How I Survived the Recession

Interviewed by Noah Graff, Edited by Emily Halgrimson

 

Today’s Machining World Archives April 2011 Volume 07 Issue 03

Four companies that are thriving after the recession, and how they are doing it.

Miles Free is the Director of Technology and Industry Research for the Precision Machined Products Association (PMPA). He has 36 years of hands-on experience in the areas of manufacturing, quality and steelmaking.

How do you interpret the current situation for manufacturing?
MF:
Our industry is probably in the best position it’s been in 31 consecutive months. Our PMPA Business Trends Report is an index that reports on sales, and our last one with 80 shops reporting was at 111 that are up 20 points from December’s 91 and it’s the highest level we’ve had since 2008. (It had been as low as 64 in May 2009). So we’re very confident that we have a recovery, and that our kind of components are going to be in high demand in the coming couple of months.

What’s happening in the industry that gives you optimism?
MF:
One of the things I’ve seen is a number of members trying to find out if other members have open machine time. That tells me they have orders they can’t complete, so they’re trying to find who has capacity in order to provide the products that are critical on time.

What is happening to raw material supply?
MF
: The pipeline is kind of dry for raw materials, so lead times are really extending. For some items you can be out four to six months.

The raw materials aren’t available?
MF:
They’re not made. Nobody wants to have them in inventory. Imagine our want brass and it has a lot of copper content. Copper’s up to a new high—over $4.20. Traditionally, it’s been a $3 kind of item. So do you want to have that in inventory? If the selling price drops in the market, you’re wiped out. The companies who came through the downturn are not going to go out and just take a flyer on material. They’re not gamblers, they’re entrepreneurs.

How have shops been making do with fewer employees?
MF
: From 2006 to 2007, the value of shipments increased 40 percent, but we did that as the number of employees increased by just 35 percent, and the value-added actually increased 41 percent. I think this shows that before the recession we were adding more value for the employees than we put in. What I think is going to happen after the recession is a huge increase in production per employee, because we’ve become really productive and focused in our shops. We’ve kept the talented people and we’re working on the highest value projects.

What do you think about the skilled labor shortage?
MF:
I think people are figuring out that having a college degree in some obscure subject may have been satisfying to get, but isn’t paying the bills. I think there’s a lot of talent that has a college degree that’s really under-employed and I think we’re at the point now where our manufacturing companies are looking for talent, not labor. We’re going to start seeing some of these college people who are underemployed for whatever reason figure out that it’s okay to work in manufacturing. It’s going to be a real opportunity for talent to come in short-term, and I’m optimistic we’ll find it.

Tim Shuell is Vice President of Metric Machining in Ontario, Cal., a large precision machine shop. www.metricorp.com

How did Metric Machining survive the downturn?
TS:
The basic strategy was a reduction of direct labor to reduce or stop the burning of cash. There didn’t seem to be a whole lot of strategic thought put into it other than that.

What does your employee makeup look like?
TS:
We’re down to two divisions and one location in Ontario, Cal. Eighty percent of the management team is new to the company. Age-wise, they’re in their mid 30s to early 40s.

How did you find your new workers?
TS
: We brought in seasoned people but we also started a training lab that actually goes live next week. The lab will cover all of our New Britain, Davenport, Brown & Sharpe, CNC Lathes, CNC Mill Department and CNC Swiss machines. It’s an inhouse lab to get all of our operators at the same skill level and standardize how everybody’s being trained.

Has Metric been diversifying its products since the downturn?
TS:
Yes, we want to broaden our capabilities. Commercial irrigation- type products are still a primary line for us, but we want to get deeper into new energy products, re-open our aerospace supply division, and get some representation in the medical field. We’re not making anything medical right now.

Is there less competition for jobs since the recession?
TS:
We haven’t really found that in our area competition has decreased much. Given the size of our particular shop, our main competitors are all still in business. I don’t think we really saw any big shops go out locally, not like the Midwest and some places back East experienced.

Has foreign competition changed your business climate?
TS:
We feel that the work that was already going to go overseas went five or seven years ago. We’ve already seen some of it come back. People now seem willing to pay more to get the product that they need here, on time and made correctly.

What type of equipment are you buying?
TS
: Multi-spindles; New Britains, Davenports, Wickmans. Single-spindles; Brown & Sharpes. We just bought a brand new K16 Citizen CNC Swiss. We have three Hydromats and are keeping our eye out for deals on more of those. We have all these opportunities in front of us that without the proper workforce and machines, we can’t get.

Are customers still asking for better prices despite the rise in material prices?
TS:
Customers might not like the increases, but they’re not withholding the POs, so we’re still getting the orders even though prices are going up. I think their options are a little fewer. They don’t have as many shops to source with, and everybody’s busy.


Patricia Lewis is CEO of Berkley Screw Machine Products, Inc. in Rochester Hills, Mich. www.berkleyscrew.com

Did you lay-off people to make it through the downturn?
PL:
Yes, we laid-off about 50 percent of our crew, so about 30 people in all. We’re currently hiring though.

What kind of people are you hiring?
PL:
We’re training new people, but I’ve recalled all of my people that wanted to come back, too. My workers are the best in the world. We’re very picky about who we hire. We are not necessarily looking for someone with skill sets, but the mental ability to do those skill sets. If they have that we can train them. No matter who we hire they will go through an extensive training program at our place before they’re ever put on the machines. My single best asset are my employees. They’re incredible.

Would you say that your employees are your competitive advantage?
PL:
Yes, my employees are so bought into their jobs that when we get audited I let the people talk to the auditors all by themselves. They’re always amazed at not only how smart the employees are but how well they know their process and how intense their interest is in what they’re doing. We have a company culture that says, “The owners of the company are really interested in you as an individual,” so that’s how our employees behave. They know they’re not just somebody who punches in and punches out.

How has foreign competition changed from two or three years ago?
PL:
I see companies coming back to us because the quality of the product they’re getting out of China is poor. We have a former customer who came back to us and wanted us to sell to him at the same price the Chinese sold to him. When I looked at the 12 parts he was getting from China, only one was in tolerance. There were 47 dimensions and they had just one dimension out of 47 that was in tolerance. He’s buying from us now because he had so many problems for the three years he bought offshore; his product from there was crap.

As material prices rise, are your customers adjusting their price expectations?
PL:
No, they’re not. I had a customer say to me the other day, “Well, just tell them you won’t pay for it.” And I said, “Yes, I’ll tell a multi-billion dollar company that I won’t pay for it.” It’s very difficult to convince people that in the last year and a half the base price for material has gone up. We have begun to explain to people that we have accepted and paid for the increase all this time and now they’re going to have to join us and pay for it too.

Have you bought much new or used equipment?
PL:
Right now we’re in the process of buying some new equipment. But we’ve bought mostly used equipment. Since a new CNC multi-spindle is about $1.5 million we’re looking for good used machines.

Jack Steuby is President of John J. Steuby Co. in Hazelwood, Mo., one of the most diversified family-run screw machine companies in the Midwest. www.steuby.com

What was the state of your business before the recession?
JS:
In January 2009, when the sales really dropped off, we had 120 employees. Over the next two to three months we let 70 of them go. Our sales went from a million dollars a month to $500,000 and we found we could do just as much work with a lot less people. So a lot of good things came out of the recession for us.

What was your fist move when the recession hit?
JS:
When sales started going down we immediately cut our overhead—we cut 70 people and we cut general spending.

Was it hard to let people go?
JS:
There were too many prima donna setup men that had a gun to our head saying, “If you don’t give me a raise, I’m going down the street to such-and-such a place.” Well, that place went out of business. We had been running unnecessary overtime to compensate for low rates of pay, but that disappeared and we became profitable every month. For 14 months in a row in 2009/2010 we made a profit.

Do you still have only 50 employees?
JS
: We haven’t brought back anybody we had let go of. We’re up to 80 now because we’re running a training program and have young trainees. The people we let go had been with us for a long time. One was with us 17 years, another 15 years, and a lot of the others were with us eight or nine years. Not one of them put up a fight about leaving. They knew they were riding on the sled and not producing.

Do you prefer to pay overtime or hire new people?
JS:
We’d hire new people, but they’re not available. There are no skilled people in St. Louis.

Have you diversified your products or made other changes?
JS:
We’ve invested in 14 Hydromats. We bought four 8.7, that’s New Britains with spindle stops on them.

Is the competition for business different now?
JS:
Our business was 80 percent local and 20 percent out of town. Due to my son’s ingenuity we have diversified. We’ve gotten more into ammunitions, which is very profitable. There were 12 screw machine companies in St. Louis and now there are only two.

Thuro Metal Products, Inc. in Long Island, New York, a precision machined component metal parts manufacturer, opened its doors in 1971. It is run by father and son team Al Thuro, CEO, and Dave Thuro, President. www.thurometal.com

What has your business looked like over the past few years?
DT:
In 2007, both in headcount and sales, we peaked. But it was back in 2005 that we started seeing things that were concerning; like being asked to make parts for less than the cost of the raw materials because of China. Many of our key accounts were multinational firms who were transferring business to low cost regions.

How many facilities do you have?
DT:
We have two facilities in the same industrial park. We had a location in Texas too, which we sold in June of 2005.

Have you laid-off a lot of people?
DT:
Even before the recession hit we went from 58 to 39 employees. Some of those people were at retirement age, so when business dropped in 2008 and 2009 by 20 percent, we had people retire. Another 5-10 percent of our workforce we didn’t feel really belonged with us or were temporary workers we had hired for a specific project. We wanted to keep our core staff.

Did you get rid of overtime?
DT:
Yes, for a while. Our average skilled person now works about 48 hours a week, but there was a period in 2009 from June to September where we offered virtually no overtime. A lot of people in our industry opted to go to a four-day workweek; instead, we opted to part ways with staff that didn’t have a longterm future with the company.

Are you adding capital equipment now?
DT
: We’ve added a new CNC, a high production, multi-axis lathe in one facility, and multi-spindle machines in the other. We spent about a half million dollars on the new CNC machine. Some people would go with all new or used, but we buy what’s necessary to serve the market that we’re in.

What is your competition like now compared to before?
DT:
There’s less of it. I believe about 30 percent of our competition went out of business.

What are your current business challenges?
DT
: The challenge for us right now is finding skilled workers. We have gone back to 52 full-time employees. We’ve also had to upscale our product, even before the recession. Like I tell everybody, companies in the U.S. can no longer make nuts and bolts for barbecues. The low-tech, high-volume machining has gone overseas. Some of it is coming back now, but there’s less risk in the marketplace that medium- to high-precision parts will head offshore.

What did you do to find new business during the recession?
DT
: We increased our service to the government or military when the industrial sector almost came to a grinding halt in 2009. We’re about 20 percent automotive, 25 percent oil and gas, 25-30 percent industrial equipment, and about 15 percent military—although that’s the one segment that’s declining.

What is your current game plan?
DT:
Right now we’re leveraging. We’re taking advantage of low interest rates, penetrating deeper into our current markets, and rebuilding our workforce and infrastructure. We bought new computers, new phones, new equipment, and we’ve refurbished the facilities. Cash flow started to become very positive back about a year ago. We had a glut of inventory from the downturn which resolved itself in February/March of 2010. We’ve started to become bullish on the prospects for this industry.

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One thought on “How I Survived the Recession

  1. Trashcup

    As usual, Jack Steuby is prone to exaggeration. I can name at least 6 screw machine shops in the St. Louis area, plus a couple of new ones.

     
    +17

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