FFJournal’s Editorial Advisory Board
Thomas Burdel, VP Sales and Marketing, Prima North America Inc.
Jerry Busse, President, Rockford Toolcraft Inc.
Rene DeMoura, Director, R&D, Begneaud Mfg.
Tom Farmer, Co-President, Farmers Marine Copper Works
Phil Gilbert, Managing Director, P&M Corporate Finance
Joe Moretti, President, Service Metal Fabricating Inc.
Troy Roberts, President, Aida-America
Richard Seif, Sr. VP Global Marketing, The Lincoln Electric Co.
Ron Whitley, President and COO, Ranger Steel LP
Michael Zakrzewski, President, Bystronic Inc.

Forming and fabricating company leaders agree that the U.S. economy is in a slowdown, but they’re not quite ready to call it a recession. Instead, they think some of their customers may be taking a wait-and-see attitude on business decisions because of all the talk about recession. "From what I can see, it’s slowed down a bit, but [it’s] not a recession," says Thomas Burdel, vice president of sales and marketing for Prima North America, Chicopee, Mass.

Burdel’s assessment is shared by most members of FFJournal’s Editorial Advisory Board. "We’re in a slowdown for sure," says Joe Moretti, president of Service Metal Fabricating Inc., Rockaway, N.J. "Unemployment numbers are up and retail sales are down. Real income also seems to be stagnant or slightly down." But, he adds, his company has a distinctive niche and is doing well. "Our fourth quarter 2007 results were up, 8 percent over 2006. We also seem to be up for January and February of 2008 over last year."

Service Metal Fabricating’s niche is its ability to produce small quantities of several different items for a broad range of customers. The job shop machines and cuts parts for hundreds of customers, from OEMs to semiconductor companies.

Still, he remains "cautiously optimistic" about the rest of this year. Industries such as agriculture and non-residential construction are bright spots. "Outside of automotive, which is expected to experience volume decreases of about 15 to 20 percent overall, we feel 2008 should be comparable to or only slightly lower than sales levels achieved last year," he says.

However, Begneaud Mfg. in Lafayette, La., a forming and fabricating company, is not seeing any kind of business slowdown. René DeMoura, director, R&D at Begneaud, says their region is not feeling the strain of the rest of the country. "On the contrary, our customer count is growing. Begneaud has recently added outside sales to its team," he says. "In addition to sustaining our current customer and industry base, we are continuing to expand our customer base and industries."

Overall, what Editorial Advisory Board members say corresponds to a January Portfolio.com story that reported that small business owners remain skeptical of a looming recession.

Portfolio.com also said investors were buoyed by the news from the Commerce Department that January retail sales rose 0.3 percent. "It may sound like a minor increase, but economists had everyone bracing for a drop in sales of 0.3 percent." The uptick was driven by increased spending on cars, clothes and gasoline.

Portfolio.com used an Associated Press article to summarize it. "The translation is that it’s not over until the consumer stays home. As the consumer goes, so goes the economy," said Joel Naroff, chief economist at Naroff Economic Advisors.

Shrinking customer base, stiff competition
How are fabricating and forming company leaders dealing with fewer customers and stiffer competition?

Having a niche business in most manufacturing sectors makes a business less vulnerable to global competition, says Phil Gilbert, managing director of P&M Corporate Finance, Southfield, Mich. "The rush-to-China-at-all-costs mentality and the fear that all manufacturing will move there appears to have subsided," he says. "Many companies haven’t realized the expected cost savings of manufacturing in China and exporting to the United States."

Jerry Busse, Rockford Toolcraft Inc. president, says his Rockford, Ill.-based company is working much harder to find work. The metal stamping company is heading off declining business by offering niche services not easily found in Asia, expanding its business, better utilizing its workforce and improving internal processes. Still, the company that specializes in making heavy parts in medium and high volumes is experiencing a slight sales decline.

Troy Roberts, president of Aida-America, Dayton, Ohio, says his company continues to add new customers to make up for declines in its number of customers. "There’s still a tremendous amount of new investment in North America," he says. "European automakers are now investing in new plants in North America because they can no longer afford the exchange-rate risk. Japanese automakers realized this fact years ago. This is precisely the reason Aida invested so heavily in North America.

"Our core belief is that we must have engineering, manufacturing and service close to our customers in order to properly serve them," he says. "In addition, competitors have continued to disappear or have been forced to merge in order to survive. As production capacity leaves the system, Aida is well positioned to fill the void."

He says the weak dollar and high cost to transport large goods to North America make Aida-America an attractive option. The company has a global network of manufacturing facilities in Japan, Malaysia, China, the United States and Europe, giving it a leg up that no other metalforming provider has.

Richard Seif, senior vice president, global marketing, The Lincoln Electric Co., Cleveland, says his company deals with the competitive climate by having facilities in 39 countries. "Our main goal is global expansion," he explains. "We diversify our portfolio so if manufacturing leaves the United States we have the ability to still sell our product in other parts of the world."

He says there is not one dominant country that Lincoln Electric is doing business in, although business is brisk in China and Eastern Europe, specifically Russia. The company is also building a plant in India.

Gilbert says a competitive environment is forcing many to "refocus their business strategy to become a customer’s preferred supplier of a given product or family of products on a global basis." He’s also seeing companies work harder to control costs, implement lean practices and manage supply chains more efficiently.

"We’ve also noted an increase in mergers and acquisitions as a result of this trend. We expect that many companies will continue to utilize acquisitions in 2008," Gilbert says.

Curbing health care costs,br> Providing health care to employees is a costly burden for most companies, but it’s a benefit business leaders agree is vitally important. Companies vary on the way they are trying to control costs in this area, but a few business leaders say this is an area where the government needs to step in and help.

Moretti says Service Metal Fabricating is paying 15 percent more than last year for health care benefits. "As a family business, we take our health care benefits for our employees seriously," he says. "We’re not usually fans of government intervention, but health care is an area that needs [government] leadership."

Burdel is trying to offset skyrocketing health care bills by renegotiating with the health insurance providers. "And transportation costs are way up too," he adds.

Aida-America continues to adjust its health care coverage and encourages its employees to be smart users of the company’s health care services. Roberts says Aida-America cannot continue to fund double-digit increases in health care. "Some kind of intervention is going to be required," he says. "U.S. business is at a big disadvantage globally compared to businesses operating in other industrialized countries in the world where health care is nationalized."

Seif says that the Lincoln Electric founders, brothers John and James Lincoln, were visionaries in the area of health care. Employees pay their own health care costs through a shared bonus system. Employees are also encouraged to come up with ways to reduce costs in various areas of the company. Lincoln Electric uses Six Sigma principles to maintain internal costs, including fuel usage and distribution costs in transporting products and reusing scrap metal.

Begneaud has adopted a health reimbursement arrangement program using higher deductibles and lower premiums to reduce health care costs.

In the case of Ranger Steel LP, Houston, a plate distributor that sends 70 percent of its product into the fabricating and forming industry, the cost of health care sent the company looking for alternatives to the norm. "We went to a large, professional employer organization for our human resource needs," says Ron Whitley, president and COO. "We were able to group our employees with the large number of people that they manage to get. Our health care costs are probably the same as we were paying in 2007, but our benefits improved."

Fluctuating dollar
The fluctuating U.S. dollar is a boon for companies that export to other countries, but it’s hurting companies that import goods from Europe and China. "The weak dollar relative to other world currencies provides a boost to companies with significant export potential," Gilbert says. "But those gains are limited to the extent that raw materials used to produce the product are imported."

Burdel says the weak U.S. dollar is impacting his business somewhat. "We manufacture here in the United States as well as overseas," he says. "We ship all over the world, so most of it is offset by exporting."

It’s a "double-edged sword," says DeMoura. "As we continue to purchase high-tech equipment from Europe, the price comes at a high premium. On the other hand, Begneaud is receiving more inquiries from European businesses to have their sheet metal processed at our facility."

"Our European customers are thrilled with the weak dollar," adds Moretti. "However, we’re not seeing any positive impact with suppliers from Asia."

Training a win-win
Offering employee training is a competitive advantage for the board members. But most report that finding the necessary skilled workforce remains a challenge. "We have a hard time finding skilled labor," says Burdel. "We try to hire people with some good basic technical knowledge and then train them." Prima North America has a number of openings for skilled technical people and advertises the positions. But it still isn’t easy to fill the spots. "All the competition is looking for the same people," he adds.

Aida-America is training its workforce, which it considers key for maintaining quality and growing a business.

Meanwhile, Seif says he sees lifestyle habits such as drug use and lack of skill as roadblocks in finding good workers. "We have openings we would fill today if we had the right people apply," he says. "As the baby boomers retire, there are less people attracted to [manufacturing]. Welding is an old business, not a glamour job. Young people are not going in that direction as an occupational choice. Still, we’re doing everything we can to train our people."

Moretti says Service Metal Fabricating offers ongoing training. "It’s difficult to keep a highly skilled work force," he says. "As manufacturing jobs disappear, this problem seems to be accelerating."

P&M Corporate Finance’s Gilbert says pressures from globalization and the advances in technology are putting a high premium on the skills needed to be competitive in manufacturing.

Whitley continues to say that colleges and universities are a great place to recruit employees. He says that the main type of employee Ranger brings on board falls into the categories of salesmen, managers and administrative staff, and that recent graduates have proven to be a good fit.

"We’ve been successful in recruiting employees right out of college with no experience whatsoever," he says. "We don’t want them contaminated with other companies’ philosophies. We picked up a couple employees that way in 2007 and they turned out to be extremely productive individuals."

The industry, however, will require a flood of these young employees as the baby boomer generation of skilled workers will retire within the next 10 to 15 years, creating a need for about 10 million new skilled workers by 2020.

Some companies are reinstituting apprentice programs, which are a combination of occupational training, on-the-job experience and classroom instruction that allows the apprentice, under the supervision of an experienced worker, to gain crucial skills needed for the profession, Gilbert says.

Begneaud believes strongly in apprentice programs. It offers employees internal and external training classes and has established an apprentice program to develop skilled craftspeople, DeMoura says. Begneaud considers its employees its biggest asset and puts a lot of its resources into training. "We put more emphasis on training than most other companies," DeMoura says. "Training has been an important facet of ours since the beginning."

Eye on consumer reports
The majority of board members pay close attention to consumer reports and industry analysts. "We follow the purchasing index closely," says Seif. "Fifty is the magic number and we’re just under 50 now. The index has been above 50 the last four years."

Adds Burdel, "We look quite seriously at consumer industry reports. If they impact our industry, we have to be prepared."

"Consumer industry reports and predictions are important to Begneaud," DeMoura says. "However, we rely heavily on personal communication with our existing customers, as well as potential customers."

"We take those reports seriously," Moretti says. "We know the consumer drives two thirds of the American economy."

The jury is out on what lies ahead this year for the forming and fabricating industry, as well as for other manufacturing industries. The consensus seems to be that it’s hard to say. "Even in a good year it slows down a little bit in some markets," Burdel says. "Last year, it slowed down in March. Usually January to February is somewhat strong, but this year, I don’t know. It’s too early to tell. I spoke to a couple of companies that are typical job shops and both were extremely busy. Those busy companies might be reluctant to buy new equipment because all they’re hearing is bad news."

Whitley says that despite the recessionary doom and gloom proliferated by the mainstream media, his business is faring well. "The buying patterns of customers are fairly normal, and some industries are even better than normal," he says. "The only thing I see that could possibly put a damper on things is the continued increase in the price of steel." FFJ