Understanding the impact of tariffs on metal fabrication businesses

title: Understanding the impact of tariffs on metal fabrication businesses
author: Next-Gen Metal Fab
contenttype: podcast
publication: Next-Gen Metal Fab
published: 2025-03-28T06:00:00-04:00
sourceurl: https://dts.podtrac.com/redirect.mp3/podcasts.thefabricator.com/hWeCv1m2WzO8Po11ebWqAAGGep5ZVeQHxtfpZRSj.mp3

word_count: 8520

You know, everything was good until Trump tweeted about the tariffs. The volatility is not good for any manufacturer. I actually believe that it could be net positive for US manufacturing but not in four years. What I'm mostly worried about is getting Whipple ash from a bunch of changes and no time to actually build out a new way of doing business. At least what I like to believe is that the president and the administration, there's a broader strategy at play here. Obviously, he talks about using tariffs as a lever to get other things done. You know, whether that's effective or not, you can debate on it or we'll see it and hopefully it plays out to everybody's advantages. Welcome to the next Gen Metal Fab podcast. I'm your host Tim Heston. In each episode, I'll be joined by a rotation of co-hosts, Caleb Chamberlin from Ashcutt, Cody Lee from Everyday Technologies, and Lance Threekill from All Metal's Fabricating. Together we'll talk about what the future could look like for precision sheet metal and tube fabrication. Check your calendars. The 32nd annual Advanced Laser Applications Workshop will take place from June 17th to 19th at the suburban collection showcase in Novi, Michigan. This event connects manufacturers and suppliers in automotive, aerospace, agriculture and fabrication. Enjoy three days of presentations from leading experts, cutting edge demonstrations and fascinating open houses. Discover the latest advancements and applications they're shaping the future of the industry. Visit fmamfg.org to learn more. And now back to the episode. Just a quick heads up, this episode was recorded February 21st. News happens fast these days, so things might have changed by the time you hear this, but with that in mind, enjoy the latest from our next Gen Metal Fab panel. Hello, thanks so much for joining us for the next Gen Metal Fab podcast. Today I'm joined by my usual round table of associates here, Caleb Chamberlain from Ashcutt, Cody Lee from Everyday Technologies and Lance Thraykill at All Metals Down in Texas. We're talking the first quarter in February of 2025. A lot of things are changing, obviously. The news is evolving quickly, but just kind of want to get a sense of how things are on the ground. Lance, why don't you start? How's business? Business has been pretty good. It's slowed down a little bit. Our whip has gone down from where it was all last year, but it's starting to build back up. Everything was good until Trump tweeted about the tariffs. We left work on Friday with material pricing being stable and had been for a while. And we came in on Monday to almost 40% increases in aluminum and 60% plus increases in copper. That was the nightmare. And continues to be, fortunately, we've been able to negotiate lower than that. But the volatility is not good for any manufacturers. And fortunately, I don't think we have a lot enough voice at the table in Washington, which, I know you guys at the Fabricator are helping to try and be a voice for us and greatly pursue about that. Yeah, it's been an interesting time for readers. I've talked to a lot of them saying, all right, I'm just, this is like a chess game. And one guy told me about the diversification of our portfolio going, all right, this is my business. This is how diverse I'm going to be as far as customers as far as areas of business, as far as material purchasing strategies, as far as customers. And now what have you got? It's not an ideal situation, but reality is what reality is. So Cody, yeah, so how's been your first quarter? Kind of give us the update. For us, it's been really the obstacle we experienced at Q4 in really just the second half of last year. I don't know if it's just a function of our customers that we do business with relative to other people. Obviously, we do a lot with some pretty large OEMs. They were pretty impacted with at least what it seemed or the feedback we would get from some of our commodity managers and buyers was there. You know, the whole not sure what's going to go on with the election, autonomy, all that stuff. So they slowed down quite a bit, especially in Q4. Even one of our bigger accounts, we were like shipping nothing to them November and December, which it's usually a slower time of year, but to ship virtually nothing was a huge impact to our business. So that made us pretty nervous. And we had shipped it and tried to, you know, explore some other areas to offset some of that revenue loss. So coming into the new year, which is typically our normal busy time of year, kind of Q1, Q2, it seems to have picked up quite a bit, which is exciting if that's just, you know, just normal cyclical business with our customers or a function of higher demand for their end users. I don't know yet. Time will tell as that continues to go through the rest of the year. So we're definitely a lot busier today than we were, you know, two months ago, three months ago. So in a good spot relative to the material, you know, we got contracts with our, a lot of our larger material suppliers at least through March. So we haven't felt any impacts there yet, but we are talking to them and we do know that that's going to definitely increase to the extent or for how long we're not sure. We have material contracts with several of our larger customers. So essentially, we have a quarterly price adjustment with them where, you know, as material or the C or U index goes up, that gets passed along to them. So they kind of get the benefit on the way up where we get it on the way down. So from that standpoint, we're more or less protected. The other part of our business where we don't have those material contracts, we're just trying to stay proactive and making sure we're ahead of it. And I guess what that means for them is price increases coming up. And they're expecting it. It's all over the news. It's just a matter of, you know, is there a way to hedge at this point or I guess if you were going to hedge, you're going to hedge a lot of it, you were going to hedge last year. Right. Yeah. Exactly. I mean, obviously you could buy a lot of material and keep on stock, just kind of expecting the market to go up. We don't do a whole lot of that just because of some of the situations that we have with customers and our suppliers. Yeah. It's a strange dichotomy because we see, you know, various OEMs going, all right, how are we going to restructure our supply chain? It's not an immediate thing. We can't just unplug an entire supply chain and re-plug it in the United States. And so the shops, you know, shops on top of who two are on the front lines going, okay, how can we help you? And, you know, we're there wherever you need us during this rocky time. So, Caleb, yeah, kind of give me a sense of where you are at as far as business in the first quarter. The challenge is opportunities. We're about 20% of 20 to 30% by week ahead of where we're last year. If you just sum up the year, we're about 30% ahead. We've seen some reduce demand in some sectors, but we're so diversified across a lot of sectors that there are certain areas that are impacted positively, very positively by all the stuff that's going on. So that's net positive for us. We decided to increase the amount of material we stock. So we have automation that says, you know, order this much stuff and we just increased the amount that that tells us to order. So we brought in a bunch extra in anticipation of maybe difficulty fulfilling orders quickly and possibly increased prices. So we've tried to do that to manage the risk a little bit. It's kind of an interesting time. I was on a CREU call actually not too long ago when all this happened. There were over more than 1,000 people were on this call just to give you an idea. They had a great presentation where their economist gave two potentials down the road. This could be a transactional tariff situation where it's just a negotiating thing and it's a short term or it can be a restructuring, more long term, more painful in the short term and more unknown in the long term. I'll see where things head. One fab shop I know told me that this is our opportunity. It's like, all right, let's see where we can add value because the material negotiation part of it, if it's all material, then there's so much of it that's outside of our control. There's so much volatility. It's hard to plan long term for that. We can be big winners this year if we hedge correctly or do, you know, make a smart buy or make a smart spot buy. But if we're not adding value, then that's kind of just a short term gain. I mean, obviously, a presidential cycle as short as it is is really hard to make any dramatic sustained changes to how the US economy works. I grew up and went to college in this climate like most people did where everybody's really optimistic about globalization. I had one class in college where we talked about the class, well, we had a book called The World Is Flat. And the whole point was, hey, everything's different now and everybody's so economically tied together that it's going to be the end of wars. And man, I sure wish that's how everything worked out. I'm afraid that, like, I'm afraid that in order for globalization to work in the optimistic that way that was predicted is that everybody has to play nice and buy the same rules and I'm not sure that that happened, unfortunately. And now we're getting this pendulum swing in the opposite direction, what we're like, back to mercantilist policies. And I mean, who knows what the end state of all that is. I actually believe that it could be net positive for US manufacturing, but not in four years. So what I'm mostly worried about is that it's just getting whiplash from a bunch of changes and no time to actually build out a new way of doing business. Well, the biggest issue, I'm not the biggest one, there's so many issues wound up in this. You know, the whole premise behind putting tariffs on imported metals is so that the domestic mills can win. But the reality is the domestic mills just jack up their prices as soon as the tariffs go in place. And so, you know, it really doesn't make any sense. And then it all rolls downhill to us. And so, yeah, sure, we're able to re-quote everything. But that's a huge pain. Talk about reproduction facility. 90, 95% of what we do is repeat jobs. And we don't historically have to re-quote those ever. And so now we're re-quoting every job, you know. And so, yeah, sure, we can pass the cost on. But every time we do a quoting exercise, the customer's taking another look at it, you know. And so what happens is the mills say, okay, sure, we'll pay the tariff, but we're going to tack that on top of our price. And we're not going to adjust our margin down. And the distributors do the same thing. And so then it comes to us. And it's like, so now that 25% is now much more than that. Because their margins on top of it, you know, both the mills and the distributors. And then it comes down to us. And the customer's like, whoa, whoa, whoa, whoa, you know, like this is too much. Wait, I heard 25%. Why is it this, you know? And then they're getting granular on pricing because they know the material markets. For us, it's just the chaos and like the extra at work. It's not even like the, you know, we can pass a get a portion of the cost. But ultimately, like we end up eating some margin on a lot of it, you know, because they, when you have to re-quote, they're like pushing back on you on it. It's really the extra work and the uncertainty that's really just a huge pain. And I think what, you know, really, you know, puts the cherry on top for my frustration is, you know, the American mills aren't, aren't, we're not getting, sending them more business, they're just jacking their prices up to get along with it. So what's really the point, you know, and they're the ones, so I learned from actually, you guys, the fabricator, they're the ones advocating for these tariffs so that they can increase their prices, make more money. And so the manufacturers don't necessarily have a voice at the table. And I think that's a big part of the problem. It's an issue. There's a misunderstanding of supply chain in the broader public, I think, too, is they don't understand how value is added at each stage of the production. And the nature of certain business models where, you know, service centers live and die off of the price of metal, right? They thrive when the price of metal goes up. And so this is the opportunity. So all I do have, like, bringing it to the US, American mills could never keep up with even a fraction of the demand of US manufacturing. Like, we have to have imported materials, right? What does it take to build the new mill? Certainly not four years. Billions of dollars in a decade probably. And then meanwhile, where do the mills buy pig iron, you know, we truly want this whole like US vertically integrated, not dependent on other countries, which is all this business about the external revenue service. You know, I think in two decades maybe we could get it to work, but and it could potentially work. I mean, if we had more mineral exploitation in the US, and we had more mills in the US, and we had time to build that out, like the mill that does that gets better prices because they don't have to import and pay tariffs theoretically. All of the things being equal. But we're not going to get there in one presidential cycle. Well, here's a hot, I agree with everything you guys are saying 100%. We feel it in the same way and I know our customers do too. And for all the reasons that we're sitting here saying it makes zero sense for what that strategy is from it. Lance, I agree with you 100%. It's not saving anybody money by putting tariffs on imported steel, given we know what's going to happen with all the service centers and the mills and how that gets passed along. It's an exact replica of what happened in early 2021. So this isn't like a news story that's playing out. But what is interesting is that at least what I like to believe is that the president and the administration, there's a broader strategy at play here. Obviously he talks about using tariffs as a lever to get other things done. Whether that's effective or not, you can debate on or we'll see. But at the end of the day, Trump and the administration that he has tends to be pro economic growth and all the things that us as business owners, especially in manufacturing, want to see. So I hope that this is part of a broader strategy that maybe I just don't quite understand and that it's for the greater good in some respect. Obviously narrowed down what we look at it and what it does in the short term sucks. But I know times were better in the Trump economy and they weren't so much in a Biden economy. So my hope is that there's a bigger picture at play here and hopefully it plays out to everybody's advantages. The whole hype behind US manufacturing. Like that was, it was nothing about his policies in 2016 in terms of sure there's tax benefits and things like that. But it was more just the hype behind the US manufacturing, I believe, that really, the day you got elected, the faucet turned on. So I agree. The only thing I can think of in my weather concern is increasing inflation. My only thought is to your point, I'm a broader strategy. It must be that they're just hoping to raise wages for people too. I actually agree with you, Cody. I actually think that there is a possible in-state that's better. Increased spend is inflationary, taxes are inflationary. If there's tariffs that gets passed on to the consumer, that's inflationary. But imagine an end-state where actually there is no IRS, there's no income tax. And it's all tariff based. Well, what is the end-state of that if it were made permanent? And I think the outcome is, yeah, anything imported those tasks to get passed on to buyers, true, obviously. But if buyers are also not paying an income tax, that could actually work and be net equal, except that it forces the United States companies to do stuff domestically, which is exactly what everybody wants. There's all this talk about reindustrialization. So I actually think it could work. And I think, but I just don't know how long it's going to take to get there. And I'm not sure. I mean, you talk about stuff being better or worse under one president versus another. Policy set 10 years ago might have an impact to the air 20 years ago or five years ago. It's actually really hard to draw line for today's climate and this presidency, which is really ironic. And we're seeing talk about how bad things have gotten already for inflation and they're pointing at Trump for that, which is just bonkers because he's been less than a month. That's not how it works. I think economic pendulum swings take way longer than one presidential cycle. There's a metric that I like value-ad per payroll dollar. And there was also a structural fabricator who did something similar, were value-added per man-hour. Man-hour ton or something of that effect, where it was, all right, strip out inventory. How much money do you pay in payroll and how much value does that payroll provide? So every dollar you put in, how many dollars you get out. And we measured that in an FMA survey a couple of years ago and it's about two to five dollars, depending. It's a wide range because of different markets and where the margins are in certain markets. And also the different kind of technologies that you got out there. But I'm just kind of curious as far as how you guys are moving forward. All right, we've got these manufacturing technology. We've got strategies to move forward. How do we make sure that each employee is adding as much value as they can versus now? It's like, yeah, they want to increase manufacturing. But we can't have manufacturing of the past. You can't have that many people on the payroll. It has to be more automated. Otherwise, there's no scaling. Lance, you're probably about to speak to that. We were talking about that. That's who I'm talking about. Yeah, we're laughing because I messaged Cody about that in the past month. And so yeah, something where measure is dollars shipped per employee. And so that's kind of similar to what you're talking about. And I think we were at $254,000 per employee last year. I was telling Cody, I think this is a great metric. And ultimately, like, EBITDA per employee is what really matters. So like, you're going to take a deeper dive into that and haven't gotten to it yet. It doesn't matter whether or not you're not making money. But assuming you are making money, I think that's a great tool for us to, I was telling him. It's what I was, where I got this from or this idea from was from good to great. The flywheel concept and the hedgehog concept, rather, and having a financial metric and trying to hone in on our, what is our financial metric as our to complement our goal of being the best and most automated contract manufacturing in the world. And that's, you know, that's a text code. I'm like, I think this is it because really what that tells you is how much more you can get out per person in terms of dollars or profit more importantly. That tells you how much more efficient you're being. How much more value you're adding per employee. You know, that's something that works your act in. We've actually been tracking that for 20 or more years. And I'm looking back just in the past few years of like, in years that we were down, like, that was way down. You know, part of it is you got out the business, right? You got to be, you got to be cranking it with the pipeline full and keeping people, you know, busy because you'll take people to just take as long as much time as they're given to do a task in general. Like, we're all guilty of that. You know, that's similar to sales per employee. You know, we did a survey a couple years ago when, when the material prices went through the roof dramatically the last time this happened. And sales per employee went crazy because because because all, and they said, oh, no, that's all material. It's passively revenue. Yeah, I would have to, I can't remember to be 2021. I don't know that number off top of my head. I can look back at my sheet. But I think 2021, 254, I think was the best we'd had actually. But yeah, I mean, to your point, Tim, like, having a higher material costs will move the needle. But I don't know that it moves the needle that much because you look at your typical job. Like, material is going to be basically like a third of the cost of the part, you know, the third being like. So depending on the nature of work from the, you'd skip and shop, but general rule of thumb. So if like that third goes up, you know, whatever, 10, 20%, it's, you know, by the time the total dollars of the job, does it make a huge difference. And I just also wanted to throw this question out there where, you know, again, to a mulchress month, last month, how's your sales on marketing strategies, as far as all right, what markets are we in, what markets we want to be in, how do we diversify to make it through these next four years, depending on what happens. I don't know if this is coming out of the election and there's more optimism or it's just a coincidence or what, but there just seems to be a lot more opportunities that presented to us today. If I rewind four or five months ago, me personally, I was almost in panic mode because I had not seen it. I've been in the business for three years, right? It was the first like downturn I've seen since I've been here. When I first got here, it was early 21, everything was gangbusters, like you couldn't make enough parts, blah, blah, blah. And then there was a correction, but there was still relatively stable. And this was kind of my first experience and a pullback from our customers and where the common, common thread between all of them seem to be over just kind of waiting, seeing what's the, you know, what kind of what's going to happen with the election and all that stuff. And you're just like, come on, really is it really going to move the needle that much, but if that's your answer, that's your answer. So on the back side of that, we've gotten so many people that we've gotten so much stuff to quote among different industries. It's, it's really exciting. So for us, it's the pivot for us is just, we get to a little bit, be a little bit more picky, so to speak, versus, you know, hey, we got a pivot completely different because we got to fill up some of this revenue. We got people we got to keep employed, et cetera. Maybe different for other people, everybody's impacted by the economy, depending on the industry and the business that you're in, but that's the position we're in right now. So for us, it's really just identifying like what type of work fits as the best, what makes the most sense, you're not really kind of going out there and left field just to make sure you bring work in to Cody. That's very interesting because you mentioned, all right, you get to pick and choose. You kind of do you have an ideal customer profile? Yeah, someone who's got net 15 terms and wants to give us millions of dollars. But if I had to make exceptions, I get really excited when anybody has anything to do directly or indirectly with a data center industry. I know Lance has had a lot telecommunications and in ultimately data centers and stuff like that. And there's been a lot of growth from you got for you guys from that standpoint. I feel like a lot it's, it's the buzz word of today for sure. We're seeing a lot of opportunities and it's funny because, you know, you would expect to hear someone saying like, hey, we're building this specific thing for a data center. But what we found is that we've probably got four or five customers that when we started to engage with them, we either didn't really know what their in product was or what they were servicing. Or if we did, we got it wrong because they have some power distribution division within the organization that servicing data centers indirectly somehow or other be through generators or whatever it may be. I don't think that's going to be a, you know, demand that softens anytime soon. I'm sure it'll hit its peak and dive down eventually, but for right now we're kind of focused on trying to serve that market. Right, right, right. Lance, are you an oil and gas at all? No, sir, not very much, very, very, very little. And, and, and you've reduced your telecom exposure over the years, right? Yes, sir. Yeah, I think it was like our biggest customer was 15%. It's probably under 20. So what, you know, when you're a Caleb Sam, I mean, so they're up 20% since last year. I mean, diversification is the key. Now, that's where I would tell every shop and, you know, that's what, you know, I mean, Cody were talking about and they started getting into data centers and, you know, it's the more diversified you are, the better you're, you're protected and downturns because chances are, not every industry is going to be impacted negatively, all at once. And if so, it's, you're going to be hurting either way. Right. So Caleb's like the ultimate diversification model. We serve virtually every industry, you know, we're continuing to market to alternative energy and data centers is, is a two that were really going after. I feel like that's the most opportunity. Really struggling with deciding on CMMC and aerospace. So we do a, you know, a couple percent in aerospace. And I just see a massive opportunity looming there, but don't really have the buy in from my leadership team to, to go adjust our business model for something that we have 2% of our business for. Is that because of all like those certs and stuff that you know, they have to have along with that? Yeah, it just that the impact that the CMMC requirements have on your general business, which there's, I don't, we don't need to get too technical on it. But they, there's ways around that specifically by utilizing an enclave, which is, you can do a virtual one, which we just learned of and made it much more attractive or like having a locked room that, you know, only certain people have access to. But yeah, it just, just the impacts of your processes and training everybody. And then plus it's going to be, you know, 100 to 200,000 dollars to implement and then. You know, 25 to 30,000 dollars of audits every, I don't know if it's every year, every third year, they don't even, they don't even see the problem is they don't have enough, there's not enough IT companies to implement this. First off, all the manufacturers are dragging their feet on it because the, the requirements kept changing and changing and changing. So even shops that do almost all the work in aerospace have not even been implementing CMMC like they should have. And so you have government now saying you have to be CMMC, two point, our, you know, class two certified to do government work. Well, there's only, I forget all the numbers, but there's only a certain amount of IT companies that are certified to implement that for you and, and there's. Millions of manufacturers that are dependent on it and then they don't even have auditors to audit it, which is actually probably a good thing. But, but to actually, I think become fully certified, you can self certify which is sufficient right now, but to become fully self certified that you have to get audited by government auditor. And so I just foresee a huge gap in the, of manufacturers and defense companies between what they, defense companies need and the manufacturers being able to fulfill those needs because of how much everybody's drugged their feet on CMMC. And so we were compliant, which all you had to be compliant, we said that air quotes was because you had all you had to do is have a poem in place, which is a process for, for implementing the requirements and be moving the ball down the field. And so I think that's the way it feels somewhat, and showing that you've done something to move towards that for the last two years. So that's what we've done in our certification expires in May. So we were already kind of behind the eight ball because we just, I don't really struggle with decisions, but this is what I'm like really wrestle with. It's like man, this, and it's not about the hundred grand. It's, you know, like you put a hundred grand on black, but, but it's more of like the shift in the organization. And, and like the implications that it has on your staff. And then legally, so like then you as the owner, like if y'all are following in those processes, then like you can go to jail. You know what I mean? So there's a huge liability on the owner. Okay, we just hit pause on it and we're like, our, the place we came to was these, these customers are going to have to call it lucky Martin general dynamics. They're going to have to come to a place where they bring somebody alongside these manufacturers to help them. And, and then like even the small shops like get grants and all these things, but help them move, but the ball down the field. And, and we'll wait for that. It's kind of what we landed for now. But yeah, I mean, that's something we're looking at marketing to we've been marketing to that. And it's like, we haven't really got anything. That's the other thing to get one of these contracts. Like just getting onboarded with them is a six month to a year process. And then you got to, then you got to go win the business, you know, and you got to be in there. You're going to win it. So it's a huge long sale cycle. The sale cycle is the exact opposite of Auschka's cycle. Actually, we, we've never done any government contracting at all. And we get asked about, in fact, just this morning, we got asked about it by a customer. And they sent us this vendor onboarding package. It was literally 25 pages long. And had all these, you know, I mean, you guys have seen these probably, but requires all kinds of stuff. CMMC is one of them, but there's also FAR and D-Fars and EAR and EO and DCAA, you know, accounting compliance and all this stuff. And I can certain, I know what all this is. And we can tool up and get compliant. But like I really want to just be able to take an order online and turn it around in two days and for a really great price. I feel like like aerospace and government contracting is like inimical to that. I'm not sure you can do both. And that's where my leadership to line up. It's like we're a production facility blow and go. Like this is, like even is how you quote it, like we would need an estimator dedicated to that. Minister of Lighting here. Yeah, not to mention that every single one of those self certifications you make, I'm like, man, I'm not sure I can fill this document out and not accidentally violate one of these things. There's just too many things that I would need the inside counsel and I need to, like there's so much overhead to actually do that well and not accidentally end up in prison if somebody comes after you. Lancer Kale, do you either of you guys? Because I've not gone down the rabbit hole with any of that that far you guys certainly know more about it than I do but there is an interesting parallel between like one of the pain points I have right now where a lot of these customers that were getting opportunities with the sales cycle from the auction, you know, whether it's through an email, teams call whatever to getting that first rfq to potentially be in the running to win a bid package, whatever it is. And then you get hit with the, well, hey, before we move any further, we've got this self quality self assessment on it that we want you to fill out. And you know, it's a it's a spreadsheet document that's got nine tabs at the bottom that are really, really long. You've got to fill out all this stuff. You fill that out, send it to them, then they send a supplier quality engineer out or a team of people and do their own audit on that. And it's we've gone through that several times. Sometimes it takes six to eight months. Sometimes others are more lenient or don't have the quality resources to really, you know, dig in deep to your organization. But nonetheless, there's a lot of overhead so to speak where you've got to have people that understand it can talk to those folks and fill out those audits and do all those things. And what's interesting is on one hand, it's kind of a competitive advantage that you have a company that whenever an OEM says, hey, I need you to do this. This is not we're like, yeah, yeah, we do those all the time. We'll do it even over like shake their head like, here we go. But we can do it. And then on the other hand, it's like, man, I just want more customers where they send me a package of parts and if I'm competitive, they send me a purchase order. And that's the extent of it. You know, that that could happen at a week. I want more of that. They have their pros and cons, certainly on the OEM side, but Lance or kale about kale, be probably not so much given your business model. But Lance, do a lot of your customers, at least ones that you've better newer or whatever, do you see a lot of that or a trim that way? We've seen more of it. I would say the trend has been yes. We've seen more of that way. Look at it as the opportunity has to warrant the investment on the government side. Like when we were talking about general dynamics, they were like, you can you can bill for all of that, which was a news to me. And we do we do like, I always tell people like, hey, whatever quality requirements you want, we can offer there's a doubt. I said, we'll do whatever, but there's a cost associated with everything. I guess say that all the time. We'll do whatever you want, but there's a cost associated with everything. So we're happy for you to pay us to learn new things and get better, which has been part of it. If you say yes to everything, then they're going to run you over. Sure, we'll do whatever you want, but you're going to pay us for it. And that's where we draw the line. And the other thing I'd say is like, the longer the sales cycle, the landing it, typically the sticky or the customer. So like that, like a lot of people aren't going to want to go through that. Not all of us can have Caleb's amazing business model where like he's getting 100 to 200 new customers a month. You know, typically the ones that are like come in and send you an order in a week later and they could be gone quickly as well. So I think it goes back to like kind of what Tim was asking to like, who's your ideal customer and really defining that. And for us, you know, it's, I mean, ideally somebody that at least has a million dollars a year and she middle spend, you know, has brackets. We've got like a parts type of list that we refer to that we that is ideal for us. And really core values alignment. So. And that's the trickiest one, you know, because you can't really like. You can't really like really know their core values, but you can get some early indicators. But I think really now down your ideal customer and like making sure your core values align is is a critical aspect. We use net terms that they ask for as a leading indicator. And if I shouldn't say this, but we actually we have a credit application. We let them say what terms they want. And if they ask for net 90 and above, we just don't offer terms at all and we let them go somewhere else genius. Just like as a as a matter of policy. Do this genius. Well, it's funny on the on the net terms things. I mean, that's another thing that's that's another trend that I've seen with a lot of Williams. I mean, we had a we do business with a fairly large, well very large customer. Or OEM rather that we're. We do a little bit less than a million dollars with I think last year we did like $800,000 with them. But we've gotten turned on to other branches or other divisions within their organization that has opened up a whole lot of opportunity, which is exciting. But for years that we did business with them, we were I think net 30 maybe 45 with them. And then out of the blue they sent us a letter basically saying effective immediately we're going to net 120. And we were just like, what the hell? Like what do you do because they almost get you in a position or at least what it feels like. And I've got a quick follow up story after this. But well, at least what it feels like is it's like if you do push back on the say no, no, we're going to we're going to stay just we're at we're fine. Thanks. There's this risk of them saying well, hey, there's 10 other suppliers lined up at the door that will do for the same price except the other terms. When you kind of have this fear of like crap, I mean do I have to do I have to accept this or can I push back in lands? I mean, you're always saying don't let you know, don't let them call the shots. You know, don't be afraid to stay in your ground. And I I agree with that. It's it's scary to actually do it. But I did have a success story with it. A large OEM and they were 120 and they came in and we had a meeting and they said that out loud. So we don't go past 60. And they're like, well, you know, we can talk about 90 and I'm like, listen, I've had enough of this story. I can't take on another one. So it's either net 60 at the most or we probably start to stop and they're like, I will make it work. We'll make it work. Yeah, let's go. And after the meeting, I'm sitting around talking to our team. I'm like, as excited as I was about that on the other hand, I'm like, dude, like I got to get some balls. I got to talk to some other customers right now because apparently we hold more cards than we then we actually think. Which is probably true, but it's always scary because the risk is that do I want to give up this $2 million account because I want to push back on terms. I mean, where you draw the line. You know, it's that's the risk you're on for sure. But I just maybe we could get away with it more than we think. I actually offended by by people using manufacturers as banks. Like I don't do that to my suppliers. And I understand why they do it. You know why they do it. It's not personal. The buyer's not doing it because they have field personal obligation. There's some there's some top exec up there that's driven by his shareholders price or by the share price of their stock. And the cash flow they're able to generate. So why why wouldn't they make it 120? I'm not saying it's right, but I know why they do it. Yeah, I mean, I get it. Like if you can if you can lean on your supply chain and you just, you know, your your cash conversion cycle drops to a negative number. So now you have float that you can just I mean, that's that's compelling. And it looks really good on the balance sheet. But like it's it's terrible for you. I don't know. It's just like pure financialization. I don't ever want to leverage our scale to do bad things. And we could like I think we're in the top three of most of the the of the service centers in Utah. And we could certainly leverage that to give them unfavorable terms. But I mean, their margins are already so slim. I want a long term relationship with these guys. I'm not going to ask them for net 60 even. It actually offends me when customers ask for that. And that's actually why we have the policy. We're we're going to let them try. And if they try, we're going to say, well, we want to partner with our customers. Not get exploited by them. So thank you, but no thanks. Yeah. I agree with your staves on it for sure. I'm not going to argue with you. I mean, I get we're in very different business. So I'm not saying that's what you guys should do. It goes back to call value alignment. It really goes back to core value alignment. Like do you do are you partnership oriented? Are you profit oriented? You know, and like if they're purely driven by profits, then like long term, they're going to ultimately go somewhere else anyways. Like they're going to find like, and that's the reason why I went down the the CMMC rabbit hole was because I'm looking how can I make more mark like we're not going to be the cheapest shop. We don't want to be the cheapest shop. Like you want a cheap shop, go somewhere else. And so knowing that and I know your business, you know, Cody, like you're not trying to be the cheapest either. And so it's like, if that's their motivation, then let them go somewhere else and not as scary. But the reality is, like you said, you've got more leverage than you think. Because and if you don't, then like, you know, I'm not saying you, but just to everybody out there, like if you don't, then you're not adding enough value to your customer anyways. And well, when they just go somewhere, you know, when the dollars cheaper somewhere else, but it goes like the long view and business is to have partnerships that you can count on. Like that you don't want your customers having to go quote five other shops down your check your pricing, like you want people that can trust you. And so if people are not interested in that type of relationship, it's only going to save you pain in the long term, you know, and it's like, but they're level Caleb was saying, it's like, I've actually heard my dad say that, like we're not your freaking bank. So it's just like, man, if that's what you want, like what you're communicating to me is that you don't care about me and my business being successful. And if my business is not successful, then you're not going to have a vendor. It's interesting when I hear, you know, on the flip side of that, we're talking about the collections end of it. But on the flip side of that, you were talking about trying to ramp up with all these customers requiring acronyms for the, if anybody else doesn't know, CMMC cybersecurity, maturity, model certification with this. And so I'm talking with some actually sales and marketing folks who were, and also just top line revenue growth concepts that actually will be discussed. They were discussed at FabTech and they'll be there, they're discussed at the FMA annual meeting. But they, that they can accelerate that that cycle of, of initial contact to first order through AI, large language models, customizing these tools to do. To do the busy work and really a streamline aspects of quality control and inspection as long as you can track everything on the shop floor and say, all right, you've got everything here. That's just feed this in. And we've got these security models in place and these quality models in place will really be able to truncate that down and we can, we can really open up our sales funnel so that so that if something does happen on the back end and you're looking at customers that as one fabricator told me the customers to call so to speak, it's hard to do that, but you can really get killed if somebody doesn't, if you're collecting collections are difficult. So, so it was, it was an interesting conversation. We'll see where it has. It's another application of AI that we may see in the coming years, especially since we've got some open source models. People can download them and it's, it's a way that's not. I know, I know Caleb's been using an obviously for software development, he wrote a column, a great column about it. But that's another yet another application is to streamline the front end so that it doesn't take months to land an account so that so that you can grow your business exponentially. And you have less of a constraint on the front end to try to land these things so, but anyway, well guys, this has been a great conversation. And it's an honest conversation. But it's what's interesting is what one question before we go one question I did want to ask Caleb again because you have the unique business model here with tracking all the orders that long tail of orders that you get. Lower quantity high mix. What are are there any shifts and trends from last quarter that you're seeing or is it is it pretty much 20% up just going up and as far as the types of orders you're seeing the verticals that you're seeing I don't know if you break down the data. Yeah, actually anything defense related that we can do is definitely spiking like US defense related manufacturing. We're seeing an awful lot of that for the most part honestly like we've made some big changes to how our platform works and how much we charge for accelerated lead times there's a whole bunch of stuff that's that's kind of big picture like how do we say yes more how can we make US manufacturers competitive for like consumer like non defense manufacturing in the US because we're just flat out not like 5X the price. So what are the structural problems of that how can it be fixed and and I actually think it can be fixed and I think I want to fix it and I there's probably like a two hour conversation about I think what knobs we have to tweak here to make that kind of thing happen and it's actually pretty cool and exciting. So again thank you for joining us for next gen middle fab and we'll see you next time. The next gen middle 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 Slager and Dana Wiker additional production support by Dan Davis and he flando Mike Owens Billy Colpa Elizabeth Gavin and me Sarah spring thank you for listening see how things are doing.