Something Good is Happening in Manufacturing

November 30, 2011

Graphicast just closed the books on the incredible month of November 2011. Our shipments were among the five best months in the last 10 years, and our bookings exceeded our previous best month by over 35%! Our backlog is at its highest level in five years and we’re running 7 days per week. We’re planning a plant expansion, and we can’t get equipment in fast enough as far as we’re concerned.

We’re hearing similar stories from other companies in the state. Although unemployment remains high and the overall economy is slowing growing, there is a major expansion underway in some parallel economy that’s not showing up in the normal data. One explanation is that the manufacturing economy is driven by global economics, not national economics. As there are parts of the world nicely expanding, those of us in manufacturing are expanding as well. I wonder what things would be like if the US economy really took off?

What Would Small Manufacturers Occupy?

November 7, 2011

We have the Tea Partiers occupying Congress (or at least a part of it) to protest intrusive government. We also have the 99 Percenters occupying Wall Street to protest an intrusive banking and financial services industry.  Although some of us in manufacturing may sympathize with these other protest movements, if we formed a coalition unique to small manufacturing, what would we protest? Government regulations? Government gridlock? Ineffective public education? Predatory banking? Labor unions? Red tape at all levels of government? Globalization? Is there one issue we could all rally around that would help us, or are we too regionalized and diverse to have a common gripe? I certainly don’t have the answer, but you may. Let’s hear from you.

Are You Ready for “The Sixth Wave”?

April 8, 2011

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”.

Ugly, but Profitable

March 4, 2011

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

February 23, 2011

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.

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.”

Many feel “uncertainty” is the new normal

February 14, 2011

For many companies, the past was prelude to the future. Response trends could be developed for a host of inputs, and planning was a tedious, but often reasonably accurate corporate exercise. Fewer companies feel this way as we work our way out of the recession. Many now are trying to plan for uncertainty. This can be an expensive undertaking, as contingency planning ties up time and resources. But there may be no alternative for many, as being caught off guard is more risky than planning for numerous alternatives. A recent survey by Tompkins Associates, “Uncertainty is Certain – Perceptions of Future Risk on the Rise” highlights the thoughts of many global companies are they try to find their way into the future.

Explaining Theory of Constraints at the Pancake Griddle

January 31, 2011

I’ve been a strong proponent of Theory of Constraints as one of the best philosophies for running manufacturing operations. TOC gives you a perspective that helps you focus on constraints to flow in your operation and provides methods on how to deal with them to improve flow.  This focus on “throughput” rather than “costs” is transformative and requires a different thinking process than used in the cost driven world. I had a good lesson in constraint identification and throughput improvement while making pancakes yesterday.

Imagine, as you will, that I have a market for my product. The demand is time dependent (my market is hungry and wants to eat – NOW) and satisfaction limited (they will eventually get their fill, and the demand will subside). Getting product to the market to fulfill this demand cycle is critical to my business. I have plenty of raw material (my pancake batter), but a constrained production resource, my cast iron griddle. My griddle is fixed in size, and the energy input to the griddle is limited by batter chemistry and the batter load (the more batter on the griddle, the more energy required to produce a pancake, but too high an energy input, and the pancakes burn). If I had a lot of WIP (several pancakes on the griddle), I found that the production time increased (due to the higher energy requirements and temperature variation on the griddle), the quality went down (undercooked or overcooked sections on a pancake), and I couldn’t supply my demand on time. When I reduced WIP to one pancake at a time, my pancake production velocity or “throughput”  went up, quality improved, and I met the demand.  Making one pancake at a time was actually faster than trying to make a bigger batch of pancakes at once (the lower unit cost mindset).

In the factory, we know that smaller batches and lower WIP  increase production velocity. Higher velocity means higher sales revenue and higher throughput. All the lessons of the factory floor revealed while making a Sunday morning breakfast!

Assembly Magazine Gets It

January 26, 2011

What do they Get?  The value and cost benefits featured in Graphicast’s newest trade magazine article.  This case study shows how moving from CNC produced components to a casting process lead National Optronics to big savings on a low volume part.

After working with Graphicast to convert the design, National Optronics has taken what was a four piece pin and screw assembly, down to a single, precision machined casting.

 This project reduced part inventory, assembly time, and made for a much more rigid design.  Oh yeah, they also brought the cost down!

Sound like something that can help you?  CLICK HERE to read the story.

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