Leaders Helping Leaders, Part 2
More highlights from a Peer-to-Peer Exchange session held during the American Mold Builders Association’s annual conference.
Peer-to-Peer Exchange sessions at the American Mold Builders Association’s (AMBA) conference lets mold industry leaders share challenges and offer solutions. Last week, I shared some of the questions and challenges discussed as they pertain to shop culture, leadership and related topics (you can find that blog here). Today I bring highlights from the group’s discussions about diversifying a shop’s customer base, managing the peaks and valleys of workload and how to keep up with the capital investments needed.
To reiterate, participants in our group of mold shop leaders and top management included those from Midwest Mold Services, Strohwig Industries, Concept Molds, Precise Tooling Solutions, Minco Group, Creative Blow Mold Tooling, D&M Tool, Do-Rite Die & Engineering and PM Mold Company.
Following are the balance of the questions or challenges discussed and the proposed resolutions that resulted from this great peer-to-peer discussion (as before, names have been removed as a courtesy).
Challenge: We all live in capital-intensive businesses. How do you keep up with it? What percent of your revenue do you spend each year on capital investment?
Suggestions/What has worked:
- Percentage wise, I am not sure, but I can say that in the last two years we purchased three new machines, but prior to that, everything was two, three, four years old or had been purchased before that. Everything else has been maintained. Just because it is an old machine, it doesn’t mean it doesn’t work well. What matters is that it is well maintained and that it suits its purpose. We’re all trying to get as much unattended time as we can, so tool changers are the most important things you can have on a machine.
- Technology dictates some of that, too. You have to gauge the new technologies that come out and weigh that against any bottlenecks in the shop.
- Well, the technology is definitely helping us with the workforce issue. We spent $1 million on a five-axis Roders CNC eight months ago, and we’re getting parts out of it now that don’t need any blue, they don’t need any polishing or EDM. We just take the parts off and drop them in. We took 80 hours out of polishing and 40 hours out of EDM. It makes sense, but it is hard to spend a million bucks every year.
- I try to go back to the owner and tell him that I can get more hours out of a new machine versus the five old ones sitting there if he would make the investment. But, like any owner, he is looking at the price tag and saying, “How much is that thing?” I told him buy me one sinker and the other two can go.
- We just started doing some basic time comparisons. All of our machines are well maintained, but our two sinkers are 22 and 24 years old, so we did some time studies of just how much faster these new machines are, how many less electrodes they use and how much time can be saved and over the course of two years, we’re going to pay for a brand new sinker and an automation robot. So, when you start putting it on paper, and you can make sense of it, it’s hard not to buy new equipment.
- What we look at is what we need that will impact process and reduce direct labor. Technology is how you make money. We can’t do what we do with old technology. It’s slow growth, but we have to look at what we need versus what debt we have and base our decisions on that.
Challenge: How to diversify the customer base and compete with cheaper competitors.
Suggestions/What has worked:
- When I bought my company, we were about 90% automotive, and today we are less than 50%. Our service business has really taken off, we added a couple of side businesses into the company that have become fairly profitable. What’s interesting is that since we have brought the moldmaking side of our business down, and expanded our service base, our customer satisfaction survey ratings have gone through the roof. People are happier with us on the mold building side and very happy with us on the services side, so we are more profitable. All I want to do is maximize my productivity and profitability coming out of our 50,000-square-foot facility. We have an in-house marketing team and sales team and we spend a lot of time on marketing, using a sophisticated program called HubSpot.com, which manages all of our sales and marketing activity, quoting, follow-up and processes, etc. It’s certainly not easy, but it helps us a lot with our closing rate. We have 50 employees including five project managers, one direct employee salesperson, seven independent reps recruited through an association (mana.org) for sales reps.
- We moved to diversify in 2006, and we were 100% automotive mold builder. We purchased a new building and we weren’t growing into it with our core business, so we had to find a way to do that. So, we optimized our website so that via search engine optimization we could target those areas we wanted to grow into, and it has grown our revenue by about 20% since 2006 without any sales guys; without anything than a presence bringing leads to us.
- If you guys are not tied into your local Manufacturing Extension Partnership (MEP), I would really encourage you to do so. MEP is a federally funded program; it’s in all 50 states and typically run by a land-grant university, and their whole goal is to help small manufacturers like us by providing technology grants or sales strategies. We just worked with them to identify five strategies we wanted to be in and they gave us 22,000 names of people in those five industries. They did it all for free, so that’s now in our database and we’re marketing to those people. They (MEP) do everything from quality training to anything with respect to advanced manufacturing, including sales and marketing, they can help you with that. If you put the time in and your people are going through training, they will pay for the instructor. It’s free and in most cases really, really helpful.
- We worked with MEP in Tennessee. They have a pretty good program for quality and leadership training.
Challenge: How to balance the peaks and valleys in workload.
Suggestions/What has worked:
- I reduce hours. We’ve been as low as 40 hours since I have been there. When you hit those down spots, to me that is a good time to look around the shop and ask what new fixtures are needed. Do you need to make any equipment that you might use in the future? Take a look at organizing the tool crib. This is the time because, you know, we can stay at 40 hours, keep busy and keep the shop looking the way it should be. That way when it hits, we’re organized and ready for it.
- I agree. We made holding fixtures for the EDM when we were slow.
- We seem to get slow in design first, so I tell the designers to standardize everything. Go draw a bunch of mold bases that you know you’re going to use later, download a bunch of standard components and have them ready – whatever you have to do to make the next job go quicker. It might cause us a bit of overhead time right now, but it pays off later.
- It happens to everybody. You’re busy, busy, busy with all this quoting activity going on and all the sales guys are saying everything is trickling down, but suddenly it all goes dry and there’s no rhyme or reason for it. I have yet to figure it out. The sales team can’t figure it out. It’s out of our control. One thing you can control is right size your business. Back in the 1980s when I started, I worked for another company. There were no peaks and valleys; shops were adding onto their buildings or building other facilities and so on. We’re not doing that today; we’re not putting another 50,000 square feet on our building. So that didn’t work for us. So, what I ended up doing was right-sizing the company. We purchased a building and I said we’re going to grow into it and then dial it in. So, if the ownership of a company doesn’t have a plan, and all you’re doing is making money and then giving it back because you’re holding onto employees because if you lay them off you won’t get them back, you have to right-size your business. What I mean by that is run your company at 120% capacity and develop sub-suppliers outside your business so the peaks and valleys are outside your business and not inside your building. We have good sub-suppliers we can go to when we are over capacity, and when we are under capacity those guys have to deal with it, not us. The peaks and valleys are not so big.
- It’s hard to make money in manufacturing when you are not at 100% capacity. When you see assembly plants and they are at 100% capacity you see the profits of the OEMs are turning. They are dropping off a shift, profits are going down. So, how do you get your business at 100% capacity, and right now it is the best economy it has been since I have been in business. What I thought was good between 2000 and 2008, and then we redefined “normal,” and we have never seen this before and the last figures have been good. If you have low capacity now, what is five years down the road going to look like?
- We heard Laurie Harbor say today that she thinks this is going to be a lot like 2008.
- I don’t believe it will be like that.
Question: How did the tariff, and then the removal of the tariff, affect your businesses?
Suggestions/What has worked:
- Steel got more expensive and that’s about it.
- Some said prices were going up because of that, and others didn’t. So I often wonder if the ones who said oh, yeah, that’s raising our steel prices, is that just an excuse?
- Like gasoline, they are raising prices because they can.
- We saw our quote book grow, grow, grow as tariffs were on, and then as tariffs fell off our quote book is down, though it does seem to be growing again. Laurie Harbor just did a big China study and they are just kicking our a#@.
- They always have.
- The AMBA board just agreed to fund a big initiative to go back after the tariffs. If Trump is going to play with tariffs, we’re going to go back and ensure that mold builders get the tariff because our customers are not necessarily looking out for our best interests.
- I disagree with that. Our job is to take direct labor costs out of manufacturing. Their job is to throw labor at it because they have so much of it. We don’t have labor, so we have to throw technology at it. Material costs and machine costs are the same; they are buying the same steel we are – it’s all global. They are subsidized, we’re not, and the disadvantage is geographic. You have to ship all that stuff over here. If you put tariffs on it the same thing is going to happen. They are going to raise the price of steel. The people making money doing it are still going to make money.
- The fact is, we are all at a disadvantage because all of these other tariffs exist except for mold building.
- I’m not saying don’t level the playing field.
- That’s all we are trying to do.
- I have customers in China and they are doing it because their molds are 25% of what our molds are. What they saw when tariffs went on, China mold prices went down. I’ll be honest with you. If at the end of the year I can make 12% to 15% margin, that’s as good as we have done. In China, their margins are so big they can drop their prices 15% and still kick our a$@.
- According to Laurie’s study, those tariffs really hurt the Chinese shops’ businesses. My customers told me hey, if it’s a 25% tariff, we are building in the states, which I think is good for our industry.
- Seems like we got more interest from companies who haven’t been interested before – they kind of revisited building molds in the United States. I am not sure how much they actually brought jobs back.
- The cost of the mold is simply not the issue. It is a red herring that our customers wave and it is B.S. I think what the 25% tariff did, at the very least, is make a few companies think twice about going to China and instead give U.S. moldmakers a chance to compete. And the way we compete is by spending a million dollars on machines and taking time out of the mold build. That tariff got me closer to getting work that would have gone to China. The Chinese may have lowered their prices, but it hurt them, and it hurt them bad. If we had been able to go a whole year with that tariff, this industry would be a heck of a lot stronger.
- But what if China manufacturing didn’t exist? We don’t have enough manpower to build all those jobs that are coming back.
- But not everyone is operating at capacity.
Great discussions were had within this group. I only wish I had been able to sit in with other groups, too, and hear what they were focusing on. I hope moldmakers who read this blog will offer up their own opinions and advice, too. MMT is always interested to know what you think!
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