Swarfblog | Todays Machining World

Ethics: New Employee?

By Noah Graff on October 31, 2011

By Russell Ethridge

I am a bookkeeper with a small company. My boss, one of three brothers who own the business, is married with three kids. Last month, he asked me to place a considerably younger woman, whom I have never seen in our shop, on the payroll. A work associate told me the woman is my boss’s mistress. I processed an expense account report for a tradeshow trip, and I noticed dinner receipts for two and hotel bills showing double occupancy. I knew his wife was home with the kids during the show because I saw her that week at the hockey complex where our kids play. His two brothers are absentee owners (both get paychecks) whom I don’t think would approve of their brother’s actions. Should I confront my boss? Should I tell his brothers? The amount is not huge, but it’s better than my paycheck. The work associate says my boss is an adulterer who is using the company’s money to fund his own indiscretions, and I ought to report it to his brothers.

Russell says:
Family businesses are often piggy banks for the owners who use them to fund all sorts of activities, including some which are marginally related, if at all, to the operation of the business.

While you have your suspicions, you have no clear evidence of illegal conduct (tax fraud, money laundering), and there are a variety of innocent explanations for your boss’s conduct. Perhaps Ms. X is a leading expert on quality systems, and the restaurant tab reflects a working dinner in preparation for a sales pitch the next day. Maybe the hotel bill shows double occupancy because his wife, who planned to come, stayed behind to take the hockey player to district finals, which no one expected the team to make. If Ms. X attended the conference, you might ask where her hotel receipt is. But, she may say she stayed with her old business school roommate, who happens to live in the town where the conference was held.

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One on One with Dr. Rockford Weitz: How to capitalize on the melting arctic icecap

By Noah Graff on October 28, 2011

Paths of Northwest passage and Northern sea route.

Global climate change is rapidly melting the Arctic icecap, enabling some ships to finally travel over continents, both through the legendary Northwest Passage over North America and a Northeast Passage over Eurasia. We interviewed Dr. Rockford Weitz, who leads the Arctic Futures Initiative, a consulting group advising businesses on how to capitalize on the effects of the melting Arctic icecap.

How viable is the Northwest Passage for shipping today?
RW: Today’s Northwest Passage is not that viable. The real action is actually going to be over the Northeast Passage or Northern Sea Route (see map). The Northwest Passage could also be interesting, but it’s full of islands. Ice predicting models suggest that the Northeast Passage is going to open first. If current trends continue, some scientists in the United States say that the entire Arctic Ocean could be ice-free during the summer by 2013.

If the ocean does become ice-free could shipping times be reduced?
RW: Say you’re sailing from the Nagoya Port in Japan, exporting automobiles to Rotterdam, the biggest port in Europe. Your current route heads south past Taiwan through the South China Sea, around Singapore into the Malacca Strait, across the Indian Ocean, through the Red Sea, then the Gulf of Aden, around Somalia, through the Suez Canal, across the Mediterranean, through the Strait of Gibraltar, north into the Atlantic and then to Rotterdam via the English Channel. You could save more than 40 percent of that journey if you sail straight across the Arctic. And, you’re not going through the Strait of Malacca or Somalia where piracy has been a problem.

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Babies, Manufacturing and Tandoori Chicken

By Noah Graff on October 27, 2011

Eurostat projections for Bulgaria show the sharpest population decline and the largest share of older people in the EU.

I attended the PMPA annual meeting last weekend and watched an inspiring talk by Herbert E. Meyer, Former Vice Chairman of the CIA’s National Intelligence Council.

He gave a unique perspective on where the opportunity lies in the coming decades for U.S. manufacturers. India, the Middle East and Africa will be the leading consumers in the next few decades, while Europe and Japan will literally die. According to Meyer, the Western capitalist democracies in Europe and Asia simply don’t produce enough children to support their aging populations. A rate of 2.1 births is needed to sustain a population, and modern capitalist welfare economies need young people to pay taxes to care for the retired geezers. In addition to providing tax revenue, large families spend a lot more money to fuel economies than the AARP folks.

Throughout Europe the family birthrate averages 1.5 children per family. According to Meyer, if Europe were to somehow reverse its downward spiral in population growth, it would take two generations to get back to the required replacement birthrate. In Germany 40 percent of college educated women have no kids. One out of seven couples gets married in England. Spain and Italy have rates of 1.2 children per family. Japan averages 1.5 births per family, and by 2020 one out of five Japanese people will be over age 70.

Everyone worries about the threat of China’s booming economy, but the country’s workforce shrunk for the first time last month as a result of its 1.1 birthrate. Nature’s ratio of males to females is 103 to 100. In India and China there are 118 males to 100 girls. One hundred million men in those countries will never marry–can’t be great for morale. According to Meyer, the present level of political unrest in China is higher than that in the Soviet Union two years before its 1992 revolution.

Speaking of Russia–the life expectancy of a male in that country is 58. Demographers predict that by 2050, Russia’s population will be smaller than that of Yemen. Thankfully, Hispanic immigrants have enabled the United States birthrate to hover right around the 2.1 children per family replacement required to leave its economy well positioned in the coming years.

While Europe dies, huge opportunity awaits in India, the Middle East and Africa. India has a healthy 2.8 children per family birthrate and many countries in the Middle East and Africa have large young populations. Manufacturing plants are finally beginning to sprout up in Africa. The Arab Spring is spawning democratic governments all over the Middle East (different interpretations of democracy than ours) that will eventually pave the way for a larger global middle class. Meyer said that each year throughout the world 50 million to 100 million people emerge from poverty. The new prosperous populations will need to build infrastructure, grow more food, and produce more fuel. They will manufacture goods domestically and want to buy goods produced by American companies.

Keep having babies and develop a taste for Falafel and Tandoori Chicken.

Question: Are you scared by the possibility of an Arab dominated Europe?

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How the American Visa System Keeps Skilled Workers Out

By Bridget Mintz-Testa on October 26, 2011

Although the nation-wide shortage of workers in science, technology, engineering and mathematics (the “STEM” fields) is well-known, the comparable and equally critical shortage of skilled workers in fields like manufacturing has hardly been publicized at all.

Most efforts by American industry, including those specific to machining, have focused on improving programs and training for young adults; even trying to grab the interest of students as young as 12 or 13 to entice them into a career in the skilled trades. Despite these efforts, nobody knows if the U.S. will produce enough skilled laborers to support the manufacturing sector in the coming years.

Unlike in the STEM fields, there have been few government- sponsored visa programs to bring skilled trade workers to the U.S.—so the affected industries have been left to solve the problem by themselves. One part of the solution to the skilled labor shortage could be to hire skilled trades-people from Europe’s strong apprenticeship system and bring them into local machine shops. But how does a shop go about doing this, and is it worth the time and cost? These questions bring up the role legal immigration could play in supplying the necessary amount of talent to support the U.S. manufacturing industry in the coming years.

An intro to the U.S. visa system
Each year the U.S. makes available 140,000 employment related visas that can lead to permanent residency by awarding a permanent resident card, or “green card,” and 65,000 H-1B visas, which are strictly employment-related and have an expiration date. Another 225,000 family-related “green cards” are also issued annually, but these have nothing to do with employment. All “green cards” are permanent, although they sometimes have conditions and must be renewed periodically, like drivers’ licenses. Employment related visas are issued based on the applicants’ education level, and there are multi-year backlogs to get one, said William A. Stock, an attorney specializing in business immigration with the Philadelphia law firm Klasko, Rulon, Stock & Seltzer, LLP.

The H-1B visa, which is good for six years, is one of an alphabet soup of temporary visas that companies can use to sponsor foreign nationals to come and work in the U.S. Other visas used for this purpose include the H-2A, H-2B, L and E visas. H-1Bs are different from the other temporary visas in that someone in the U.S. with one is eligible to apply for permanent residency.

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Why is my business so good if the economy is so bad?

By Lloyd Graff on October 25, 2011

CBS news announced in January that Austin, Texas, leads the U.S. in job growth and CNN has it in its list of the 10 fastest growing cities

I attended the Precision Machined Products Association’s annual meeting in Austin over the weekend. The question I heard often was, “Why is my business so good if the economy is so bad?” Unfortunately the speakers hardly addressed this topic, so I will try to explain it.

1) Structural changes in the world economy now favor American manufacturing. A lot of businesses have gone away in the last 10 years. They’ve closed, moved to China, downsized, gone bust, or merged—and not much has started up in the last decade and a half. Manufacturing was downsizing in the ’90s but it was masked because of the Internet and telecom boom.

2) Automotive is coming back, but we mistakenly think of automotive as just GM, Ford and Chrysler—American vendors are doing a lot of work with Toyota, Honda, and Mercedes, too. High yen and Euro values relative to the past make America a low cost producer.

3) Relentless productivity advances in manufacturing makes for better margins. The press mistakes “restructuring” and cutting people as indicative of bad business. It may be the reason for continued good business. Head count and profits no longer rise together and even the Wall Street Journal misses it.

4) Contrary to popular opinion we are starting to get better young people to join manufacturing. Old people always think the younger generation is shiftless and inept, but I think that the notion that you cannot recruit capable new people is obsolete in this labor climate. Nonexistent desk jobs no longer look appealing next to $80,000 machinist jobs with benefits.

5) China is struggling to compete—wages are rising 15-20 percent per year, the workforce turns over constantly, there is a shortage of skills, and high-energy costs. The realization of what it really costs to make things in China with the travel, logistics, and quality issues has made outsourcing to China less attractive for American firms.

6) Innovation. If you look at big companies like Apple, Cummins and Amazon.com you see that America still has game. Add the brilliance of our farmers and the revolution in oil and gas production with horizontal drilling and you see a core economy that is thriving and world class, but one does not necessarily hire unemployed 56-year-old bankers.

All of this does not mean that Europe is not a mess and that retired Chicago teachers are going to get the pensions that were promised them for the next 50 years. The world economy is in the throes of a nasty restructuring not that different than what American manufacturing has gone through for the last 15 years. I like our odds. I wouldn’t bet on the French though.

Question: Do you feel optimistic about 2012?

Posted in Business, China, Economy, Favorite Posts, Featured, Machining, Swarfblog | 16 Responses

Horizontal Drilling Shale Set Us Free–Making Natural Gas Accessible in the U.S

By Bridget Mintz-Testa on October 24, 2011

Devon’s Bridgeport natural gas processing plant is one of the largest in the country, serving hundreds of gas wells in the rapidly expanding Barnett Shale feld in north Texas.

Until about three years ago, it was widely thought that most natural gas in North America was either gone or too expensive to drill. Today, new approaches to extracting this fuel have revealed drillable reserves sufficient to last another hundred years at current levels of consumption.“Unconventional” natural gas is the source of this new abundance. Conventional natural gas is typically found along with oil. Just as the easiest oil is gone, so is the associated natural gas. Shale gas is the main source of the enormous increase in reserves.

Shale gas lies in deep high-pressure and high-temperature formations 10,000 to 25,000 feet (or more) beneath the Earth’s surface. Shale is impermeable, and it must be fractured repeatedly to create pathways for the gas to flow back to a well hole. Without a wide variety of precision-machined products that follow the American Petroleum Institute’s specifications, like tubular steel, couplings, valves, wellheads, drilling bits, bridge plugs, perforating guns and packers, unconventional natural gas extraction and production would not be possible. Any good machine shop can make oil and gas products, but getting a foothold in the industry involves much more than cutting steel.

The Long Road To Exploiting Shale Gas
“The oil and gas industry has known for decades that shale is a source rock for hydrocarbons,” says Chip Minty, a spokesperson for Devon Energy, a major player in unconventional gas. “Shale has produced the reservoirs we’ve used for about 100 years.”

Over geological time periods, oil and gas from shale formations moved into permeable sandstone reservoirs. Those sandstone reservoirs were reached by drilling vertical wells through the shale.

Attempts were made to extract the hydrocarbons in shale, but they weren’t very successful. “The old literature said that the typical shale gas well would produce about 500,000 cubic feet per day in its first year and then drop off to a very low level (unprofitable) for the next 30 years,” says Rick Smear, a director of the natural gas practice at Navigant Consulting in Houston.

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Manufacturing in Space- It May Be Closer Than You Think

By Douglas Graham on October 21, 2011

Space is no place for life as we know it, but it may be the ideal manufacturing environment. In near zero gravity, materials with incompatible properties can be mixed to create alloys nonexistent on Earth. The sterility of space also makes it perfectly suitable for semiconductor, nonlinear optic and photonic production.

The Space Race
Any American alive mid-century remembers the Space Race—that parenthesis in time between the broken postwar world and a new far better one most believed was just around the corner. U.S. popular culture of the late 1950s and early 1960s was so space-oriented, a person magically transported to that time from an earlier one might have thought people were already living and working among the stars. In our imaginations we were doing just that, we brave pioneers were homesteading the Great Beyond.

Television was Space Age iconic (“Lost in Space,” “Space Ghost,” “The Jetsons”). Then there was “Googie,” a futurist architectural style that celebrated the soon-to-dawn, “Rocket Summer.” Christened after an eccentrically designed Southern California coffee shop, the Googie style flaunted up-swept roofs, weird angles, shiny metal surfaces, and saucer shapes reminiscent of UFOs. It survives in a thousand abandoned restaurants and gas stations rotting along the Route 66’s of America.

“A real Space Age couldn’t have happened in the Cold War era,” says Jeff Greason, CEO, XCOR Aerospace Inc., a California-based developer of reusable rocket vehicles and the systems that go into them. “The period was mired in propaganda. We had to show the Russians that we could beat them to the Moon, and the Russians had the same objective where we were concerned. Not considered to any great extent was the question of what might be done with the Moon once humans were tramping around on its surface.”

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XCOR’s Lynx

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The Rookie Machinery Dealer

By Noah Graff on October 20, 2011

Writing about the machine tool business while wondering if the Cubs will hire Theo Epstein.

I attended my first Machinery Dealers National Association (MDNA) convention in Chicago last weekend, and I was surprised to find that it had a powerful effect me. The convention, called “Weekend With The Pros,” revolved around touring several large successful used machinery dealers’ facilities and networking with other dealers at various bars. The tours were impressive, but as I expected, mingling at the hotel bar was the true feature presentation.

I’m the third generation to work at Graff-Pinkert & Co., but I only officially joined the business four and a half months ago. Being a dealer had always been a path that I thought I might try, but I never felt comfortable with the idea of joining “the family business” until this year. Selling machinery had never been my dream job, and I had hangups about working for Daddy.

I had few expectations for the weekend but had predicted meeting a lot of white Jewish men in their 50s or older. That was my stereotype for a machinery dealer, shaped by family members and several dealers I had met in Chicago (a lot of those old guys happen to be great people by the way).

Some of dealers I met last weekend fell into my stereotype, but I was pleasantly surprised to meet an entirely different demographic as well. There was a strong presence of dealers in their 20s and 30s from all over the country. I was impressed at how approachable virtually all the attendees were and how energized they were about the business. The first night I stayed at the hotel bar until 2:00 a.m. talking business with a 29-year-old and a 23-year-old. The 29-year-old, who happens to work for one of our competitors, told me that he had been hired as a dealer after working in his company’s warehouse. The 23-year-old (the only Asian and non-caucasian attendee for that matter) had only been working in the business a month. He was a salesman for the office supply house Quill before his present employer, a second-generation veteran in the machinery industry, decided to give him a shot. The 29-year-old raved to the 23-year-old that the used machinery business was an awesome job and that he should feel lucky to have been given the opportunity to get into it. He repeatedly emphasized to him that both their entries were quite rare, because traditionally to get into the used machinery business people are either born into it (like me), marry into it, or have some type of personal connection. But judging by the stories of these two guys and a few others I met at the conference, I think that trend is changing.

I came away from the weekend with a lot of new business ideas and contacts, but more importantly I came away feeling proud about what I do, more secure with my identity as a used machinery dealer. There aren’t that many used machinery dealers in the world compared to most occupations. The media doesn’t romanticize the occupation–it doesn’t even recognize its existence. When I meet someone and tell them I’m a machinery dealer most people give me a puzzled look. But last weekend I met people who understood what I do, and it felt really good. As I was talking with the young dealers at the bar a slightly inebriated veteran dealer, who reminded me of Donald Sutherland, came over and told us that a machinery dealer was the most important job in the world. He pointed to our table and said, “Everything on this table was made by some type of machine and there was another machine that had to make the parts for that machine.” Nuff said.

Question: Do you look forward to going to work every day?

Tour of Aaron Machinery, MDNA Weekend With The Pros

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An interview with big rig driver Dominic Tramonte

By Noah Graff on October 19, 2011

Dominic Tramonte

Originally printed in the March 2007 issue of Today’s Machining World.

Dominic Tramonte has been an over-the-road truck driver for the last seven years, and an owner/operator of a Kenworth semi truck for the last two.

NG: What was your occupation prior to being a truck driver?
DT: I have double master’s degree in engineering from the University of Texas. I was a fled engineer. I built a lot of chemical plants, office towers and prisons mostly. But I’m just too old to work 100 hour weeks anymore. I drive because don’t like to sit in an office and draw blueprints that other people get to go into the fled and build.

NG: Do you prefer sitting in a cab all day?
DT: Yeah, that doesn’t bother me. I don’t work that hard. Every now and again I’ll put in a 12 or 14 hour day, but usually I only work five or six hours a day. The rest of the time, I put my feet up, read and play computer games.

NG: Which jobs make you the most money?
DT: Oversized freight and freight that you’ve got a lot of time pressure on. I personally won’t load anything for less than about $1.50 a mile. The best job I got was for $6.00 a mile.

NG: How do you acquire freight jobs?
DT: I have an agent who does the work for me, and I pay him 8 percent off the top. I’m leased to Dallas & Mavis, and use their authority to haul freight. They also get a percentage.

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The Sweet Tango of Business

By Lloyd Graff on October 18, 2011

Thoughts while making applesauce for the winter.

Is the screw machine the Winesap apple of machining? I was talking shop with some apple orchard owners at a couple of farmers markets over the weekend. I asked why there were virtually no old varieties like Gravenstein and Winesap sold anymore. Even the more common Jonathan is scarce. They said the answer was pricing power and demand. People will pay $3 per pound for Honey Crisp and Jonagold. For Gala and Macintosh they can shop the supermarket and buy them for 99 cents. The farmers are doing what business people do, planting the hot varieties, and chopping down the commodity apple trees.

We saw this in our used machinery business, Graff-Pinkert & Co., as people pruned their National Acmes and Wickmans and brought in CNC lathes and Hydromats. Even with the refocus, the pricing power of screw machine producers eroded in the 1990′s and 2000 decades. My radar tells me that this weakness in the marketplace has ended and has now reversed. Using the apple metaphor for machining again, screw machines are now “heirloom” technology.

As the skills have gone away the people who can figure out the mystery of the old cam operated multis can compete with the generic Mexican tomatoes of machining, the “Chinese bushings and Indian fittings” that are just mushy enough to be irritating.

The new “hot” apple is the Sweet Tango. It is similar to the Honey Crisp variety, but a little sweeter—same crunch as the Honey Crisp with a wonderful flavor.

The owner of a machining firm has an orchard of machines. The smart ones are constantly clearing the machine tools that do not have pricing power. They are continually planting the “in” new trees because they take years to produce quality fruit. But for those with patience and marketing skill there is also a place for the “heirlooms” to launch a comeback.

We are finally beginning to see it on the few well tended screw machine orchards that are left.

Question: Does your business have pricing power?

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