Production Part 2

Cheap Money

…Continued

One destination on that road show of American industrial production was not a disappointment. It also wasn’t necessarily on the list of contacts that Mike Ripich brought to our little adventure. I first heard about Last Arrow Manufacturing when I was working on automation solutions for the fabrication of fermentation vessels via Mike’s white metal’s division. White metals, in case you don’t know, is a cool way of saying corrosion resistant metals. Zinc alloys that most people would colloquially refer to as “stainless steel”, but that also include other high-end metals like titanium, Inconel, and AL 6XN. I loved working with Mike and learning about the steel industry for the simple reason that it wasn’t supposed to exist anymore. When I was a kid, despite union steel workers sitting in front of Congress pleading for protections and government programs to save American steel, LTV Steel closed operations in Cleveland. I remember an emotional US Rep. Dennis Kucinich lamenting the death of the last great American steel town. “The Rust Belt” was the preferred name for the area of America where I grew up. Springsteen songs about industrial decay and the closure of the last union halls would testify in pop culture that America’s ability to produce steel, and eventually anything else, was declared dead. The meaning for a kid from the Rust Belt to travel the world and return to North East Ohio and work in steel fabrication in Post Covid America was not unlike that moment in Jurassic Park when you first see living dinosaurs in the wild.

Automation is a dirty word in labor circles. It’s assumed to be a jobs killer. A tool of capital to crush labor and lower costs. More realistically, automation, as a production asset, is intensely limited, uncreative and only really excels in defined spaces, or “closed cells”. “AI” will be the next thing that will scare the shit out of people that don’t understand the production of things, but for now that title is still held by the boogie man of automation. When you do due diligence on spending money on automation, the reality is that you can do a very limited set of simple things in repetition with closed cell automation, but the minute you need to make decisions on the fly, make adjustments due to inconsistent inputs or simply want to change something, automation is more a set of hand cuffs than popular opinion understands. If something changes, the entire system needs to be reprogrammed. A qualified software engineer, that bills by the hour, needs to gain remote access and rewrite your programs, or you need to hire a human being in house to do that. I was learning this in real time as Mike and I tackled the problem of trying to lower costs on American made brewery equipment while also improving the fabrication capabilities of some of his other divisions. Most of our dimensions were too big and the closed cells would need to be custom designed to the larger specifications, exponentially raising the cost and lowering the probability that it would ever really save you money.

I was becoming a little frustrated about the probability of finding a way to compete with subsidized Chinese competitors, especially when I didn’t have unlimited cheap labor to throw at the problem. Then someone recommended that I contact Lincoln Electric and talk to them about their co-robotics program. Co-robotics? Like Robocop? Hells yeah, Carl, just like Robocop. I was intrigued and scheduled a meeting with their head of sales in the Fanuc/Lincoln Electric robotics division. The salesman was a salesman, he said things that couldn’t possibly be true, but that sounded great. “We have clients that regularly beat Chinese job shops on parts that have 500+ unique weld seams.” When you “torch metal” or “lay a seam” it means you are using electricity and a welding wire to create a contact environment where melted media is laid down, or literally “drawn” into voids left into the metal, called bevels, to create areas where two edges can be “welded” together.

(Cartoons teach kids that welding is a flame and the assumption that the metal is being melted together somehow by a directed torch. Cartoons are often wrong. What you are actually doing in most welding environments is filling voids designed into the metal’s edges to create new mass via the melting of a wire media that is delivered at the point of contact. There are other kinds of welding that use fusion, but for the most part you are adding metal to create a bond. It is fascinating. I hope my son learns to weld. I also hope he gets a PhD and creates the art that is inside his heart. I never did any of those three, but there is a future in my mind where every American youth can learn all three without choosing a side.)

The biggest complaint that welding students have is the heat. The torch head produces an insane amount of energy in order to melt the wire and fuse it in the void and leave a weld seam behind. Co-robotics use interactive robotic arms, cameras and interactive operating systems to let a human operator weld more efficient seams, from farther away, in a faster period.

Salesmen being salesmen, they want you to buy something. They would convince you of that things ability to solve world hunger and create world peace if they knew their commission would clear before you realized you bought a bona fide piece of junk. If you need any convincing that sales is a dark art, watch anything on social media by “executive coaches” in the sales industry. You’ll want to take a shower with hydrogen peroxide after. I wasn’t in the metals industry for long at this point, but I was skeptical and demanded to talk to a reference. The salesman didn’t bat an eye and said, “you need to talk to Matt B. at Last Arrow Manufacturing.” Mike and I had been trying to solve this problem for the better part of a year at that point and so I jumped at the chance to meet anyone who was already using equipment in the fabrication space that made them competitive against Chinese peers. I got Matt B.’s contact information and texted him later that day. He was happy to have us come by. Like an idiot, I asked him where he was located. Matt B. responded, “across the street from your white metals division.” We had built two prototype tanks, traveled across the country meeting with component suppliers, ran model after model and the answer was about two football fields away.

When I first visited Last Arrow MFG I found Matt’s arrogance to be refreshing. Politics are what they are, but people who truly love America and want to see us regrow our ability to manufacture physical things, will always have my attention. Matt’s one of those people. The first time we had lunch I picked him up at his shop and we went into Wooster, OH. On the way back he asked me to swing by the gun shop to pick up a rifle that was being repaired. I laughed and said sure. When we walked in the first thing I saw was a rack of t-shirts sporting, “January 6^th was a riot!” and “Let’s Go Brandon” merch. The best way to understand the other side is to walk into a place that makes you uncomfortable and then try and understand its appeal.

“I regularly out bid Chinese jobs shops.” was not something I expected to hear after all the previous visits had depressed me so much. It was music to my ears. Matt told me a dozen times that, “…with one co-bot I can increase the efficiency of one man by about 350% with minimal investment in training.” His turnover reduced for new operators because the tech could stand up to ten feet away and be completely unaffected by the heat. He invested in two from day one because if he had capital sunk into two, he would be twice as likely to successfully deploy the equipment without just selling it, unused, to someone else a year later. Within six months he had six co-bots and as of this writing I assume he has at least fifty.

Co-robotics in welding is ONE example of next generation technology that is available for ONE industry that is wildly under-utilized across the American market. There are thousands of “like” examples in just about every manufacturing and production environment across America. Why? Because there is risk inherent in “change” and no one wants to overexpose themselves to risk when they are being told that America can’t win anyway. Industries buy production equipment (assets) generationally. If you have assets that haven’t depreciated fully yet than you are likely to just continue using the old equipment and making little to no adjustments in how you operate your business. This is how manufacturing dies.

A good example is the aluminum can production industry. Aluminum cans used for beverages are produced or “punched” by the millions and are preprinted (think a can of regular Coca Cola that is painted offset directly on the can vs. a can of hipster dufus craft beer that has a paper label on it) at a minimum order quantity (MOQ) of 200,000 cans per design. Why is the MOQ for preprinted cans so high? It’s because the printer is inline and was designed to print cans for Coke, Budweiser and Miller. Turning the printer on, counting to thirty, and turning it off can usually print about 5,000 cans. Most of America’s largest can producers are located within a stone’s throw from canning plants for one of those three brands. America’s production assets were designed and implemented when we were of the mindset that all we needed was one or two things for as cheap as possible. The problem is that the consumer economy changed at some point and Americans decided they preferred variety over low margin, high output mass market brands. Consumer change presents a challenge because those changes aren’t always predicted by the mass market brand owners or the owners of the means of production. Sometimes little, agile creative brands start a trend and force the mass output production assets to adapt and offer smaller MOQ’s and more flexibility for a lot of smaller customers, instead of just negotiating with a handful of mass producers. The result has been the investment in smaller MOQ digital can printers all over America that can take blank cans from the can producers and meet the needs of the newest generation of brands.

Now replace cans with cars, replace cars with TVs, replace TVs with tennis balls, your economy is hardwired to the amount of capital you have that is willing to finance the replacement of old equipment with newer, more efficient, production assetts. The market demand doesn’t always keep up with the means of production’s ability to adapt. Or the market is often choked by the rigidity of production. The result can be that foreign markets who haven’t had their first generation of production asset investment yet, can find a friend in their own government who is willing to finance that market’s ability to leap frog a slow, rigid, competitor like Europe or America. Competition is good, especially when money is cheap.

The Japanese handed Detroit their lunch because Detroit invested in means of production and management systems once and refused to adapt to compete with the next generation of car manufacturers.

Televisions used to be made in America until the technology started advancing too quickly and the industrial base needed to keep up with the advancements had already been offshored to China to produce computers and other consumer electronics. The equipment itself needed to build the new technology was easier to build in places like Japan, Korea, Taiwan and China. But China has run away with the television manufacturing sector because the National Development and Reform Committee will always issue cheap capital to upgrade production assets if it means high employment and a return on that capital in the form of tax revenue to meet the demands of a market that it assumes will never stop buying new TVs.

Tennis balls aren’t even made in China anymore. They have moved from America to China, China to Vietnam, and Vietnam to India. Most are hand made using equipment that keeps being sold from one old producer to the next new producer.

All four of these things can be made in America more efficiently and cheaper against international competition. The only thing missing is the desire to make it and a willingness to finance the next generation’s means of production. Places like Last Arrow have already proven the concept that with the right approach to production efficiencies, even an archaic business like metal fabrication can out pace China on price and quality. Sometimes all you need to do is cut copy paste a good idea and add in a little bit of cheap money to achieve the next American industrial revolution.

Now let’s step into the reality of 2025 America. Republicans, god help them, are doing their best to cosplay as the party of blue collar Americans. Most republicans could give a shit about the working class, if they did than the tariffs would’ve been prefaced with a six month “Build and Make America” period. BAMA would provide low to no interest loans to any production or manufacturing investment that wanted to reshore jobs lost to overseas competitors. After the commissioning of next generation assets used to produce for markets identified by the “Department of BAMA (or, for those wanting to get cute, D-OBAMA)” as crucial to national security and American manufacturing health, the company would hold the note on those assets for a seven-year period paying interest only on the assets for seven years, if it was an interest baring note. If a basket of expertise, credit rating and good business designations are met then the note could be determined to be interest free. If a tax revenue threshold of XX was met within the first two years and maintained through the seventh year than the government would forgive the principle at the beginning of year eight. If the tax revenue minimums were not met the principle would be repaid over ten years with a nominal interest rate that would be set at between one percent minimum, and a maximum limit equal to the money market interest rate. Next generation production assets also work around the age old “government overreach” complaints from conservatives when it comes to environmental regulations and pollution standards. A policy that would support the commissioning and installation of new production assets would also provide capital to upgrade inefficient and energy wasting assets.

This system would flourish with or without the existence of tariffs, but in combination with tariffs it would achieve a net positive for the American economy based on the implicit desire to build things in America again.