In an upcoming print edition of The FABRICATOR, columnist Dick Kallage, principal at KDC & Associates, Barrington, Ill., asks this fundamental question: Why do customers buy from you? As Kallage explains, “the answer often revolves around soft, generalized terms, such as quality, precision, or service. Those are great attributes for use, but who told you that? Unless you know exactly why your customers choose your company, you cannot possibly improve in a focused, economical manner.”
Those are wise words. Kallage’s column focuses on company valuation. It delves into not just why customers buy from you, but why another company or investor would want to purchase a custom fabricator. As Kallage explained it, investors will pay more for a fabricator with new equipment, because they know they won’t have to update equipment during the near term. But they don’t view equipment as a key differentiator because--unless a shop uses proprietary, custom machinery--other fabricators can buy the same or similar machines.
This is why investors value talented people more than machines. Only people can identify bottlenecks, make the right machine investments, and improve part flow. Only people can talk to customers about cost-saving sheet metal design alternatives. Only people can rearrange machinery to best suit the product mix on the shop floor. Only people can adjust to market changes and external challenges (such as the one some shops may be starting to face, as the effects of the government’s self-imposed sequestration go into effect over the coming weeks).
A few manufacturers out there can boast technical trade secrets or proprietary equipment that competitors can’t touch. But in many cases, an application’s volume doesn’t warrant an investment in such custom equipment.
People outside manufacturing perceive that any business making things in the United States as driven by machinery and automation. Labor, they say, is just too expensive, so manufacturers automate. But when you look at the balance sheet, direct labor in the U.S. doesn’t take up that much of the balance sheet. For several years running, the Fabricators & Manufacturer Association’s Financial Ratio and Operational Benchmarking survey has pegged direct labor at around 13 percent of sales for many fabricators (though the number can vary widely, depending on the type of work the fabricator does). Material generally is far more expensive than labor, so the faster that material is turned into a thing of value, the better.
Automation can cut, bend, weld extraordinarily efficiently. Material flies during operations, but how about between operations? In most high-product-mix, low-volume situations (the majority of U.S. manufacturing), people on the shop floor must devise ways to move that material from A to B as efficiently as possible, weighing constraint operations and capacity. That’s not easy, and it requires people to think on their feet.
Machinery does make a difference. Shops can’t survive without technology. Good machines, in fact, can help a company attract the best people. That’s the case at Total Manufacturing Co. (TMCO), a product line and contract fabricator in Omaha, Neb. Several weeks ago I talked with Todd Blacksher of TMCO’s National Mfg. Division, which makes equipment for chemistry laboratories. The shop has made major capital equipment purchases in recent years.
“If we want to be better, we have to have the best equipment,” he said. “Most people who work here really love the new technology, and there’s always something new. The machines empower our talented employees.”
That really says it all.