It is not just business

April 23, 2013
By: Tim Heston

Troy Berg, president of Dane Manufacturing, a contract fabricator in rural Dane, Wis., attends equipment auctions not just to find a deal on equipment, but to learn. With success comes confidence and determination; with failure comes soul-searching, self-scrutiny and, quite often, unfiltered truth.

Berg has gotten quite a bit of truth. This morning, he told me of an auction visit in 2007 to a large fabricator on the West Coast. It was an unusual opportunity, because only half the shop was shuttered. He and other fabricators were in an idle portion of the shop full of lightly used, high-quality laser cutting machines, press brakes, and high-end material handling. The other half of the floor was still humming. Punch presses, lasers, and the buzz of welding arcs permeated the place.

Berg didn’t buy anything, but he did see a man in a blue maintenance shirt, and he walked over and introduced himself. They started chatting. Then Berg, like a true investigative reporter, dove in and asked the question: “So what the heck happened here?”

He learned that the side that kept humming was the contract fabrication portion of the business. Its diverse mix of relatively small contracts kept people employed and the shop floor busy. The idle side--the one with equipment being auctioned off--was the product-line business: specifically, a value-stream dedicated to electronics chassis work for one customer. That one customer moved its manufacturing supply chain to China and Mexico.

The maintenance worker then became bitter, used some “choice” language, and told Berg how the customer contact had told the company, “Sorry, it’s just business.”

“I don’t like that phrase,” Berg told me this morning. “Don’t tell me it’s just business. These cause people to be laid off … When I let people go, I can’t tell them, ‘It’s just business,’ because it isn’t.”

Berg is aware of business realities. Business conditions change. Indeed, during the past decade his own business has acquired three small product-line manufacturers. With such changes, some people lose their jobs.

But he also has observed how the boom and bust cycles of certain OEMs can be brutal--more frequent and dramatic than the overall business cycle (financial crisis aside). And if a fabricator has only a handful of large customers, that cycle can be especially painful.

Many fabricators have grown quickly on the backs of a few large customers. In a 2012 benchmarking survey from the Fabricators & Manufacturers Association, Intl., a quarter of respondents said that five or fewer customers made up 80 percent of company revenue.

It’s easy to see why this happens, and on various levels. From a sales perspective, a rep traditionally gets paid in part on a percentage of revenue, so landing high-revenue accounts are attractive for them. From an operational perspective, processing fewer product families may reduce part routing and manufacturing complexity. From a supply chain perspective, some OEMs have pared down their supply base and purchase from a smaller group of higher-performance suppliers; mathematically, that gives each high-performance fabricator more revenue from one company.

A massive contract is great, but not if it overwhelms a business. As Berg’s auction visits have revealed, often the loss of such large contracts has led to business failure and layoffs, even during otherwise good economic times. Berg said his strategy is to maintain extremely high on-time delivery standards, so major accounts don’t have a reason to leave during otherwise good times--and, of course, maintain a broad, diverse customer base.

Layoffs sometimes are sometimes unavoidable and necessary, like at the trough of a harsh recession, or during business ownership changes or transition. But they are sometimes avoidable if, say, a quick, dramatic expansion on the back of one or two customers poses too much risk.

Yes, losing such contracts is a business reality, the ensuing layoffs a painful price of operating in a dynamic and successful free market. Berg added that he wouldn’t have it any other way. But isn’t “just business,” he said. It alters peoples’ lives.

Tim Heston

Tim Heston

Senior Editor
FMA Communications Inc.
2135 Point Blvd
Elgin, IL 60123
Phone: 815-381-1314