How one Austin machinist is pushing back on America’s job-shop habit, one project at a time

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America’s precision machinists are searching for balance. On one hand, the business of contract manufacturing has become a lowest-cost, shortest lead-time proposition (read how, in space procurement).

On the other hand, when provided room to operate, companies are leaning-in to engineering, to design-to-manufacture, to an operating ethos that values quality and acumen and technology and everything that goes into being globally competitive. All things that differentiate American suppliers.

Fortunately, more companies are getting a chance to manufacture a product and not just job-shop a part. Domestic production is in favor, and a new generation of manufacturers is busy reinventing US industry, in a flurry of eye-catching products.

Daniel Hester, founder and CEO of Austin-based American Precision Engineering (APE), leads one of those companies. Hester maneuvered APE into an opportunity to design-and-build the aptly named “Universal Lift System” for one of America’s top VTOL aircraft manufacturers — and the project provided his company an opportunity to do what it does best.

“It was a wheelhouse project for us,” Hester says. “There were a lot of engineering challenges — and we have a lot of experience with lifting attachments and developing lifting equipment and material handling. Engineering and designing a solution and then being able to build it for them is what we do best.

“But we’re also this scrappy and nimble company, and it enabled the customer to cut out the middleman and work directory with us — and that’s no small thing,” Hester says. “Our customer is building VTOL aircraft — they have significant design and manufacturing challenges in their products; they didn’t need an additional challenge to design a lift system and figure out how to build it as well. And that’s where our value came in.”

The lift system, which the Austin Regional Manufacturing Association (ARMA) recognized as the Coolest Product Made in Austin, plays a role both in aircraft assembly — like affixing wings — and with lifting key components like batteries into the fuselage.

“So, the premise with the universal lifting system,” Hester describes, “is a core platform that then has a modular set of tooling that can be used for a variety of manufacturing uses. It’s a mobile platform with a vertical actuator; it opens up a lot of uses, especially in aviation.”

 

 

APE’s prototype was a hit. The company is already working on building several production units.

But as great as the ULS turned out, the subtle way that Hester’s team turned a procurement request into a demonstration of capabilities is an equally compelling outcome. “In the end, it was solving a very complex geometry problem — how can we figure out how to get all this functionality into a very small space from what essentially began as a crayon drawing? To be trusted with that process means everything,” he says,

“Consider the alternative. What we often see is that a customer will design something, give it to us and basically say, ‘how much to make this?’ The cost is often astronomical — and we tell them why. They go back to the drawing board, and they bring something back again. But it’s the same price for a different reason,” he laughs.

“They quite often end up throwing that part ‘over the fence’ (to offshore providers) to shop on price, when the better approach would be to hire a design-to-manufacturer like us. We’re involved from the outset, but then share in the rewards of the value we’re created,” Hester explains. “And when I talk to companies that are like, ‘oh, we send this stuff overseas,’ I’m just like, ‘how do you sleep at night? You’re literally slitting your own throat.’”

This self-defeating behavior, where companies wish there were more capable domestic manufacturing options, only to perpetuate offshore supply chains, is maddening — but also a habit that’s hard to break.

“We have Protolabs and Xometry and Paperless Parts and other companies that are aggregating quotes from so-called ‘independent companies’”, Hester says, “but what it’s doing is putting this massive amount of market pressure on price and not so much on quality. If you’re making something in your garage, that’s great. But I don’t know if it’s good long-term for a business like ours.”

Moreover, “We need, as a country, to build companies and infrastructure to be able to manufacture high-end domestic products at a globally affordable price,” Hester adds.

I’ll finish the thought: an important step is to reimagine procurement, not just production, in a way that enhances rather than diminishes the attributes of America’s new generation of capable machinists. Quality not price, prowess not profits, where community matters.

Hester’s team at American Precision Engineering, and a hundred others like them, offer a path forward.

Bart Taylor is a Moss Adams BDE and founder and former publisher of CompanyWeek manufacturing media. Reach him at bart.taylor@mossadams.com.

Winners and losers from Oxford Economics’ report on manufacturing job growth across US metros

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US manufacturing ebbs and flows across multiple industries. For communities intent on matching economic assets with emerging opportunities, the future is bright.

Sometime in April, if it hasn’t happened already, US manufacturing employment will surge past 13 million total jobs for the first time since November 2008. Back then, manufacturing was in a free fall from its all-time high in May 1979, when the sector employed almost 20 million Americans — the most ever.

But US manufacturing’s modern iteration is different, its industries varied from 1979. 

Oxford Economics is helping us sort out manufacturing’s new personality with its recent analysis of manufacturing job growth across industries – in this case the five sectors (I’ll use ‘sector’ interchangeably with ‘industry’) leading manufacturing’s employment comeback.

The sectors are automotive, computer and electronics, food and beverage, aerospace, and pharmaceuticals. The cities benefitting most are:

  1. Dallas
  2. San Jose
  3. Phoenix
  4. San Francisco
  5. Chicago

Here’s the data, charted (click here for a bigger graph):

 

 

Aside from the obvious top five, here’s my take on winners and losers from the report:

Winners

America’s food and beverage ecosystem is a juggernaut. US F&B manufacturers added 400,000 jobs in the 2010’s and today, most every US metro is home to an innovative, increasingly automated F&B sector.

The community is an innovation machine. It’s also local, it’s well-funded, it’s authentic most of the time (Expo West was a greenwashing festival), it supports rural redevelopment and farmers — and it’s increasingly automated. It all adds up to growth.

Everyone hates on California. To listen to its critics, California’s business community, led by an exodus of manufacturers, is being hollowed out by EVs and bullet trains and taxes and DEI.

But if manufacturing is defined by its diversity, the cross-industry panoply developing here leaves it well positioned. From aerospace in Los Angeles, to “technofacturing” in the Bay Area, to a state-wide automotive supply chain second to none, if California can get out of its own way, manufacturing may bring the besieged state all the way back.

It will be fascinating to review this same chart in five years. What’s happening in south-central Texas may reshape US manufacturing for a generation.

Tesla’s enormous Austin factory is one giant magnet for new business – but just a few miles to the northwest, Samsung is anchoring a semiconductor ecosystem to rival any emerging industrial community in the US – including its TSCM/Intel counterpart rising in the Arizona desert.

Dallas is a city playing to its strengths. Diversity is a social and economic calling card here – and manufacturing is both a beneficiary and an engine of growth. Dallas doesn’t get the manufacturing headlines of its Texas neighbors, but numbers don’t lie in this case. As in #1.

Much like Texas cities, Phoenix is opportunistic, building a business-friendly reputation on available real estate, a population influx, and deliberate strategy to embrace manufacturing. It’s not so much that one attribute or another is a draw; it’s that combined, the sum of the parts happens to align with the needs of manufacturing companies in specific industries.

The key is being deliberate around packaging-up community assets to pursue new manufacturing opportunities in lieu of others.

Losers

On one hand, it’s hard to label an industrial epicenter like Chicago, as a loser relating in anything manufacturing-related – and it’s in the top five on this list.

But are its modern attributes lost in its size and reputation? A giant in agribusiness, chemical and pharmaceuticals, fabrication, and way more, it’s small business community of manufacturers, across multiple industries, is arguably the most compelling ecosystem in the US.

Chicago must aspire to be #1 on this list, the national leader in employment growth. Full stop.

Denver has no such aspiration, and it shows. Its food and beverage sector including a capable and diverse co-manufacturing ecosystem is a national draw for CPG companies, money, and talent (see above), but community leaders here are enamored with the tech industry.

That’s not a bad thing. The plan to chase tech will pay off. Meanwhile, as Denver leans in to a lifestyle-and-high-tech-or-bust approach, Huntsville, AL, its Space Command rival, leans into creating aerospace manufacturing jobs, and today Denver lags behind its more ambitious, smaller counterpart.  It says a lot about Denver’s priorities.

Even if Seattle’s diminished aerospace sector can be chalked up to the struggles of its embattled icon (more on that next time), it’s still disappointing that the town’s fabled innovation ethos isn’t translating to more robust growth, to a maker-community jobs engine. Yes, much is percolating in food and beverage as locavore trends are as pronounced here as elsewhere. But this compelling city, as with others here in the L column, will hopefully show better in the next five years than they do now.

Manufacturing beckons. Who’s in?

Bart Taylor is a BDE at Moss Adams and founder and former publisher of CompanyWeek media. Reach him at bart.taylor@mossadams.com.

Space holds promise for small manufacturers, but modeling success is proving as challenging as the missions

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Here’s how Primes and the companies that fly can make life easier for suppliers

If “Prime” contractors like SpaceX and Lockheed Martin, along with companies like lunar explorer Ultimate Machines, are the public face of America’s new space economy, contract manufacturers and other suppliers to the industry are the glue. Their parts comprise the systems that fly. Without them, without an industrial base of suppliers, there is no burgeoning space industry.

But in key areas — like national defense — it’s an industrial base already in crisis. The National Defense Logistics Agency (NDIA) estimates that the defense industrial base has declined by over 40 percent in the last decade — over 17,000 small businesses in the past five years alone.

There’s no mystery as to why. Government contracting — Department of Defense contracting — is notoriously hard. Fewer entrepreneurs are launching manufacturing companies. And for a new generation of business leaders passionate about manufacturing, other opportunities beckon.

Including space.

But the “space base” is already showing signs of strain. Turns out that space procurement is its own animal. Volumes are lower than traditional aerospace contracts — orders are smaller. Money is also tighter — there’s more upstart commercial work. Turnaround times are truncated. Uncertainty is the rule.

Even its most successful operators are wary. Hernan Ricaurte, principle of Ricaurte Precision Inc. (RPI) and a growing supplier to the space industry, told me, “Working with space companies requires us to be agile given the NPI (new product introduction) to production requirements and tight schedules. It’s an industry,” Ricaurte says, “that’s not for the faint of heart.”

Justin Quinn’s Focused on Machining was an early entry, perched within Colorado’s space-friendly Front Range. “I mean, for a shop like ours, capacity is always the issue.

But it’s not with this type of business. It’s not long-term capacity. In fact, they don’t want to know what you’re doing two months from now. They want to know what you’re doing in the next two weeks,” he laughs. “Parts manufacturing isn’t a two-week proposition. So, that’s where we see the hang up now,” Quinn adds, ” there’s just not a lot of time to react.”

 

 

Quinn’s persevering, as is Mike Sneddon, CEO of SG Aerospace and also a space-industry supplier with clear-eyed views of the ecosystem. I asked Sneddon how he’d launch a contract space manufacturer today. “The only thing you would do is consider it a secondary business or a subsidiary of a current company,” he says. “There’s just no way that you could sustain these [company] conditions in any type of a business model, at least in a business that lasts.”

Sneddon speaks from an enviable position. SG Aerospace was invited to be a supplier to Artemis — NASA’s ambitious program to land the first woman and first person of color on the Moon, explore the lunar surface, and lay the groundwork for sending astronauts to Mars. SG has unique talents. “We do a lot of titanium and stainless — hard metals,” Sneddon says, “that kind of gets us in the door.”

Space is a means to an end for Sneddon, where it’s less than 5 percent of his current business. “Space is by far the hardest. We were trying to use space as a stepping stone into different opportunities, to be able to say ‘Hey, we’ve tackled space, and we’re good at it.'” His Artemis work should validate his approach.

All of this to say that the space industry would do well to avoid the pitfalls that plague procurement in defense-related aerospace and aviation, to attract, not repel, the quality suppliers it needs. Both Quinn and Sneddon have suggestions.

“I think SpaceX has kind of hurt the industry a little bit, as they have this ‘I need everything tomorrow’ kind of mentality,” Quinn says. “It’s becoming the kind of industry that if you say, ‘I can’t get to that right now,’ they won’t hesitate to go down the road and find someone that can. I’m not sure that’s in the industry’s best interest.”

Sneddon sees it similarly. “We understand the need to do good, solid work, and demonstrate we’re passionate about the industry,” he says. “But once you’re in, and you’ve proved yourself, the primes need to [provide some certainty], to establish a time frame and say, ‘OK, give us everything you have for two years, and we’ll set aside work to keep you guys busy and successful.

“It’s already happening with some government contracting, where specific contracts set aside work to keep suppliers engaged and motivated — but still required to meet their commitments,” Sneddon adds. “It’s not a freebie. Just make sure you support suppliers while we make space work for us. Or else many will go under.”

Space missions are hard enough. But in the industry’s rush to be first, highest, and farthest, once again, the uber-important industrial base is now vulnerable. Those that fly, and grab the headlines, would do well to ensure the “space base” prospers.

Bart Taylor is a BDE with Moss Adams and founder and former publisher of CompanyWeek manufacturing media. Reach him at bart.taylor@mossadams.com. 

What in the World Is Going On at VF Corporation?

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Two plus two equals three at Denver’s influential apparel House of Brands

A year ago, I forecast tough sledding for VF Corporation, Denver’s multi-billion-dollar apparel and outdoor industry amalgam. The headwinds buffeting most consumer-brand importers were transparent enough then and remain so today; among them are supply-chain disruptions that have turned inventory management into a guessing game.

But the earnings wreckage at VF Corp reported last week by the Denver Business Journal – a “$42.4 million loss in its fiscal third quarter on sales revenue that dropped 16% year over year to $2.96 billion,” ending in December last year and including the crucial holiday shopping period – has shaken the company and compelled CEO Bracken Darrell to, well, spread the blame. The most recent casualty was the messenger: Bracken showed the door to longtime CFO Matt Puckett after a broad purge that also included “a new top human resources executive… a new lead for the company’s commercial efforts, a new head of design…a new Timberland brand president,” and others in support of “new leadership” at other VF brands.

What’s unclear is whether any of the other reported personnel moves or other cash-saving tactics, like divesting in corporate jets and real estate, will improve the outlook for VF’s corporate collective. Not that its portfolio is lacking: Vans, Dickies, North Face, Timberland, and others, are singular, compelling brands that have manifested the emotional connection with customers that brand-builders pine for. Darrell acknowledged as much in admitting that Vans, down 28% year over year after a pre-pandemic boom, had been left to trade on past success. “We actually took our eye off the core youth audience that built our brand,” he said.

Darrell’s mea culpa may not be enough. Reuters reports this week that “a member of the founding family behind VF Corp is backing activist investor Engaged Capital’s push for board seats and faster change at the struggling owner of the North Face, Vans and Timberland brands.” VF’s share price soared. Darrell’s stock will hopefully follow.

Success will likely take more than cutting people and properties – the standard “turnaround” playbook. For one, forecasting a consumer business today is really hard; uncertainty is the operating norm. Steven Sashen, co-founder and CEO of Denver-based XERO Shoes, told me in a phone interview, “I don’t think anyone knows what the hell is going on. And if your entire story is based on growth, it’s a fool’s game – especially in the footwear industry, where there’s so many things that impact business that have nothing to do with you.”

Sashen cites footwear phenom Hoka as an example. “Hoka became really, really popular in the last few years, not because it became the running shoe everybody wants to wear or to run in, but because a whole other universe of (lifestyle) buyers suddenly embraced it.”

Reason number two: the more that brands (and holding companies) focus on financial decisions, on EBITDA growth, the farther away they travel from what Sashen calls “brand DNA.”

“When VF Corp made the move to Denver, there were a number of those brands that didn’t want to move, believing that it would be a challenge just to manage the human factor and other brand-related factors,” Sashen says. “Take Altra, a brand I’m most familiar with. They’ve dramatically changed the DNA of that product.”

“Unfortunately,” Sashen continues, “companies see what’s happened through network effects, things that happen almost accidently, and their response becomes fundamentally based on financial goals that may be antithetical to what is beneficial for the brand, let alone a ‘house of brands.’”

Bracken Darrell’s roundabout acknowledgment of an existential threat to Vans – a consummate brand – may signal that not everything at VF Corp starts with share price. A founder rejoining the board might also have a positive effect on the company’s relationship with customers. Founders are invariably tuned in to things that define what a brand or business stands for. It seems that parts of Darrell’s business have lost that connection.

Darrell would also do well to revisit the company’s brand promises. “LIFESTYLES. NOT LABELS,” VF’s website proclaims. “Our iconic brands are more than just labels. Each one is uniquely authentic and has earned its place in the lives of millions by consistently exceeding their expectations with amazing products that enable them to live sustainable and active lifestyles.”

Every aspect of the respective Jansport, Smartwool, Dickies, and Timberland businesses were at one time interrelated with the others. Design, manufacturing, packaging, selling, and distribution all happened with a purpose and trajectory that led somewhere. Today, the ethos, the vibe, the adventure embodied in the products, seem lost in offshore manufacturing, in container ships, in the ever-more-slim margins that importers like VF Corp manage. Rumors of a new 60% inbound tariff don’t help.

My take on this? Keep your promises. Lean into your brands, to what makes them uniquely authentic. Customers will respond. And for a house of brands like VF Corporation, two plus two can again equal five.

Bart Taylor is a BDE at Moss Adams, and founder and former publisher of CompanyWeek manufacturing Media. Reach him at bart.taylor@mossadams.com. 

XERO Shoes is finding success with an ever-expanding, direct-to-consumer line of “minimalist” footwear. Visit them at www.xeroshoes.com.

Co-manufacturers are a catalyst in Colorado’s high-flying food industry. But here’s why brands are struggling to find right-sized manufacturing

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Takeaways from the first Colorado Food & Beverage Co-Manufacturing Summit

Aerospace gets the headlines, but more Coloradoans work at food companies than in any other manufacturing industry in the state – over 26,000 employees and another 10,000 or so in beverage businesses. As long ago as 2013, growth in this powerhouse sector convinced me that America’s newfound love affair with locally made products would extend to other industries.

Manufacturing innovation in the form of industry-savvy co-packers was a catalyst then and remains so today. Co-packers manufacture for multiple brands, providing hard-to-develop production expertise — and scale — as they also free up customer leadership to focus on products, on sales and marketing – on business.

But as capable as the co-manufacturing (the new term for co-packing) ecosystem has become, it’s also become difficult for smaller, entrepreneurial companies to find right-sized solutions. In some ways, industry success has begotten a less accommodating co-manufacturing ecosystem.

It’s nothing the industry can’t solve, and to that end, I recently worked with Naturally Boulder to host the first Colorado Food & Beverage Co-Manufacturing Summit. Here are some of the takeaways from the panel discussion with co-manufacturers and food brands – for nearly 200 attendees:

By way of challenges in the food industry, there are plenty. It’s been a perfect storm of post-pandemic uncertainty, inflation-induced interest rates hikes, and a fast-changing wholesale and distribution landscape.

As a result, capital is much harder to come by. More brands are competing for limited space on grocery store shelves and freezers. And as panelist Lee Gray, a food-industry attorney, pointed out, consumer class-action lawsuits are more prevalent than ever: there’s no shortage of aggrieved consumers (and lawyers) suing for alleged false or misleading labels.

Macro-industry challenges have been amplified by operational headwinds. Though Colorado’s sector is 27th nationally in total food-related jobs, average wages in Colorado’s sector rank 12th nationally. And food inspectors, from the FDA for example, have shaken off the COVID malaise and are active once again.

This means the industry is more risk-averse today than in previous years. Co-manufacturers are more selective in the brands they choose to work with.

That said, brands can trust that familiar attributes will always open doors. An “ideal client” as described by the co-man panelists would be one with an experienced management team, transparency, a willingness to collaborate, mutual respect — and of course, resources and capital.

Panelists also encouraged brands to develop a direct-to-consumer channel, focus on products that are more shelf stable, stay flexible (be ready to pivot), reinvent yourself when necessary, and let go of old business practices that no longer serve you.

Product trends shape any conversation between a brand and co-manufacturer, and panelists agreed on several: Gluten-free and clean ingredients here to stay – in fact, engineered meat products are challenged today because of their complex makeup. Better-for-you low-sugar products will continue to grow in popularity. Keto is a sustaining trend (for now, with some reservations), as are simple and short ingredient lists, including ingredients for gut-and-brain health.

Other takeaways from the Summit will inform go-forward efforts to develop a transparent and accessible regional co-manufacturing ecosystem. Beverage co-manufacturing is on the rise – in fact, we’ll convene a bev-specific summit this spring. Colorado Proud – the popular marketing program from the CO Department of Agriculture – is developing a new digital co-manufacturing directory. (Brands and co-mans: I’ll connect you with Colorado Proud to ensure you’re listed).

More next time.

Bart Taylor is a Moss Adams BDE and founder and former publisher of CompanyWeek manufacturing media. Reach him at bart.taylor@mossadams.com. 

 

Panelists at the first Colorado Food & Beverage Co-Manufacturing Summit:

Bart Taylor, Moss Adams

Lee Gray, Gray Bugos & Schroeder, LLC

Alex Cioth, Founder & CEO, Claremont Foods

Zora Tabin, Chairwoman, Wild Zora Foods

Chris Lehn, Founder & Owner, Made4U Foods

Benjamin Frohlishstein, Co-founder, Cappello’s

2024 Manufacturing Forecast: 5 Sure Bets

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U.S. manufacturing is on a winning streak, even as its success is challenging economic convention. How the newly energized sector co-exists with America’s powerful “import economy” is a topic of interest and intrigue in 2024.

  1. Tariffs are sustained. Other pro-manufacturing measures are stymied in ‘24

As fashionable as it’s become to be pro-manufacturing, America still has a love/hate relationship with its industrial base. 

Tariffs exemplify our split-personality. The Wall St. Journal op-ed page speaks for powerful economic interests in opposing the Trump/Biden tariff regime, even as squaring this position with a pro-U.S. manufacturing platform is really hard. 

Unless, voices like Harry Moser of the Reshoring Initiative argue, the cost of manufacturing in the U.S. can be lowered by 20-30%. But the means to get there — action to devalue the dollar, graduate more manufacturing employees, uptool thousands of SMBs, and reformulate trade policy to protect domestic industry – seem today, impossibly elusive. 

In an election year lip-service will be paid to U.S. manufacturers and employees, but America’s “import economy” is still king. How manufacturing fares in advancing its fortunes, is the story of the year.

(More with Harry Moser next time.)

2. Brand power: Local manufacturers elevate their brands to win

Wagner Skis in Telluride, Colorado, has no business being successful. They compete with high-volume, low-margin producers that win on price, “buy” editorial coverage and big-name influencers utilizing fat marketing budgets, and generally operate from a different playbook than smaller, U.S.-manufactured producers. 

Wagner Skis’ founder Pete Wagner isn’t fazed. “It’s not that we’re ‘Made in the U.S.,” Wagner says, “it’s that we’re an agile company – and we’re a real brand.” The take-away? “Business is really good.”

Brand-builders focus on the customer experience – the visceral, emotional connection that sustains through price wars, supply-chain woes, or unforeseen pandemics. To interact with the Wagner team will change your outlook on the sport and brands you patronize, generally.

“Real” brands will thrive in 2024. Including comeback brands like the Isuzu Trooper, bought and reimagined in ‘24 by a savvy OEM. 

3. Space Command re-re-locates as workforce investments payoff

Space Command should never have been moved from Colorado to Alabama in the first place. That its final location is still in play is ridiculous. 

That said, two developments will shape the final, final, final decision: neither Biden nor Trump will win the general election in 2024, and Alabama officials will pivot to find their way before Colorado’s do by linking manufacturing-related employment to the success of the overall space industry. 

Alabama’s investment in its aerospace manufacturing workforce will be rewarded.

4. Five CHIPs Act-inspired Regional Innovation Hub winners are…

According to China’s president Xi Jinping, Taiwan’s reunification with mainland China is “inevitable.” 

Trusting that smarter people than me are assessing the heightened risk of China controlling America’s top supplier of advanced semiconductors, I’ll guess that CHIPs-inspired programs like the Regional Innovation Hubs competition will prioritize U.S. semiconductor manufacturing – the OG CHIPs goal – including a new advanced manufacturing workforce and U.S. leadership in a new global energy paradigm. 

We reported on the 31 finalists last year. My forecast of the five winners:

  1. Texoma Semiconductor Tech Hub
  2. Nevada Lithium Batteries and Other EV Material Loop
  3. American Aerospace Materials Manufacturing Tech Hub
  4. New Energy New York (NENY) Battery Tech Hub
  5. Corvallis Microfluidics Tech Hub

America’s national security is at risk. EDA: get it right. 

  1. Twitter/X: the new voice of Musk’s Industrial Complex

Can Elon Musk be Henry Ford and William Randolph Hearst at the same time? 

He should try. Elon Musk is the world’s most consequential industrialist – with a media bullhorn. In the 20th century, Hearst newspapers were a voice for The Chief’s personal and political agenda. If only he’d owned a U.S. satellite monopoly. 

Speculate about its future, but know that in 2024, Twitter/X’s AI-fueled algorithm will promulgate Musk’s social and commercial narrative. 

Twitter/X’s corporate evolution gains steam in ‘24. 

Bart Taylor is a Manufacturing & Consumer Products BDE at Moss Adams and founder and former publisher of CompanyWeek manufacturing media. Reach him at bart.taylor@mossadams.com.

The Year in Manufacturing: Hits and Misses from 2023’s Five Sure Bets

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It’s time to revisit my annual forecast from a year ago – including an Elon Musk guess – to own-up to the misses and revel in my prescience. I’ll forecast the year ahead for manufacturing next time.

My fab five from last year:

  1. 2023 is the year of the semiconductor supply chain – who builds a roadmap that wins?

First, this was a terrible “forecast”. I’ll pass on open-ended questions in ‘24, even if the answer in ‘23 was straightforward: no state has built a semiconductor roadmap, yet, to be copied or that ensures success. I’ll tease my ‘24 forecast with this observation: whoever develops an advanced manufacturing workforce will win. There’s still confusion about how to do this – but states like Maryland and cities like St. Louis are cracking the code by making direct investments in equipment to uptool manufacturers, and training a new generation of employees in new advanced manufacturing centers of excellence.

Score: Miss

  1. More engineers will be hired in manufacturing than ever before (who’s counting?)

Again, tough to score. The simple answer is probably yes: manufacturing companies interest engineers and STEM grads more than at any time this century. 

But touring one of Colorado’s new and highly automated food factories, as I did earlier this month, tells me that as many current employees will likely be promoted to man the modern, gamified equipment that will festoon tomorrow’s factories, as degreed engineers. Which in my book is a win: let’s upskill current employees to meet the demand for qualified workers, first.

I’ll borrow the halo – and take the Dub.

Score: Hit

  1. 2023 will be a rough year for outdoor industry superpowers.

From a numbers standpoint, the stock market surge late in the year saved many blue-chip apparel and outdoor gear companies from a disastrous financial outcome in 2023. 

That said, as creative and innovative many OI brands are, the industry continues its race to the bottom – an embrace of high-volume, low-cost models – that floods the market with cheap products manufactured offshore, many destined for the landfill. How many “sale” racks of cheap outerwear can a person sort through?

I’ll celebrate many a domestic brand that pushes back on this model, lament the state of much of the industry along with Patagonia founder Yvon Chouinard, and hope we rally around leaders that find a way to travel the last mile to manufacture in the U.S. – the sure way to upend the status quo. 

Score: Hit 

  1. EV infrastructure and the Great Leap forward.

Ugh. Some progress was made in improving EV infrastructure: Ford embraced Tesla’s charging standard, which eased the pain of Ford CEO Jim Farly’s misadventure driving his Lightning F150 across California.  

But generally, outcomes don’t match stated intentions and future plans. I’m not suggesting I have the answer – I’m not an EV driver. Nor do I buy into political moves to undermine efforts to usher in an EV revolution. EV efforts have revolutionized automotive manufacturing and forced other industries to reconsider just how much of any product can be manufactured in the U.S. (Thank you Elon Musk.) But still.

Score: Miss

  1. Musk’s distractions will diminish his manufacturing influence. Sadly.

Speaking of the enigmatic Musk, I forecast a year ago that Twitter was a “distraction (that) will limit Elon Musk’s ability to lead the manufacturing revolution.”

This may yet be the case. Musk is in over his head when lecturing on free speech and advertising “boycotts” – silly, self-serving tangents that also diminish the credibility of fans who parrot his pronouncements.

But no need to defend the indefensible. SpaceX is the most compelling manufacturer in the world – having in 2023 established itself as an American monopoly in launch and lift capabilities at a time when the U.S. desperately needed it.  Musk, SpaceX, Tesla: more influential in manufacturing than ever.

Score: Miss

Scorecard: 2-3. I hope to do better next year.

Bart Taylor is a Moss Adams BDE and founder and former publisher of CompanyWeek manufacturing media. Reach him at bart.taylor@mossadams.com.

 

How CEO Lindsay Pack is leading Colorado Springs-based InnovaFlex Foundry, formerly dpiX, into America’s semiconductor future

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Colorado’s advanced manufacturing ecosystem is deep in aerospace acumen; established if underpublicized in bioscience and food and beverage; up and coming in battery and EV-related applications; and awakening as a semiconductor node, where America’s newfound interest in a national chip industry has raised the stakes for companies and communities.

It would be back to the future for Colorado Springs. As the Colorado Springs Gazette has noted,

“The semiconductor industry has a long history in Colorado Springs, starting when NCR opened the first local chip plant off Fillmore Street with 12 employees in 1975.

The plant Microchip operates was started by Honeywell in 1977, acquired by Atmel in 2009 and Microchip in 2016. At the industry’s peak, nine companies operated semiconductor manufacturing plants in Colorado Springs employing thousands of people and local boosters promoted the city as ‘Silicon Mountain.’”

Lindsay Pack and the team at Colorado Springs standout dpiX – now InnovaFlex Foundry – are intent on reimagining a new semiconductor ecosystem throughout the state. I interviewed Pack before last month’s CHIPS Act-related developments were announced. We’ll connect the dots from that news in a follow up column.

First, my chat with Pack:

Bart Taylor: I like the name, the reference to “foundry.” It’s now a modern, relevant term that connotes your ambition to expand your horizons in the semiconductor industry.

Lindsay Pack: Yeah, we were hoping that it would help make us a little bit more understood!

BT: So, speak to the new vision, reflected in your rebranding, and the future of the company if you would?

LP:  When I joined, the focus really was on X-ray manufacturers. And understandably so: that’s our history. And I don’t want to stop supporting that industry. It’s such an important space. I mean, pretty much everyone has come in contact with one of our semiconductors via X-rays, right, at some point in their life. It’s clearly important. It is a very steady business – if not a lot of growth.

It’s also very price competitive. Clearly, fabs in China can produce things much more inexpensively than we can. Recognizing that we’re in a steady-state business with very low margins, I don’t want to abandon that space, but I need to diversify.

And when I think about who we are, I get excited about the future. We’re the only company in the United States that makes the type of semiconductors we do, we do it at scale, and we’re not a big-box firm. It’s not just, “Well, this is the semiconductor I make, take it or leave it.” We can actually work through innovation, we can partner in an IP-protected, secure environment to help develop very custom real solutions for unique problems, things that never were possible before.

The question I’ve asked is, “Why are we not more focused on U.S.-based products?” when there’s such high demand now in space, defense, and other markets. Let’s get focused on that. Let’s continue being great at X-ray detectors. But we’re going to use that foundation now to be great at other things as well, focused on things that really should be here in the United States.

BT: There’s opportunity for sure – though different, perhaps, from “conventional wisdom.” I just read Chip War (by Chris Miller), and he certainly puts your vision in context. One of the misconceptions about the U.S. semiconductor industry is that we don’t make a lot of chips here or support a thriving semiconductor industry. In some ways, that couldn’t be further from the truth.

As Miller points out, the U.S. is still a global leader in chip design and production. In fact, we make much of the equipment used offshore to manufacture the advanced semiconductors that represent the future, and we also design them here. Intel is manufacturing semiconductors in the U.S. that power a generation of servers and PCs. Apple buys radio-frequency chips for their iPhones (and other semiconductors) from U.S. suppliers in California and Texas, for example – and designs the chips that power the iOS operating system.

But they can’t manufacture those chips here: they’re manufactured by TSMC in Taiwan. As you’ve pointed out, upwards of 80 percent of those chips are manufactured outside of the U.S.

How do we square-the-circle? In addition to sharing the cost for TSMC to build new factories in Arizona and elsewhere, to build a new advanced manufacturing capability, are we in a position to also build out the current U.S. semiconductor ecosystem and get back in the game that we’ve allowed to move offshore to Taiwan in particular?

LP: I think largely, yes, and you’re right, a lot of design has been able to stay here in the United States.

But we have been losing those capabilities over time. I’ll tell you that for us, no one in the United States had the knowledge or expertise whatsoever for me to work on the new technologies that I need to work on. I have to recruit internationally to be able to bring in that expertise. Because the U.S. did shift a lot of that manufacturing offshore with the intent of maintaining the design and engineering expertise here.

But it’s so hard to separate manufacturing from design, especially when these processes are the design. And I don’t want us to be under the impression that we can keep design here in the United States and just simply have manufacturing somewhere.

We used to be able to get our equipment, components, all those things here in the United States. But as all of that production started shifting overseas, guess what, the suppliers did, too. So we do have to rely on many Asian suppliers to support the equipment that we have in the fab because there just isn’t anyone here in the United States that can provide those services.

What I think is so important with chips is that it’s not just us expanding, or our neighbors down the street that are producing some other sort of chip. It’s that when we invest in this, we need a center of mass to be here once again – where it makes sense for all of those suppliers to be located here to actually service companies here. I understand why for them, it wasn’t practical any longer to maintain business here. It was the unintended consequences of thinking, “Oh, well, we’re just moving manufacturing.” Over the years, it really eroded much more of the semiconductor ecosystem. As you point out, we have semiconductor expertise and we have semiconductor manufacturing. But I think we are at that pivotal moment where if we don’t do something to reestablish the manufacturing supply chain, we’ll lose the upper hand in the future of semiconductors.

BT: Your language could be straight out of the 2022 CHIPS and Science Act – the legislation intended to usher in a new era of investment in America’s semiconductor ecosystem. One derivative of CHIPs – the $10B Regional Innovation Hub competition – has attracted interest from several groups in Colorado. Are Regional Innovation Hubs the right mechanism, the right platform, at the right time, to supercharge the semiconductor supply chain? [Editor’s note: The Biden administration has announced finalists in the RIH program – view the list of designees here.]

LP: I think there certainly is a foundation here that we can build from to help companies that may not have been directly playing in this space to now have the opportunity to diversify. They may have fundamental capabilities, and they can diversify in this space as well.

This R&D component of CHIPs is so important – equally as important as funding the expansion of manufacturing. Because we don’t want to bring manufacturing back here just to lose it again tomorrow; we need to bring it all back. We need to be able to continue to innovate so that, tomorrow, we’re competitive and have the technology we need for our country. It’s why the R&D part is so important.

Even things like materials: we need alternatives to ones that, you know, might be challenging to get because of the Ukraine war, for example. I know we certainly deal with some materials – gases in particular – that you can’t get anywhere else. And so how are we thinking about alternatives? Again, it’s going to require research and development, because you can’t just swap out one gas for another gas and think everything’s going to work exactly the same. So, I think that’s a key part of the CHIPs act.

And a key part when we think about the supplier aspect is it’s not just ‘lift and shift – like for like.” There will be development that’s going to have to be involved in that process. And then, you know, the experience that I’ve had, as we’ve talked to some of these companies here in the United States, they’re like, “Yeah, well, we really haven’t put a lot of effort in investing into some of these technologies and capabilities, even if we used to do some of those things, because there hasn’t been a market.” And we’ve approached them and said, “Hey, with CHIPs act, hopefully we’ll get funding. And if we get funding, then we want to invest in this. What would that mean for you? Could you be our service provider? Could you actually continue to invest if we’re purchasing from you?”

That’s the idea. It’s a cascade and a trickle effect as we start to bring these things back. The investment then goes, you know, into the other pieces and the whole supply chain then benefits and is able to stand up because it will finally make sense.

It’s going to take the collaboration; that’s why the hub model is really valid. It’s going to take the collaboration of more than one company. Sure, an individual company can do research – it supports their own development and production. But for us to really move the needle and stay ahead of the technology, it’s going to take a collaborative innovation approach.

BT: By way of collaboration, do you envision a robust semiconductor ecosystem developing in Colorado?

LP: I do see the ecosystem developing in Colorado. I love Colorado as a whole, but for one, I think Colorado Springs also has such a unique culture that it’s very collaborative. My background isn’t DoD (Department of Defense), and I haven’t tried to sell into that space and really understand how to do business there. But guess what? Colorado Springs is really good at that. It’s easy for me to raise my hand and say, “Hey, you do business over there, you know how this works. I need help!” And people have been so gracious to just come alongside to make the connections and the introductions and help you find the paths through this process. That is one of the things I do love about Colorado Springs in particular.

And I’m hoping that we continue to expand that outside of just Colorado Springs and do that more effectively across Colorado as a whole. But you know, you’ve got Microchip here, you’ve got Entegris moving into Colorado Springs right now as well. And I think the really cool thing is all three of us are part of the semiconductor ecosystem, but we are not competing with each other. Together, we can utilize a lot of the same suppliers and, ultimately, further that same mission with the semiconductor industry in the United States.

And I think you start to see this again: that center of mass that I talked about. Now it becomes more interesting for those additional suppliers to continue to move into this space. In Colorado Springs, we used to be great at semiconductors. We have that foundation, those fundamentals. And it’s very exciting for me to see all the investment that’s here back in Colorado, again, focused in this space. But now with the long game in mind.

Bart Taylor is a Moss Adams BDE in Manufacturing & Consumer Products, Food/Beverage & Agribusiness, and is founder and former publisher of CompanyWeek manufacturing media. Reach him at bart.taylor@mossadams.com

 

Next time: A look at how the Regional Innovation Hubs competition played out for Colorado.

2023 Manufacturing Forecast – 5 sure bets

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By Bart Taylor | Dec 13, 2022

By most any measure, 2022 was a transformational year for manufacturing. Here’s an early look at storylines shaping the coming year.

1. 2023 is the year of the semiconductor supply chain – who builds a roadmap that wins?

Arizona and Texas were among big winners in the semiconductor factory sweepstakes. But manufacturing communities across the U.S. anticipate a lift from the semiconductor surge. Who best navigates the opportunity?

We know a pile of money is about to be spent through the CHIPS & Science Act — it’s worth reviewing the scale of the plans. And we know the basics — money for community colleges and universities to train machinists and engineers, incentives to develop expertise and support for companies operating in a new semiconductor supply chain.

But what types of companies? In what roles? And where? How will semiconductor factories transform local manufacturing ecosystems in AZ, TX, NY, and OH? How should Colorado, Utah, California, or Washington position for growth? Should new coalitions or clusters be formed to support regional prosperity? Who does that? What companies participate, and how?

We don’t seem to know a lot about how semiconductor supply chains will evolve to sustain an industry of this size. 2023 will provide the roadmap.

2. More engineers will be hired in manufacturing than ever before (who’s counting?)

Manufacturing has long been seen as the “dirty end” of engineering. In 2023 that officially changes.

Tech jobs in manufacturing are about to become the big thing. Fueled by the semiconductor boom and uncertainty in the tech economy, more engineers will be hired in manufacturing than ever before.

3. 2023 will be a rough year for outdoor industry superpowers.

The retirement of VF Corp.’s CEO Steve Rendle portends a year of change in the outdoor industry.

Analysts have sloughed-off the Rendle retirement talk and have instead pointed to “worsening fundamentals” at VF as the reason for the change. In other words, the business is in trouble.

But it’s arguable that the entire industry is in trouble — and at a crossroads. The lofty ambitions and brand promises of its leading companies are running headlong into the messy realities of global operations — like decoupling with China.

If demand continues to weaken, companies may in fact seize the moment to make fundamental changes to better align operations with the professed mission of its leaders. 2023 could be a wild ride.

4. EV infrastructure and the Great Leap forward.

As heady an opportunity the semiconductor supply chain seems to be, don’t sleep on EV’s value chain. The electric vehicle market is forecast to grow about 20 percent year-over-year, and by 2028 to be a half-trillion dollar global market.

The West is already home to superstar brands in vehicle, component, and EV infrastructure manufacturing, and the latter may be the top growth opportunity. California’s Beam Global is only one innovator helping nervous drivers overcome “charging anxiety” as they take to the road.

Celebrate Tesla, but invest in the companies and visionaries transforming the transportation ecosystem into an EV-compatible network.

5. Musk’s distractions will diminish his manufacturing influence. Sadly.

In 2016, I was driving the Musk bandwagon.

At the time, Musk was waging pitched battles against the likes of Ford, GM, and NASA to overcome decades of entrenched resistance. The outcomes were as spectacular as the fury of the early standoffs.

Musk’s adversaries today are journalists and politicians. Get in line, brother.

There will be no equivalent payoff at Twitter. Taking sides in the public square poses risks for his car business, for one. More, the distraction will limit Elon Musk’s ability to lead the manufacturing revolution.

Bart Taylor, btaylor.media@gmail.com

Free trade is dead. For manufacturing, good riddance

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By Bart Taylor | Nov 29, 2022

I’ve argued, along with Harry Moser and others, for a new industrial policy that picks U.S. manufacturing “to win.” As contrarian a view this was a decade ago, there’s consensus today that we should do just that.

The list of desired outcomes reads like an economic manifesto:

  • Protecting key domestic manufacturing industries and nurturing new or reimagined sectors — like semiconductors
  • Providing incentives to localize manufacturing supply chains from offshore outposts, via new investments in domestic supply chains, or both
  • Accelerating the pace of automation in small manufacturers to overcome workforce shortages but more, to improve their global competitiveness
  • Aligning underutilized economic zones — including rural economies — with high-potential manufacturing opportunities

There’s more, but the big takeaway is that “free trade” is dead. The staggering loss of middle-class jobs, the transfer of wealth and expertise and infrastructure to offshore outposts, today underscores the hard lesson that nothing was free about free trade. Time to complete the policy scaffolding to protect and subsidize U.S. manufacturing.

Here are suggestions to update the protectionist playbook in light of recent events:

Work to roll back the value of the dollar

As tariffs or BATs (border adjusted tax) are used to level the domestic playing field, we should also work to improve the competitiveness of U.S. companies manufacturing at offshore locations in support of local consumers. America’s stalwart dollar is a problem. As the Wall Street Journal’s Bob Tita notes, “For U.S. manufacturers operating overseas factories, their sales in foreign currencies are worth less in dollars now because of the unfavorable exchange rates caused by the strengthening dollar.”

The fix is straightforward: jettison “market-based” thinking and intervene to manage the value of the dollar. Robert Blecker of the Economic Policy Institute outlines the path forward: “The dollar has not fallen compared to the currencies of the developing nations that now account for more than half of the U.S. trade deficit. Some of these nations, especially China, maintain fixed exchange rates and intervene heavily to prevent the type of market-driven adjustment that is now occurring between the dollar and the euro. As a result, relying on financial markets to bring the dollar down is not enough. More active management of the dollar’s decline including cooperation with major U.S. trading partners and action to end foreign manipulation of currency value is vital to ensure that the dollar falls in a comprehensive and sustainable fashion.”

Focus grants and loan programs on uptooling small manufacturers

Economic development can be a miasma of local and regional assistance for business that lacks focus or operates at cross-purposes. Whatever the case, well intentioned efforts often fall flat.

There should be no confusion today about what U.S. manufacturers need from development funding: targeted manufacturing-related grants, awards, and loan programs that facilitate automation and tech-fueled upgrades. Full stop. Uptooling U.S. manufacturers today achieves a rare trifecta of outcomes: improved processes that result in better products, relief from a tight labor market, but also workforce development, as technology attracts a new generation of employees.

Tap in to manufacturing’s nerd appeal

As the “tech wreck” leaves STEM grads uncertain about a career in tech, manufacturing is today poised to fill the career void for this wave of nerdy talent. The timing couldn’t be better. Investments in technology provide manufacturers with a calling card for talent that’s long eluded them.

But the latest wave of technology layoffs this fall has been met by a tepid response from manufacturing brands and associations who otherwise should be coordinating a full-blown recruiting campaign to attract this generation of STEM talent.

At its core, the dissonance between what should be done and what is being done can be chalked up to what Glenn Plagens, CEO of Colorado MEP Manufacturer’s Edge, called the need for “community players coming together again to determine what the next steps are.” In other words, the ongoing challenge of developing a more connected manufacturing community.

Nevertheless, developments today are trending toward alignment. If a concerted national campaign that emanates from Washington D.C. is a bridge too far, coordinated local efforts that highlight manufacturing’s tech stars is an important next step.

It’s a straightforward tactic that, in addition to the others, will work to protect U.S. manufacturing at this important time.