Spring 2006 Issue - Special Report
Manufacturing 2006
Still Running, Still Hungry
Posted: October 15, 2008
In the best selling book, The World is Flat, author Thomas Friedman quotes an African proverb to describe the global economy after China joined the World Trade Organization in 2001. The proverb holds that every morning, gazelles wake up in Africa knowing they must run faster than the fastest lion or they will be killed. At the same time, lions wake up knowing they must outrun the slowest gazelle or they will starve. Whether you are a gazelle or a lion, “when the sun comes up, you better start running.”
Metaphors like starving lions and eaten gazelles tend to dominate perceptions about U.S. manufacturing, but manufacturing winners continue to bound across the economic landscape. What follows are looks at some of the less visible companies that are part of our manufacturing base.
ELECTROIMPACT
Engineer Haven
It’s not your father’s aerospace industry–and if you want to learn how much it’s changed, take a visit to Electroimpact in Mukilteo.
The company employs a production team of 205 engineers who design and build almost everything the company makes. Some of the products are so advanced, it is almost impossible to describe them.
One enormous Electroimpact machine drills holes in the wing sections of the Airbus 380 jumbo jet. The machine is designed and built in Mukilteo, then broken down, crated and shipped to an Airbus assembly plant in England. Electroimpact has designed, built and shipped 14 of these machines to Airbus.
Another Electroimpact machine will soon be drilling holes in the fuselage of the Boeing 787. While the fuselage “barrel” remains open-ended like a pop can, it will be pulled into the machine then turned slowly. By the time the barrel stops turning a few days later, the machine will have drilled every hole necessary to bolt the graphite skin of the fuselage to its support frame.
Electroimpact President Peter Zieve holds a doctorate in engineering and his father was an engineering professor. Zieve established the company in 1986 and one of his objective was to develop a company with a corporate culture that would appeal to engineers. Today, Electroimpact has the look of a place where the engineering staff is firmly in charge.
On a recent visit, the landscaping outside the complex looked a little like Einstein’s hair, shaggy around the edges. Inside, computer labs were surrounded by the kind of clutter often found in college dorm rooms. Production areas were much neater and were filled with the bustle of engineering teams tending to their assembly projects. As Zieve walked through, he seemed current on every project and appeared to know every engineer by first name.
He expressed concern that the demand for engineers is high while so many kids today grow up without garages to tinker in. “You’ve got to have garages,” he joked with one group of workers. “The garage is a national treasure that has to be preserved.”
NUCOR STEEL
Loyalty, Productivity, Profits – and China
Even on the brightest sunny day, passing motorists can look inside the dark interior of the West Seattle steel plant and see the orange glow of molten steel being formed into shapes while clouds of steam billow from the factory. But the antiquated look obscures a key point: the 100-year-old plant celebrated its centennial in 2005 with its most productive year in history.
Workers turned out 750,000 tons of steer rebar and other products for delivery to construction companies and projects from San Francisco to Alberta, Canada. That was up almost 30 percent from three years ago when the plant was purchased by Nucor Steel and the Pacific Northwest gained a new corporate neighbor that is both remarkable and somewhat controversial.
Based in North Carolina, Nucor is the largest steel maker in the United States and it well represents the enormous changes that have taken place since the U.S. steel industry hit its peak for production in 1969. Nucor is vastly smaller than its predecessors. It is also profitable. Nucor earned net revenues of $1.3 billion on $12.7 billion in sales in 2005. After 2001, returns to Nucor shareholders grew by 387 percent. These and other accomplishments resulted in Businessweek magazine naming Nucor Steel the top US business of the year for 2005.
Nucor achieves such results with a corporate culture as remarkable in its way as the one at Electroimpact. It started in the early 1980s when the company was much smaller almost went broke during a national recession. Looking to cut costs, CEO Ken Iverson started by cutting his own salary from $450,000 to $100,000. He eliminated all “perks” for executives. He engaged Nucor employees to get their ideas to improve productivity. He made a pledge that no Nucor employee would lose his or her job until or unless its plants shut the doors.
The pledge was kept, the measures worked, the corporate culture stuck and Nucor’s remarkable run was underway, fueled by an ambitious bonus system based on productivity. Pay averages more than $70,000 per year and although Nucor employees are among the best paid workers in the steel industry, the company’s operating costs remain low due to the high productivity of its workers. The changes endured following Iverson’s retirement in 1999. He was replaced by current CEO Dan DiMicco, who has guided the company to higher profits and productivity than it enjoyed under Iverson.
Nucor’s approach to productivity and safety is illustrated by the change in safety performance after Nucor took over the West Seattle steel plant in 2003. The year before, workers at the plant missed 406 work days due to shop injuries. The first two years under Nucor, the same exact group of workers missed only two days in each year. So, how could Nucor be considered controversial? In a word, “China.”
The present CEO Dan DiMicco is a leading spokesman for business groups lobbying the U.S. government to step up pressure on China to comply with trade requirements it agreed to when it was admitted to the WTO in 2001. It’s a view point that may be shared by some in our region, especially concerning the issue of intellectual property rights. But such views are seldom given voice around here. In the meanwhile, Nucor is shouting its message from the rooftops.
While our region was preparing to host Chinese President Hu Jintao on his recent visit to Seattle, Nucor was hosting a rally at the Darlington Raceway in South Carolina concerning China trade issues. The rally was attended by nearly 4,000 people. Nucor is hosting other rallies in states where it has steel plants.
DiMicco warns that the if the Chinese can continue to subsidize imports to our country, it could capture growing shares of higher value sectors for capital goods in the same way it captured major market shares in consumer sectors for clothes, toys and electronic goods. While countries like Japan have also competed successfully with U.S. firms for shares of the North American market, DiMicco says China presents a special challenge due to its size, the nature of its government and the actual and potential value of the Chinese consumer market to global companies like Boeing, Starbucks and Microsoft.
DiMicco says companies like his aren’t worried about competing with China on labor costs or productivity. Nucor research shows it takes Chinese workers more than 12 hours of labor to produce a ton of steel while Nucor workers can produce a ton in less than an hour. But Nucor wouldn’t be able to compete with a “China price” for steel if the Chinese government uses other means to cut the price of imported steel offered here.
BOAT BUILDERS
On the Water, In the Blood
Lots of kids in the Pacific Northwest grow up playing around with boats, so its probably not too surprising that some people grow up to build them. Boating building grew dramatically over the past decade to become billion dollar industry and drive new demand for welders and other craftsmen. A growing segment of the market is devoted to luxury yachts but aluminum work boats for private and government customers remain a staple. A few companies in our region also continue to turn out a tugboat or two.
CHAMBERED HULLS
Aluminum Chambered Boats was only an idea 10 years ago as entrepreneur Larry Wieber tried to think of ways to get into a business that would bring him closer to his love for the water.
He felt there was a growing niche for aluminum boats to replace boats of fiberglass and from his days as a kid attending a church summer camp outside Spokane, he remembered that the camp’s aluminum runabout would always go faster than the wooden one. He started an aluminum boat building business with three employees in a tiny shop that has grown into one of the larger companies in the sector.
The “chambered” portion of the company name alludes to the fact its boat hulls are made up of hollow chambers of aluminum that are watertight and welded together. As a result, the boats are buoyant and hard to sink. Customers include the U.S. military and companies in Alaska.
“I wanted an office on the waterfront and I wanted a company on the water front, and I wound up with both,’’ Weiber says of his production plant at the Port of Bellingham.
KVICHAK MARINE
Jim Meckley, Brian Thomas and Keith Whitemore met each other in high school while racing sailboats at yacht clubs in Seattle. Today they own Kvichak Marine, a company that they started in 1983 in a two-car garage with the goal of making sails for racing boats.
The company took off when it started making aluminum boats marketed to fisherman in Alaska’s Bristol bay. Now their company employs more than 100 production workers in a plant on the Lake Washington Ship Canal. The company turns out both small and large aluminum boats for a customer base that ranges from tour companies in the tropics to government agen-cies throughout the United States and to millionaires desiring yachts with aluminum hulls.
One of the partners, Brian Thomas, isn’t so much concerned about off-shore competition from China or any other country. Instead he’s worried about the future supply of skilled boat builders. “The industry is starting to lose some of the really seasoned people who have a lot of experience,” he said. “They’ll be hard to replace.”
WESTERN TOWBOAT
Our maritime heritage on Puget Sound began during the sailing era. The Sound was an excellent home base because it is so sheltered from ocean storms and waves, it is also one of the most unpredictable places in the world for wind. In the sail era, that was bad. So, the region soon saw the birth of a thriving tugboat industry with a fleet of boats that would hook up with sailing vessels at Port Townsend then bring them south to Seattle, Tacoma and other ports.
The tradition continues today with companies like Western Towboat, a tow company founded in Seattle by Bob Schrewsbury in 1948 with a single tug. The company is owned today by his sons, Bob and Ric Shrewsbury. But they don’t just operate a tow company, they build their own tugs, constructing their vessels at a location near Kvichak Marine on the Lake Washington Ship Canal.
The company today operates a fleet of 18 tugs and five barges. No tug is presently under construction but as part of Manufacturing Appreciation Week, Western Towboat will provide a tug tour of Salmon Bay and Ballard, providing a water-level view of some of the boats that comprise the North Pacific fishing fleet.
OIL REFINING
The Regional Rebate
Think of it as a rebate.
Nobody likes high gas prices, but Washington consumers get at least some of their money back because Washington is home to five oil refineries, including the British Petroleum refinery near Cherry Point that is hosting a tour.
The oil refineries in our state have the capacity to process about 600,000 barrels of crude oil per day and the refineries make the gasoline that supplies western Washington, Oregon and parts of northern California. The refineries employ close to 1,800 people and pay wages that average more than $80,000 per year. But the true job impact is much bigger. Oil refining has a “multiplier” job effect that some economists estimate at 11 to one. That means every refinery job creates 11 other jobs throughout our region.
More than two thirds of the oil refined in our state comes from Alaska. The remainder is imported from other nations. Production from existing fields on Alaska’s North Slope is declining and while controversy stymies exploration in the Arctic National Wildlife Refuge, other oil resources are available up north. More than 10 billion barrels of known oil reserves are located in the National Petroleum Reserve on the North Slope west of Prudhoe Bay, where drilling is permitted, and western Canada has vast stretches of “oil sands” that are now commercially viable and provide Canada with oil reserves that are second only to those of Saudi Arabia.
The Washington State Research Council conducted a study in 2004 to document the overall impact of oil refining on our state. The report looked at 2003 and found the refineries processed 576,800 barrels of crude oil per day, producing 256,600 barrels of gasoline. Direct and indirect jobs were estimated at 20,148 people receiving $930 million in pay. The industry also contributed $36 million in retail and use taxes and $53 million in state Business and Occupation tax revenues.
That adds up to more than $1 billion per year in financial benefit. Retail gas stations in our state reported gross revenues in 2003 of $5.7 billion, reflecting the big – and growing -- gap between what we pay and what gets recycled back into our regional economy. But look at it this way. People in Oregon pay a lot for gasoline, too, but Oregon has no oil refineries for gasoline production and no billion-dollar rebate.
