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CEO Roundtable: Manufacturing

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Springfield Business Journal Editor Eric Olson discusses the manufacturing industry with Dianna Devore, owner of Design Fabrications Inc.; Chad Myers, general manager of Springfield Remanufacturing Corp.; and Danny Perches, economic development project manager for the Springfield Area Chamber of Commerce.

Eric Olson: In one word, how you would describe the state of manufacturing?
Dianna Devore: Growing.
Danny Perches: Thriving.
Chad Myers: Confused and uncertain.

Long hours
Olson: That’s an intriguing answer. What do you think is behind that?
Myers: Always the uncertainty in what government regulations can do. We’re prepared to have a slowdown in 2019. You have some analysts think there is a potential recession coming. Our company had grown so quick so fast. It’s all about parts and people. Whoever has the capacity gets the order. You have inventory and now you have inflation. There’s an awesome opportunity right now for an enormous amount of capital investment.
Olson: Are you seeing similar things with clients?
Devore: We don’t do repetitive manufacturing; we manufacture products for specific jobs. But what we see is, how fast can you get this to me? And if I say it’s eight weeks, “OK, I need it done in six.” Right now, it’s looking like that is a bigger determination factor on whether you get the order than the price.
Olson: The company that can turn it around the quickest can win right now?
Myers: Lead times are compressed. Like Dianna was mentioning, 67 percent of the orders we accepted last year were less than lead time. You put a lead time out there established based off the longest time that we have for any parts or materials. We’re not very familiar with saying no.
Devore: Right. [laughs]
Myers: It’s about people’s jobs. It’s not an overconfidence. If we create a bad situation, we can clean the bad situation up. But 67 percent of our orders were less than lead time, which then equated to an enormous amount of overtime.
Devore: We’ve been working overtime. I can’t remember when we weren’t. We have a big backlog, bigger than we’ve ever had. At some point, that’s got to level out. Steel prices went up so rapidly last year, and we stayed busy. The supply was good. But we had to increase our prices quite a bit, and in some cases that caused the [project] owner to go back and say, “How can we save money here?” Then they start cutting steel out, moving into wood.

Critical number: People
Olson: There’s been a lot of energy and focus around the workforce locally and statewide. In fact, Gov. Mike Parson was in town last week at SMC Packaging to talk about workforce issues. He was touting what’s called Fast Track, a financial aid program for adults working toward degree programs that have been identified as in need. Do you see a skills gap in manufacturing?
Devore: There’s a definite shortage of skilled workers. We have a major competition going on just to get workers. That has definitely driven our wages higher, and it has started all kinds of initiatives I know with the chamber and with the city of Springfield Workforce Development. I’m also involved with the Springfield Contractors Association, as president last year. Our initiatives have been around attending career fairs at high school. We had a counselors’ roundtable last year where we asked the counselors: How do we get these people, these young folks, especially those who don’t want to go to college or are not college bound, how do we attract those into our workforce? Their response was great. They said, “Tell me how to focus these kids, and we’ll do it.” If a kid wants to be a nurse … there’s a path to get to that goal. But when you say I want to be a welder, they say they don’t know how to help them. That’s bad on us. So we’ve worked on putting together presentations, just maps for welders. Go here, here and here. Another important factor is educating parents, as well, that it’s not a bad thing to go into manufacturing. The Build My Future event, we’ll be having the third annual in Springfield here in April. We’ve already signed up, I think, 1,800 students.
Myers: I can remember being in high school and there were vocational opportunities from the time you were a junior. All of a sudden, it disappeared. I feel like I can say this because my wife’s a teacher: You know, 20 years ago they said go to college so you never have to end up in a factory. We were one of the first, now there’s a couple others here locally and in the state, to partner with the state on the apprenticeship program so we can bring young adults now into the factory and they can actually do an internship. They go straight to the floor. They get the same skill that was taught in vocational schools, but now it’s real-life application at the same time, which I think is even better. My biggest issues or thoughts with the workforce is there’s not enough.
Olson: So there’s not much of a skills shortage but a people shortage.
Myers: The latest job reports say we’re at 6.9 million open jobs in America. By 2020, it’s projected to go 8.5 million. We’re handing out job applications at the maternity wards now. [laughs] We have third-graders that come in, and we shut down the factory and tour them around. We bring those kids in and start talking to them about things that are relevant to what they’re learning. Penmanship. You want to fill out an application? We got to be able to read your application or we won’t be able to call you. I put a lot of responsibility back on the manufacturers right now. The Fast Track program, I think it’s a good program. I think it will help. But we have to market better what we offer. We will pay 100 percent tuition reimbursement in our factory. Part of our target right now is getting up to the high school kids. We have that (Greater Ozarks Centers for Advanced Professional Studies) program. We’ve kept four people on. (Ozarks Technical Community College), we have a great partnership with them. We started the reman track. It is going to be an exhaustive process for the next three to five years of getting the people you need to be able to fulfill the orders you get. We 100 percent believe as a company that by 2020, whoever has the people will dominate the market.
Olson: Where’s the hope in manufacturing to reach that next workforce?
Myers: I don’t know that in my career I’ve ever experienced one magic pill or one program that really stood out from another. I’m trying to attract professional jobs and hourly jobs that don’t require near the skill set. I’m looking for engineers, I’m looking for CFOs, I’m looking for somebody to run a soda blaster. Our HR staff grew from one to four in the last year and a half because of how much investment we’ll have to make in attracting and retaining people. If I hang one thing on it, it’s retention. And figuring out how to bring technology in, so that you don’t need as many people.
Olson: At the [recent] Missouri Association of Manufacturers’ conference, Jack Stack [of SRC Holdings Corp.] gave the keynote presentation and in it he said, “We realize right now our biggest weakness is the ability to attract and retain employees.” He said, “Our critical number now is people.” What other critical numbers are out there?
Devore: We’re chasing after on-time deliveries. Obviously, retention is, as well, because we have increased our rates of pay to attract top welders and we want to hang onto them. You can’t even turn on the radio without hearing an advertisement for welders.
Perches: We meet with anywhere from 120 to 150 companies each year, a vast majority of those being manufacturers. And in the fourth quarter alone we had probably close to 90 percent of those companies that expressed or anticipated almost a double-digit growth for the calendar year. Of course, a lot of what drives that activity is, “Yeah, we can continue to grow, but we can’t grow anymore without people.” For us at the chamber, we see our biggest investment and the biggest return on investment by promoting skills and getting people the right skills. So, those people that you do keep, whether it’s the tuition reimbursement programs or the different resources that are available at your companies, that they’re able to stay at the company but continuously able to move up and up.
Olson: Anything particularly unique that you’re doing on the recruitment side?
Myers: Social media pops to mind. Three months ago, we were going to do a commercial. We finally made TV. We were so excited. [laughs] We had brought in six young trainees. We said, “OK, we’re going to do this commercial. What do you guys think?” They said, “A commercial? On TV? We don’t watch TV. We watch Netflix.” Social media has been a big attractor of volume. This is a volume game at this point. We interviewed 1,296 people last year. We hired 56. We think we spent $260,000 in just interviewing process, retention efforts, hanging signs on the building. The social media piece of it was huge for us. But also we did referral bonuses. Of the 56 we hired, 36 were from referrals. We’re considering at my location purchasing our own app. We’re just always trying to figure out how to communicate.

Money talks
Olson: What are the wage trends in your shops? We know statewide, it’s about $57,000 annual average compensation [for manufacturers].
Devore: Average in my shop is not $57,000. We do pay welders well and our wages have gone up the last two years. They’ve gone up more than 12 percent for a welder. We want qualified welders. People who can read a blueprint and fabricate and not just weld.
Myers: I’m assuming that $57,000 is across all positions. We’re right there with that. Our wages have gone up. If you want the brass ring and you want more, we’ll give you the path – but you got to walk the path. In our satisfaction survey, pay was probably one of the lowest-rated questions that we had had historically. In the last two years, we have seen tremendous improvement in that score. Now it’s a new standard. With the open job market and as few of people that there are ... everybody’s going to compete and somebody’s going to leave for 50 cents and somebody is going to leave for a quarter. And that’s OK. But I would like for people to look at things like health care and retirement plans.
Devore: That’s great because they do have an awesome package, and they are large enough that they can have great health care offered to their employees at a great rate. When you look at a small manufacturer, like myself, we are at the opposite end of the spectrum. So in that case, we have to offset with higher wages up front. We do offer health care, but it is very difficult to get.

Tariff talk
Olson: With the recent international trade deals and tariff changes, what has been the impact locally on your businesses?
Devore: When they were just talking about tariffs, our steel prices started going up. There was a point in early 2018 where we were getting notices: One day plate was going up, next day beams are going up, the next day tube was going up, and it seemed like every day. We literally had to change our model to make sure we were covered. We were stuck with a few contracts that we hadn’t bought material for yet that we had to take a hit on. We started changing our quotes to hold them for three days instead of 30 days or 60 days. We started buying material as soon as we got a contract. Prices actually had started to just level out, but now, of course, with new talks of doubling tariffs, I feel like it’s going to start going up again and so does the market. The new (North American Free Trade Agreement), moving to Mexico, Canada, America, we don’t know all the details of that yet, but I know it’ll have an impact. I know it puts more demands on the U.S., Canada and Mexico to produce more of the steel that we consume, which in turn will cause manufacturers to have to get up and running, increase their capacities.
Perches: What we saw ... was a lot of that hurry up and wait. There was that initial response with prices, like you said, not even being official and prices jumping up. It’s, “All right, I need to get all my materials for projects one, two, and three – and four and five that aren’t even confirmed.” There were a lot of talks of how do we restructure this deal? Do we pass along this cost to our customers or do we find a way to absorb it ourselves?
Myers: There could be a real interesting (leveling) of global competitiveness with these tariffs. I don’t like them currently at this point. They’ll hit different businesses that we have $400,000 or $500,000 just in cost increases this year. When I tell you that manufacturing is uncertain, this is where I’m talking about making investments into why do we buy it anymore? Why don’t we make it again?

Future is now
Olson: What are some ways that you are integrating technology to improve and advance your workflow?
Myers: Technology has to come in. You want people to have good quality jobs. Part of some of the retention in some industries is because it’s a crap job. You don’t want to do it. We have those jobs where you can remove people from hazards, and you can have a better quality people. Part of my struggle with the greater Springfield area is the technical aptitude to keep that technology running. This town is not full of robots. One of the Chrysler plants I used to work at, when I started, there were 20 robots; today there’s 2,000 robots in this factory. Technology needs to have a huge piece in it.
Devore: I don’t think that it affects our business as much. What will become necessary is to have CNC, or numeric control, machines for making parts. The busier we get, I outsource that work, making the small stuff.
Perches: One of the reasons that we’re going younger and younger to bring students onto these plant floors is because it’s not what people think of a manufacturing floor. We all think it’s this dingy, dark place. It’s a great opportunity for not just people to work physically on the floor, but also for engineers and technicians and all these different types of skill sets. A lot of these robots that you see, in a way they are replacing some jobs. But they’re replacing jobs that either had high turnover to begin with because it was maybe a very strenuous job or it was very repetitive – or ultimately they’re removing some potential safety issues from that position.

Excerpts from Features Editor Christine Temple, ctemple@sbj.net.

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