title: Finding new ways to grow business in metal fabrication
author: Next-Gen Metal Fab
contenttype: podcast
publication: Next-Gen Metal Fab
published: 2024-11-26T14:15:00-05:00
sourceurl: https://dts.podtrac.com/redirect.mp3/podcasts.thefabricator.com/oVnEuuiIudfwVIuNQNzsEZyHfvwXcWy5x00gIOzD.mp3
word_count: 6135
The barrier to entry for certain kinds of a fab is actually pretty low What you just described is interesting because barriers for entry are low. Okay, that's true I could put a plasma cutter in my garage and I've got a fab business but customers they can move around really easily They have mobility Welcome to the next gen metal fab podcast. I'm your host Tim Peston in each episode My co-host Ashcuts Caleb Chamberlain and I will bring you conversations about what the future could look like for precision Cheat metal and tube fabrication Discover your path to leadership excellence at the FMA annual meeting February 25th to the 27th in Chandler Arizona This premiere event offers a unique opportunity to connect with prominent figures in the fabrication and metals industries Enabling the exchange of ideas collaborative solutions to business challenges and the cultivation of strategic relationships Visit FMA MFG dot org for all the details and now back to the episode Thanks so much for joining us for yet another conversation about kind of the future of the custom metal fab industry and this time we're going to kind of focus on potential growth aspects over the next few years About new ways that fab shops can grow And gain market share, but yeah Caleb, you know talking about your shop. Obviously. It's quite a different business model Just provide some opening thoughts about about how you feel Technology and software and and a lot of the new new new kinds of approaches That the industry is seeing How that's going to affect how shops get born and how they grow over the years Yeah, this is such an interesting subject because I Think there's a lot of interest in manufacturing in the US right now. There's these reshoring trend There's a lot of private equity groups or looking for places to put money where there can be a stable study kind of return There's obviously a lot of political interest in Restoring the United States manufacturing dominance right to the extent it needs to be restored I think we're still manufacturing powerhouse, but And a lot of things changing with technology as well. There's a lot of Pressures and trends and things moving around they'll have an impact on how businesses grow and what the landscape looks like in 10 to 20 years And I think one of the things that I've talked to a handful of private equity groups recently that they're interested in doing this and One of the questions is well, why you know, why is it so fragmented still? Why is manufacturing so fragmented? Right and you've talked about this before probably many many times and you and I have talked about it, but The phrase you've used him that I really like is the manufacturing of technology non industry So this idea it's kind of like asking why hasn't software consolidated You know how come how come there's still thousands of software companies? Why isn't there just two or three main players that write software and say well they get come on that's a nonsensical question right Software the tool and there's a million ways it can be applied and it's kind of the same with manufacturing Different interests care about different things. You know medicals different from automotive different from aerospace As different from like consumer goods So yeah, it's totally different depending on what you're trying to do And that's actually so what I this there's I think two trends that I think you're gonna happen Now when it comes to how industry how manufacturing tech is going to consolidate in the future And one of those ways is there'll be this horizontal consolidation I think where you've got a generic job shop that offers value-ad services that Sit in the stack between the mill and the top end and the customer on the bottom end You've got a job shop who's doing cut and bend or that bend tab, you know powder coat And that generic jobs off service. I think is going to become democratized Enabled by technology which will break down regional barriers And then on the other end we'll see continued consolidation in the same way we've seen in the past which is a company will learn how to Sell into a particular industry really really well and And they will vertically integrate with software to make that even better and the players that figure out how to do that Will tend to aggregate and pull in a whole bunch of the volume So there's two ways to scale in this new tech enabled world one is Well, let me give you an example of a vertical case. I'm kind of speaking generically My wife and I bought a tough shed We've all heard of that brand right? Yeah, but go to their website. They've got this online tool where you can design a shed And visualize it in 3D and configure everything and even pick the colors in the trim the shelves on the inside the kinds of vents the slope of the roof Height length width you design it they build it in their factory and it shows up in two weeks And now you've got a shed custom design for your house And It's not just that they're a shed manufacturer They've integrated the entire stack vertically from software and web presence all the way to manufacturing all the way to the network for Installing that So what does that do well they they've expanded into this vertical industry which is custom sheds and they And they've used technology to make that extremely streamlined and easy to do And I'm not saying they're the best and you know, there's always problems but This isn't supposed to be an endorsement of tough shed But it's an example of how you can take tech like software And make a particular experience really really good going back to the story that was in the fabricating You know a lot of shops do grow on the backs of some core Elements of core customer base like We just did a store on keel which is a new A new kind of umbrella company over Merrill and a few other large fab shops Focused on aerospace and defense and now obviously there's cadrex which is focused on the information technology and data center business and And so there's always that customer niche that they kind of grow on top of saying all right Then you've got you know, have you equipment and egg equipment some large fab shops are to that But then What do you see the potential for for just kind of more horizontal growth? You mentioned something about a horizontal like totally cross the board and nothing's dominant You know, yeah, that's the thing that I think is very new And I admit to a little bit of bias because we're we're growing in this way and our competitors are too And faster than us. I will admit that that they're They're scaling in a really impressive way. It's pretty cool um But the gen genit the general idea is that you've got all these job shops and and some are going to scale on the back of vertical integration like we talked about And very particular sales strategy in the particular industries on the flip side There's this slice of the supply chain that just says hey, we've got lasers. We've got brakes got other equipment and For Customers that aren't set up in a way that they they want to bring that internally They're going to buy out and we're going to be the shop one of the shops. They can go out to to buy out Right make a versus buy it like you were just talking about um And it's it's an interesting mix of customers because at a certain scale, you know, vertical integration for the downstream clients makes total sense but So the big question is why Today are there you know tens of thousands of job shops that are providing these mid middle Value-ad services Why it hasn't anybody just gobbled up that volume and I think part of the problem is that you've got regional barriers and you've got scale barriers and software fixes both of those things Right, I explained that for me how does that work? How does that fix load things Well, let's talk about our competitor, St. Cuyson They're building their third shop right now They have a centralized ordering interface And it's targeted for a particular kind of customer And anybody who visits their website will see that But you can you know, we would say an engineering or the math managed without loss of generality This is what's possible meaning They they are targeting a particular market, but that can be expanded by anybody who copies this play or by them or by us And so what it says is we they've got a centralized ordering interface that's automated and therefore intrinsically scalable They've got geographic presence within one ground-shipping day to almost every metropolitan area in the United States And they can aggregate everybody who's willing to order in that way All right, so that eliminates geographic barriers And one of the reasons that I'll that allows them for really interesting scale is now you've got let's say you let's see You've got a hundred fabricators that are doing a million each A single fabricator that's doing a hundred million each has way better scale economies and better purchasing and supply chain power Than a hundred individual shops so they will gain an intrinsic advantage by having scaled horizontally across geographies enabled by software So what's going to happen? Well, it's going to be hard for a traditional shop in that particular space to compete So traditional shops are going to have to integrate horizontally or they're going to sell or they're going to go out of business I think right and this is this is going to be over decades in the next 10 or 20 years I think is when we see this play out So the horizontal aggregators we're going to say we can offer these value-add services is extremely efficiently and Capably and fast and for cheap um, and that's going to just tend to soak up volume as especially as the industry gets more and more interested in ordering online instead of using more like walk into the shop relationship techniques Right right right now There's some legacy practices with engineering and prints that Has some inertia you know there's some inertia at play for instance, you know you you have a hard to hard you know It's it's hard to automate the the print so to speak Yeah, you know, you know, there's so much information in the print specifically when it comes to welding and down And there's all this you know but The it's so so there's difficulty there but when it comes when it comes to To And you know make versus buy You know the fundamental is still there where it's if you're a product line manufacturer Because the cost especially since the cost of equipment's going up and up um You know then then that then it makes less sense to actually Invested in house because well, what if the product line changes? What if you know? What if there's a better method like friends? You know, what if there's a different material that actually makes sense for this product So you buy millions of dollars worth of sheet metal automation and then a competitor competitive comes in and makes it out of composite Hmm and so and then then the entire manufacturer in a so so now your competitor just totally shifted And they grab market share because it is a better product because it's better material And all your capital's tied up in sheet metal So you're kind of suggesting Kalo, but it's a little more complicated than that Nobody's gonna be able to really aggregate horizontally because there's just too many ways to manufacture Well, is that kind of no i'm just saying no, I know that that's part of the argument for contracts In other words It's part of the argument of why more I mean, you know, you have some Outliers of course that have innovative approaches that have very strong product lines and they've done a risk analysis Make versus buy analysis and it makes sense it was it was an argument for for the reason why custom fab is a solid business model Because if you have a product line The risk of a specific manufacturing method is too high to invest in the entire vertical supply chains You don't have to outsource anything So I'm a business owner. I've got a product. We've got legacy. We're scaled. We've got legacy systems But we can go invest in a laser or five lasers Um, and then find out that it was the wrong way to manufacture the product Right, right, right or yeah, or we can go somewhere else in the value chain and sign a contract with someone and say hey Make these and now our hands aren't tied It'll be interesting because you know what we're seeing because of the evolution of technology Uh is is there is this long tail of lower cost machines and lower and older technology That I mean if you you can get a see you know see you to laser and obviously we have uh, you know other tools out there Where it and an aplasma cutting table let's say and so if you Um have have have a niche where hey somebody down the you know somebody down the street or somebody within a radius needs certain parts and and you have relationships The barrier to entry for certain kinds of a fab is actually pretty low relatively speaking than it's been It's it's getting to that next level of all right I'm gonna buy a new five-relaser or an automation or you know get it getting to that next level where then okay We're talking tens of millions of dollars And but we're seeing is that you know, I mean heck I talked you know that fab shop This there's a fab shop in Missouri and I think we'll be covering them again because of the get guy, you know I talked to he was he was at 18 years old when he launches launches shop and and today he's in his early 20s and bought his first laser Already but uh, he's already you know, he started paperless You know with Google sheets. It's easy. You know, it's like why even have paper? You know, he just he's a software native and it's nothing it's nothing, you know I'd like it's it's it's nothing Out there, but it's it's really just a pragmatism, you know Pragmatic and and you know, he realizes yeah, we'll have to build off this to actually scale up further But it's it's a great piece. Yeah, I kind of tend to think Often that now there's just real power real scale power that's possible, but really there's there's probably a ceiling to how much Economic power you can command with say service centers where you're buying metal and the scale you'd after achieved to like bypass service centers It's just tremendous and almost impossible Unless you're really going on the back of a narrow set of materials probably But we just what you just described is interesting because various for entry or low. Okay, that's true I could put a plasma cutter in my garage and I've got a fab business Right, right? Meanwhile customers have a ton of For the most part unless you're doing like turnkey services, which is another way you convertically integrate but customers have a lot of They can move around really easily they have mobility Right, I'll barriers for entry for shops or low customers have mobility so If you have a relationship with a company and you go out and put a a cheap laser cutter in your garage Or in a small shop you can serve that customer probably better than any generic horizontally aggregated You know or scale player in the market so So I think you're right actually there there might be a lot of What? Res continued resistance to consolidation and management with technology And I think this is part of the transition because like over the last 20 years What I've seen is you know a lot of shops grow to about 10 million Or you know 15 million maybe 20 million but then you know Are there on time delivery sufferers? It's very different you know, but it's it's all it's because of You know, there's just been a lot of it's difficult to scale thousands of thousands of different part numbers Without some kind of software automation So if you have you know if you if you have to so they focus on those large volume orders So they have that they'd large that that that That the few large volume orders that they really focus their business on of a long tail of low volume orders But the low talk that is long that long tail low volume orders Often it's delivered late because they need to service their major whale whale accounts so to speak and and so to deliver late so so perhaps a shop supervisor at that that Farricator goes off and launches his own business and hustles and brings some smaller customers with him And he has less overhead so then he hustles and he gets and that's that's kind of as as been kind of the The growth of growth cycle of the industry where you've had this this uh this kind of kind of Sealing about 10 million the kind of struggle to grow more But then they have some really great talent within there and they jump off and they just launch a shop of the loan And they Started around two million three million fight and they and then they grow and then it's so then now we're getting to the point now Where they all these investors are looking at all these shops that have gone through that cycle Why don't we put these together? There are software vendors that are Building modular Software tools that help job shops specifically and one of those is fulcrum and one of those is paperless parts And there's a bunch. I I don't know all the providers So it's possible that you might be able to bolt on enough of these and maybe they talk to each other enough that you beat the You beat the scale problem But um You know iosha got we're doing 2500 unique part numbers every single week and 90% of what we ship we will never see again statistically right um so I don't think we could do that with modular software packages that exist today I think the only way to actually scale that business model Is to have your own software team riding bespoke software for your company And it's a different kind of company very much so but Well and you guys are different kind of company along with send cut said and the other the others where you you are Focusing on the prototype and you're not going to see it again But many companies don't want to grow like that they will they's right Yeah, they want To grow that contract work They'll see different kinds of work from the major core customers But you're going to have and you're always going to want to have a diverse customer mix But do you they you want to grow the revenue with that customer to become their contract supplier That's why you know when I covered shops They say no, we're not a job shop we're a contract manufacturer because it's a contract And we have long-term relationships and that's how we want to grow We don't want to have the one and done shop. We don't even want to touch that Yeah, and so we have to change the structure of your entire company Exactly exactly and and and the The machinery is really geared toward that to be honest, you know, we've got you know We got automated towers. We've got It's built for for quantity and it's built for I call high kit-based high mix quantities so you're you have a high quantity of parts But you are producing at small batches to deliver quickly and continually to drip feed to the supply chain And that's how you become a quote unquote co-makers what somebody told me is like you know, it's just so close that you're drip feeding And you're gonna it's you're no longer moving huge batches. That's the evolution. We're no the you know We're in a small batch world But but we're also still in that contract world contract work like that Gets gobbled up by horizontal integrators Was especially early in the products cycle right? So you know if if you're testing something out And you're seeing if if you want to prototype or if you want or if you're not even sure this product is gonna fly then Then yeah because you can't your regular supply chain They don't want that onesy-tizzy stuff and and you can't get to it It's hard to find a new fab shop because they they're not gonna want you know five 10-piece order They're not coming going after that so they need that service and they'll always need that service But then then beyond that it's like all right Well, ideally we want to spread the risk of our supply chain and be great if we could contract out the assembly contract out and maybe even have You know a lot of fapt shop send up becoming you know white with you know white good Players where they just basically do everything they plot they slap the label on it and they just ship it directly to the end consumer And they handle the supply chain They handle that they're purchasing and so But oh that that's another business model all together So another way to scale and another way to preserve margin in a very competitive industry is you exactly So it will have a turnkey solution and you make it happen. Yeah, right And then there was another story I read and to have the Texas shop a guy who you know They they are a small shop and they want to stay a small shop. They don't want to scale up, but they also Focus solely on material handling and customized fabrication solutions So they do not they do not work with traditional make-to-print. They work with Just hey, what do you need this material handling solution for your plant? We're gonna visit the plant We're gonna walk through in sick. All right. We're gonna figure something out for you and design from the ground up Wow and that and so that's their niche and this you know the guy comes from a large Fashion up had a large fab shop in California. He doesn't want to scale up. He says no. I'm perfectly happy With this small you know and being small, but offering value that's sustainable Being small and offering a commodity is not You know what I mean? So well, that's a that is that is such a powerful statement actually being small Well, can you say that again being small and offering a commodity does not be being small and are Being small and offering value is sustained a Maybe small and offering a commodity is not where you just that's that is great That is yeah, that's really true I actually think actually that between you and me and everybody listening to this podcast Well, one of the things that I worry about is that The on-demand space will become commoditized Right um, so you have to scale if you want to do on demand Well, it's yeah, and it could be either you guys, you know and or could be the brokerage model too, right? So you've got you know and so uh which brokers will continue to work Unless because okay brokers are the horizontal aggregator without Without like touching the vertical component at all what I mean by that is like a broker is going to say well I'm gonna I'm gonna provide the infrastructure to connect buyers and sellers or service providers and customers Right and we're going to take a kind of difficult process and we're going to automate it and that's quoting right So these brokers are providing the skid this quoting at scale and connection at scale But and that is very valuable in today's climate Okay, but what happens when two or three major job shops scale horizontally vertically integrate the whole stack from quoting to manufacturing And now there's two or three major shops that can do everything the broker can do Inhouse What happens to the broker model for that matter what happens to modular software service provider value when there are so few job shops trying to do that kind of work Like well, you know harder that is a sandbox theory where you know It used to be I mean back in the day, you know We used to say I used to see used to be that few Fabricators had machining capability You know now machining is is in the sandbox most like wingy You have fab you have fabrication capability and then you have a machine shop to add value either for your end assembly tooling or both Uh, and then now we have you know a mech making statements that they're getting into plastics And so so uh or or or some other light weighting focusing on the light weighting I'm not sure if it's plastic or not don't quote me on that but but it's it's a different uh but their customers are looking for lightweight materials And so there are it's just a matter of how how broad can you scale with the sandbox how many how how how can you really be experts in all These processes because it used to be is like no I'm a machine shop. I'm not gonna get into fab Well now it's it's beyond that so we're shit, but hey, am I gonna get into plastic injection molding Am I gonna get the 3d printing am I gonna get into this that this that we all this drilling costs? I okay, so this is so interesting um I think that Technology not only makes software more accessible for shops that want to integrate it themselves It's easier to write software now. So that's a thing the other thing is that machines are just Like we talk about CNC press breaks with offline programming and a bunch of automation It's way easier to be really good at precision sheet metal today than it was 20 years ago Right, so there's some democratization of the actual technology and the software that connects customers right So I think the likely in state of all this is that it is actually possible to be an expert at CNC machine and sheet metal and 3d printing and injection molding And the list can go on and the company gets big for sure It'll be interesting to see how it plays out because you know the old iron dies hard so to speak So it's it's uh, you know, it died, you know, we've got in fact I'm just writing a story about a large contract fabricator in Indiana about their their laser cutting scheduling Strategies which they've changed, but it's a matter of They have you know a nine-year-old CO2 laser and they've got a a one-year-old fiber laser that Can outpace anything and it's just this amazing differentiation and technology between them But and it also requires different kinds of expertise And it also requires a surprising amount of expertise to really do it on a consistent basis Specifically because if your material is not consistent if If you know you have tip ups, you have all these things that they've got to look at there are the devils are in the details And so so it it seems easy, but then when you scale up it's kind of like It's it's kind of like every pebble can can you know can have a more dramatic effect in the cause of landslide It's just like in the instructional fab where we've we've written about these amazing front-end automation beam lines and And the skill labor problem has become even more acute even though the machines are easy to use But you have to have the right information and you have to make sure he's pressing the right jot He selected the right job. It's like the right job. He just produced a ridiculous or not number of beams. We will not never need Bam done Yeah, yeah So this is maybe getting too specific but but that is that software problem that that's totally solvable with software more integration Yeah, and so as long as you as long as you have that then then you then you have a Ferrari that That is well tuned and you will crash into the software problems hard because I mean we found that we have we have a growing list of projects that we want to tackle and it never ends and It gets really expensive to try to maintain a million lines of code right um, but I mean we're we're getting off the beaten path here maybe from the original subject but AI is such a buzzword right now that it almost makes you want to roll your eyes when you hear the word even me too even though I'm super excited about it But the killer app for AI is not like virtual assistance and it's not automated customer support because Customers hate it right nobody wants to talk to an AI even if it's good Um the killer app for AI is software development Right yeah AI is going to make every job shop a software powerhouse So what will that do? Right, right and that if so we're circling all the way back. I apologize That's circling all the way back to the beginning we talked about vertical integration. We talked about this tough shed thing Every product you can imagine that's made out of metal um Is going to have a vertically integrated turnkey software thing Where some shop is figured out how to tie software and to make that experience extremely good Right or that niche And so everybody's going to integrate vertically in that way or they're going to do what Oshkite is doing and they're going to integrate horizontally and try to capture Just the the slice of value added in the middle And it's all going to be powered by software facilitated by AI Yeah, I read a great story in the Wall Street Journal where it was kind of you know About investors saying why I mean is are we at the top of a dot com bust From a for AI you know is is AI is AI overhyped and etc etc And it made me think it kind of About all right. What what are the two extremes of where AI could go and how it could affect metal fab And the one extreme is the one extreme is what you say which it could transform everything And allow scalability in areas we thought never could be possible and utterly change the fab shop for the good You'll have I wrote a and a pie in the sky and a story a couple years back where I said imagine a time Where The schedule changes every second where everything just adapts and exactly to the perfect flow through the shop floor And this allows you to automate in ways you've never thought possible So you've got that which is totally scalable or AI becomes basically an advanced form of auto correct Or or advanced you know, you know or just an advanced google search But that's great, but it just doesn't it doesn't really live up to its promise because All the pieces the puzzle are not talking to each other and it's just you've got all these silos of amazing technology that Don't come together to produce something great. Well, you're a go. I thought I would have thought well Yeah, it's fancy auto correct. I don't think so anymore I think we're far enough along to see that like the ability for a computer to write code to solve a problem on the fly and execute that code um Is going to change fundamentally the way that Software is written and it's going to fundamentally change the way we interact with systems and computers Yeah, think about think about like a mobile robot um Think of a toy mobile robot and you say hey, I want to play a game of tag Well the mobile robots running this AI. It doesn't know how to play tag per say But it sure can write a behavior tree program that allows it to on the fly Figure out how to play tag Run that into its behavior model and I've got a robot playing tag with you know um like that's that's possible today Right and I guarantee people are working on that kind of stuff like on demand on the fly Reep self-reprogramming Where the dominant feature of the computer is that it can do that And that it can have a mobile robot respond to that right right if there's something you really really interesting things And you know obviously, you know, you know at fabtech we're going to see more AMRs than ever and And uh and actually you know it's already here where you've got systems where you know the robot places something Places the sheet on the AMR and the AMR Trails to the press break and the robot picks it up. It's already there The amount that that's set up and programming time is the issue But what you're saying and what what I hope will happen is that no they'll learn themselves And and and it's it's it's it's gonna be you know that's where the truly flexible automation Will will really change change things for the better Yeah, the most powerful most wealthy companies on the planet are all universally Working on that precise thing like they're very motivated To make it happen so I think it's gonna happen Yeah, and it's gonna happen fast And I just hope my hope though as an industry reporter is that they get input from the operators on the machines And they and they get input from the folks who know sheet metal and the manufacturing end because that that disconnect between software and What actually happens between the tool and the sheet metal is Is was profound years ago and it's closed tremendously over the years as you've talked about with the the the Taylor Job shop ERPs etc But but I think I think we're on the right track So well, we've man. It's almost we've we've talked about the gamut here So I think I think we'll close this up. Thanks so much for joining us again for this this episode of the next shamb metal fab podcast and In future episodes will be welcoming other fab shop leaders out there in the industry to join us a new dynamic uh discussions about What's ahead? How the industry is transitioning to uh to have to what you know cana benign you know we as we've been talking about a very different future So thanks so much for for joining us and we'll see you next time. See you later. Count week The next gen metal fab podcast is a production of fabricators and manufacturers association and part of the FMA podcast network The show is hosted by Tim Heston and Caleb Chamberlain The podcast is produced and edited by Garrett Sleger and Dana Wiker Additional production support by Dan Davis Andy Flando Mike Owens, Billy Kulpa, Elizabeth Gavin and me Sarah spring. Thank you for listening Bam done