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Supply Chain Management of Granite Construction Incorporated -
January 8th, 2011
Granite Construction Incorporated is one of the leading heavy civil contractors in the United States, operating primarily through its Granite Construction Company subsidiary. The Watsonville, California-based company is publicly traded, with employees owning 21 percent. The business of Granite Construction Company is divided into two divisions. The Branch Division serves local markets in California, Arizona, Nevada, and Utah, concentrating on highways, bridges, pipelines, and large and small local site projects valued at less than $50 million. Granite's Heavy Construction Division operates on a national level. While it occasionally accepts small local projects, it generally takes on such major public and private projects as highways, dams, rapid-transit bridges, tunnels, pipelines, and canals--generally valued in excess of $50 million. The division maintains estimating offices in Florida, Georgia, New York, and Texas. The Branch Division is also able to take advantage of the resources possessed by the Heavy Construction Division, which are normally not available to local firms, to gain a competitive advantage. In some cases the two divisions may collaborate on a project that is beyond the capabilities of a local branch. To achieve a competitive edge, Granite produces its own sand, gravel, and aggregate-based construction materials, which it also sells to other companies. Granite owns or leases strategically located reserves of aggregate materials, as well as 158 processing plants for rock, asphalt, and concrete. In addition, it operates one of the largest contractor equipment fleets in the country.
Granite's Founder Buys Quarry in 1900
Granite's founder was Arthur Roberts Wilson, better known as A.R. Wilson. Born in San Francisco in 1866, he was the nephew of the only Hispanic to ever serve as governor of California, Romualdo Pachero, who played an influential role in the young man's life after the early death of his father. Wilson was sent East for his education, earning a degree in engineering from the Massachusetts Institute of Technology in 1890. He then returned to the Bay area to become a construction engineer, serving a term as City Civil Engineer for Oakland and running the local quarry. Following this stint, he sought a source for high quality aggregate materials. He would find it in a small quarry located near Watsonville, alerted to the opportunity by Warren Porter, the son of an area banker. A major deposit of granite formed 200 million years ago had been pushed to the surface and made accessible by the actions of the San Andreas Fault. The granite would not be discovered until 1871 when the Southern Pacific Railroad was laying a coastal line and ran into it near Watsonville. The railroad took advantage of the deposit, mining the rock for ballast--which formed a bed for the tracks, providing drainage and support for heavy loads. Porter enlisted Wilson and four other investors to purchase the quarry. To raise his share of the money, Wilson borrowed $10,000 from a cousin, backed by a life insurance policy. He then moved his family to Watsonville, and on February 14th, 1900--Valentine's Day--the partners incorporated Granite Rock Company.
San Francisco Earthquake of 1906 a Turning Point
The Great Earthquake of 1906, which caused tremendous fires and leveled San Francisco, propelled Granite Rock into the construction business. In the aftermath of the quake, the company had contracted to build the Gilroy City Hall and a Wells Fargo building in San Francisco, as well as structures in the Monterey Bay area. In 1907 Granite Rock landed its first road construction job, paving the streets of Watsonville. As the automobile became more commonplace and the need for paved roads increased, California in 1915 passed legislation to modernize streets, what wags called the "Get Out of the Mud Act." Granite Rock was especially aggressive in drumming up paving business from local communities. The state's economy was also booming, providing ample construction jobs for Granite Rock. In 1922 the company underwent a number of changes. First, Porter had suffered heavy losses on an outside investment with Java Coconut Oil Company, which acquired his interest in Granite Rock. Wilson purchased the stock to become majority shareholder as well as president. Also in 1922 he established Granite Construction Company, a separate entity, becoming its president as well. Two years later a Salinas branch was opened. In addition, Wilson formed Central Supply Company, a materials distributor, thus allowing the family of businesses to offer a full range of service, from materials to construction. Wilson ran these three companies until just ten days before the stock crash of 1929. Driving home from the quarry one day he suffered a heart attack and died.
Wilson's wife Anna took over as president of the Granite companies and son Jeff Wilson served as general manager. The stock crash ushered in the Great Depression of the 1930s, and with the industries that it served suffering, the Granite companies struggled as well. Finding it too difficult to keep three businesses operating during this difficult period, the Wilson family decided in 1936 to sell Granite Construction Company to businessmen Walter Wilkinson, Sr., and Bert Scott. As a result, Granite Rock and Granite Construction now followed their own destinies.
Granite managed to survive the 1930s. During World War II, with Bert Scott serving as president, the company did some work for military installations, including Watsonville Naval Air Station. But it was during the postwar economic boom that Granite really began to grow. In 1946 it opened branches in Santa Cruz and Monterey. A year later Granite launched its Engineering Construction Department. It was also during this period, in 1945, that longtime CEO and Chairman Richard C. Solari began working for the company.
Granite remained very much a California contractor over the next 30 years. In 1955 it opened a Sacramento branch, and also during the 1950s acquired American Sand & Gravel Company. The company completed no significant acquisitions during the 1960s, then in 1971 bought E.H. Haskell Company to establish a branch in Santa Barbara. A Bakersville branch was established in 1976 through the acquisition of Owl-Folsom. In addition, Granite opened a branch in Stockton in 1978 when it acquired McGaw Company. It was also during the 1970s that Granite took on major projects outside of California. It completed a number of jobs related to the Washington Metropolitan Area Transit Authority, including several train stations in the District of Columbia and nearby Maryland. In Washington state, Granite worked on the Chief Joseph Powerhouse and the Rock Island Powerhouse, both on the Columbia River. Other jobs of note during the 1970s included Travis Air Force Base in California, Skitook Dam in Oklahoma, Kayenta Mines in Arizona, Aberdeen Lock & Dam in Missouri, and Spinney Mountain Dam in Colorado, and the Howard Street to Wilmette Tunnel in Chicago, Illinois. Granite closed the decade with Richard Solari succeeding Bert Scott as president.
The 1990s: Bringing Robust Growth
Solari oversaw a period of tremendous growth for Granite during the 1990s. The decade started with the creation in January 1990 of holding company Granite Construction Inc., which subsequently acquired Granite Construction Company as well as affiliate Wilcott Corporation. Granite was then taken public in April 1990, and its shares began trading on the NASDAQ. A secondary offer was held a year later. The company solidified its California base of operations during the early 1990s. A Palm Springs branch was opened in 1992, as was a San Diego branch. Also during the early 1990s, Granite expanded into Georgia and Texas. In 1995 Granite moved into the Utah market by acquiring Salt Lake-based Gibbons Co. for $42.8 million. Gibbons Co. was a holding company for several subsidiaries: Gibbons & Reed Co., a heavy civil contractor doing business in a number of Western states; Concrete Products Co., producers of concrete, asphalt, sand, and gravel; Garco Testing Laboratories, which conducted tests on materials used in the civil contracting industry; Inter-Mountain Flurry Seal, which made emulsions used in the maintenance and rejuvenation of asphalt; and Bear River Contractors, a construction and materials processing company. Tallied together, the Gibbons' companies generated annual revenues in the $90 million range. Granite completed another significant acquisition in 1997, bolstering its business in the Southeast by buying the highway and heavy civil construction divisions of Hardaway Co., a major construction company based in Columbus, Georgia, which sold the assets in order to concentrate on more profitable lines of business.
With the economy soaring in the second half of the 1990s and the construction industry further stimulated by new government spending on highway projects, Granite enjoyed strong growth. Revenues in 1995 totaled nearly $895,000, with net income of $28.5 million. In 1997 the company topped the $1 billion mark in revenues and continued to climb. The company also moved to the New York Stock Exchange in 1997. A major problem facing Granite and the entire industry at this point was its ability to find enough skilled operators of heavy construction equipment. The company began to recruit in high schools, and in Florida it turned to prisons, where convicts doing road work in conjunction with Granite would have a job once their sentences were completed.
Annual revenues reached $1.23 billion in 1998 and $1.33 billion in 1999, with net income growing from $46.5 million to nearly $53 million. A major portion of these revenues were projects paid for or partially funded by the Federal Highway Administration, as well as work that resulted from damage caused by El Niño. Also of note, the company created a land development business, Granite Construction, which grew out of an effort to convert a former gravel mine into a major Sacramento park. Because the company donated the land for the public park, Granite, in partnership with area developers, was permitted to build a business park within the confines. Private development fees then paid for the park's facilities. Over the next three years Granite Land became involved in other projects, including a shopping center in Antioch, California, and an industrial park in Dallas, Texas.
In May 1999, after working 54 years at Granite, Richard Solari retired as chairman, assuming the title of chairman emeritus. He was succeeded by Watts, who continued to act as the company's president and chief executive officer, leading Granite into a new century. The company continued to expand its reach and acquire assets. In 2000 it bought some operations of Wilder Construction Company, a Lubbock, Texas-based heavy civil contractor. A more significant transaction took place a year later with the $19 million purchase of Halmar Builders of New York, Inc., a heavy construction contractor located in Mt. Vernon, New York, with annual revenues of approximately $200 million. The move allowed Granite to participate in the highly attractive New York City market, which spent $6 billion each year on heavy construction. Prior to this point, Granite had only been involved in one major project in New Jersey. Rather than start up a New York operation, Granite elected to buy in, taking over Halmar's backlog of work worth close to $200 million. It was also an advantageous deal for Halmar, which was undergoing a transition in leadership among its four partners. The two older partners were able to cash out, and the two younger partners were able to maintain their management group and carry on the business as a subsidiary of Granite.
With Halmar in the fold, Granite saw its revenues rise to $1.55 billion in 2001 and $1.76 billion in 2002, along with net income of $50.5 million in 2001 and $49.3 billion in 2002. Revenues through the third quarter of 2003 were flat compared to the previous year, but net income was ahead of the pace of 2002 by close to $2.8 million. While the year-end results were being tallied, in January 2004, Watts turned over the CEO position to William G. Dorey, who had been named president in February 2003. Watts continued on as chairman. The 59-year-old Dorey had been with the company for more than 30 years, holding a number of executive positions and serving in key roles during Granite's impressive run of growth since going public in 1990.
Principal Subsidiaries: Granite Construction Company; Wilcott Corporation; Granite Land Company; Granite Halmar Construction.
Principal Competitors: Bechtel Group, Inc.; Peter Kiewit Sons', Inc.; Washington Group International, Inc.