By Chuck Pisciotta
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I acquired HB Products & JR Buck Industries in September, 2020, at the height of Coronavirus. While I had nights where I couldn't sleep and days when I worried, the talent and grit of the people I was introduced to reminded me there was a bigger strategy at-hand. Let me tell you how I got into all of this...
This isn’t brain surgery, but it is about people
When we all saw news in the Manufacturing Best Practices like, “'Industrial output came in well below expectations, one of the first real signs that the recovery is losing momentum under the weight of the ongoing health crisis and fading support from fiscal relief," during the early fall, everyone got edgy.
Recessions happen like losing jobs; it’s what we do with it that impacts our lives
There has been a recession about every six years, with each lasting approximately 12 months, according to Deloitte. After recessions, manufacturing has historically come back faster than the rest of the economy.
Deloitte goes on to say, “Industrial manufacturers saw, on average, three times higher recoveries in corporate profits in the 12-month period following the past two recessions. This suggests it is imperative for industrial manufacturers to be prepared to take advantage of increased business opportunities during the recovery periods.”
Buying a company full of great people and valuable machinery when undervalued is key to my strategy.
That is a fact.
You take the recessions of 1980, 1990, and 2000, and “17% of the 4,700 public companies…went bankrupt, went private, or were acquired,” while, “9% of the companies flourished, outperforming competitors by at least 10% in sales and profits growth,” according to the Harvard Business Review.
What they didn’t do to be successful: cut costs.
The article goes on to talk about the fact that the winning companies focus on operational efficiencies and still spend on marketing, R&D and new assets. I chose two manufacturing companies, and have created a shared service model to handle accounting, legal, finance and marketing to create efficiencies. All those shared services people work from home or are farmed out to reduce cost.
Secondly, I invested in a new $1M trumpf laser along with cloud based inventory system upgrades, new IT infrastucture and computers. Additionally, I wanted to incorporate a digital marketing program to share all of the thought leadership coming from our engineers and frontline factory workers.
Varying comebacks in manufacturing based on the sector
As you think about the last year, some industries were classified as “essential” and then in some sectors and states, other areas weren't. You’ve got factories across auto that were shut down for one to two months at a time, and reduced production by 16% in 2020, according to RBC Capital Markets.
This caused a ripple effect throughout all manufacturers that are part of these value chains.
According to the Deloitte 2020 Manufacturing Industry Outlook, “Commercial aerospace and heavy equipment are both experiencing significant slowdowns in demand. Bright spots exist, as there are manufacturing segments that are experiencing surges in demand, reflecting the changing needs of their end markets, including home improvement, outdoor power equipment, paper products, sanitizers, and exercise equipment manufacturers. “
The report went on to say, “On the commercial side, HVAC and building automation manufacturers are seeing substantial interest from hospitals, offices, and other commercial building owners that want to upgrade their air filtration. And, as vaccines for COVID-19 become available, there is expected to be increased demand for many aspects of the supply network that will be necessary to support a global rollout, including cold-chain components such as industrial freezer units for transportation.”
Hit the jackpot with our book of business
As you think about where we specialize, we have a weighted book of business towards automotive, about 40-50%. While in the late summer months auto was dragging, it had rebound hard with pent up demand for cars by the fall. While we see a strong demand in automotive, electric vehicles are coming fast.
The Global EV Outlook 2020 Report really captures that absolute monster that electric vehicle sales will be globally, based on the market trend. That’s one of the targets we are going after next.
Additionally, we do quite a bit of inventory management, cosmetic welding; along with more complex welding projects for a company that transports live-saving vaccines and medications using temperature-controlled packaging - shipping it globally.
As you can see below, this market is showing exceptional demand in the coming years.
Lastly, we’re excited about working with the construction industry, which is about 10-15% of our book of business.
“The construction industry added more than $900 billion to the US economy in the first quarter of 2020—its highest level since the 2008 recession,” according to Deloitte.
Steel, what a rollercoaster
Steel prices were lower in mid-coronavirus season in the summer with prices down by more than 20% in just six weeks. Then, they bounced back hard with automotive’s increase in manufacturing. In October 2020, only 27% of buyers surveyed by Steel Market Update believed prices would get that high before correcting. About 38% believed steel prices were already peaking around the $650 level.
With more steelmaking capacity set to come online soon and steel demand likely encountering some weakness, rising steel prices could be near their 2020 peak. Steel prices may well trend lower in 2021, according to experts, reported by the Fabricator.
Aluminum’s cash price on the London Metal Exchange is up 40% from its April low, according to S&P Global Platts.
The domestic price for prime steel scrap used to make new steel has risen 60% since November, according to Reuters. They reported, “In the United States, higher trucking costs, less scrap and expectation that tariffs would be reimposed on aluminum imports from Canada have helped the duty-paid premium rise more than 15% to above $300 since October.”
While we differentiate ourselves with contract manufacturing, we can’t control steel prices. Our customers will have to adjust pricing with shorter strides in held prices based on the market’s variance.
And now, we’re off to the races
By early December, we knew that we needed to be prepared for a big year. We were so focused on growth that we purchased a $1M Trumpf laser to be prepared to in-source our sheet metal fabrication work. Even though we weren't feeling the wave of payments yet since October and November were still come back months, I made the leap of faith. This is about a gut feeling that your people are special, and things are going to happen fast.
It's about people.
It's about growth.
It's about reducing overhead costs (admin, office, old technology).
It's about finding synergies in sales and marketing between people who are passionate.
Room for Capacity
While it is reported that manufacturers can’t handle the demand, with two factories and 79,000 square feet, we are feeling proud to bring the few that had to be furloughed during the summer months back. We expanded our team in the late fall.
We also expanded our project management and design teams to process more volume, while continuing that creativity and focus on application that has made these businesses successful, historically.
Designing from print to part
With four designers who focus in on application, they have a passion for doing go-and-sees to see where potential pitfalls could come in to:
prototype
reverse engineer
rework
and refurbish
A marriage of metal fabrication and machining
There is something to be said about having five welders, an AWS certified welding inspector and a GM who grew up in welding. We believe that contract manufacturing is an art form when you can bring together sheet metal fabrication, cosmetic welding and forming of parts with our CNC mills & lathes to solve problems.
Everyone says they can do it, but you see enough of these shops do it poorly that it feels like a unicorn to find consistency.
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