When asking “What keeps you up at night?” you know the answer before it’s given
September 9, 2011
Metal fabricators reveal that their No. 1 concern is the economy, but that doesn't mean that business is horrible. In fact, fabricators appear to be optimistic about the future.
Some might argue that we should have saved our money this year when e-mailing our biennial “What keeps you up at night?” survey. After all, concern over the economy is keeping not only metal fabricators up at night (see Figure 1), it’s keeping everyone up.
Truthfully, metal fabricators appear to be more concerned with how sluggish economic growth and the accompanying political circus are affecting their businesses. Customers have changed their approach to dealing with fabricators.
“I noticed two years ago that the biggest change wasn’t necessarily a precipitous decline in business or economic activity as much as more of an uncertainty,” said Vivek Gupta, managing director, Texas ProFab Corp., Carrollton, Texas. “Customers used to order six weeks in advance with inventory levels down. They are operating only two or three weeks out at a time now.”
Gupta isn’t complaining. His metal fabricating firm has increased its bottom line the last two years and didn’t lay off any employees. In fact, his workforce has remained stable as employees realize the importance of working for a company that doesn’t take their contributions for granted.
That uncertainty makes planning a herculean task. How can a metal fabricator know what to expect if its customers are vague about near-term purchasing intentions?
“Our customers are responding to the cycles in real time, so their projections are moving all over the place because they just can’t nail down their demand side,” said Stewart Cramer, president, LAI International, Scottsdale, Ariz. “It’s become a real challenge for planning more than anything else because our customers are very careful about committing to orders, creating work-in-process, or creating any type of financial obligation in the supply chain.”
Rob Clark, vice president, operations, Clark Metal Products, Blairsville, Pa., agreed that the “starts and stops” associated with the unpredictable order patterns of customers make it difficult to plan resources. Orders come in batches, and the influx lasts a few weeks until quoting activity slows down dramatically. Then a few weeks pass, and RFQ activity heats up once again, typically followed by more orders.
“There is certainly a new reality since 2008,” Clark said.
Uncertainty is the new certainty for metal fabricators. Despite that, business remains good. Optimism remains relatively strong (see Figure 2).
“I think manufacturing can maintain strong growth, actually,” Clark said. “Consumers may have changed their spending habits, but they are still spending.
“For instance, one of our newest customers builds food processing equipment. It makes the machines that serve both the restaurant markets as well as the frozen food processors. The restaurant business is down considerably because consumers are not dining out as much, but their frozen food business is through the roof,” he added. “Consumers are still spending money.”
Greg Madden, president, Madden Fabrication, Portland, Ore., is another fabricator that enjoyed a healthy 2010.
“We had a really good 2010 even though it was dead in a lot of places,” he said. “We kept a lot of our work in the manufacturing sector instead of the construction sector. That helped.”
That construction sector is an important one for metal fabricators (Figure 3), but it hasn’t been exactly robust recently. According to the American Institute for Architects Consensus Construction Forecast, commercial-sector construction activity is supposed to drop by 6.5 percent this year, with construction of manufacturing facilities and institutional buildings declining 16 percent and 3 percent, respectively, as well. A rebound in construction is expected to occur in 2012.
Madden said he has seen a pickup in construction activity lately. He pointed to recent government-sponsored work for a hydroelectric dam project as an example.
Even with anecdotal evidence and forecasts suggesting that even this down-on-its-luck sector could turn around in 2012, construction still could be facing an unpredictable future. The push to reduce government spending isn’t confined to speculation about government subsidies to farmers or programs to help at-risk kids. When politicians talk about chopping billions in the federal budget, they are including plenty of construction projects that were to be paid for with federal dollars. That trend, of course, is also evident at the state- and municipal-government levels.
Cramer said such talk of budget tightening has altered the behavior of customers in LAI’s supply chain. Those defense-related companies are not committing to long-term build projections like they used to; they are acting like any other company in this uncertain economy—springing orders with reduced lead-times.
“All of those [government] dollars … are all domestic manufacturing,” Cramer said. “The defense sector has had a lot to do with helping domestic manufacturing weather the storm. When they talk about those dollars, most of those are linked to high-paying manufacturing jobs. So there is a direct correlation that impacts our industry.”
The discussion of possibly shrinking manufacturing bases could affect metal fabricators’ overall outlook negatively, but that’s hardly the case (see Figure 4). According to the survey, they are cautiously optimistic for the most part and downright fearful of the economy rebounding in an explosive way.
“It’s like a whiplash effect. You get the government tightening its belt, and they are always behind us. Private industry has done that already. We’ve squeezed all that we could,” Madden said. “Then the government starts tightening its belt. Then things start turning around.
“My main concern is that you get that slingshot effect, and the rebound is just huge,” he added.
That’s an economic concern that most metal fabricators wouldn’t mind losing sleep over.
Actually, metal fabricators would relish tackling a huge increase in jobs. They really like what they do.
When asked “How would you sum up your current attitude about working in metal fabricating?” 63 percent replied “satisfied” and 28 percent stated “somewhat satisfied.” No matter what the headlines say or what news stresses arise when trying to complete customer orders, metal fabricators like the new challenges that the job brings every day.
“This is a good field,” Madden said. “I was in engineering for a while, but this is more hands-on. You get to see what you build.”
“Our employees come to work in a clean, safe, friendly environment every day. We pay competitive wages and offer a very strong benefits package. And it’s challenging work,” Clark said. “Our employees are not just co-workers; they are friends outside of work as well.
“When my daughters enter the workforce, those are characteristics that I’ll encourage them to look for when they choose a career,” he added. “So why not metal fabricating?”
This excitement about careers in metal fabricating (see Figure 5) may reach beyond the industrial sector. Cramer said that manufacturing is garnering attention from the general press and U.S. citizens because it is one of the only drivers producing jobs in this economy. The allure of well-paying jobs, which manufacturing can supply, is a feel-good story that’s hard to ignore.
“I think there will be a lot more respect paid to building things in this country, and I’m hoping that there will be a lot more domestic awareness of American-manufactured product,” Cramer said. “I do think that manufacturing will have a renaissance.”
That’s not a certainty, of course, but metal fabricators certainly appear to be headed on the right course to make that happen.