How 80/20 rules metal fabrication

The late Dick Kallage, former columnist for this magazine, channeled much of his business philosophy through the 80/20 rule, a management method that, as he put it, “seeks to maximize some results, like sales or profits, by systematically deploying available resources only to the drivers that have the most impact. Basically, it’s a disciplined approach to getting the most bang for the buck.”

That is, 20 percent of causes lead to 80 percent of the results, or thereabouts. This really is fundamental to the continuous improvement I see at a lot of custom fabricators. Tackling the high-impact 20 percent gives their high-product-mix, highly variable business model more focus, as long as people focus on information that matters.

Several years ago I visited Quality Industries, a large custom fabricator and stamper outside Nashville. For years the company had been moving away from stamping and toward custom fabrication—laser cutting, punching, press brake bending. After all, doesn’t hard tooling make adapting to constantly changing customer demands more difficult?

For a time the company focused mainly on improving its custom fabrication. Its presses still stamped out products, but the operation was not on people’s radar.

Then managers looked at the numbers. It turned out that some large, longtime customers hadn’t changed their product designs in years, and their stamping work was delivering better margins than previously thought.

On the day of my visit, my tour guides showed me where future die-changing strategies would be headed; new ways to store, transport, and maintain tools; and progress on retrofitting old presses. One looked almost brand-new. They were focusing on the high-impact 20 percent.

80/20 can be misapplied, particularly if a fabricator doesn’t look inward first. I’ve spoken with shop managers who wanted to drop high-maintenance customers, but ultimately didn’t. They found that customers were high-maintenance mainly because of their own operational problems. Customers weren’t being unreasonable; the fabricator just wasn’t delivering. Sure, a fabricator can’t be everything to everybody. But it also doesn’t want to lose a customer because of problems that stem from internal inefficiencies or miscommunications.

Tony Grant, general manager, contract metal manufacturing, and Anthony Goodings, director of sales, North America and international at The Wagner Companies, know all about 80/20. Wagner has roots going back to an 1800s blacksmith operation and an early 1900s structural and ornamental fabricator. After a century of growth and acquisitions—including a stamper in 1985, a tube and pipe bending operation in 1993, and a maker of hardware and other structural components for glass facades in 2010—the company’s Milwaukee plant has grown to include a multitude of forming and fabrication capabilities. It has stamping presses, rotary tube benders, induction benders, saws, welders, milling, turning, electrical discharge machining, laser tube cutting, and more.

The company offers three core services: architechtural railing systems; a catalog for standard architectural component parts; and, finally, contract metal manufacturing. The mix of contract and structural work provides work load balance and healthy cash flow. A project in contract fabrication may take only weeks, while projects in commercial construction can take a year or longer.

Among all this, what exactly is the high-impact 20 percent? To answer this question, the company first needed to uncover the current state, including the true velocity of jobs on the manufacturing floor—what moved quickly and what didn’t. Three years ago the firm upgraded its Epicor enterprise resource planning system that gives everyone that kind of visibility. If a job stops at a certain bottleneck, what are the causes?

As Grant explained, “We already had a handle on what jobs were our 20 percent, and the software really helped us get an idea of what kind of jobs where we really needed to excel. This helped us drive more efficiencies.”

For years Wagner had built its processes around certain quality requirements. The challenge was, when the commercial construction industry tanked, pricing pressure squeezed fabricators serving the market. “When the market tanked, people were looking for cheaper solutions,” Grant recalled. “We just couldn’t play that game.”

He added that if a structural component fails, or a component in a piece of equipment misfires and causes an explosion, people can die. Fabrication and quality processes that produce safe, long-lasting products are Wagner’s high-impact 20 percent.

As Grant recalled, “We received feedback from some customers telling us, ‘If your name is on that part, we expect it to be a high-quality part, and we’ll pay for it.’”

This feedback essentially provided the foundation for Wagner’s sales effort. “We really focus on customers who we can service in a way in which they value the service we provide,” Grant said. “It may cost a little bit more, but they’re willing to pay for the difference. We give them peace of mind, we hit their delivery target, and the product is quality. And they appreciate that.”

“For us, 80/20 has a velocity and directionality to it,” Goodings added.

Put another way, 80/20 is fluid, encompassing not only a customer’s revenue and profits, but also potential. If judged by revenue alone, a customer may not fall into the top 20 percent of Wagner’s work. But as Goodings explained, that customer may really value Wagner’s service.

“These customers also may tell us that they’re penetrating new markets that will require our services,” Goodings continued, adding that account likely will not remain a small customer for long.

“The bottom line is this,” Grant said. “Customers like engaging in transactions with people they enjoy and who they trust. You maximize their dollar and add value, because you bring things to the table that your competition isn’t doing.”

For Wagner and many topnotch fabricators, trust and enjoyment come about by building operational excellence to serve a customer base that values such excellence. When trust and enjoyment pervade internally among co-workers and externally among customers, the 80/20 rule is probably working as it should.

Wagner Companies, 888-243-6914, www.wagnercompanies.com