Mr. Bureaucracy, tear down this wall

February 12, 2013
By: Tim Heston

This morning I talked with Paul Luber, CEO of Milwaukee-based Super Steel, a contract fabricator on a serious rebound. In 2010 the company went into receivership. Now, the fabricator recently has completed a serious growth spurt--it doubled revenue in just 12 months--and is preparing for 15 percent annual growth during the next few years. Look out of the story in the April FABRICATOR.

This shop is one of many I wish more journalists and government officials would learn about--and I’m talking about more than the grip-and-grin coverage, like the “Good American Job” stereotypical photo op we continually saw during the presidential campaign.

Milwaukee is a highly competitive area for metal fabrication. Workers have plenty of options, but, according to company sources, they choose Super Steel because of its competitive pay and benefits. And it’s an engaging place to work, one that continually focuses on product and process improvements.

And, oh yeah, the company also sends its products to Mexico and other so-called “low cost” countries.

In FMA’s most recent financial ratio survey, many respondents said their direct labor costs amounted to less than 13 percent of sales. On the other hand, most said that material costs made up more than 30 percent of sales.

As the numbers show, so much of metal fabrication isn’t driven by labor costs. If a fabricator cuts labor costs, that’s great, but on its own, labor represents a small portion of overall sales (depending on the product complexity, amount of manual processes like welding, etc.).

Instead, this business is driven by service and quick response. The service comes from highly knowledgeable and (perhaps most important) engaged individuals who communicate well.

And considering the material costs in this business, fabricators need to respond quickly. If they let material sit on the floor for months, it bleeds the company of cash. The fabricator may have plenty of booked orders and inventory assets, but you can’t make payroll with inventory.

Many perceive U.S. manufacturing’s niche to be in high-value, highly engineered products that require highly skilled people. Of course, I’ve talked to shop managers in Mexico and in Asia who also say they employ a highly skilled staff that produces highly engineered products. And unlike the U.S., many countries to the south and west of us also happen to have a lot of engineers entering the workforce.

While the “high tech” nature of U.S. manufacturing is real, does it really separate us from the rest of the world? Sure, we have advanced machine tools, but so do companies in Latin America and Asia.

A technically skilled workforce provides a vital foundation, but that alone may not separate a company from global competition. I think companies like Super Steel sells products to Mexico because its people apply that technical foundation to the logic of running a sound business, where employees communicate continually and efficiently.

Bureaucracy builds all sorts of “walls” in a business, be it the wall between product design and manufacturing at an OEM, or the wall between sales and the shop floor at a contract fabricator. At many businesses I’ve covered--from Horton Emergency Vehicles to the companies on our annual Fab 40 ranking of contact fabricators--those walls are coming down. Salespeople talk to engineers; engineers talk to shop supervisors; supervisors talk to front-line machine operators and welders.

When those walls come down, good things happen. For the right product in the right market, such a manufacturer can beat the China price, the Mexico price--heck, any price.

Tim Heston

Tim Heston

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