Category Archives: Business

Swarfcast Ep. 45 – Patrice Zamor on Manufacturing in Israel

By Lloyd and Noah Graff

For most people manufacturing and Israel are two topics that are not normally spoken about together. Patrice Zamor, the guest on today’s podcast, lives in both of these worlds.

Scroll down to listen to the podcast.

Patrice emigrated to Israel from France in the 1970s and has spent much of his career working for Ditron Precision, a multi-national automotive component supplier headquartered there.

Takeaways from the interview:

  • Patrice discussed Israel’s strength in high-tech fields as well as its significance in producing machined components for international markets.
  • He gave his outlook on the current world automotive industry.
  • He talked about Israeli culture and what inspired him to emigrate from France.

Question: Is Israel a place you want to visit? Why?

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The Purchasing Bottleneck

What else doesn’t count anymore?  PURCHASING DEPARTMENTS.  The bottleneck of “purchasing” in big companies has become laughable to me as an outsider and to shop folks who make the money in manufacturing.  The big gripe used to be “management,” but I don’t hear that as much now.

Today, the outcry is with purchasing departments in larger companies that slow everything down with paperwork and “justifications.”  When you need 1,000 pounds of 12L15 round tomorrow, and Central Steel is happy to get it to you at a fair price so the company can make five grand on a hot job, and purchasing just can’t quite make it happen for a week, that is dumb, antiquated management.  We see it all the time.  It’s why small companies survive and often prosper, while bigger firms trip all over themselves.

It is also why private equity firms are eyeing even small shops with 20 or 30 employees if they have a “secret sauce,” few destructive fiefdoms, and a culture of cooperation.  Unions have failed in America today because they rely on a culture of conflict.  Enlightened management has reduced conflict in many cases, thus reducing the desire for institutionalizing conflict in a union setup.

American stock markets edged close to all-time highs yesterday.  The mavens of the market, who I think really know less than nothing, think it is the prospect of the Fed lowering interest rates today.  I doubt it.  The Fed is generally rather irrelevant during these days of low inflation and tiny unemployment.  The Fed is almost as irrelevant as the United Auto Workers who after 25 years still have not managed to unionize one auto plant in the South.  They lost last week at the Volkswagen plant in Chattanooga again.  This is at VW which has a Board thick with Union folks in Germany.  The UAW now has 30% of the workers it used to have.

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We are celebrating 10 years of growth in the economy according to the numbers.  I am a bit skeptical of that personally.  I have seen plenty of ups and downs in my work over the last 10 years, but the broad sweep has been upwards — unless you build single-family homes in places like Chicago.

The national press and Democrats running for President are up in arms about the “lack of affordable housing.”  If you live in Seattle, Portland, or Manhattan, yes, you cannot find a cheap place to live except for an alley, but to generalize it for the rest of the country is absurd.

You want affordable, move to Bismarck or Oklahoma City or my neighborhood of beautiful homes on big lots, 35 minutes from downtown Chicago.  You may have a neighbor with darker skin than you, but this is America, folks.  Or you might prefer 900 square feet of quite-functional, newer space in Chicago and forgo a car.  Affordable housing is in the eye of the beholder.  I just heard of a couple from Seattle who made a study of the entire country as they prepared to move.  They were both in jobs which required them to have access to a major airport.  They were hoping to have kids.  They wanted an area that was not homogeneous.  They bought a home under $200,000 near me where they can live on one earner’s pay.  Affordable housing is plentiful if you have flexibility and don’t accept the conventional wisdom of scarcity.

Where is the “economy” heading?  It depends on what economy you identify with.  My economy of people making stuff out of metal using creativity and grit looks quite promising, even as automotive companies deal with a young population increasingly bored with cars and trucks.  There are plenty of more promising areas to gravitate into than pickups and SUVs.

Interest rates, inflation, the Fed, tariffs, the deficit, barely move the needle except to stock market junkies.  U.S.-China competition will continue whether Donald Trump wins or loses in 2020.

Enjoy the opportunities. Ignore the noise.

Question: Does “Purchasing” get in your way?

 

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Swarfcast Ep. 43 – Bruno Schmitter on Bringing Hydromat to America

By Lloyd and Noah Graff

Today’s podcast is part one of a two part interview we did with Bruno Schmitter, CEO and COO of Hydromat USA.

In 1979 at the age of 25, Bruno came to St. Louis to sell and popularize the previously unknown transfer machine in North America. Bruno told us that at a young age growing up in Switzerland his father began encouraging him to go into the machine tool business. He also discussed his first years in the United States when he traveled the country convincing multi-spindle screw machine shops to use Hydromats.

Scroll down to listen to the podcast below.

Question: Did your father encourage you to go into the machining business?

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Swarfcast Ep. 42 – John Habe IV on Valuing a Machining Business

By Lloyd and Noah Graff

Today’s podcast is part 2 of an interview we did with John Habe IV, President of Metal Seal Precision, a machining company based in Mentor, Ohio.

Listen to the podcast on the player below.

Over the last several years John has grown Metal Seal Precision both organically and through major acquisitions. According to John, growing through acquisitions can be financially rewarding but does not come easily. John discussed the difficulty in buying companies, which often have emotionally attached owners. He also talked about how he calculates the buy price of a company. He looks at cashflow, often called EBITDA in the acquisitions business, as well as criteria such as product sector, customer diversity, and management style of the current ownership.

Question: Is this a good time to go into the machining business? If so, what sector?

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Quandry, Gold or Dross?

The scary, little, chubby chess piece sat in the old Scottish antiques dealer’s desk for 50 years.  He bought it for a few pounds and stuck it in a drawer.  After his death his heirs were checking out his belongings and discovered the elaborate carving made from a walrus tusk.  One of them thought it might have some value.  They guessed correctly.

On July 2, it will be auctioned off by Sotheby’s. Its anticipated sale price is around $1 million.

It is a piece from the collection of Lewis Chessmen, carved in the 12th century in the form of Norse warriors.  In 1831, 93 pieces of the group were found on Scotland’s Isle of Lewis.  They now are on display in museums in London and Edinburgh, Scotland.

I read about the 3-1/2” high Lewis Chessman yesterday morning in The Wall Street Journal at my factory office.  Later that morning we had an inquiry from South America on a used threading attachment for a 2-5/8”-6 spindle Wickman screw machine.  I immediately started wondering if the attachment was a potential Lewis chess piece.  I haven’t sold a big Wickman machine for years.  I have stripped several of them for key parts, but we don’t sell much big Wickman stuff anymore.

Then came the pricing quandary.  What do you ask for a 50-year-old attachment for a machine few folks in the world use anymore?  I am blessed to have a complete one in stock and the components to almost complete another one.

I pulled a price out of my behind, $7,500.  Another member of the team objected.  He suggested that another party who was apt to also have a complete attachment available might be asking more money for theirs.  He argued that we probe the other dealer’s price before quoting our prospect in South America.  I pushed back.  To me $7,500 was a nice price for a probably useless antique that would very likely outlast me.  To me it was iron.  To him it was gold.  It’s what makes a market and attracts all those cars to estate sales.

I am fascinated by how things are valued by people.  It is also the apple pie of my business, guessing the value of stuff, believing in my judgment, but having a willingness to throw in the towel when the market proves me wrong.

If I had bought that Lewis Chessman and I didn’t know the ugly carving was 900 years old, I probably would have dished it off, made a few hundred quid, and celebrated with chocolate ice cream.  If you have a business with expensive employees, rent to pay, taxes, and health insurance bills you need a semblance of steady cash flow.  It is hard to wait for the market to discover your hidden brilliance.

I knew that the potential buyer for the seldom-coveted threading attachment might decide to run his other big Wickman longer hours, rather than schlep a heavy piece of metal 5000 miles, pay 40% duty, then find a technician to put it on his machine correctly.  Or maybe he could find a soon-to-be-scrapped machine in Sao Paolo for $1,000.  A collector can afford to wait, but a business person has tuition to pay.

I may have a few ugly ivories on my shelves – dusty, grimy die heads or screw machine manuals that Mr. Davenport may have signed.  I don’t know, and I don’t really care.  Very often less is more in business, and a visually impaired old dude like me is quite likely to trip over a vagrant ivory that falls on the shop floor.

Question:  Do you collect or throw out?  Why?

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Swarfcast Ep. 41 – John Habe IV on Growing a Machining Business through Acquisitions

By Lloyd and Noah Graff

Today’s podcast is part 1 of a two part interview we did with John Habe IV of Metal Seal Corporation, a machining company based in Mentor, Ohio.

Scroll down to listen to the podcast.

John and his two brothers own Metal Seal and several other machining companies, along with some granite countertop firms. He told us that since they purchased their father’s machining business in 1999 they have built their enterprise into one doing over $100 million in sales per year.

In the interview John discussed how Metal Seal dealt with a catastrophic fire in 2014, as well as his approach to delegation of power in a family business.

Question: Do you have a fire story?

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The Journal Deserves a Medal

If you are interested in women’s soccer, obscure foods, and the tortured lives of Congressional Medal of Honor winners, last weekend’s Wall Street Journal provided hours of Gatorade for your thirst for quality content.

As a writer I appreciate a well-researched and written piece.  As a former magazine editor, I know what it takes to put together a readable monthly publication.  I can only applaud the editors of the Journal who produce a superb publication five days a week and an absolutely brilliant one on the weekend.

As the supposed competition, The New York Times and Washington Post, have deteriorated into political rags and the TV competition from the networks plus NPR are now biased jokes, the Journal shines like a ruby. On the financial side, Bloomberg is a legitimate challenger, but only on the business news.

I decided to read the WSJ weekend issue cover to cover over the recent holiday and was blown away by the quality and variety of articles.  Let me give you a brief review of just a fraction of this one issue.

On Page One was a photo of Dakota Meyer, a recent Congressional Medal of Honor winner, under the caption “Medal of Honor’s Heavy Burden.”  It directed you to the “C” section for the piece by Michael Phillips, so appropriate for Memorial Day weekend.  Phillips’ article was a 2000-word series of interviews with CMH recipients beginning with 71-year-old Gary Beikirch who received the Medal in 1973 for his actions in Vietnam.  Beikirch’s captioned quote was, “it is harder to live with the Medal that it was to earn it.”  He was a Green Beret medic whose unit was attacked by North Vietnamese at a Special Forces outpost on the Laotian border.  He was badly wounded but continued to treat his comrades while he was carried on the shoulders of two Vietnamese aides.

When Gary arrived home, “filled with rage and racked by guilt,” he decided to head for New Hampshire and live in a cave in the White Mountains, looking for “the peace and contentment he had lost in the jungle.” He took classes at a local seminary, and a few weeks after moving he found a note in the local post office instructing him to call the Pentagon. He called and found out about the CMH award and that he had an appointment to visit President Nixon. He met Nixon, who fitted the star-spangled blue choker and wreathed medal around his neck. A couple days later he returned to the cave with the Medal in his duffle bag.  He did not take it out for seven years.

Phillips’ soulful article continued with interviews with Ron Shurer, Flo Groberg, and Dakota Meyer, all of whom were wounded heroes who saw their comrades die. They are all living with the hell of the day that won them the CMH. They all wish that day, that brought them personal fame and honor, had never occurred. Dakota Meyer says “it represents the worst day of my life.”

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I read at least a dozen more memorable articles in this one newspaper. There was a long, thoroughly researched piece on Huawei Technologies, the Chinese electronics firm which epitomizes the America-China discord regarding intellectual property theft, and competition between the two countries. Five Journal writers had the byline on this article, detailing how Huawei plays the game of business. It was a damning article, but one written without an obvious editorial edge. It chronicled numerous lawsuits filed by electronics firms, large and small, illuminating Huawei’s ruthless pursuit of technical knowledge by any means available, including copying competitor Cisco’s products so closely that bugs deliberately left by Cisco and typos in the manuals were in Huawei products. A comprehensive, beautifully researched Journal piece.

Next to the Huawei article was one on Novartis attaining approval for a gene therapy cure that treats an inherited disease called spinal muscular atrophy which kills most babies it afflicts by the time they are two years old.

There was also a fascinating feature about the hunt for the next “superfood,” mostly in obscure locations in West Africa.  Entrepreneurs like Phillip Teverow are looking for the next quinoa and kale.  He was pushing “fonio,” which looks a lot like golden sand, at Whole Foods in Brooklyn trying to get adventurous eaters to give it a try.  The writer, Jessica Donati, also discussed moringa, a chewy green “energy plant” and baobab fruit from the biblical “tree of life.”

Also on the front page of the weekend Journal was the beginning of an in-depth article on Tesla and what its falling stock price was all about. Written by Charley Grant, it was a thorough piece about Elon Musk’s challenge to establish Tesla before the rush of electric car competitors start to really challenge the company and before their cash runs out. Elon Musk is probably the most interesting and gutsy entrepreneur in the world.  This article told us how close to the edge he continues to run.

Another piece tucked in the back of the “Off Duty” section by their auto writer, Don Neil, reviewed the new Audi e-tron and compared it to Tesla Model X. According to Neil it fell short of the Tesla in several significant ways.

I could keep going about the two hundred different unique articles in this one issue. But one that will stay with me is an op-ed piece by Burgess Owens, a former NFL player for the Oakland Raiders and today a writer and entrepreneur.

His great, great, great grandfather came to America shackled in a slave ship.  He was sold at an auction in Charleston, South Carolina, but eventually escaped with others via the Underground Railroad to Texas and ultimately became the owner of 102 acres of farmland and an entrepreneur.

In the article, Owens decried the notion of reparations for African Americans as divisive and demeaning for whites and blacks. “The idea of reparations demeans America’s founding ideals. A culturally Marxist idea promoted by socialists, reparations denies the promise granted by God that we are truly equal.”  He called it a cynical ideology promoted by an elitist class to divide us.

The Wall Street Journal is a consistent masterpiece of variegated content.  Last weekend’s issue was truly remarkable.

Question: What are you reading these days? What have you given up?

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Tanking

In the world of professional sports “tanking” has become the trendy strategy for a losing team to turn a losing franchise into a contender.  In baseball, the Chicago Cubs and Houston Astros both transformed themselves by becoming ultra-awful losers for several years in order to draft potential stars and develop them into the nucleus of a winning team over five years.  Many teams try to “tank” and rebuild only to languish for years in the purgatory of sports.  The Cleveland Browns and Buffalo Bills of pro football come to mind.

The path seems pretty clear in pro sports, though not so easy to execute in real life.  In business change is constant.  I see the medium-sized suburban shopping centers that had a supermarket, a few restaurants, maybe a Starbucks, a movie rental store, a cleaners, two dress stores, and a Target are mostly pathetic relics.  The big-city print newspaper is another anachronism.  For these entities “tanking” is not a clear option.  There is no “draft” of young stores or advertisers.  For them bankruptcy is the equivalent to tanking, but there is no organized “draft” process for a defunct shopping center or print newspaper reliant on classified advertising.

I think most businesses face the possibility of extinction because of structural change in their industries, if they are successful enough to survive long enough to encounter it.

I am watching it firsthand now in the screw machine industry which has been attacked by foreign competition, technological change, an aging workforce that is difficult to replace, and in the next few years the likely decline in the use of internal combustion engines in vehicles.  Don’t forget the rise of cold heading and hot and cold forging to conserve metal.  The commercial side of the used machinery business has seen the transparency of the internet and

Tanking

the ascendancy of online auctions taking the mystery out of pricing illiquid, obscure market anomalies like machine tools.

For a used machinery dealer like me the “tanking” opportunity does not exist.  There is no “draft” to help the inept dealer.  The bankruptcy option that the shopping center owner has is a lousy one because the outdated inventory does not have underlying land to support its value like real estate.  Scrap iron is cheap.

My approach is to use another sports term, the “pivot.”  Use “quick feet” to change course, but stay on the field and compete.  For the Graff-Pinkert used screw machine business the cam multi-spindles are still profitable tools for new owners to the field but are not profitable enough to merit enlarging their numbers for most companies.  But firms need to keep them running even if they are old and tired.  Companies that used to buy several additional machines each year are now buying primarily repair parts.  Old multi-spindles become packages of scarce replacement parts.

One opportunity is clear. The high cost of labor is pushing even small firms into automation.  Graff-Pinkert is experimenting with buying and selling robots.  We recently bought two FANUC robots with a 15-pound “wrist” capacity.  They were bought new in 2016 and have barely any hours on them.

We also bought an ABB robot that was bought new in 2016 by a mattress manufacturer but never used.  It has a 300-pound lifting capacity.  The robot area appears to have potential.  We have already sold our first one, a FANUC robot that had been loading and unloading a CNC lathe.  Made a few bucks, and we’re building our knowledge and confidence.

We are also heavily involved in Swiss-type lathes and CNC multi spindles.  A lot of competition in this area but also significant demand.

Meanwhile, we continue to sell our older screw machines with heavy value-added options.  Customers will pay for our specialized knowledge even when they shun the old “commodity” screw machines.

Will our current “pivot” work in the changing machining environment?  Probably not.  We will have to continue to experiment and evolve.  Maybe pare down, maybe build up.  It’s business.  It’s constantly up hill.  But if you love “the game” it’s a fun job to try to figure it out.  At least some days.

Question: Is business easier or harder than it was 20 years ago?

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Betting on Yourself

I think I can learn something from anybody. I think there is a lot to be learned from James Holzhauer who has won $1,691,000 on Jeopardy and is still going strong.

I don’t watch the program, but I have seen it on occasion and remember Rosie Perez in the movie White Men Can’t Jump prep for the show like her life depended on it, hoping for her chance to make a big score. It is a quiz show competition with a betting component which is the perfect combination for James Holzhauer, a 35-year-old Chicagoan who is a trivia champion, math whiz, fast-twitch buzzer, and professional sports better.  He is the archetype of the Jeopardy savant that Rosie Perez dreamt of becoming.

His winning approach naturally depends on his breadth of knowledge and quick-twitch ability, but what sets him apart is his aggressive and unconventional strategy. James starts with the most difficult questions, trolls for Daily Doubles, and bets boldly, often risking his earnings in an effort to quickly put away his opponents.  He knows he is on a streak and so do most of his opponents, which gives him a big psychological edge.

His mantra is “all I have to lose is money,” and he knows he’s the smartest dude on the block, so he continually overwhelms his tentative opponents no matter how skilled they are.

I think there is a lot to be learned from Holzhauer.

I love his confidence and boldness. He believes in himself and that is vital to be a consistent winner. Intimidation can be a huge factor in sports and business. It does not have to go with obnoxiousness. You know when your opponent knows in their heart of hearts that they are going to win.

What really sets James Holzhauer apart is his audacity, his calculated chances in the betting.

In my own business career I have usually been cautious. My son Noah delights in questioning most of my business decisions, often challenging me for hedging my bets. Having seen a million things go wrong in my long business career I have good reason to be cautious, but I know I can learn from the aberrant tack that Holzhauer takes to bet big when he thinks he has superior knowledge.  This is how you win in sports betting and Jeopardy and probably in business over time.

A fascinating complement to the James Holzhauer story is the spotlight on Alex Trebek, the host of Jeopardy since its inception.  He is battling pancreatic cancer at the same time he is hosting the show and pulling in big ratings. Alex is showing supreme confidence in himself as he does five shows in a taping session while dealing with chemotherapy.

My hope is that he and James keep charging boldly into the dark nights of uncertainty.

Question: What is the best bet you’ve ever made?

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To Spray or Not To Spray?

By Lloyd Graff

I am in the process of making a lot of changes in my surroundings. The axiom used to be that as you get older it gets harder to change, but I don’t find that to be true. Seeing friends and associates get sick and die makes it easier because I want to sandwich more stuff into my life while I still can. If I have the energy and the money to replace the old appliances in the house and sand the floors and paint the walls I want to do it now.

The redo in my house has nothing to do with enhancing its value. Where I live home prices have stagnated for 30 years. Whatever money I’ve spent is an investment in happiness, not appreciation. Maybe that is the ultimate value play, anyway.

This year I’m spraying the apple trees on the Graff-Pinkert property. They have a fungus on the bark, and last year we lost the entire crop. This year I hope to see a big crop of tasty, red Jonathan apples in September. Is it an economic judgment to spray? Hardly. It is all about the fun of picking and eating the fruit.

I think of all the money I have sunk into my warehouse over 35 years. Recently I spent $10,000 to remediate moldy walls and drywall. It was an investment in health, but it really brought me no joy. Of all the investments I have made in the property the one that undoubtedly has brought me the most pleasure is paying a young artist, Mike Eisenwasser, 15 years ago to paint a mural on the side of a 40-foot container next to my warehouse. I see it every time I drive onto the property and every evening when I leave. I look out on it during the day. It is colorful and symbolic. It tells a story that gives meaning to my life and work, of connecting people through commerce and writing. It gives a visual voice to how I feel about my work.

used machine business graff pinkert with apple treesI think the value of art and storytelling is really undervalued in manufacturing businesses. People like to work in pleasant surroundings. I think customers often want context for what they are buying, whether that is in a story on the website, a sales person embodying the product, the packaging of the material, the voice that answers the phone, or the follow-up or apology for mistakes or delays.

The people who think everything in business is by the numbers are wrong. Decisions often are not clear cut in business. If it is a close call the winner is usually the one who is considered the most reliable or easy to work with or caring.

I imagine lots of folks are bewildered that Noah and I spend so much time on stuff that may seem frivolous and frothy to the community we serve. From a financial standpoint Today’s Machining World and the podcast are hardly great investments in time and energy. But Noah and I view ourselves as storytellers and artists. We do this work because our creative souls long for expression. It gives us joy to reach out to the thousands of people who connect with us frequently or once in a while.

I think the connections we make do ultimately bring us customers but that is not the purpose of this investment. We do it because we love to do it. We do it because we almost have to do it.

Question: Can you justify epoxying a factory floor?

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