Manufacturing's Multiplier Effect

B&W Trailer Hitches’ press brake department employs skilled personnel, and like the rest of the staff, did not experience mass layoffs during the recession, even though sales plummeted.

Andrew Liveris has the muse when making a point, and with the U.S. unemployment rate remaining stubbornly high, more people should pay attention to him. This year Liveris, the CEO of a little American enterprise called Dow Chemical Co., published Make It in America,* which explains why our economy can’t grow without manufacturing.

His muse shines especially bright when he’s describing manufacturing’s multiplier effect. “An attorney who represents someone in court will provide much-needed service to the client, and will be paid handsomely for having done so. Money is transferred from the client to the attorney. The client is happy, as is the attorney. But no monetary value has been added to the overall economy as a result of the transaction. There is no product, no material that is worth more after the transaction than before. Money that was once in the hands of the client has simply been transferred into the hands of the attorney.”

From there he describes the manufacturing supply chain, and how each link adds value. From raw material to finished product, each link adds jobs for not only those directly associated with the product, but others that support the supply chain, including transportation and construction. According to the Manufacturing Institute, every dollar from a manufactured product’s sale supports $1.40 in output from other sectors. A sales dollar in the service sector, on the other hand, supports on average only $0.71, according to the National Association of Manufacturers.

Joe Works, co-founder of B&W Trailer Hitches, has seen this multiplier effect and, in a sense, has carried it to the next level. He did not underestimate his company’s importance in Humboldt, a southeast Kansas town home to fewer than 2,000 residents. B&W employs 200 of them.

In spring 2008 the country was experiencing healthy truck sales, but by summer the bottom fell out. Within months B&W’s sales volume plummeted from 15,000 hitches a month to only 4,500. At this point B&W’s managers were left with a choice: Should they lay off to right-size the business, or should they keep everyone on? Works did right by his namesake and decided to do the latter.

Workers didn’t just sit idle and draw a paycheck, though. They gave back to the community. Half of B&W’s workforce performed upgrades to Humboldt’s community and recreation centers, including its ball field, several playgrounds, and churches. After about six months, B&W’s sales still hadn’t bounced back, so managers did something even bolder. Upon request, B&W workers actually came to employees’ houses to help out with projects, from painting to deck-building.

“We have very dedicated, hard-working, loyal employees.”

So said Chris Scripsick, B&W sales engineer. The place where he first told me this story makes it even more significant. It was at last year’s FABTECH® expo in Atlanta. He had come to look at new equipment, including a laser cutting system, press brakes, and some welding machines. Only two years before B&W’s sales slid by more than two-thirds. The company bled cash by keeping everyone on the payroll. But by late 2010 the company already was hunting for new equipment.

This was after perhaps the boldest move of all: B&W bought another company. In August 2009 it purchased Poli-Tron Inc., a Pittsburg, Kan., manufacturer that offered livestock feeding equipment as well as job shop services. The acquisition effectively broadened B&W’s product offerings and got the fabricator into the contract fabrication business. That diversification, Scripsick said, has helped the company rebound during the economic recovery.

Every downturn has winners and losers. B&W, it turns out, won.

The question is, how? How could B&W afford to keep everyone on the payroll? Scripsick’s answer was simple: cash. Since its founding, the company borrowed little and maintained a conservative balance sheet. “[Works] had money in the bank and decided it was better to burn that cash than have reduced employee performance during the years to come,” he said.

Such financial conservatism isn’t a surprise, considering the company background. In the early 1980s Works’ family farm had fallen on hard times. So he and a friend, Roger Baker, launched B&W (short for Baker and Works) out of a garage, making truck beds for farming and construction. Today Works has remained on as CEO.

For years farmers, ranchers, construction workers, and others had used the standard gooseneck hitch to haul trailers too heavy to be connected to the bumper. That gooseneck hitch, though, attached to an inconvenient place: right in the middle of a pickup truck’s bed, rendering the bed useless for anything but towing. To solve this problem, B&W developed the Turnoverball™. The user can unhitch the trailer, remove the ball, turn it over (hence the product’s name), and stow it beneath the truck bed.

The Turnoverball caught on and sales soared. During the good years, the company saved and saved, so when the worst happened, B&W could remain aggressive when times were tough. In 2009 the company became employee-owned, so workers now have a stake in the company’s success.

Perhaps most important, Humboldt as a community probably is far better off. Manufacturing workers add tremendous value. When manufacturing output wanes, so does that multiplier effect. As Scripsick explained, the company probably wouldn’t be as successful as it is today if it underwent layoffs.

Indeed, the entire Humboldt community would probably be a very different place.