By Design: Recessions remembered

In this bimonthly column, Glenn Beall of Glenn Beall Plastics Ltd. (Libertyville, IL) shares his special perspective on issues important to design engineers and the molding industry.

Editor’s note: To address the country’s economic straits and mass departure of jobs overseas, this month Glenn Beall reminisces about previous tough times, and offers advice for ending up on top.

The great depression of 1929 was before my time. The first recession that directly affected me was in the late 1950s; I lost my job at GE in 1958. The staff was advised that if business didn’t pick up, there would be a reduction. When the cut came it was fair and impartial. They simply reduced each department’s headcount by 10 percent based on seniority.

Although the layoff had nothing to do with my job performance, losing my first job after graduating from college was traumatic. I can still vividly recall the hollow feeling in my stomach when I was forced to realize that the company thought it could get along without me. In retrospect, I have to conclude that GE and I have both gotten along very nicely without each other.

In 1968 I left the sheltered, big corporate world and started my own plastics product design, development, and prototyping business. It was smooth sailing for the new little company until the recession from 1974 to 1975 took the wind out of our sails. No one was let go, but the company did have professionals cleaning and repairing machines, painting walls, and building storage shelves.

I also recall, but less vividly, the economic downturns from 1980 to 1981 and 1989 to 1991. We never laid anyone off, but I thought each recession would destroy the company. Yet, the economy recovered and within a year it was impossible to hire a good engineer, press operator, or moldmaker.

Painful memories of past recessions fade over time. This human capability to forget makes each new recession appear to be the worst. This is one reason why the current downturn seems so bad. The plastics industry is being hurt badly this time, but the industry is still growing, and the situation is not as desperate as the alarmists would have you believe.

The amount of plastic produced in the U.S. increases and decreases in response to the economy. During the 40-year period from 1961 through 2000 the production of plastic material increased at an average annual rate of 7.7 percent. In the last 10 years the growth rate decreased to 5 percent. This decline was to be expected because of the plastic industry’s maturation. This is still good growth, considering that the GDP increased by only 2 to 3.5 percent annually in the same span.

Riding Out the Recession

Americans have come to expect it, but there is no written guarantee that a person’s financial status will improve each year. Business is cyclic. Slowdowns in the economy are to be expected.

With this in mind, it seems the best guide for the future is the past. The fluctuations and trends of the past should be factored into any predictions for the future. Consumers have shown a preference for low cost. The manufacturers of durable goods are laying off thousands of workers as they move production to low-labor-rate countries. Most developing countries are not burdened with OSHA, Workmen’s Compensation Insurance, minimum wage laws, environmental regulations, annual price reductions, and give-backs. This has created a buyer’s market that has forced domestic molders to become more efficient. As a result, fewer molding machines are needed to meet production requirements. Some industry segments such as machine builders, moldmakers, and me-too molders are being forced into mergers or bankruptcy.

It is distressing to watch this happen, but it’s the survival of the fittest and it has always been this way. The tractor and combine eliminated farm jobs. The refrigerator put the iceman out of business. Injection molding stunted compression molding. Pattern makers, blacksmiths, and cabinetmakers are now scarce as hens’ teeth.

It is no longer possible to ignore the fact that manufacturing’s share of the total economy is declining. One report indicates that manufacturing’s contribution to the GDP was 18 percent in 2001. In 1950 it was 48 percent. Those are scary numbers, but they represent an average decline of only .59 percent per year. As the manufacturing base declines, it has become obvious that the U.S. has more molding companies than the economy can support. By the time the current recession ends, the least competent molders and those who cannot adapt and compete in the new global economy will have been discovered and eliminated.

In my time boys learned about survival by playing a free-for-all game called King of the Hill. This was a method of determining the dominant male in each peer group. Kids got hurt in this rough and tumble game as there were no concessions to the timid, weak, or underprivileged. The system worked well and established a sense of order on the playground. The downside was that the winner could never enjoy his victory; he was always being challenged by wannabes. It is possible that America’s tarnished CEOs have been playing an adult form of King of the Hill. Have they been trying to establish their dominance by accumulating more money and perks than other CEOs?

The federal government has not shown an interest in addressing the overvalued dollar or trade practices that penalize U.S. manufacturers. On the other hand, the U.S. produces more cubic inches of plastic than steel, but the plastics industry has never bothered to consolidate its influence. It has never been eager to join and support the technical societies and trade associations that could speak for the industry in tough times such as these.

To compound the problem, many companies that depend on the plastics industry for their livelihood now refuse to pay their employees’ membership dues. The unorganized plastics industry does not have the political clout of the steel industry, and this is an oversight for which it will pay dearly.

Use the Downturn Wisely

Another puzzling practice is that in a recession companies often cut budgets for meeting attendance, education, and advertising. Conference, exposition, and seminar attendance has declined in this recession. Failing to attend local and national meetings deprives a molder of the opportunity to keep up with new technology while chatting with his peers about what is really going on.

A slowdown in business also provides a good time to train staff. The people you keep on the payroll will be key employees in the future. Now is the time to upgrade their skills with a course in scientific molding, lean manufacturing, design, or quality assurance. There are excellent seminars that provide technical information that can be put to immediate use. When the economic turnaround happens, these key people will be too busy to attend a seminar or a conference.

If you can’t afford travel expenses, consider an online, video, or CD-ROM course. Sharpening your employees’ skills now will give you an advantage over competitors who erroneously think they can’t afford training. A $500 seminar plus travel expenses may seem like too much, but if that program eliminated one mold revision or the rejection of one lot of molded parts, you saved money.

This is also the time to hire that first-rate employee to complete your team. There are good people with valuable experience available at a reasonable price. The best candidates will vanish the instant this recession ends. The turnaround will come. When it does you have to be ready to capitalize on it.

Stay on Top of the Game

During the past few years there has been impressive progress in molding technology. The industry has made noteworthy productivity improvements. Unfortunately, these improvements have not reduced the migration of molding projects to low-labor-rate countries. As the industry strives to wring the remaining inefficiencies out of the process, it must realize it is not likely that the business of injection molding will ever return to its mid-1990s form. When the economy returns to whatever the new norm becomes, there will no longer be a need for the number of injection molding companies that there was in the past.

Declining capacity utilization and the resulting plant closings are further proof that only the strongest survive. This weeding-out process will not be fair or uniform throughout the industry. The majority of the losers will be among the me-too molders who only provide their customers with the standard services that can be purchased from any molder in the world.

It would be reasonable to estimate that more than 50 percent of the industry provides standard injection molding services using midsize molding machines. Overcapacity in this area has already created fierce competition and the erosion of profits. Less than 5 percent of injection molders provide their customers with special services such as micromolding, structural foam molding, two-color or multimaterial molding, gas-assist molding, assembly molding, strip or grow molding, or liquid silicone molding.

Yet, some wise molders are realizing the importance of value-added. It is interesting that the sales of liquid silicone injection molding machines have increased through this recession while standard molding machine sales have plummeted. Molders providing their customers with these special services are in a better position to win the survival of the fittest game.

Nowhere is it written that you will win or lose this game. The mamma’s boys who didn’t play King of the Hill never learned how to compete. They had no chance to become winners. Sitting in your office hunkered down, worried, frightened, complaining, and waiting for the government to help you will not work. The survivors will be the companies that get in the game, adapt to the current rules, and compete to win.