A business mix for today’s global world

Over the past 15 years, Western Pennsylvania manufacturing has been hit hard. Jobs went to other states, or Mexico, Japan, China and now India.

Small and midsize manufacturers struggle to create consistency and make long-term investments, says Bill Starn, CEO of Starn Tool & Manufacturing Co. The U.S. thrives on low volume, high mix, and overseas manufacturers survive on high volume, low mix.

“Companies have got to find ways to expand, ways to do things that can’t be offshored,” he says. “Or they are going to be literally so competitive with some sort of automation or technology that they will survive for some period of time until somebody threatens it.”

Starn Tool & Manufacturing has diversified its business mix more than most. The Starn Family of Cos. includes software development, service advertising, welding and fabrication, electrical distribution and precision machining.

By specializing in R&D and focusing on intricate projects, the company also diversified its client mix.

Meadville, Pennsylvania, where Starn companies are located, is a manufacturing community. The 150 tool shops each have unique talents and skills.

“Those of us who have been around a long time have always had the attitude: Bring it to Meadville,” he says. “If somebody shows us something we don’t know how to do, we’ll send it to somebody that does.

“I’ve often said the shops in Meadville are my competitors, my friends and my customers all in the same day.”

But even with strategic partnerships, Meadville manufacturing jobs have declined, Starn says.

Another diversifying strategy has been Mecal by Starn — teaming up with Italian MECAL to become the North American manufacturer and distributor of its machines and systems. Starn says the partnership took eight years to build two part-timers in the building’s corner into 18 employees.

“Each company has to find and utilize their strengths to apply them in some other market, some additional market,” he says.

Open your mind

While global competition is a continual risk, it may also require a change in mentality.

Pittsburgh manufacturers who own companies started by their fathers or grandfathers need to be open to the idea that outsourcing isn’t wrong, says Principal Henry Wang of TMD Holdings LLC. They have to ask, “How do we become a part of globalization?”

“You can cut your costs, and then you can use those costs to actually grow your company — you can hire more employees to do other things,” he says. “You want to innovate. You want to build better distribution. You want to come up with new ideas, new products. And then, what you do is you have people manufacture for you, and manufacture efficiently.”

TMD Holdings, a manufacturing service provider, helps major brands — Spencer’s, Williams-Sonoma, Target, Kohl’s, Wal-Mart, T.J. Maxx, Anheuser-Busch and Comcast, to name a few — design products and manufacture overseas, primarily in Asia.

Like a general contractor in construction, TMD manages and troubleshoots the manufacturing process, Wang says.

“A lot of people think a square [hole] goes with a square peg, but sometimes we could shave some corners and make a triangle,” he says.

Although onshoring jobs are a popular idea, in his experience overseas manufacturing is increasing.

Cost savings more than make up for the risks of dealing with another culture and longer lead times. Currency variation, however, is a concern, Wang says. The U.S. dollar is growing stronger, but it still lost a lot of value against the yuan.

Get the basics

Having the right business mix and approach will make manufacturers more successful in today’s global world. But before those developments, Starn says it’s even more critical to understand your company’s strengths, weaknesses and numbers.

“A lot of people in small business — I call them checkbook businessmen — they don’t really know their finances,” Starn says. “They just look at the business at the end of the month and say they’ve got money in the bank. They follow their inventory; they don’t follow their scrap or their repair. They don’t do the little things that make a difference, recognizing whether the business is succeeding or failing.”

The majority of bankruptcies are companies that show a profit on their books, he says.

Manufacturers, in particular, spend millions on equipment, but they still must create the atmosphere to make that equipment successful. They have to know what they’re investing in.

Strategic partnerships or new customers won’t be successful if business leaders don’t understand what they’re putting at risk, he says. And even then, it might not be enough.

“Unfortunately, even our company, as hard as we work at it and the financial information we draw on new customers, we still get burned. We still have companies that don’t pay us, that are hard to collect from,” Starn says.

How to reach: Starn Tool & Manufacturing, (814) 724-1057; TMD Holdings, (412) 621-6287

 

Plan for the cycles

Elliott Group knows how to weather downturns and plan for business cycles.

Elliott manufactures and services critical-duty centrifugal compressors and steam turbines for mid-stream and down-stream oil and gas applications. Demand for new rotating equipment, however, is closely tied to the price of oil, says Christiann Bash, corporate communications manager.

“For the past several years, the drop in oil prices and the delay in market recovery has impacted our customers and the investment decisions they are making,” she says. “During downturns, plant operators are more likely to postpone the purchase of new equipment in favor of servicing and extending the operating life of their installed equipment.”

New equipment may have been down, but Elliott also maintains service facilities and teams to help customers with their installed equipment — and that side of the business has been busy.

Bash says, recently, however, they’ve seen signs of improvement. In addition, Elliott will supply the compressors for the new ethane cracker plant that Shell Chemical Appalachia is building in Beaver County.

Elliott’s new equipment business has traditionally been cyclical, she says.

“During this market slowdown, we’ve invested in our manufacturing infrastructure in order to be ready for the market recovery and a corresponding increase in the demand for new equipment,” Bash says. “We have also continued to invest in the service side of our business, including new service centers in India and China, and one now under construction in Saudi Arabia.”

How to reach: Elliott Group, (724) 527-2811

 

Cautiously optimistic in a time of political uncertainty

A new political environment always brings change, but under the Trump Administration manufacturers are waiting to see what happens next.

Antonis Papadourakis, Ph.D., president, CEO and country speaker for the NAFTA region of LANXESS Corp., says there’s a lot of uncertainty. Some may be positive and some could be negative.

Corporate tax reform and less regulation may help the manufacturer grow, but free trade could be impacted by changes to trade agreements, he says.

At AccuTrex Products Inc. government regulation — along with rising health care costs — remain a big challenge.

“Being a contract manufacturer, our industry is driven by the requirements of our customers. We support numerous industries such as aerospace, mining, gas and oil, steel and heavy equipment,” says Martin P. Beichner Jr., president and CEO at AccuTrex. “The general downturn in all of these industries has had an adverse effect on our business. Much of the downturn can be attributed to government regulation.”

AccuTrex has been on a yearlong cost savings journey, which has been fairly successful, he says. It has included strategies like changing vendors or restructuring vendor agreements.

In manufacturing today, you have to review your major cost drivers on a regular basis, keep up with changes in equipment and continue to seek out new markets, Beichner says.

How to reach: AccuTrex Products Inc., (724) 746-4300