.: 2002:
A fifth-generation member of the Malzahn family is named CEO.