Small business owners take networking to a new level
December 12, 2011
Precision Sheet Metal User Groups consist of up to six noncompetitive, geographically dispersed metal fabricators. Group members have found they can learn a lot from others, especially from other shop owners who have endured and overcome similar business challenges.
In 2002 I visited a Midwest shop owner who had been in the business for decades. Over the years he had seen the effects of offshoring: community anchors—that is, large assembly plants—shuttered one after another, spelling the end for the network of contract manufacturing shops supplying those plants. I asked a question that must have made an already young magazine reporter sound even younger: What do you miss about the old days?
“The handshakes,” he told me.
Most of the country’s small and midsized contract manufacturers compete somewhat locally, serving plants within a few hundred miles. Their customers may play globally, assembling products sold across the ocean, but the contract manufacturer plays near its own backyard.
Decades ago global competition wasn’t a concern. The principles behind the Toyota Production System weren’t pervasive yet, so many customers ordered large quantities. Work-in-process flooded shop floors—then a telltale sign not of inefficiency and waste, but of economic security and success. Machines punched away; fabricators had work and long backlogs.
Job shops spread work around when times were slow, and lent a hand during the busy times, taking overflow work. Work was steady, and so were those handshakes between competitors, which symbolized a close-knit manufacturing community.
This wasn’t the case anymore, the shop owner said. Sure, some of the old practices remained. During slow times he sent a little work to competing shops, just to maintain the relationship for when good times returned and he needed that shop’s capacity in a pinch. But with the onslaught of globalization, he told me that the business developed a harder edge.
It was no one’s fault, really—just a different time. The industry had always been fragmented to some degree. But now shops were adopting continuous improvement methods and new technologies. They cut costs while at the same time delivered better and faster.
Competition has spurred manufacturing excellence, and despite popular belief, the U.S. remains a manufacturing powerhouse because of it. Still, that competition has kept industry fragmented, a fact that was top of mind for Jon DeWys, president of DeWys Manufacturing, a contract fabricator near Grand Rapids, Mich. Three years ago he attended Metal Matters, The FABRICATOR’s Leadership Summit, a conference held every spring and organized by the Fabricators & Manufacturers Association (FMA).
During a break, DeWys started chatting with fellow attendees. After talking, they realized something: Many of the attendees didn’t compete for the same customers. What if some of them set up informal meetings to discuss issues, visit each other’s plants, and even share some benchmarking data?
This conversation led to some initial meetings and eventually the formation of the Precision Sheet Metal User Groups, or PSMUGs. The groups, supported by FMA, meet periodically, with members traveling to one fabricator’s plant. The group has dinner, tours the host’s plant the next morning, and then meets to discuss business issues. Members have no formal nondisclosure agreements, only an implicit trust. Chances are, if one member brings up a challenge, others have lived through it, be it a personnel problem, customer communication issue, or anything else.
“I was impressed with the caliber of the group and the openness for people to discuss their issues and to listen to what our issues were,” said Frank Girardi, president of Vestal, N.Y.-based PB Industries, who joined a newly formed PSMUG just this year. “You’re not operating in a vacuum.”
“This is a fragmented field,” DeWys said. “Often people don’t like to share their experiences or what they’ve learned. We almost live in silos. But at the end of the day, we can learn from others.”
“You meet people who are living in your shoes,” Girardi added.“We talk about nearly everything,” said Steve Hasty, president of A&E Custom Manufacturing in Kansas City, Kan. “Most of us bring one or two people with us. And none of us are competitors. That’s the key, really.”
“It lends credence to some of our improvement efforts,” said John Peterson, co-president of Atlas Manufacturing in Minneapolis. “For instance, some of our lean initiatives were reinforced by what we saw at other [PSMUG member] shops. We share information and best practices. That’s what launched it, and it has worked great until this day.”
Members share a significant number of operational metrics: customer returns as a percent of sales; scrap and rework as a percent of sales; labor as a percent of sales; on-time delivery; quote turnaround times; quick ratio; debt-to-equity ratio; inventory turns; gross margins; and more. They don’t share everything, of course, and such benchmarking remains private among members of the PSMUG, which usually maxes out at about six participating companies, all noncompeting and geographically dispersed.
Members have told me that such benchmarking is incredibly valuable not only because it allows them to see how their businesses compare, but also because sometimes they can witness exactly how a shop achieves a certain metric. For instance, one fabricator saw that another PSMUG company touted extremely high annual inventory turns. During a subsequent shop visit, he found out how the company achieved all those turns. Later the owner and several managers visited the same company and observed how operators ran over a two-day period, taking notes on part flow, inventory control, and material handling. This wasn’t your nickel shop tour.
Such benchmarking gives valuable context. PSMUG members actually see how certain metrics relate to operational practices, and what exactly makes successful companies tick. For example, one member said that for decades his business had maintained a conservative balance sheet and minimal debt. But after joining a PSMUG, he observed that one fabricator with impressive margins and sales growth also happened to have a high debt-to-equity ratio. Just seeing the numbers is one thing, but actually talking to the business owner who provided them—asking him questions and touring his shop—is something else entirely. Such insight literally can change how fabricators run a business.
“These guys are the survivors,” Hasty said. “They run good businesses, and if you can align yourself and learn from them, it makes you a better businessperson and a better company.”