Fabricators unite in the fight against uncertainty at FMA annual Meeting

Gene Marks, founder of the Marks Group, provided the keynote address on the first day of the Fabricators & Manufacturers Association’s Annual Meeting in Nashville on March 5. During his presentation, “The Road to 2020: Taxes, Tariffs, and Technology,” he asked the audience trivia questions, such as “True or false: You can no longer deduct alimony payments [under the new tax laws].” The answer, by the way, was “true.”

In the U.S., small companies are big.

According to Chris Kuehl, FMA’s economic analyst and a founder of Armada Corporate Intelligence, 3,749 companies in the U.S. have more than 500 employees, which pales in comparison to the 248,152 firms that employ fewer than 500 people. Of that latter number, 186,114 have fewer than 20 employees.

If you consider metal fabricators in the U.S., the vast majority have fewer than 500 employees and, frankly, fall on the lower end of the scale when it comes to number of employees. As a result, these small to medium-sized entities don’t have the luxuries much larger companies enjoy. People tend to wear several hats as they strive to get metal parts out the door.

Being a small company makes one vulnerable too. Gene Marks, a small-business expert, told the crowd at the FMA Annual Meeting in Nashville, March 5, that the average lifespan of a small business is fewer than 10 years. The ones that survive may have owners with noticeable traits, such as being a “people person,” working long days, and demonstrating keen intelligence, but one trait really makes a difference, according to Marks.

“Every single one of them is looking ahead,” he said. “And it’s not a week or a month from now. It’s farther out.

“They have to. It’s their job,” Marks added. “That’s why they make the big bucks.”

So owners and managers of metal fabricating companies are faced not only with working to meet the demands of customers needing quality parts delivered yesterday, but also keeping their eyes on the horizon, looking beyond the upcoming week, month, and year. That’s a tall order for anyone, much less a small-business owner, but that may be the reality that awaits today’s company leaders. It’s probably the main reason that fabricators attended the 13th edition of The FABRICATOR’s Leadership Summit at the FMA Annual Meeting: Expert guidance is required when charting a sea of uncertainty.

What Awaits in 2020?

Marks shared with the audience what the road to the 2020 election might look like. People may think that Congress is gridlocked, but that perception is not going to stop changes from occurring.

An infrastructure bill of some type is likely, Marks said. The Democrats like the idea of infrastructure spending that can fuel projects in their home districts, and President Donald Trump has been a longtime supporter of infrastructure investment. Total spending ranges from $200 million to $1 trillion and probably will include a large amount of “incentives” to encourage private investment in place of direct federal government investment.

An upgrade in the family leave law has a good chance of becoming reality. Ivanka Trump, the president’s daughter and adviser, has shown particular interest in this issue and could get bipartisan support for it. Early discussions center around a plan for six weeks of family leave to be available to workers should they need it for family emergencies, for example. It would be funded through unemployment programs.

FMA President Ed Youdell moderated “Ask the Fabricators” panel discussion. He was joined on stage by David Puleo, Rapid Manufacturing, Nashua, N.H.; Eric Borman, Progressive Metal Manufacturing Co., Warren, Mich.; Steve Heim, Brenco Industries Ltd., Delta, B.C.; and Rob Bohn, Nema Enclosures Manufacturing Corp., Houston.

The federal government may move on hiking the minimum wage to between $11 and $12, Marks said. Not only will this have a direct impact on those states with lower minimum wages, but such a move also will put pressure on other employers who have employees earning above the minimum wage, but expect a bump in pay after seeing their minimum wage-earning colleagues getting an increase.

Under the Obama administration, the Department of Labor issued a regulation requiring that employers pay overtime to all workers making less than $47,476 per year. The business community sued and won a permanent, nationwide injunction just before the rule took effect. That meant the regulation rolled back to the old standard: $23,660 per year. Marks said that the Trump administration would like to see the salary threshold placed at $35,000.

The Section 232 tariffs obviously take on great importance, particularly for those metal fabricators that may have run through material inventories that were purchased prior to when the trade penalties on imported steel went into effect. Marks predicted that the tariffs would have to be suspended if the United States-Mexico-Canada Agreement (USMCA), which is supposed to replace the North American Free Trade Agreement, is to have any chance of passing Congress.

As for when the next recession might hit? Marks said one might be coming, but it’s impossible to know when.

“No one knows,” he said. “They didn’t know before the last recession, and they won’t know about the next one.”

In his economic forecast, Kuehl told the crowd that inflation is starting to become an issue. Manufacturers can’t find the type of workers they need for their more modern work environments, which is helping to push salaries and wages higher. The National Association of Manufacturers estimates that the U.S. has about 3.5 million open manufacturing jobs, and it expects 2 million of them to go unfilled. Because of this, Kuehl said that the federal funds rate, the interest rate that banks charge other banks for lending them money from their reserve balances on an overnight basis, will climb to 2.8 percent this year and to 2.9 percent in 2020.

“The Federal Reserve is committed to keeping inflation down,” he said.

This is unlikely to change in the immediate future as two incoming Federal Reserve Board members are viewed as being more “hawkish” on inflation than the people they are replacing, Kuehl added.

What’s Next for Section 232 Tariffs?

In the “232 Tariffs and Quotas: The Mechanism of Protection” panel discussion, Phil Kooima, owner of metal fabricator Kooima Co., Rock Valley, Iowa, voiced the opinion of several fabricators in the audience.

“We are a consumer of steel, and it is my opinion that Section 232’s goal was to protect a small number of mills at the expense of the greater fabrication industry,” he said. “The United States should import as much low-cost steel as possible to make us fabricators more competitive. Low-cost steel is a commodity to us. There’s no benefit to fabricators to have high-priced steel, just as there’s no benefit to high-priced electricity.”

On the morning of March 5, The FABRICATOR’s Leadership Summit attendees had the chance to visit FWE, a manufacturer of commercial food service equipment in Portland, Tenn. The company, which operates out of a 165,000-square-foot facility, has about 800 different models of equipment and 10,000 active parts in its database.

The Section 232 tariffs, put into effect in the name of addressing a national security threat, placed a 10 percent tariff on imported aluminum and 25 percent tariff on imported steel from select countries, including Canada, Mexico, and the European Union. When the tariffs were enacted in March 2018, domestic prices crept up as well. Fabricators have been dealing with steel prices in the $650/ton to $700/ton range for hot-rolled coil since then.

Piyush Sood, vice president, equity research, Morgan Stanley, believed that the tariffs against Canada and Mexico would go away “sooner rather than later” because of the desire to have the USMCA gain congressional approval. The aluminum tariffs, in particular, shouldn’t have a long shelf life because the domestic producers simply can’t meet the market needs of U.S. manufacturers. Sood said that manufacturers consume 5.6 million tons of aluminum per year, but U.S. producers can generate only about 2 million tons. That makes for a significant shortfall.

In the meantime, many companies that rely on imported metals are finding that they aren’t getting their request for exclusions addressed by the Department of Commerce. Washington, D.C.-based trade attorney Lewis Leibowitz said that as of early March, 49.3 percent of the 26,504 requests to be excluded from the steel tariffs were still pending, and 70.9 percent of the 5,264 requests to be excluded from the aluminum tariffs were also waiting to be addressed.

“I’m still looking for one of the exclusions that has been granted over the objection of the domestic producers,” Leibowitz said, referring to the large amount of influence that the domestic steel mills have with the current presidential administration.

How Are Fabricators Reacting?

When faced with these challenges, fabricators have come to realize that they need to operate as efficiently as possible, particularly when it comes to handling material. Needless to say, metal fabricators have reacted in different ways.

During the “Ask the Fabricators” panel discussion, Rob Bohn, president, Nema Enclosures Manufacturing Corp., Houston, said that his company has looked to tighten up their quoting efforts, raised prices, and actually turned one employee into a full-time material handler to ensure that material wasn’t sitting on the shop floor waiting to be processed.

“We also changed how much material we buy,” Bohn said. “So typically I don’t bring in metal until 24 to 48 hours before we’re going to cut it. That way, I keep my inventories at a minimum.”

Steve Heim, president of Brenco Industries Ltd., Delta, B.C., reacted in a different manner. The shop purchased probably two months’ worth of material because it wanted to ensure that it had material to serve its customers. Being somewhat geographically isolated, the company didn’t want to be left in a lurch for material.

Heim added that because the steel prices increased in Canada too, Brenco’s customers also were dealing with the impact. As a result, the price increases were accepted without too much grief.

David Puleo, director of sheet metal operations, Rapid Manufacturing, Nashua, N.H., said his company recently went back to its material suppliers to streamline the ordering process.

“Instead of buying one sheet of this material, two sheets of this material, six sheets of this material every other day, we set up with our suppliers a minimum order quantity of 10, 20, or 30 sheets, whatever the size of the blanks are,” he said. “Whenever we hit our minimum order quantity, we get that minimum amount, and our racks can always handle those quantities.

“So we were able to speed up their process. Now when we call, they have a skid of material waiting for us whenever we need it,” Puleo added.

Eric Borman, CEO of Progressive Metal Manufacturing Co., Warren, Mich., said that steel went up as a percentage of cost for his company, about 8 percent in 2018 when compared to 2017. As a result, in 2019 the fabricator made it a major priority to examine material usage and yields.

Progressive started with the high-volume jobs and looked at ways to move to standardized nests where it could maximize sheet utilization. Because the company has plenty of repetitive orders, Borman said, it has the luxury of cutting parts that may not be used right away, but will be used for an upcoming order. The push to maximize sheet use even if it results in increased work-in-process also will be watched closely in 2019, he added.

How Do You Create a Culture of Responsiveness?

During that same fabricator panel, Borman responded to a question about what technology he would focus on if he were designing a job shop for the future.

“If I were designing a new shop, the first thing I’d work on would be the culture and the people,” he said.

He then used the example of a visit to Trader Joe’s, a high-end grocer, to illustrate his point. On this particular day, Borman was standing in line, and he noticed a person who was stocking the shelves walk over to an open register and announce, “This register is open.” That responsiveness is something that he would like to see more of at Progressive Metal.

“If we could have a company that would act that way—that people would dynamically go where they had to be because that’s where the problem was and they solved the problem, we would be 10 times more successful,” Borman said.

Jake Wood, the founder of Team Rubicon and a Marine who served in both Afghanistan and Iraq, told the crowd during his presentation, “Take Command of Leadership,” that it’s up to the leader to create the culture. When done right, the followers will mimic the leader’s behavior.

Wood said he saw this while in Iraq during a firefight. Someone was shot, and the squad Wood was leading needed to get the injured Marine to an extraction point. That task was complicated by the need to run across an open field with enemy fire still active. During his time with his men, they had grown to trust his leadership, and they weren’t about to question the need to face enemy fire to get their comrade to safety.

“When people feel they love, they feel safe. When people feel safe, it unlocks something incredible. When people feel safe, they become courageous,” Wood said.

In October 2009 Wood left the military. He formed Team Rubicon in January 2010 after the horrific earthquake that hit Port-au-Prince, Haiti. At the time some relief workers were hesitant to enter Haiti because of the difficulty getting there after the earthquake. Wood responded with military veterans and medical personnel and committed to entering the danger zone when others wouldn’t. As the team crossed over the Artibonite River, the natural border between the Dominican Republic and Haiti, the team of eight volunteers called themselves Team Rubicon in reference to the Rubicon River in Rome; they wouldn’t be turning back.

Wood found his calling after that. His group could help people in need while relying on the veterans who had been trained to respond and execute in times of great stress and in challenging conditions, without being shot at. Today the organization has 103,000 volunteers.

In fact, he knew what the organization’s vision would be even in those very early days.

“We want to build the best disaster response organization in the world,” Wood said.

He called that “vision” integral to building an organization with the right culture. He also referred to it as “writing the final chapter first.”

Again, the leader creates the environment where people feel “safe” to make “courageous” decisions, Wood said. They then feel empowered to solve problems, guided by the organizational vision and best practices learned from leadership. They also aren’t intimidated to hire people who may be more talented than they are.

With the right people in place and policies and processes that reinforced the shared values that support the vision, a company can scale and feel confident that the culture has a good shot of surviving, Wood said. It can be tough when an organization grows to more than 50 people, but preparing a solid foundation of love and trust can make it happen, he added.

For the leader of a small manufacturing company, having that type of support is necessary if they are to keep their heads up and look beyond the production schedule for the day. It’s not easy, but an empowered team makes it possible.

The next edition of The FABRICATOR’s Leadership Summit at the FMA Annual Meeting is scheduled to be held at the Hyatt Regency Hill Country Resort in San Antonio, Texas, March 3-5, 2020. For more information, contact FMA at 815-399-8700 or info@fmanet.org.