Archive for November, 2012

New Products and Education Highlighted at Las Vegas FABTECH Expo

Tuesday, November 27th, 2012

The annual FABTECH expo was held November 12-14 at the Las Vegas convention center. It is the largest metal forming, fabricating, welding and finishing event in North America and only comes to the west once every three to four years. The other rotating locations are Chicago, IL and Atlanta, GA.

FABTECH is co-sponsored by five industry-leading associations: the American Welding Society (AWS), the Fabricators & Manufacturers Association, International (FMA), the Society of Manufacturing Engineers (SME), the Precision Metalforming Association (PMA), and the Chemical Coaters Association International (CCAI).

The first day’s attendance was a record high of over 15,000, and show organizers reported that 25,903 attendees walked the more than 450,000 net square feet of floor space during the three-day show to see live equipment demonstrations, compare products side-by-side and find cost-saving solutions. Because of the Las Vegas location, many attendees probably came to have fun over the weekend and attended the show the first day. I visited the show on the second and third day so I missed the huge crowd of the first day. It was my first FABTECH show, and it was overwhelming in size and scope. I haven’t seen exhibitor displays as large since the heyday of the Los Angeles WESTEC show in the early 1990s.

I was curious to see if attendees were going to the show to browse or actually place orders. Judging by the number of “sold” signs on equipment and my interviews with exhibitors, attendees were placing orders and not just browsing. Exhibitors speculated that many were buying to take advantage of the “accelerated depreciation for the purchase of capital equipment” that will expire on December 31st, unless Congress extends the current tax rates (referred to as the Bush tax cuts).

The October issue of West Manufacturing News reported, “FABTECH’s annual expo comes as manufacturing continues to lead the American economy out of the recession…Offshored work is returning home and profits at manufacturing companies increased 25% in 2011.”

Out of the more than 1,100 manufacturers participating in the expo, 274 companies were displaying new products. There were 113 new products in the welding section alone, and the rest were displayed in the forming and fabricating, finishing, metal forming, and tube bending, pipe and wire forming sections.

I met the COO of Lincoln Electric, Christopher Mapes, while standing in line at Starbucks, and he arranged for me to have a demonstration of their new VRTEX® virtual reality arc welding training simulator. These computer based training systems are educational tools designed to supplement and enhance traditional welding training. They allow students to practice their welding technique in a simulated and immersive environment. The VRTEX® systems promote the efficient transfer of quality welding skills and body positioning to the welding booth while reducing material waste associated with traditional welding training. I actually got to put on the helmet and perform a virtual weld. I have watched welding in the shops I have represented over the years, but it was my first time to actually perform a virtual weld. I immediately saw how great the training system would be for training the next generation of workers in programs such as the Workshops for Warriors I wrote about in October.

The FABTECH educational conference held simultaneously with the three-day expo included an unprecedented number of sessions on such manufacturing topics as laser and water jet cutting, product finishing and coatings, forming and fabrication, lean, online and social marketing, metal stamping, tube and pipe ending, and welding. The educational sessions were available for half-day, all-day and a three-day program. The education programs and special events were packed with attendees.

There was at least one special event each day:  On day one, there was a workshop on “Lean Manufacturing for Managers” and a “State of the Industry:  Manufacturers’ Executive Outlook.” On day two, there were three special events:  “Post-Election Analysis:  How the Results Impact U. S. Manufacturing; the “American Jobs for American Heroes,” in which Steve Nowlan, President, Center for America (CFA), briefed attendees on the opportunity for manufacturers to hire military veterans for skilled manufacturing jobs. The American Jobs for America’s Heroes is an alliance of the National Guard, CFA, Corporate America Supports You (CASY) and the Military Spouse Corporate Career Network (MSCCN) to help 60,000 unemployed National Guard members, veterans and spouses find skilled jobs in the private sector. The final event was a presentation by Harry Moser, President of the Reshoring Initiative on “To Offshore or Reshore? How to Objectively Decide!” I attended the “Post Election Analysis” and “To Offshore or Reshore? special events.

According to the after-show press release, at the State of the Industry roundtable with manufacturing CEOs, the CEOs concurred that growth in manufacturing should continue for the next year; however, all said a stumbling block to growth is the lack of skilled workers in manufacturing. The CEOs emphasized that manufacturers need to be more aggressive in influencing parents of students, having students influence each other and have school be a more active voice in recruiting potential workers.

The Post-Election Analysis panel featured Washington insiders Paul Nathanson, Founding Partner, Policy Resolution Group, Omar Nashashibi, The Franklin Partnership LLP, and David Goch, Webster, Chamberlain & Bean, all of whom have long track records in representing manufacturing interests.

They discussed the so-called looming fiscal cliff, tax reform, and other issues that will impact manufacturers. Paul Nathanson said, “Manufacturers need certainty to plan and there are major challenges ahead because of tax increases with the expiration of current tax rates and new taxes under Obamacare.” He feels something will get done before end of year and doesn’t think that sequestration will go in effect.

Omar Nashashibi said, “The new Congress will look at tax reform. The expiration of current taxes and Obamacare taxes represents $5.4 trillion of tax increases. The President proposed 28% taxes for corporations, but that doesn’t affect 70% of businesses that are LLCs, LLPs, partnerships, or sole proprietorships.

David Goch said, “Congress will do what they have done in the past – a 6-9 month ‘punt.’ The continuing resolution for funding ends March 31st if the debt limit isn’t reached sooner.” He warned the audience not to be surprised if the “carbon tax” reappears. “A recent Brookings Institute report proposed a “carbon tax” that would result in $1.2 trillion revenue over 10 years. It would make economists happy as it encourages investment vs. consumption. It would make Republicans happy because there would be no new taxes, and it would make environmentalists happy.”

They all believe that Congress will reach a deal to at least move the deadline for a debt deal before the end of the year. All agreed that the manufacturing sector has gained influence in Washington over the past two years and encouraged manufacturers to get involved in advocacy efforts for the industry via their trade associations.

While I am an authorized speaker for the Reshoring Initiative, I attended Harry Moser’s presentation on Tuesday afternoon to see if he had any new data that I could add to my own presentation. I appreciated being reminded that W. Edwards Deming’s “4th Key Principle for Management,” in Out of the Crisis, was:  “End the practice of awarding business on the basis of price tag. Instead, minimize total cost.” If companies had been practicing this principle for the past 20 years, we would have had far less manufacturing sourced offshore.

Moser’s Total Cost of Ownership (TCO) calculator enables companies to calculate the cost of all of the variables, including the hidden costs and risk factors, of doing business offshore.  Moser stated, “Manufacturers have to look at the total costs of offshoring to reliance that the savings gained might not e as significant as they think…Once you factor in tariffs, shipping costs, increase inventor because of delivery delays, quality control and communication issues, it’s a financial win to bring certain types of manufacturing back to North America.”

Some of the new data included in his presentation was:

  • 61% of larger companies surveyed “are considering bringing manufacturing back to the U.S.” (MIT forum for Supply Chain Innovation 1st Qtr. 2012)
  • 40% of contract manufacturers have done reshoring work  this year (MFG.com 4/12)
  • Percentage of U.S. consumers who view products Made in America very favorably: 78%  (2012) up from 58% (2010) (AAM June 28-July 2, 2012)
  • 76% are more likely to buy U.S. product
  • 57%  are less likely to buy Chinese product  (Perception Research Services Intl. survey 7/12, 1400 consumers)

According to the Reshoring library of case studies, the top four industries that have reshored are:

  • Electronic equipment, appliances & components
  • Transportation equipment
  • Machinery
  • Furniture

The main reasons why companies are reshoring are:

  • Wage and currency change
  • Quality, Warranty, Rework
  • Delivery
  • Travel Cost/Time
  • Inventory

Moser believes that just by using the TCO calculator, 25% of manufacturing offshored could return to America, representing about 300,000 jobs. In conclusion, Moser recommends:

  1. Keep existing domestic sources
  2. Shift outsourcing back to U. S.
  3. Repurpose own offshore to serve the offshore market and incrementally invest domestically to serve domestic market.
  4. Shut own offshore facility and build new domestic facility.

In the after show press release, John Catalano, FABTECH show co-manager, said, “We’ve received great feedback from attendees and exhibitors. Attendees were impressed with the size and scope of the show and the vast array of new products and technologies on display. Exhibitors were enthusiastic and report that sales activity was brisk and leads were plentiful.”

Mark Hoper, FABTECH show co-manager, said, “If you can take the pulse of the economy by what’s happening in manufacturing, then you have to be optimistic that we are headed for economic growth, said. A constant theme I heard both on the show floor and at the seminars was that, while challenges and uncertainties remain, most manufacturers believe that their businesses are headed for continued growth in 2013.”

Mark your calendar to attend FABTECH 2013, which will be held on November 18-21 at McCormick Place in Chicago, IL.

 

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“Lame Duck” Congress Should Pass These Two Important Bills

Monday, November 12th, 2012

While the focus of the “Lame Duck” Congress will be to keep us from falling off the cliff of financial ruin from reaching the debt ceiling and sequestration, there are two bills passed by one body of Congress but not the other that should be passed. Both of these bills would be beneficial to America’s manufacturing industry.

The first bill addresses a topic many Americans supported during the latter part of Governor Mitt Romney’s campaign for president ?  he “took a hard line in his campaign, promising to cite China for its currency peg on day one of his presidency. National polling makes clear that the American people overwhelmingly support such action on China’s brazen violations of world trade law, including its currency undervaluation.”

The Currency Exchange Rate Oversight Reform Act of 2011 (S. 1619) is an international trade bill that would establish US duties on imports from countries with undervalued currencies. The bill was approved by the Senate on October 11, 2011 by a vote of 63-35, but H.R.639, the Currency Reform for Fair Trade Act, has not been brought up for a vote yet in the House of Representatives even though it has strong bipartisan, majority support with 234 lawmakers, including 65 Republicans, as cosponsors. U.S. Rep. Sander Levin, D-MI and ranking member on Ways and Means, introduced the legislation. The bill remains in the Ways and Means Subcommittee on Trade.

Speaker of the House John Boehner (R-OH) has continued to block a vote on the bill despite overwhelming support. Speaker Boehner has said in statements that the United States should not dictate currency policy for another country and that he will oppose attempts to bring this bill to the floor for vote. It is clear that Speaker Boehner is single-handedly thwarting the majority will of both Congress and the American people. It is hard to understand why Boehner would stand in the way of such modest legislation to address China’s mercantilism.

On the Senate website, Sen. Sherrod Brown (D-OH) said, “China’s currency manipulation has already cost 3 million American jobs–2 million of which came from our manufacturing sector. The bill that passed [Oct. 11] could create 1.6 million American jobs.”

In 2010, the House passed a similar bill, H.R.2378, the Currency Reform for Fair Trade Act, by a strong, bipartisan vote of 348-79, including 99 Republicans, but the Senate failed to pass their version of the bill.

The problem of Chinese currency manipulation has actually gotten worse in the past year since the Senate bill passed. The New York Times’ Keith Bradsher “reports that Beijing has actually depreciated its currency more of late.  The Yuan fell nearly 1 percent against the dollar last month, and Bradsher says this is the “largest drop since Beijing officials unpegged the currency from the dollar in July 2005. The fact that Beijing can adjust its currency so precisely is proof yet again that it deliberately manipulates the Yuan to gain an export advantage.”

We cannot continue to run up a massive trade deficit with China. The U.S. trade deficit in goods and services increased from $500 billion in 2010 to $558 billion in 2011, an increase of $58 billion (11.6 percent). The massive sales of Chinese exports to the U.S. is fueled by China’s deliberately undervalued currency. By pegging its currency to the dollar at an artificially low rate, Beijing is making sure that its exports are exceedingly cheap in the U.S. Conversely, U.S. exports are more expensive due to this preferential currency rate.

How would this bill help? The bill calls for the Treasury Department to identify countries whose currencies are undervalued, and then instruct the Commerce Department to impose duties on imports from those aforementioned countries. Key points of the Currency Exchange Rate Oversight Reform Act of 2011 include:

* Improves the oversight of the currency exchange rate by the Treasury.

* Clarifies the countervailing duty law to address currency under-evaluation.

* States that Commerce may not refuse to investigate a subsidy allegation. This clarification is supported by the WTO’s Appellate Body and is a key element in the previous Brown-Snowe currency bill and in HR 2378, which passed in September 2010.

* Triggers a series of consequences, including:  Immediate: “consider designation of a country’s currency as a ‘priority’ currency when determining whether to grant the country ‘market economy’ status for purpose of U.S. antidumping law.”

After 90 days: “forbid federal procurement of goods and services from the designated country unless that country is a member of the WTO Government Procurement Agreement,” and “forbid Overseas Private Investment Corporation financing or insurance for projects in the designated country.”

After 360 days and failure to adopt appropriate policies: “The administration must require the U.S. Trade Representative to request dispute settlement consultations in the World Trade

Organization with the government responsible for the currency,” and “require the Department of Treasury to consult with the Federal Reserve Board and other central banks to consider remedial intervention in currency markets.”

The bill also stipulates that “countries that fail to fix their currencies would be subject to higher anti-dumping duties and other penalties, such as a procurement ban, not receiving financing from the Overseas Private Investment Corporation, and U.S. opposition to multilateral bank financing for the targeted countries.”

Passage of this bill would be an obvious step forward to provide a level playing field for America’s manufacturers and their workers.

The other important bill, “The American Manufacturing Competitiveness Act” (HR-5865), co-sponsored by Illinois Reps. Dan Lipinski (D) and Adam Kinzinger (R), passed the House on September 12, 2012 by a vote of 339-77.

“H.R. 5865 establishes the American Manufacturing Competitiveness Board within the Department of Commerce to advise the President on issues affecting manufacturing in the United States. The board would be required to perform a comprehensive analysis of the nation’s manufacturing sector and, using results from the analysis, develop a strategy to improve the competitiveness of domestic manufacturing efforts. Results from the analysis and strategy would be available to the President to comply with the bill’s requirement to publish a strategy in 2014 and again in 2018 to promote growth in the nation’s manufacturing sector.”

The board would consist of 15 members: five from the public sector appointed by the President, including two governors from different parties; and 10 people from the private sector appointed by the House and the Senate, with the Majority appointing three and the Minority appointing two from each chamber.

In preparing the analysis, the board would be required to study, among other things:

  • The current environment for manufacturing, including government policies—at the international, federal, state, tribal, and local levels—that affect the sector;
  • Forecasts, both short- and long-term, for domestic and international trends in manufacturing;
  • Actions by federal agencies that affect manufacturing; and
  • Factors that affect the growth and stability of the sector such as workforce skills;
  • Trade, energy, and monetary policies; research and development; and protections for intellectual property.

Using results from the analysis, the board would be required to develop a strategy to improve the competitiveness of the nation’s manufacturing sector. The bill would require the strategy to include recommendations to eliminate or consolidate government programs, improve interaction between the government and the manufacturing sector, and amend any regulations that put the industry at a competitive disadvantage in international markets.

The final report also would be required to include a plan to implement the strategy, including an estimate of the cost to implement it as well as recommendations for ways to cover those costs.

In April 2011, The Information Technology& Innovation Foundation (ITIF) released a report, “The Case for a National Manufacturing Strategy,” that made a strong case for such a strategy. Authors Stephen Ezell and Robert Atkinson present information on five key reasons why manufacturing is important to the U.S. economy:

1.      It will be extremely difficult for the United States to balance its trade account without a healthy manufacturing sector.

2.      Manufacturing is a key driver of overall job growth and an important source of middle-class jobs for individuals at many skill levels.

3.      Manufacturing is vital to U.S. national security.

4.      Manufacturing is the principal source of R&D and innovation activity.

5.      The manufacturing and services sectors are inseparable and complementary.

The authors also present three primary reasons on why the United States needs a manufacturing strategy:

1.      Other countries have strategies to support their manufacturers and by lacking similar strategies we are therefore forcing our manufacturers to compete at a disadvantage.

2.      Systemic market failures mean that absent manufacturing policies, U.S. manufacturing will underperform in terms of innovation, productivity, job growth, and trade performance.

3.      If a country loses complex, high-value-added manufacturing sectors, it is unlikely to get them back, even if the dollar were to decline dramatically.

While not perfect, this bill would be a good start in developing a national manufacturing strategy. Contact your senator or representative to urge them to vote on these bills.

 

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“Lame Duck” Congress Must Act to Prevent Sequestration

Tuesday, November 6th, 2012

The clock is ticking ? only 55 more days until sequestration takes effect on January 2, 2013. For the uninformed, sequestration is the across the board 10 percent cut in discretionary spending in the budget, including the Department of Defense budget, that is mandated by the Budget Control Act of 2011. The mandatory entitlement spending of the federal budget, Social Security, Medicare, Medicaid, will continue to grow, along with the interest on the national debt.

If Congress is unable to reach a compromise on how to reduce our 16 trillion dollar national debt, over $500 billion dollars in cuts to the defense budget over the next decade would be mandated to start January 2nd, translating into a cut of about $55-60 billion for 2013.

Our government took drastic action to prevent the bankruptcy of General Motors, but the effect of sequestration would be like both General Motors and Ford going bankrupt. It would not only affect all of the major defense prime contractors, but would affect their subcontractors, and in turn, their vendors, all the way down to the bottom of the defense and military supply chain. The lower tiers of the supply chain are nearly all small businesses, many of them disadvantaged businesses in the minority, veteran, or women-owned categories.

After three and a half years of a weak recovery, the last thing we need is a drastic cut in defense and military spending. In many regions of the country, defense and military spending has been the major factor in helping a region to recover. My hometown of San Diego is one of these regions that would be impacted severely.

According to the San Diego Military Advisory Council (SDMAC) 2012 Economic Impact Study, “a total of $20.6 billion of direct spending related to defense was estimated to flow into San Diego County during fiscal year 2012,” and “the military sector is responsible for 311,000 of the region’s total jobs in 2012 after accounting for all of the ripple effects of defense spending. This represents one out of every four jobs in San Diego.”

“Defense?related activities and spending were predicted to generate $32 billion of gross regional product (GRP) for San Diego County in fiscal year 2012,” more than the total economic output estimated for Colorado Springs, Colorado, or El Paso, Texas.

The report states that “dollars linked to national security enter San Diego through three primary channels: wages and benefits for active duty and civilian workers; benefits for retirees and veterans; and direct spending on contracts, grants, and small purchases” by the military and other Department of Defense (DoD) agencies. San Diego will not be immune to planned cutbacks in troop levels and spending by the DoD. The Marine Corps is expected to see its size gradually reduced over the next five years primarily through attrition and a reduction in recruiting, but the number of Navy personnel based in San Diego is projected to increase in fiscal year 2013 with the return of a second aircraft carrier, the USS Ronald Reagan, and the potential addition of a third aircraft carrier.

In the San Diego region, the manufacturing industry is the largest business sector that provides goods and services to the military. One-third of all companies reported some dependency on the defense industry. Over 1,700 companies of the San Diego companies profiled on the Connectory.com database of primary industries reported that military and government contracts make up a portion of their market share, so “an orchestrated approach to future defense downsizing and its impact on the manufacturing sector is needed.”

Larry Blumberg, SDMAC Executive Director, states, sequestration is “a mindless way of doing business.” The 2013 Defense budget “submitted to Congress on February of this year was designed to provide the resources to support the National Defense Strategy which was released in January 2013. Across the Board cuts to the Defense Budget make the Strategy “Un-Executable”, which is not in our National best interests.”

Nearly all of the major defense prime contractors ? BAE Systems, Boeing, General Dynamics, General Atomics, Lockheed-Martin, Northrop Grumman, and United Technologies ? have a presence in the San Diego region.

According to an editorial by the president of the National Defense Industry Association, Lawrence Farrell Jr., about “$22 billion of the sequester cut of $54 billion for fiscal year 2013 will come from operations and maintenance accounts. About $21 billion of the reductions will be from investments in new weapons systems and technology.” He also wrote, “With or without sequester, the near term reality for defense is military forces will be smaller, and weapons a bit older unless planned acquisition catches up with aging systems. Every branch of the military needs to modernize their aging fleets.”

On Aug. 6, 2012, Defense Secretary Leon E. Panetta said, “I’ve made clear, and I’ll continue to do so, that if sequestration is allowed to go into effect, it’ll be a disaster for national defense and it would be a disaster, frankly, for defense communities as well…Panetta called sequestration “an indiscriminate formula” that was never meant to take effect. “ It was never designed to be implemented,” he said. “It was designed to trigger such untold damage that it would force people to do the right thing. He urged the defense community leaders to do what they can to ensure Congress reaches a solution that avoids sequestration.”

On September 21, 2012, Sen. John McCain, ranking Republican on the Armed Services Committee and committee Chairman Carl Levin and four other Republican and Democratic senators sent a letter to Senate Majority Leader Harry Reid (D., Nev.) and Senate Republican Leader Mitch McConnell (R., Ky.) urging their party leaders to find a way to avert the spending cuts slated to begin Jan. 2, 2013 to “send a strong signal of our bipartisan determination to avoid or delay sequestration and the resulting major damage to our national security, vital domestic priorities and our economy.’’

In an August 2012 article titled “A Smarter Way to Trim the Pentagon Budget” Charles Knight, co-director of the Project on Defense Alternatives, stated, “There are numerous ways to save defense dollars that avoid both institutional disruption and most of the economic pain associated with deep cuts to government spending. An illustrative option is the “Reasonable Defense” plan, which will soon be released in its entirety by the Project on Defense Alternatives.” The Project on Defense Alternatives is a think tank which promotes consideration of a broad range of defense options and advocates resetting America’s defense posture along more sustainable, cost-effective lines.

The plan would decrease the 2013 defense budget by only $30 billion vs. $55 billion, comparable to the 2006 defense budget adjusted for inflation, and the reduction over a 10 year period would be more gradual than the Budget Control Act cap on defense spending. Key points of the plan are:

  • The Reasonable Defense budget for ten years would cost $560 billion less than the 2013 plan submitted by the White House.
  • Over the course of ten years the White House plan is to provide the Pentagon with $5.76 trillion.
  • The Reasonable Defense budget would provide the Pentagon with $5.2 trillion over tenyears.
  • The Budget Control Act would cap defense at about $5.18 trillion.

While this plan mitigates the pain of cutting the defense budget over the next ten years, even sequestration will not solve the overall budget deficit problem. “Defense {spending} today is around 3 percent of GDP, the lowest since 2001, and comprises about 18.5 percent of federal spending, which is on par with the 20-year average.” Our deficit has been more than $1 trillion per year for the past four years, and sequestration would only cut $1.2 trillion over ten years. Yet, defense spending cuts would comprise more than 50 percent of the cuts.

The best way to solve the deficit problem is to bring manufacturing back from offshore to create higher-paying jobs for more Americans. It’s simple:  Americans with good-paying manufacturing jobs pay taxes and generate tax revenue for the government, while Americans without jobs cost the government money in the form of unemployment benefits, Medicaid, and food stamps. If we could bring back half of the 5.5 million jobs we have lost, we could reduce the federal budget deficit significantly, as well as reduce state and local budget deficits. Harry Moser of the Reshoring Initiative states that the top reasons to reshore are:

  • Brings jobs back to the U.S.
  • Helps balance U.S., state and local budgets
  • Motivates recruits to enter the skilled manufacturing workforce
  • Strengthens the defense industrial base

Regardless of the outcome of the election, the members of the “lame duck” Congress must act like statesmen instead of the intensely partisan politicians of the past several years to prevent sequestration. Call your U. S. Senator and Congressional representative to urge them to approve a budget that will prevent sequestration. Otherwise, one of  the companies that close or the jobs lost may be your own.

 

 

 

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