By Steve Deam, Sr.

In this age of class warfare and widespread desire to blame the greedy “rich” for a failure of capitalism, I think it’s very important that we do not count the small business owner as part of the perceived problem.  The average small business owner that I know has worked tirelessly to build up their business.   Additionally, in most cases they have risked everything to take a chance on building a successful business.   According to a study by the U.S. Small Business Association, only 2/3 of all small business startups survive the first two years and less than half make it to four years.   The risks are very real.

Although the current administration seems determined to treat individuals making $200K or more as “rich”, I thought it would be useful to demonstrate a few typical annual incomes with a bar chart.    And yes, the following chart is drawn accurately to scale.

The left most bar, which you can just barely see represents a typical employee earning from $35,000 to $70,000 annually.   The next bar, which is still barely visible represents the annual income of the typical small business owner.    Now, compare those incomes to those of big company CEO’s, movie stars, sports stars, etc.   It is easy to see that most small business owners make only marginally more than their average employees.

People like Warren Buffet, Bill Gates and the late Steve Jobs are so far off the chart it’s not even funny!

Given the fact that small businesses account for 70% of new job creation, wouldn’t it make sense for the government to help small business owners expand and create jobs?

While politicians love to give lip service to helping the real job creators – small business, unfortunately just the opposite is happening.    Small businesses are experiencing cost increases from every direction including; taxes, health care, energy, regulations, and many other areas.   Meanwhile, Wall Street big businesses export jobs all around the world while enjoying all sorts of tax breaks as a result of spending millions of dollars on lobbying!  Is it any wonder unemployment is continuing to hover over 9%?

If we want to play the blame game, let’s make sure we are blaming the real source of our problems –  Big Government and Wall Street!   Not only are they the source of our problems, they hold all of the power to do anything about it.   Unfortunately, it is in their best interest to continue with the status quo!

If we ever want to turn things around in America it is essential that we elect people who have real-life business experience and have demonstrated that they want to change the way things work in Washington.   What we suffer from more than anything as a nation is corruption from the top down!   And I’m speaking of both parties…

Ultimately it is my sincere belief that a good job will always take care of people better than the government can.   I suggest we support the real job creators – small business!   We’re not looking for bailouts, we simply want Government to get out of our way and let us do what we do best – grow our business and create jobs!

CNC Industries is very excited to be starting a new year.  At the end of the decade as well as the year, I thought it would be interesting to see how CNC Industries has performed over the course of the last 10 years.  Looking at 2000 compared to 2010 we can see a drastic change in the scale and methods of work for CNC Industries.

Overall we have had a 15%/ year average growth maintained – obviously some of those have been better than others.  As a precision machine shop, this is an impressive growth to maintain over 10 years.  With manufacturing jobs disappearing every year, we are especially proud of our track record of growth.

The primary industries that we served in 2010 were the Aerospace and Defense industries.  We fully support Kanban on-site delivery arrangements for our customers, deal mostly with electronic ordering systems and are releasing our second major version of Job Manager – our internal ERP system.  In 2000 we were working primarily with industrial customers, shipping most orders in a single shipment, and we had just released version 1 of Job Manager.  While we still work with many of the industrial customers that we had in 2000, we have grown further in the precision Aerospace and Defense machining markets.

Over the last 10 years we have shipped nearly 10 million individual precision machined components to our customers, in nearly 50,000 individual shipments for an average of 200 parts in each shipment.  We have produced everything from single prototype components, to mass run quantities of 100,000 or more.

Over the last year we have had more RFQ’s from a larger variety of potential customers than we have in the prior 5 years put together, which leads us to feel that 2011 will be a great year and a great start to the next decade.

We look forward to growing further, and continuing to produce high quality precision machined components for our customers.

By: Steven Deam, Sr.  –   CNC Industries, Inc. Fort Wayne, Indiana

A few days ago a friend of mine from another job shop gave me a call.   He wanted us to quote a simple job for them.   Since we had not talked for a while, we did some catching up on each other’s families.    After explaining Steve Jr’s role in CNC Industries as Vice President of Finance, I asked if he currently had any children in his company.    He indicated that one of his sons worked in the business for a while, but then went to college and earned a MBA.    I asked if his son planned to work in the business now.  My friend laughed and said his son once told him “dad, you have the stupidest business I have seen.”

I was a little taken back and asked how his son meant that.  He said his son explained it this way: The last time you hired a plumber, what did they charge?     Probably $90 to $110.00 an hour. A copy machine repairman?   Probably about the same.  How about an electrician?  About the same.  A mechanic?  Roughly the same…

Now, how about (U.S. based) web site developers?  Maybe $150-$200.00 per hour.  Sales consultants?  About the same.  And most of those companies have a relatively low capital investment compared to a job shop.  The typical precision machine shop will have several million dollars worth of CNC equipment on their floor, will have a sizable investment in real estate, will provide good health insurance and benefit packages, will inventory large amounts of raw material (as well as finished goods), and then put large amounts of labor into the product.    After all of that, they are lucky to make a shop rate of $60.00 per hour!

Unfortunately, I had to laugh at the situation too!   I can remember that most precision machine shops made a shop rate of $60.00 to $100.00 an hour forty years ago!   You might say, yes but the equipment today is much more efficient than it was forty years ago.  That is very true.  But that is an argument for why the hourly rate should have significantly increased.   Due to amazing advance in CNC equipment, much more output is being produced in a given amount of time!   Remember, I’m not talking about unit price, I’m referring to a shop’s hourly rate.  With increased productivity the unit price will go decrease, but the hourly shop rate should increase.

Additionally the equipment of today is vastly more expensive than it was forty years ago.   I recall purchasing our first CNC turning center in the early 80’s.   It cost $80,000.   At the time, you could purchase a dozen manually operated lathes for the same cost.    Today it’s not uncommon to spend $100,000 to over a million dollars for a single CNC machine.    Our Toyoda CNC horizontal machining center pictured below, represents an investment of over $500,000.

So, how can it be that after forty years of substantial inflation and almost unbelieveable advances in efficiency and productivity a modern CNC machine shop is still making about the same hourly rate?   The answer lies in the fact that for the last twenty years or so U.S. based CNC machine shops have been forced into global competition from countries with extremely low wage rates.  

Consider that in the United States the hourly wage for a first class machinist is $18.00 to $25.00 per hour.  In China a first class machinist earns the Yuan (CNY) equivalent of $.90 to $1.30 per hour.   Given that countries like China have the same equipment as U.S. shops and they have well educated people to program and operate the CNC machines, it’s very easy to see why it is literally impossible for U.S. shops to compete with “global” sources on a purely “shop-rate” basis.    Additionally, most foreign countries have significantly lower real estate costs as well as substantially lower regulatory and benefit costs.   In many cases the costs associated with operating a U.S. based shop may be 20 or 30 times as high!

As if the extremely low global labor rates aren’t enough, the cost of doing business in the U.S. has been steadily rising for small machine shops.  The cost of health insurance, for example, has been skyrocketing.   The cost of raw materials, utilities, capital equipment, wages, fuel, etc. has been rising.  Small machine shops are being squeezed from every direction.  This fact explains why so many small shops are simply fading away.

Where does all of this leave us – the small (U.S.) machine shop?   Obviously it leaves us in a very challenging position.  Global competition is the new norm.  It’s not going away, so we must adapt to the situation.  We have to understand the dynamics and find creative ways to stay in the game.  In most cases, it means becoming ever more lean and productive.  It means finding ways to operate on extremely thin margins.   Unfortunately, it also means that many more U.S. Job Shops will be forced to close their doors!

At CNC Industries, we believe that we have taken the steps necessary to stay in the game.  Even as shops all around the country are struggling for survival, we are thriving.  We believe that along with all of these challenges comes opportunity.  With careful planning and maximum use of Information Technology, we have positioned our company to take advantage of the opportunities that lie ahead!

In the final analysis it’s all about providing the best value.   When a customer factors in the cost savings associated with:

> Dependable quality

> Dependable on-time deliveries

> Inventory reduction through Kanban, demand-flow manufacturing, on-site stocking service, etc.

> Rapid development of new parts

> World-class Information Management

> Outstanding customer service

we believe that CNC Industries is very competitive – even with global sources.

Despite all of the conditions and challenges that I have talked about, I am more optimistic about the future of CNC Industries now than I have been in many years.