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Recent Blog Posts
We can see the finish line for the first step of our ISO 9001 journey
“Geoff Forester photograph, courtesy of the New Hampshire Community Loan Fund”.
While Graphicast has always maintained a reputation for quality products, we did not have a lot of market pressure to become an ISO-9001 registered supplier. Our customers were happy with our quality system and we regularly passed quality audits. That is, until the recession hit us square in the face. We found very quickly that in response to the recession, many companies were actively strengthening their supply chains. Besides ensuring that their suppliers were financially viable, they were also trying to eliminate internal costs associated with working with those suppliers. One way to reduce costs was to reduce vendor audits and any vendor uncertainty. This put the pressure on us to be able to succeed in this environment. So began our ISO 9001-2008 registration and certification journey.
With a good production quality system in place. our efforts were aimed at the documentation and control aspects of the ISO quality system. We’ve made a lot of progress in the past nine months and just completed our certification stage 1 audit. Based on the results of that audit, we have our registration audit scheduled for the end of July. If all goes well, we will have completed the first part of the ISO journey, getting our ISO 9001-2008 certification. Then the challenge of maintaining and improving the system begins. We’re looking forward to it!
Are You Ready for “The Sixth Wave”?
“Geoff Forester photograph, courtesy of the New Hampshire Community Loan Fund”.
No, I’m not talking about surfing. I’m talking about an economic wave that’s in its early stage of emergence and will drive our economies for the next 50 to 60 years. In the 1920s, a Soviet economist, Nikolai Kondratiev, studied capitalist economies and noticed that they went through repetitive cycles of expansion and contraction. These “Kondratiev Waves” last about 50 years. He identified the first wave as occurring in the early 18th century. His ideas eventually lead to his execution in the late 1930s, but other economists continued his work, trying to understand the reasons for these cycles. Although this theory is not universally accepeted, it does offer insight into societal, political, and technological changes that have occurred throughout history. In the 1980s, Cesare Marchetti offered supportive research when he wrote about society as a learning system and decribed Invention/Innovation Cycles whose ebb and flow correspond to these economic waves.
The Kondratiev Wave consist of four periods. As liquidity expands in the initial phase of the cycle, commodity prices rise reflecting the increasing business activity and inflation. As business activity and inflation accelerate, speculators bid up commodity prices due to their fear that inflation will continue to accelerate. After the rate of inflation peaks and starts to fall, the acceleration premium is removed from prices. Thus, commodity prices start to fall despite continued but slowing inflation, a trend called disinflation. At the same time, a change in psychology away from fear and toward feelings of relief and hope induces people to channel the excess purchasing media created during disinflation into bidding up the prices of investment assets such as stocks. Because inflation continues, the wholesale prices that manufacturers charge for finished products, the retail prices that stores charge for goods and the levels of wages that employers pay for labor all continue to rise but at a continously lesser rate, following the rising but slowing trend of business activity and inflation. Near the end of the cycle, the rates of change in business activity and inflation flip to zero. When they fall below zero, deflation is in force. As liquidity contracts, commodity prices fall more rapidly, and prices for stocks, wages and wholesale and retail goods join in the decline. When deflation ends and prices reach bottom, the cycle begins again.
Most who subscribe to the Kondratiev Wave theory identify our current economic situation as being in the last phase of the fifth wave cycle. The authors of The Sixth Wave have suggested that the emerging wave will be powered by the economics and technology of scarcity. Those who can do more with less and reduce waste will prosper. Industrial trends such as Lean Manufacturing, Six Sigma, and Theory of Constraints are all associated with elimination of waste, reduction of variability, and improvement of production velocity. These practices support a Sixth Wave mentality.
At Graphicast, we recently described our experience with a customer who worked with us to take an expensive assembly of four machined components and turn them into a single, economical casting that was stronger, more rigid, and less wasteful to produce. There are many more opportunities to reduce costs by redesigning and rethinking your needs, than by just making the old design “cheaper” by outsourcing to a low labor cost area. In the long run, the better design is the most productive way to succeed in the Sixth Wave economy.
Good luck getting ready for the next wave. We may not yet be out of the Kondratiev “winter”, but prosperity awaits those who embrace the upcoming “spring”.
Graphicast on the Road at AmCon, Denver, April 26 and 27
Graphicast will be in Denver from April 26, 2011 - April 27, 2011, exhibiting at the AmCon (American Contract Manufacturing) Show. We will be in Booth 416. Stop by for the latest information on our cost saving metal casting technology.
Ugly, but Profitable
“Geoff Forester photograph, courtesy of the New Hampshire Community Loan Fund”.
In the February issue of Modern Casting, Dan Marcus comments that some of the oldest, ugliest foundries in the metalcasting business are also among the most profitable foundries in the metalcasting business. His argument is that equipment has little to do with how profitable metalcasters can be. Good management has everything to do with how profitable metalcasters can be. Knowing your markets and focusing your business toward them is a more potent profit generator than the newest, most efficient piece of production equipment. Many companies fall into the costly trap of thinking they will be more profitable if they could only acquire the latest bit of high productivity equipment, never recognizing that unless they do things differently, they will just have more debt, lower cash flow, and fewer profits. His argument is similar to one I read a few weeks ago about machine shops profitably growing relying on older equipment. It’s also my experience in New Hampshire – more companies fail due to poor management than from poor workers or foreign competition. Ugly and wealthy, or pretty and poor. Which would you choose?
The Pain and Promise of US Manufacturing
“Geoff Forester photograph, courtesy of the New Hampshire Community Loan Fund”.
NADCA, the North American Die Casting Association, has just published a great synopsis of the path, and promise, of US manufacturing. Here it is, in its entirety:
“The common wisdom emerging from the national media frequently notes that the American economy has lost its ability to “make things”…that we lost most of our manufacturing capability to China and to Mexico. The common wisdom notes that we have simply become a nation of hamburger flippers, as well as a nation where we merely trade information with each other.
There is no question that employment losses within the U.S. manufacturing sector over the past 30 years have been massive. We all know a neighbor, a friend, or family member who lost their job in manufacturing, particularly in the industrial Midwest.
U.S. Ranking
It might surprise you that the U.S. continues to lead the world in manufacturing output. We produce more than the Chinese, the Japanese, the Germans, etc. U.S. output exceeds that of China by 40%
It might surprise you that the U.S. share of global manufacturing output, at 20%-25%, is essentially the same as it was 40 years ago
It might surprise you that output per U.S. worker is three times what it was in 1980 and twice as high as it was in 1990
Making a Comeback?
U.S. manufacturing employment actually rose by 136,000 net new jobs during 2010, the first annual increase since 1997. Moreover, the weather-distorted January 2011 employment data saw an estimated jump of another 49,000 jobs, the largest monthly gain in 12 years.
Various estimates suggest that the American economy will add 300,000-350,000 net new manufacturing jobs this year, a rise of roughly 3.0%. Longer-term estimates suggest the manufacturing sector could add one million jobs over the next 4-5 years. Such a rise clearly won’t make up for the loss of two million manufacturing jobs in the Great Recession, but it helps.
U.S. manufacturers have largely thrown in the towel on lower cost, lower skill, lesser profit margin manufactured products such as toys and electronics. At the same time, U.S. manufacturers have moved aggressively toward more complex and expensive goods requiring specialized labor, including health care products, jet fighters, computer chips, and industrial machinery (The Associated Press).
Outsourcing of Jobs
American companies have continued the exodus of former American jobs to other less costly parts of the world, although the pace has slowed. The rationale has also changed somewhat.
Hundreds of American firms had sent production and jobs to China, with products then shipped back to the U.S. to be sold. The current environment finds more and more of that production sold within China, or within other Asian nations. This change is identical to that of major foreign automakers who build billion dollar facilities in various communities within the U.S., with the intent of selling those cars not back home, but within the U.S. market.
“Onshoring” of Jobs
One very favorable development within the U.S. manufacturing sector involves decisions by more and more American companies to bring back production and jobs previously sent to China, Mexico, and other low cost production locations. Companies such as Ford, General Electric, and dozens of others have seen the costs of operations, particularly wages, climb dramatically across China while shipping costs have surged.
Issues of shoddy products and the theft of intellectual property have blackened the eye of outsourcing. The reality of too many midnight telephone calls and frequent trips halfway around the world to deal with problems has also taken its toll.
Another painful reality faces companies within the U.S. and from around the world with an interest in setting up production in China. The unspoken but understood fact that a company must typically give up its most sensitive trade and technological secrets to the Chinese in order to get in the door, as one might expect, muddies the water as well.
Many foreign companies have set up shop in China, only to then see products nearly identical to their own soon marketed by Chinese competitors, at substantially lower prices. The laundry list above has provided solid incentive for additional onshoring of jobs in coming years. Drug cartel violence across Mexico has also led hundreds of American firms to reconsider doing business south of the border.
Similar issues are at play in the white collar world of back office operations and call centers, where the American job shift to India has drawn great concern. Sharply higher wage costs and higher levels of worker turnover (note: these people are working during their nights to handle our daytime phone calls) have also led to some jobs coming back home. The emerging issue of cloud computing will also impact white collar outsourcing decisions.
“Rural” Outsourcing
More American companies based in large metropolitan areas are taking advantage of “outsourcing” some of their business operations to rural American communities, especially those where a university might be located. The rationale? Access to talented people with lower wage and housing costs, similar operating hours, and a common language come to mind.
Down the Road
The U.S. still accounts for 40% of total world R&D spending. We lead the world in science and technology, although that lead is slipping, according to the Rand Corporation.
Despite more recent successes, major challenges remain. Millions of lost jobs will never return. At the same time, ninety percent of manufacturers report having difficulty in finding skilled production workers. In addition, a large share of the manufacturing workforce will retire sooner rather than later, with the average U.S. manufacturing worker being 50 years old (The Agurban).
Greater cooperation between local universities, community colleges, and high schools to provide quality training for local manufacturers remains a challenge largely unmet. Parents and educators need to promote a career in manufacturing as a highly desirable outcome for tens of thousands of new graduates.”
American managed.
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