Monthly Archives: November 2011

Distribution and Manufacturing: Marriage Made in Heaven?

Will a marriage of distribution and machining firms turn out like Kim Kardashian's?

I see a mini-trend developing in the consolidation of companies in distribution and Hydromat machining companies. A major automotive supplier whose core business process is rotary transfer turning of steel bars is close to closing a deal with a fastener supply firm with CNC machining capability. I’ve already seen two other acquisitions of this type and I can anticipate more as the supply chain becomes more taut.

Three years ago Tribal Corporation, a plumbing supply company, bought Marshall Brass to add screw machine and rotary transfer capability to their successful distribution firm.

MultiTech, a primarily cold heading company near Chicago, bought its rotary transfer vendor a couple years ago in a distress sale.

The distributor buying the manufacturer can be a marriage made in hell because the cultures usually are quite different. The theory of distributor and vendor under the same tent sounds so simple in the business plan or annual report, but the reality is usually fraught with suspicion.

Tribal shrewdly cleaned house at Marshall, culled the workforce, and rehired at a lower pay scale. They managed to turn a chaotic manufacturing company around, from what I’ve heard.

From my observation, companies that develop distribution or manufacturing by growing it themselves get bigger more slowly, but probably with less company upheaval.

What prompted me to write this blog was reading the Web site of the fastener company which is acquiring the rotary transfer machining machining firm. The copy on the Web site described how they acquire “human capital.” When I see PR drivel about “human capital” I immediately suspect the company is run by Wall Street MBAs who think threaded nuts are cashews.

The stats I’ve seen say most acquisitions end up as failures for the buyers in the long run. But for many CEOs the “long run” is the next guy’s problem.

Vendors and distributors. Mars and Venus. Two different planets. Take the money and run.

Question: Do you think distribution and manufacturing firms can easily combine?

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Don’t Say You’re Sorry

A few years ago, I was playing a doubles tennis match and after missing an easy shot I said to my partner Archie that I was sorry. He then told me emphatically, “From now on, never say you’re sorry, just stay aggressive!” All of a sudden a great weight was taken off my shoulders. I didn’t worry anymore about pissing off my partner by screwing up and instead just focused on winning the game. I relaxed, had more fun, and generally played better.

Since then, playing doubles has never been the same. I never say “sorry” any more, and the moment my partner says he’s sorry I say, “Don’t worry, just stay aggressive.”  Of course after that it’s a given that I don’t have to say sorry anymore either.

I have the same rule when dancing, as I’ve been addicted to salsa dancing for the last four years. The moment my partner says sorry, I smile and say, “Baby, you never have to say you’re sorry to me, at least for screwing up.” Just like in tennis we both relax more, we dance better and usually have a good time.

The “no sorry” rule should definitely be in effect in a business setting as well. When a team gets together to come up with new ideas or strategies, its members need to know they are safe to ask questions or bring up ideas which may turn out to be lousy. If employees fear they will be punished through ridicule, embarrassment or firing they probably will be afraid to bring up anything interesting or creative. Sometimes when I have writer’s block or I’m stumped by a problem, I ask myself, “What’s the most ridiculous idea you can think of?” Believe it or not, often those ideas turn out to be the best ones. Or a “stupid” idea can lead a discussion to a whole new approach that wouldn’t have been explored had it not been brought up.

At Today’s Machining World and Graff-Pinkert, I’m blessed to work in an environment where bringing up strange ideas is encouraged, even if they turn out to be complete garbage. Discussions are most beautiful when no sorries are allowed. Do you have the no sorry rule in your business?

Question: Does the “no sorry” rule work in marriage?

If you want contact Noah Graff directly you can
email him at noah@todaysmachiningworld.com

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Is Elon Musk the Next Steve Jobs?

The new Tesla Store in Oak Brook, Ill.

Is Elon Musk, the head of Tesla Motors, the Steve Jobs of cars? Is his all-electric line of autos going to revolutionize the industry? Can one man with a vision and charisma redefine an aged, redundant, bureaucratic mammoth business with creativity and the leverage of ideas?

Noah, my son-in-law Scott, and I decided to seek some answers at the brand new Tesla store in the Oak Brook shopping center just west of Chicago. Yes, store, as in Apple Store, or Brookstone, or Victoria’s Secret, which are its neighbors. The store manager Seneca Giese explained that Tesla used to be located in a conventional showroom in downtown Chicago but got no street traffic. In the upscale Oak Brook Mall they get a tremendous number of lookers who meet the upscale demographic of a Tesla buyer.

The store had the Beta version of the five passenger “S” model, which is priced like a BMW 535 sedan, over the past weekend, but it had been dispatched to its next destination (Washington DC) on a flatbed 10 minutes before we arrived. Young Mr. Giese was extremely knowledgeable and patient with us. Since he has no cars to sell at the mall his job is to educate potential buyers about the sedan, the company and its concept. What he can sell is a refundable $5,000 reservation for a car that will be built in the spring of 2013. He says they sold five such reservations on Monday, a testament to the buzz Musk has built and the growing attraction of gasless driving.

The electric fever is definitely building. Bob Lutz, the former GM mogul responsible for pushing the Chevy Volt through the General Motors bean counter mentality, recently appeared on the Charlie Rose Show with Elon Musk. He said the Volt would not have been built if Musk’s success hadn’t given the idea credibility. With Nissan’s Leaf joining the fray at the same time, the electric car is reaching the first stage of critical mass.

Musk sold a piece of the company to Toyota and Mercedes to get cash, credibility and collaboration. It gave him the leverage to go public with Tesla earlier this year and the wherewithal to buy the 5,000,000 square foot Numi factory in the Bay area, in which he could produce 500,000 cars in a year. Tesla’s technology will be in next year’s electric Toyota RAV4 SUV being produced in Canada.

The pieces are coming together. The Tesla small car, similar in size to the 3 series BMW, will be built in 2015 if things go as planned. It will be priced in the $30,000 range.

I find Elon Musk a compelling leader, a Steve Jobs-like master of business who clearly is following the Jobs game plan. Personally, I’m undecided about buying a reservation, but I am leaning toward the purchase because by 2013 my 2003 Toyota Avalon will be deserving of replacement. I think the hype about Tesla is deserved. Musk is the kind of visionary that makes America unique. Call me nuts, but I believe Tesla is where Apple was when the iPod hit the market.

Question: When will you buy an electric car?

The chassis of the "S" model

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NBA Flunks Negotiating

NBA owner rep, David Stern, is getting blamed more and more for the failed NBA negotiations.

One of the more interesting parts of attempting to teach my son Noah the art of business concerns negotiating. It’s a topic of enduring interest because there is seldom a day when I don’t negotiate with somebody−a client, an employee, or a partner.

Lately, I’ve been reading the accounts of the messy negotiations between David Stern, who represents the NBA owners, and Billy Hunter, who speaks for the players union. From an outsider’s perspective it appears to be a botch for both sides, with everybody involved losing big−except the lawyers.

What I try to teach Noah and continually relearn myself is a lesson I learned from my father and uncle. “Always let the other person feel that they’ve won, because the relationship is more important than one deal.”

The reality is that often there is only one deal to be made with a particular client, but that really isn’t the point. You never really know when you will meet up again, but each deal helps establish your reputation in the wider world, and teaches you lessons.

As I talk to machining firms these days I am regularly hearing that big company buyers are now negotiating with the mindset that good suppliers are scarce assets, not interchangeable widget makers. The balance of power in the supply chain world has changed over the last year and the shrewd buyers of machined parts have recognized it.

One of the most important aspects of a negotiation is how time plays into it. We are watching that play out dramatically right now in the NBA talks because players have now missed their first big paycheck of the season, agents are missing out on rookie signings, and the owners are staring at a cancellation of the entire season.

When I negotiate a deal I always try to ascertain the time requirements of my potential buyer and withhold my own needs from him. By talking to a client frequently, not only can I often discover his time restraints but I can also build a mutual investment in working out a deal. One of the drawbacks of email negotiating is that it removes that feeling of personal investment in a deal and tends to make it seem like it’s all about the money.

From my experience, money is just one factor in most negotiations, and often not the most important one. In my reading about what’s going on now with the NBA, a deal was within reach, until the owners pushed the players into a corner on peripheral issues like random off season drug testing, which energized a weak, disorganized, even apathetic group of players into an angry opponent. David Stern evidently misjudged how far he could push. It’s okay to leave money on the table, my Dad told me and I say to Noah. “Does the deal work for us?” is question number one. But the important corollary is, “Can the other person feel good about it, too?”

The great negotiating mavens such as Herb Cohen argue that you should plan your moves ahead and know your own bottom line. I adhere to this idea in theory, but I believe you also need to be creative and improvise because there are crucial moments in a negotiation that you can’t afford to miss. This is when the active listener can pick up on cues about the time needs of the opposing party to conclude a deal. If the big moment is missed the deal that was makeable can go away.

I often go home and tell my wife that I am frustrated about deals that keep sliding away. She’ll say that it probably doesn’t have anything to do with you. Be patient, it will come.

Sure.

Sometimes it does.

Question: Do you care if the NBA season is canceled?

Question 2: If you could choose between deer hunting and going to an NBA playoff game which would you pick?

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Do you work for your old man?

Acting is a family business for Michael Douglass, his father Kirk, and son Cameron

One of the most important things we do in our work lives is labeling, and it’s one of those things we usually do casually, without the care it deserves.

Attaching words to our actions, our products, and especially ourselves adds or diminishes value. Do you “operate a machine shop” or do you “make extremely precise components which are part of a knee replacement?” Do you “work for your old man” or do you “learn from a master” or “work with your father to build something that will endure?”

I believe we search for meaning in life with language as a tool, but too often we are lazy with our vocabularies. Every day has a story to be extracted and dramatized hopefully to a willing listener, but if not, translated into our own inner voice. Sometimes the narrative is funny, or ironic, even tragic, but with the proper context it is interesting.

I believe we fall into the greyness of “drift” when we fail to label what is happening in our lives with positive or a least provocative words or pictures. Setting goals and writing them down is another way to label. Ten weeks ago I decided to change my eating habits with the unannounced goal of reaching my high school weight at my 50th high school reunion next June. I am not “on a diet” but I have adopted a “new eating regime for the rest of my life.”

To me this is a crucial labeling difference that has great meaning for me. Every “diet” I’ve ever embarked on has ultimately failed, but a “life change” is a total commitment. The labeling story that resonates most clearly for me and my family came from the great soprano Beverly Sills. She was on a long concert tour traveling from city to city. She was doing eight performances in seven days when she reached San Francisco. Entertainment columnist Herb Caen interviewed her and asked her how it feels to “have to do so many concerts.” She answered, “I get to do them, I don’t have to do them.”

The words “get to” exchanged for “have to” can change your life. They’ve changed mine.

Question:   Do you “work for your old man,” or do you work with a master who happens to be your father?


Listen to Steve Goodman’s song “My Old Man.”

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USA – Still King of the Hill?

An illustration of horizontal drilling

Tom Friedman, the New York Times columnist, wrote a book a few years ago titled The World is Flat, where his thesis was that national and geographical separations had gone away. A factory in Thailand is the same as a factory in Tupelo and a call center in India can do the same things as one in Indianapolis.

The events of 2011 have shown us that he misunderstood the hills and depressions still separating the inhabitants of our planet.

The earthquake and tsunami in Japan is still affecting Toyota and Honda. They are under social and political pressure to keep production in Japan even if it is uneconomic. The floods in Thailand are screwing up their infrastructure even more.

Japan is also slogging through the impediment of a 77 yen to the dollar exchange rate that damages its ability to export goods.

In Europe, the grand experiment of the Euro as common currency for countries as different as Greece and Germany appears to be failing.

Events like the Japanese earthquake and the financial earthquake rumbling through Europe should not be underestimated. These events make North America more interesting to invest in for multinationals.

The horizontal drilling boom for oil and gas, which will probably make United States energy independent in a decade, is a huge serendipitous event that coincides with the realization that long supply lines do matter, and they can fail.

The media tells us that people in America are depressed and pessimistic. Probably true. But the world that I see favors the U.S. right now if we find the right leadership and pull together for a decade.

The drop of 25,000 people per month on Government payrolls shows that the country is starting to self correct. The steady reduction in personal debt is another hopeful sign of correction. Lower real estate prices are also on the whole a positive rebalancing of asset values. Used re-priced homes are finally selling and prices are stable to up in half of the major markets in the country. Retail sales are solidly up at Home Depot, which would not be the case in a deteriorating home market.

I think we spend so much time staring at our own warts that we miss the bigger picture. The world is not flat. We may not be king of the hill, but if not us, who is?

Question: Which country do you think is “King of the Hill?”

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Revealing Your Vulnerability

For the last eight years I have lived my life as partially sighted. I’ve suffered detached retinas in both of my eyes, with the sight in my right eye permanently compromised and my left eye repaired by laser. My left eye is also impaired by floaters and a cataract but my doctor is afraid to operate on it because such a procedure would increase the possibility of another detachment, he says.

I have a patch for my right eye that I seldom wear because I don’t want people to regard me as “disabled,” but I’m rethinking that notion because the double vision I endure constantly is exhausting for somebody who spends a lot of time reading and writing.

I’m writing this blog not because I’m feeling sorry for myself (because I’m not) but because I’m rethinking the use of an eye patch. I don’t want to be regarded as disabled but maybe this is my ego and vanity overcoming my pragmatic side.

Most of us at one time in our lives will be “disabled” so perhaps we should all regard ourselves as “currently-able” if we are not dealing with a limiting physical or emotional condition.

The question I am posing to you is, “When should a person make the decision to expose a disability to the world by using a cane, wheel chair, an eye patch or a driver?

Patch or no patch—that is the question.

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Bad Reception

Reflections on my hotel experiences from a week on the road.

I just got back from travels that took me to Austin, Texas, Palo Alto, and Pasadena, California. I stayed at three hotels, two of which cater to conferences, the other an independent in Silicon Valley. One thing I expect from a hotel these days is a good TV. At the Barton Creek Resort in Austin there was a new flat screen in the room, but it had snowy reception on most channels. If I wanted to watch the World Series I had to squint to read the score. I called for service thinking it was a bad cable connector causing the problem. They sent a pleasant young fellow, but he couldn’t help. The audio/visual guy called the room and said there was nothing they could do. They knew the reception was bad but management won’t spend the money to improve it. Ok, so they buy new TVs for show, but don’t fix the problem. Next time I’m in Austin I won’t stay there.

Dinah’s Garden Hotel in Palo Alto had an old school tube type of TV. The cable was strong, but I expected a flat screen because of the room price. The Hilton in Pasadena had an LG flat screen and good reception. In all three rooms I was funneled to the hotel station, which showed paid programming each time I turned the set on. A stupid annoyance to me.

Another annoyance—each room had terrible lighting so there was no good place to read or write. In Austin there were even bulbs out. Are these cost saving measures supposed to annoy the customer? And at the two hotels in California the room attendants made the beds up so tight that you almost had to tear the sheets to get out of bed. Is this a time saver so they are easier to make up?

At each hotel, bottled water was displayed in the room—for sale. I kept thinking that for what I was paying they ought to include at least one free bottle. Some hotels are still trying to sell Internet service. What planet do they live on when virtually everybody has wireless access?

I know lodging is a hard, labor-intensive business. I will definitely go back to Dinah’s in Palo Alto because it is three minutes from my daughter’s house. The Hilton in Pasadena I would revisit because I loved Pasadena and they had drivers and a shuttle that made my life easier. The Barton Creek Resort was too pricey for the services provided and the location was too far from downtown Austin where the fun was.

Question: What’s the worst hotel experience you’ve ever had?

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