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How Manufacturers Are Playing the Long Game
Lew Weiss, president of All Metals & Forge Group, has co-hosted Manufacturing Talk Radio with Tim Grady since 2013. Photo courtesy of Lew Weiss/Manufacturing Talk Radio.
Strong relationships with customers and suppliers are seen as one of the keys to long-term growth
By Mark Shortt
Lew Weiss reads the economic tea leaves and sees the beginnings of a recession ahead. Europe’s leading economy, Germany, is taking some hits that he believes could ultimately affect manufacturers in the United States. It’s a Friday morning in late August, and Weiss appears relaxed and self-assured as he anticipates a favored ritual: poring over the Manufacturing ISM® Report On Business®, due out shortly from the Institute for Supply Management® (ISM®).
“I know [company] presidents who sit and wait for 10 a.m. on the first workday of the month, waiting for that report to see how we’re doing,” said Weiss, president and CEO of All Metals & Forge Group, LLC (AM&FG), a manufacturer of open die forgings and seamless rolled rings headquartered in Fairfield, New Jersey. “I find it very helpful, and it gives us a good indication of what we should be doing as far as marketing products and growing the business, or holding back.”
Weiss started working for a private metals distributor in Brooklyn, New York, at the age of 18, and has spent his entire 55-year career since then–the last 15 years as head of All Metals & Forge Group–working in the metals industry. Since 2013, he and his colleague, Tim Grady, have co-hosted Manufacturing Talk Radio, a weekly podcast that dives into manufacturing topics from technology to economic indicators.
On this day, in the studio of Manufacturing Talk Radio at the All Metals & Forge Group headquarters, Weiss notes a downward trend in the Manufacturing ISM® PMI® (Purchasing Managers Index) over the last several months. The July PMI®, based on survey responses from purchasing and supply chain executives nationwide, is at 51.2 percent, not far above the 50 percent mark that would border the first contraction in the manufacturing sector since August 2016.
“I’m suspecting that this coming month, we may see it (the August PMI®) go below 50,” Weiss said. “You heard it here first.”
Purchase Orders Signal Uncertainty
Since Weiss spoke with D2P in August, manufacturers have been expressing their uncertainty about current and future market conditions, particularly with regard to trade issues. Their uncertainty is now being reflected in reports showing decreases in purchasing orders for manufacturing technology and products.
The Association for Manufacturing Technology (AMT) said in a September release that orders for U.S. manufacturing technology in July 2019 totaled $383.7 million, up 7 percent over June but down 5 percent from July 2018. At $2.64 billion, the total value of manufacturing technology orders through July 2019 was 12 percent lower than the year-to-date total of $2.98 billion through July 2018, AMT said in its latest U.S. Manufacturing Technology Orders Report.
Douglas Woods, president of AMT, noted that job shops accounted for almost a third more of the total orders than in 2018.
“Clearly, other larger manufacturers are putting off capex and addressing capacity needs by outsourcing production shortfalls with job shops,” Woods said in a statement. “We suspect the impetus is the uncertainty with the current market and future economic conditions.”
As Weiss had predicted, the August 2019 PMI® fell below 50 percent, coming in at 49.1 percent and representing the first contraction in the manufacturing sector in the last 36 months.
The September PMI®, released on October 1 (www.ismrob.org), showed further contraction, registering a 1.3 percent decrease to 47.8 percent.
“Global trade remains the most significant issue, as demonstrated by the contraction in new export orders that began in July 2019,” said Timothy R. Fiore, chair of the Institute for Supply Management® (ISM®) Manufacturing Business Survey Committee, in a press release. “Overall, sentiment this month remains cautious regarding near-term growth.”
As president of All Metals & Forge Group and co-host of Manufacturing Talk Radio, Weiss has a unique perspective on manufacturing in America today. He is bullish about U.S. manufacturing’s long-term prospects, believing that it will grow–albeit with difficulty–with the help of innovative technology and smart policies.
One of the technologies with potential to drive manufacturing forward is robotics. Not only do robots help manufacturers boost productivity, flexibility, and quality–they also create and support jobs for the people who produce, program, and maintain them. That means opportunities for industrial designers, mechanical and electrical engineers, software engineers, systems integrators, and cybersecurity specialists, to name a few.
For the U.S. robotics industry, Weiss sees precedent in Japan’s rise to become a leading producer of robots, which helped solve the nation’s labor shortage after the nation lost a whole generation of men in the Second World War.
“Robotics is going to be a huge, huge industry here in the United States,” he said. “Somebody’s got to make them. In some cases, the robots are going to be making robots. But you still have to have people to run them, maintain them, and so on.”
Manufacturers Voice Opposition to Tariffs
Manufacturers and industry advocacy groups are increasingly voicing dissatisfaction with what they see as unnecessary uncertainties around the nation’s current trade policy. Weiss, not one to mince words, said the tariffs are not the answer to China’s unfair trade practices.
“We’ve had 11 tariffs in this country over a period of years,” Weiss told D2P. “Not one of them was successful. The myth is that China, in this case, is paying us close to a quarter of a trillion dollars this year, in tariffs. Not true–we’re paying the tariffs. What we should do if we want to really impose an effective program on China is to institute quotas–then we’re attacking the problem.”
Weiss’s opposition to the tariffs is shared by a growing number of manufacturers and leaders of industry trade groups, including National Association of Manufacturers (NAM) President and CEO Jay Timmons and Consumer Technology Association (CTA) President and CEO Gary Shapiro.
In two recent public statements, Timmons acknowledged that China engages in unfair and harmful trade practices–from distorting markets to stealing intellectual property and forcing the transfer of technology and data. But he said manufacturers would prefer to see the administration bring China back to the negotiating table to work on hammering out a trade agreement that will “redefine the U.S–China economic relationship for the better.”
“Manufacturing optimism took a substantial hit in our latest survey, driven largely by uncertainties in trade policy,” Timmons said in a prepared statement. “The administration’s latest tariff action will certainly get their (China’s) attention, but it also has the attention of manufacturing workers in the U.S. and their families, who are feeling the negative impact of the current tariffs and will be made even less competitive with this new tax on trade.”
Lee Norris is co-owner of Big Gun Robotics, LLC, a Newberry County, South Carolina-based robotic welding company that supplies precision welded assemblies to heavy equipment manufacturers. Norris said the volatility of today’s political landscape has been a double-edged sword with positive and negative impacts for Big Gun Robotics. On the downside, as prices of foreign material have surged over the last two years, he’s seen domestic mills respond by hiking their prices, too.
“Some of our customers require that we use foreign material, so we end up paying more for it, but it’s still cheaper than the domestic material,” Norris said in an interview. “I would love to see domestic mills get on board with the fact that we could really ‘steal’ some of the market share from overseas and bring it back to America if we just control our prices. I feel like the [domestic] mills are saying ‘We’re comfortable with our market share. Now that everything’s going up because of overseas tariffs, let’s just raise our prices with it.’”
On the positive side, Norris said the uncertainties over trade policy have led some customers to do more business with domestic suppliers.
“It’s led to more business in the sense that some of our customers say, ‘Let’s build and invest in our domestic supply chain because we’re not sure what’s going to happen on the foreign market or the domestic market. Our sales volume is here in the States, so let’s build our product relatively close to us.’ So, we’ve seen them wind down investment overseas and increase investment here in the States. That’s been a good thing for us.”
Make no mistake: Big Gun Robotics is growing, despite the tariffs. The company, founded in 2014, is in the midst of a $3.6 million expansion that is expected to create 16 jobs over the next five years. Big Gun Robotics manufactures large steel assemblies for mining, agricultural, and heavy construction equipment, such as front loaders and excavators. The company currently employs 24 full-time workers at its 22,000-square-foot facility. “We’re going to be adding an extra 10,000 square feet and bringing in some brand-new paint equipment to increase our efficiency,” Norris said.
Building Long-Term Value by Helping All Stakeholders
The history of offshoring by American corporations includes more than a few instances where CEOs chose to satisfy shareholders by delivering short-term profits. In some cases, those profits came by moving the company’s manufacturing operations overseas, where lower labor costs and part prices would make income statements more attractive to shareholders.
But in communities where large numbers of manufacturing workers lost their jobs to offshoring, the economic impacts of these decisions were devastating. It wasn’t just manufacturing workers who were hurt, but also employees at businesses whose revenues declined when the laid-off manufacturing workers could no longer afford to buy as many goods and services as they had previously.
Now, a recent statement by Business Roundtable shows some CEOs breaking from the long-held view that corporations exist mainly to serve shareholders. The organization released a statement in August that redefines the purpose of a corporation, laying out a new standard of responsibility that challenges corporations to consider more than just shareholders–and more than short- term profits–when making business decisions. More than 180 CEOs signed Business Roundtable’s Statement on the Purpose of a Corporation, committing to lead their companies for the benefit of all stakeholders, including customers, employees, suppliers, and communities, as well as shareholders.
“Major employers are investing in their workers and communities because they know it is the only way to be successful over the long term,” said Jamie Dimon, chairman and CEO of JPMorgan Chase & Co. and chairman of Business Roundtable, in a statement.
The new Statement on the Purpose of a Corporation supersedes Business Roundtable’s previously issued Principles of Corporate Governance, which have endorsed principles of shareholder primacy since 1997.
“I welcome this thoughtful statement by Business Roundtable CEOs on the Purpose of a Corporation,” said Bill McNabb, former CEO of Vanguard, in a statement. “By taking a broader, more complete view of corporate purpose, boards can focus on creating long-term value, better serving everyone–investors, employees, communities, suppliers, and customers.”
Business Roundtable’s statement echoes arguments made by reshoring advocate Harry Moser, who has long asserted that corporations should consider the impact on their communities–where they are based–when deciding whether to manufacture overseas. Moser is the founder and president of the Reshoring Initiative, an organization dedicated to bringing manufacturing jobs back to the United States. In an online debate hosted by The Economist six years ago, Moser argued that multinational corporations have a duty to maintain a strong presence in their country of origin by “investing, employing, manufacturing, and sourcing, at least in proportion to their sales in the origin country.” These activities, he said in a 2013 interview with Design-2-Part (see Still Chasing Cheap Labor Overseas? The Business Case for Bringing Manufacturing Home), are typically in the interest of a company’s shareholders as they support the long-term stability of the company and the community in which it is based.
“Even if you’ve paid a high return to your shareholders, look at what happens if you don’t maintain a strong presence in your country,” Moser told D2P. “If unemployment gets so bad and the U.S. loses its defense and the society collapses, your shareholders may have good dividends, but they’re going to be living in a horrible country, and therefore you’ve hurt them. So, think about not just the dividends you give to them, but also maintaining the society in which they live, given that 80 percent of U.S. companies’ shareholders live in the United States.
“The company can only survive if the country is viable, if our legal system survives, if the Defense department has some strength,” Moser continued. “If you undercut the country too much, all those things will go away and your company will be destroyed or taken over. Therefore, in the long term, to maintain stability for your country, and therefore for the company, give at least some thought to [maintaining a strong manufacturing presence in your country].”
A reporter asked Lew Weiss if he believes Business Roundtable’s statement will have an impact on companies’ decisions to manufacture overseas, versus domestically.
“Maybe, yes, maybe no,” he said. “I also see that Wall Street and shareholders have a great influence on large OEMs and manufacturers. ‘Made in America’ is a good approach, but the issue is that we still have Wall Street that dictates so much of what we do and don’t do.”
Manufacturers Say Customer-Supplier Relationships Are Key to Long-Term Growth
Executives at manufacturing companies interviewed by D2P confirmed that developing close relationships with customers and suppliers–a process that takes time and effort–is key to building their businesses. Close customer-supplier relationships help build loyalty and are crucial to the success of both companies over the long term, they said.
Weiss, for one, said that All Metals & Forge Group places a lot of importance on developing a close connection with its customers.
“I found, over the years, that many companies–and this goes back before customer relationship management (CRM)–weren’t that loyal to their customers, and customers weren’t that loyal to their suppliers. You became ‘the milkman’–you delivered milk; you didn’t get into relationships. And I found that, in the position that we were in, being a smaller forge shop company, we had to do something better and stronger to build relationships with our customers. We’re very conscious of those relationships to this day, and we have gone way, way, over the top in doing that.”
One of the benefits of building a closer relationship with customers, Weiss said, is that it helps the company anticipate its customers’ needs.
“When you get closer to your customer, they’re more open to talk about their needs, more open to say, ‘Lew, your price is a little high–see what you can do.’ We get the inside skinny on what we have to do to get the business and retain the business.”
Business has exploded for Big Gun Robotics over the last couple of years as many of its customers–particularly manufacturers of heavy equipment used in construction–have expanded their product lines to accommodate soaring demand. Norris said the company has invested heavily in its supply chain, devising creative ways to help its vendors, suppliers, and customers meet the construction industry’s surging demand for parts and services.
Big Gun Robotics employs what Norris called an “integrated manufacturing” strategy that puts “boots on the ground” in its customers’ facilities, enabling BGR’s team to learn its customers’ processes, procedures, and needs, as well as strengths and limitations. It’s an open, cooperative process that seeks honest feedback and recognizes that what’s good for its customers is also good for Big Gun Robotics. The idea is to apply its strengths and expertise to create a solution that gives customers what they need.
“We’re trying to help them increase their strengths while they help us increase our strengths,” Norris said. “Then, we just take that [process] and push it down to our suppliers.”
Big Gun Robotics applies the same method in working with suppliers, helping them create safer workplaces, for example, and supporting them in areas, such as buying power, where they may have less control over their ability to be competitive.
“We saw that many of our vendors didn’t have the buying power for material that we had, so we paired up and we said, ‘Let us go to the supplier and lobby for you on our behalf.’ And we’ve come up with ways to buy the material, consign the material, drop ship the material at our vendors, sell the material to our vendors at the cost we’re getting it for–little things like that,” Norris said. “We’ve kept the little guys (suppliers) busy without letting the big industry overwhelm them for things that they really can’t control.”
Madison Company, a Branford, Connecticut-based supplier of liquid level sensors to OEMs, has worked diligently to build strong long-term relationships with customers and suppliers, as well as its employees and the community. Madison Company President Steven Schickler told D2P that strong relationships with customers are built by spending time with them on the phone and in-person, learning what they’re trying to accomplish and what’s important to them.
“We’re attuned to listening to what our customers really want to do,” he said. “A lot of times, they say they want ‘X.’ We’ll ask a few questions, and ask a few more, and we often find that we can improve on what they wanted by executing with the capability and knowledge that we have here.”
Schickler recognizes that success in providing value to customers is the foundation that allows Madison to benefit its employees, suppliers, and the community. A statement on Madison’s website outlining the company’s mission appears to align squarely with the Business Roundtable’s recent statement on the purpose of a corporation:
“At Madison Company, we support our customer’s efforts by employing our capabilities, experience, and application know-how to provide the best solutions,” the statement reads. “Our success in providing value to our customers builds a company that benefits customers, employees, suppliers, and our community. Ultimately, our mission is to benefit people’s lives now and in the future.”
David Dering, vice president of operations at Madison Company, said that Madison looks for high reliability, quality, and cost competitiveness in its own suppliers. As a company, Madison is also very loyal to its suppliers who meet those requirements, he said.
“If somebody does a good job for us–if they’re reliable and have good quality, we’re not necessarily going to jump vendors for a penny,” Dering said. “So, it’s a two-way street: We’re not looking for the cheapest, quickest guy every time. Long-term relationships are important.”
Schickler agreed with Dering’s assessment. “I think that’s very true. The relationship really helps a lot,” he said. For more on Madison Company, see “Custom Level Sensors, Fast: The Madison Way.”
Weiss said that not only does All Metals & Forge Group keep in constant contact with its customers, but they also enjoy the relationships.
“We like our customers, and that’s all part of the partnering,” he said. “We do have what I consider very special relationships. We have programs for our customers that we call LTAs–long-term agreements. A lot of forge shops don’t do that today because you have to make a commitment a year or two out into the future. We’ve found ways of being able to accommodate that, where [customers] can get a benefit and firm pricing for a couple of years, and that’s a big plus.”
Weiss also believes in adding value by going one step beyond what customers typically expect from a manufacturing process or delivery. For example, All Metals & Forge offers ultrasonic testing, something that not every forge shop does.
“We ultrasonic test every part that we manufacture. So, we’re giving them something over and above what their expectations are, and not all forge shops do that.”
Large, Heavyweight Forgings for Diverse Markets
All Metals & Forge Group (www.steelforge.com) is an ISO 9001:2015 and AS9100D certified manufacturer of custom and standard open die forgings and seamless rolled rings. The company specializes in large, heavyweight forgings, weighing up to 80,000 pounds, for industries from mining to metal working to oil and gas exploration, among others.
“We run, pretty much, the whole gamut–turbines, wind turbines, machinery builders, machine shops, aerospace, off-road, heavy equipment,” Weiss said. “We planned it that way because I did not want to focus on one particular industry, or two particular industries. The problem with that is, if [the industry or industries] go quiet, you’re in deep trouble. So, we don’t sell to any industry more than 10 percent of our revenues.”
Open die forging produces stronger parts than an equivalent cast part, Weiss said. That’s because the process–a combination of heat and compressive force delivered by a hammer–reworks the internal grain structure of the metal, resulting in a part with finer grain size and better grain flow.
“The old expression is that you ‘heat it and hit it,’ Weiss said. “You get much better mechanical properties and much better molecular structure in forgings than you do in castings, which are poured molten steel, and there’s no grain structure. There are bubbles inside the castings, and even in the wrought products, the rolled bar and rolled plate, you have good structure, but it’s still not as strong as a forged product.”
Weiss made sure that All Metals & Forge Group would be diversified not only by industry, but also geographically. In addition to serving the North American market, the company has developed an extensive overseas business, selling forged products in South America, Europe, and Asia. Weiss believes that expanding one’s markets internationally should be a key part of a manufacturer’s long-term growth strategy.
“I think you need to open your mind to look to explore additional markets,” he said. [It’s] not easy, but it’s something that one has to think about.”
A ‘Daily Deficit’ of Manufacturing Workers
The manufacturing sector is experiencing a shortage of skilled workers who can fill available job openings. The National Association of Manufacturers estimates that 4.6 million manufacturing jobs will be needed over the next decade. Although steps are being taken in the right direction, solving the labor shortage will require broad-based cooperation among manufacturing businesses, educational institutions, and government agencies. Workforce training issues won’t be solved overnight.
The problem is especially acute in the forging industry, where it can be difficult to find somebody who has not only the skills, but the desire to “work in a 140-degree forge shop in the summer,” Weiss said. “Plus, I don’t know how many millennials really want to work in a forge shop.” He said that he knows of several forge shops that are closing.
“A forge shop really beats up your body, and you can’t get young people to come into a forge shop; it’s very difficult,” he said. “And for somebody who’s been a hammersmith for 20, 30, 40 years, to train a youngster to take over, it’s very difficult. So, by necessity, it will probably happen that the forging industry is going to evolve into something else.”
Throughout the U.S. manufacturing industry, the employment pool is shrinking daily at a faster rate than people are entering it–what Weiss called a daily deficit. The situation is prompting the creation of apprentice programs all over the country, including in New Jersey.
Workforce Training Efforts Support Delaware’s Manufacturing Sector
In Delaware, the workforce training program Pathways to Prosperity begins in high school and continues with training and degree options at regional colleges and universities, including Delaware Technical Community College. Photo courtesy of Delaware Prosperity Partnership.
A workforce training program in Delaware is aiming to expand the number of qualified workers who can step into jobs in the state’s manufacturing and advanced manufacturing sector. The Pathways to Prosperity program begins in high school and continues with training and degree options at regional colleges and universities, including Delaware Technical Community College. For adults already in the workforce, it provides widely available “up-skilling” programs that enable manufacturing workers to grow and advance in their fields, according to the Delaware Prosperity Partnership, a non-profit, public-private partnership that manages economic development for the state of Delaware.
Delaware’s Pathways programs appear to be gaining popularity among students and their parents. The number of students who are expected to complete the advanced manufacturing pathway offered through Delaware Tech increased 33 percent this year, according to the Delaware Prosperity Partnership, which said it expects the growth to continue.
John Taylor, director of economic research at the Delaware Prosperity Partnership, said the state’s manufacturing sector has seen significant growth in recent years. Through July 2019, Delaware had approximately 28,000 jobs in its manufacturing sector, about 2.6 percent more than through July 2018, Taylor told D2P. The percentage increase was about twice the national average during the period from July 2018 to July 2019, translating to about 700 new manufacturing jobs.
“We’ve seen employment growth of about 9.5 percent during the last five years, or about 2,400 new jobs in manufacturing during that period,” Taylor said in an interview. “Obviously, we’re a smaller state. But in percentage terms, it’s pretty significant growth compared to the national average. And even in absolute terms, 2,400 new jobs in the last five years is a pretty substantial figure for a state our size.”
Taylor said that over the last five years, Delaware has seen growth across all five of its largest sub-industries, which include computer and electronic product manufacturing; chemical manufacturing; plastics and rubber products manufacturing; fabricated metals, and food processing. “It’s been a positive sign, and good to see growth across a diverse range of manufacturing segments,” Taylor said. “Those account for about 70 percent of all manufacturing employment in the state.”
Datwyler Group, a Switzerland-based company, created 120 new jobs in the state last September by opening a new manufacturing plant in Middletown, Delaware. The company is reported to have invested more than $102 million in the highly automated plant, which manufactures elastomer components for injectable drug delivery systems.
Ambitious Investments in the Future of U.S. Manufacturing
Toyota is investing $391 Million in its San Antonio Assembly Plant while also making a commitment to further fund development of the local workforce. Photo courtesy of Toyota Texas/PR Newswire.
Short-term economic uncertainty is not stopping foreign and domestic companies from going long by investing in American manufacturing. Established players, like Toyota, and dynamic newcomers, such as Nanotronics, are seizing opportunities to make bold new investments that will boost domestic supply chains and spur development of local workforces.
Toyota is investing $391 million at its San Antonio assembly plant, a move that reinforces its commitment to build vehicles where they are sold and provide better service to its customers. Toyota’s investment is part of a broader commitment to invest $13 billion in its U.S. operations over five years through 2021.
The company has also committed to continue its funding for local workforce development, which Toyota said is a community need that it has long championed. It will donate $500,000 over a five-year period to Alamo Promise, an organization that works to meet workforce needs throughout San Antonio.
“This is exactly the kind of project our city has strategically been preparing for–it shows we’re a competitive region ready for big investment from large manufacturers,” said San Antonio Mayor Ron Nirenberg, in a prepared statement. “Toyota’s investment in our people and our city creates opportunity that can change the lives of an entire generation.”
A rendering of Nanotronics’s high-tech manufacturing center at the Brooklyn Navy Yard in New York City. Nanotronics will invest $11 million in a 25,000-square-foot hub that will position manufacturing alongside research and development and include a training pipeline in partnership with the City University of New York. Image courtesy of the press office of Gov. Andrew M. Cuomo.
Farther east, Nanotronics, a manufacturer of advanced imaging systems, is investing $11 million in a high-tech manufacturing hub at the Brooklyn Navy Yard in New York City. Billed as a blueprint for reinvigorating New York’s manufacturing sector, the project will unite manufacturing with research and development in a 25,000-square-foot hub and is expected to create 190 new jobs, according to a release from the office of Gov. Andrew M. Cuomo.
“This project melds the Brooklyn waterfront’s industrial heritage with its tech-based future and creates a state-of-the-art manufacturing center that will generate jobs, spur investment, and build a stronger economy,” Gov. Cuomo said in the release.
Nanotronics is also partnering with the City University of New York’s (CUNY) Medgar Evers College to join the START-UP NY program. The program fosters collaboration between innovative companies and universities across the State of New York to develop the next generation of leaders for the state’s expanding technology and manufacturing ecosystem.
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