How an Old Baltimore Steel Factory Pivoted From Bagel Baskets to Airplane Parts – Inc.com
In honor of Small Business Week, Inc. reporters deployed to several cities, where they spent one day talking to owners and entrepreneurs in a particular sector about their challenges.
Hurtling around his American flag-bedecked factory, Drew Greenblatt erects–machine by machine, worker by worker–his case for the virtuous coexistence of jobs and automation. Here, two robots choreograph the creation of electric panels that prevent wires from tangling. This is James, who did time on a drug charge, then worked at Popeye’s, and recently put his daughter through college. See that laser cutting steel for telecom antennas? It’s accurate within 4/1000ths of an inch. Meet Hector, who after years of financial instability now has two cars, a home, and the same health insurance as his employer.
The argument that machines steal human jobs is “a false one. “Manufacturers that don’t automate go extinct,” says Greenblatt, the owner of Marlin Steel, a maker of industrial baskets in southwest Baltimore. “Technology lets you save jobs and make your employees more viable.” (U.S. manufacturing jobs pay, on average, $85,000 a year. The multiplier effect on the economy is between 1.8 and 3, depending on whom you ask.)
Marlin Steel is among 225,000 U.S. manufacturers–out of 227,000 total–defined by the Small Business Administration as small, meaning it has 500 or fewer workers. Many employ just 10 or 15 people. “When we talk about American manufacturing, people mean GE and Caterpillar and Honeywell,” says Greenblatt. “They are important, but they rely on the little guys for their supply chains. And this swath is going to do very well in the future.”
The Baltimore area makes a fine petri dish for studying small manufacturers. The city’s advantages include a busy deep-water port, an abundance of nearby universities, and its location: You can drive to New York, Philadelphia, or Washington without having to break for coffee. Under Armour was born here; founder Kevin Plank is an energetic booster of local light manufacturing. And Baltimore is home base for Greenblatt, who chairs the National Association of Manufacturers’ board for small and midsize companies and has become the public face of factories before Congress and the media.
Yet manufacturing here accounts for less than 4 percent of the workforce–a faint shadow of its heyday in the 1950s, when companies like Bethlehem Steel and Martin Marietta thrived. Factory owners blame overseas competition, regulations, the recent recession, and a struggling public school system. It’s the same story you hear everywhere–the story at the center of the current national debate about how to revitalize America.
Greenblatt argues that revitalization is already happening, in the small, 25-, 50- and 100-year-old manufacturers hanging on in Baltimore and places like it. Over the past decade these companies have emerged from hard times by ramping up technology, rethinking how to use labor, and reinventing what they make and for whom. Recently, Greenblatt led a reporter on a tour of several family-owned factories, all with local roots stretching deep into the last century. Neither high-tech clean rooms nor dark Satanic mills, these businesses suggest the direction America’s small manufacturers are heading.
New technology: Danko Arlington.
John Danko has worked more than three decades in the factory built by his grandfather from cream-colored Patapsco quartzite. “It is the state stone of Maryland,” says Danko. “My grandfather was very pro-Maryland.”
Founded in 1920, Danko Arlington long employed skilled tool-and-die makers to build castings for everything from train components for the B&O Railroad to seat brackets for Memorial Stadium, where the Orioles and Colts once played. During an age of master craftsmen, Danko in 1940 launched Maryland’s first apprenticeship program, requiring 10,000 hours of training. But today, in the neighborhood of boarded storefronts and weed-choked lots where Danko occupies three buildings, “most applicants might not even stay five weeks,” says Danko. “We have a lot of no-shows for interviews.”
As the craftspeople retired or died, Danko bolstered his labor force with nontraditional hires, including Afghan and Syrian refugees. A third of his employees are ex-offenders. In the mid-2000s the last residual of Danko’s apprenticeship program–a company veteran of 58 years–retired. “I thought, He will never be replaced by another human,” says Danko. “He will be replaced by a 3-D printer.”
Danko isn’t printing the products, chiefly aluminum and bronze parts for military equipment, that walk out his factory doors. Rather, it uses the technology to form molds and casts into which molten metal is poured to create those products. The company is a remarkable amalgam of the latest technologies–representing an aggregate investment of more than $1 million–and processes that look almost medieval.
For most of the company’s existence, skilled workers would manually shape each product in wood. The form was then packed in a mixture of sand and glue. Once the glue cured, the wood was removed and molten metal poured into the cavity. “The aluminum ingots come from Russia,” says Danko. “It becomes American metal when we melt it.”
Today, by contrast, employees design the part in CAD. One of two printers produces a plastic version, and the old process picks up from there. But Danko is poised to buy a German machine–still in R&D–that will print the molds themselves from sand.
The combination of cutting-edge and older techniques is typical of small manufacturers, which can’t afford to replace everything at once. The new technologies enable production of shorter runs, ranging from one piece to 100, says Danko. That keeps companies like these competitive with much smaller orders.
And, yes, the technology allows the company to operate with fewer people. But those people make more. Average starting pay at Danko is between $20 and $30 an hour.
Even with the technology boost, Danko’s workforce is still leaner than he’d like. The company struggles to attract young people to what at first glance looks like a legacy smokestack company. “We have been hosting tours from high school robotics leagues,” says Danko. “Middle schools. Scouts. Colleges. We make parts for the Johns Hopkins University Baja team. Kids come over here and make castings for their transmissions.”
“We’ll do anything to get the word out that manufacturing is cool,” says Danko. “Manufacturing is fun.”
New model: Lion Brothers.
For decades, Lion Brothers, an embroidery company founded in 1899 in a Baltimore carriage house, made badges for uniforms worn by federal border patrol officers. Then in 2013. the government, in a decision whose irony was lost on no one, moved uniform production to Mexico. That contract “was the glue that had people here 20 years, 30 years, 40 years,” says Lion’s owner and CEO Suzy Ganz. “They put it on the other side because of cost.”
It was both insult and injury to a business whose products have adorned the sashes of Girl Scouts since the 1920s, the uniforms of soldiers in World War II, and the space suits of Apollo- and Shuttle-era astronauts. Ganz’s father acquired the company in 1978, and she took over after his unexpected death. Lion had already been outsourcing to China to survive the shifting economics of the textile industry at that point. Ganz mulled shutting down U.S. operations entirely. But loyalty to long-time employees spurred her to try something else.
The company’s oldest customers were the Girl Scouts, whose badges Lion manufactured in Asia. Ganz proposed re-shoring the products to a new, much-smaller facility in Owings Mill, a suburb of Baltimore. There, Lion–like Danko–would deploy new technology, including textile lasers and digital stitching machines, to economically produce very low-volume orders. The Scouts’ Web-based make-your-own-badge program, which allows girls to choose from such esoteric subjects as “heirloom seed saver” and “karaoke queen,” is one result of that arrangement.
In a large bright room about 25 of Lion’s veteran workers operate the new machines that turn rainbow spools into cheerful emblems of accomplishment. “We call this a micro-facility purposefully because it is the smallest,” says Ganz.
The Scouts are Lion’s largest customer by revenue but account for just 5 percent of its volume. The rest–including insignia for many sports teams and universities–is produced in China, home to the bulk of its 500 employees. But the micro-facility houses another department that Ganz hopes will one day allow her to bring more production stateside. “The R&D aspect of Lion is first and foremost today,” says Ganz.
Lion’s young R&D team, led by a PhD in materials science, works in a lab that adjoins the factory floor. Using equipment like a spectrophotometer, which measures light absorption by chemicals, engineers push the edge on textile digital printing, which makes up 40 percent of Lion’s business. The company’s innovations include extremely lightweight numbers for use on athletic jerseys and special inks that allow the company to embed messages within insignia that are only visible under ultraviolet light.
“If our legacy competency was about embroidering, our competency today is about lasers,” says Ganz. “We have a slew of patents.”
Ganz hopes the introduction of more high-tech goods will allow the company to begin repatriating production, ideally to additional micro-facilities–which she calls “pods”– located close to large customers. “Things are developed here and prototyped here,” says Ganz. “For now they are made offshore. Tomorrow they may be here.”
New markets: Tulkoff Food Products.
Phil Tulkoff cannot state definitively that the cavernous room stacked with two million pounds of horseradish trussed in blue plastic bales is the country’s largest repository of the odiferous roots. But it’s gotta be in contention.
Starting in the 1930s, Tulfkoff Food Products made its name with horseradish. Today the company also makes an assortment of aiolis, sauces, garlic and ginger products. Still, “product variety is probably our weak point,” says Tulkoff, third-generation owner of the business, which occupies a modern industrial space on a repurposed army base close to Baltimore’s port. Instead the company focuses for growth on new markets–specifically co-packing.
Tulkoff knew he had to diversify from the moment he joined the family business in 2005, taking over for a pair of professional managers. Back then the company was 95 percent food service, selling to distributors who in turn sold to restaurants. “The downside is that distributors control that chain,” says Tulkoff. “It was becoming difficult. Pricing was getting a lot more squeezed.”
Another downside became evident in 2008, when the economic downturn emptied restaurants. Profits dropped substantially, and the business was forced to reduce benefits.
Fortunately, Tulkoff had already begun the surge into co-packing, which now accounts for 35 percent of revenues and is the company’s fastest growing segment. Like the other manufacturers, he switched to lean production methods and invested heavily in technology.
Tulkoff’s most impressive feat of automation is a mammoth one-of-a-kind root-washing machine that the company designed itself. It takes up an entire room. Horseradish roots–ghostly white and misshapen, like artifacts from The Blair Witch Project–travel from a vast rotating washer along a conveyor belt through several inspection points, into a grinder and, finally, to a ribbon blender where they’re combined with vinegar, salt, and other ingredients.
The machine reduces by two-thirds the number of people needed to clean and grind roots. A robot now moves product to pallets, a job that once required two workers. Tulkoff says automation has cut about 10 jobs from the 76-person workforce. (More efficient processes knocked off a couple more.) But he has also created new jobs, for example by bringing equipment sanitization in-house rather than hiring a contractor to do it.
Other new positions are a response to regulations, which Tulkoff–like most of the other manufacturers–rail against. For example, the company now employs six quality inspectors where it used to employ one. “That is driven by the new food safety regulations that came out after 9/11 and the new quality standards that everybody is requiring,” says Tulkoff. “I’m not saying there is anything wrong with them. But it really has ramped up the cost.”
New optimism: Marlin Steel.
New technology, a new business model, and new markets all contributed to Marlin Steel’s dramatic turnaround in the early 2000s. Greenblatt has told this story many times in many forums. He acquired Marlin, which originally manufactured baskets for bagel-makers, in 1998. Five years later China started selling in U.S. markets a comparable product for less than Greenblatt spent on steel. “Extinction was our obvious path,” he says.
Then one day Boeing called with an order for 20 built-to-spec baskets meant to hold airplane parts. “I said, ‘Yes, but we will have to charge you 25 bucks instead of our normal 12,'” says Greenblatt. “He said ‘OK.’ That was the epiphany.” Marlin pivoted from the “hellish commodity market” to custom designing and manufacturing highly engineered products for industrial clients on tight deadlines. Greenblatt trademarked the slogan: “Quality, Engineered, Quick.”
Today Marlin ships eight times more than in its bagel-basket days. But with a workforce of 30, it employs just 12 additional people. Employees, who write software, manage robots, and monitor quality, make 4.5 times as much as their predecessors, who bent wire basket rims by hand. Moreover, “When I first bought the company there were three guys without fingers and two guys without an eye. I bought a Dickens novel,” says Greenblatt. Now Marlin has gone more than 3,000 days without an accident. A banner on one wall celebrates an OSHA award to the company for its safety record: a designation that exempts it from surprise inspections.
In Marlin’s unfussy lobby a “Welcome Governor Hogan” sign is still up from a visit the day before. Larry Hogan, Maryland’s Republican governor since 2015, is refreshingly responsive to the needs of the industry, says Greenblatt. The jobs bill that Hogan presented to Marlin’s staff and 40 small manufacturing CEOs gathered for the event featured a state-supported apprenticeship program, tax breaks for manufacturers creating jobs in high-unemployment zones, and a 10-year exemption from state taxes for new manufacturers creating jobs in those areas.
The legislation also raises the cap on accelerated depreciation from $25,000 to $500,000–in line with that of surrounding states. “I have been working with Maryland to try to get that enacted for years,” says Greenblatt, with evident satisfaction. “What we have now is woefully inadequate. You can’t even get electricals for $25,000.” (Trump has proposed letting manufacturers immediately expense capital investments, which also makes Greenblatt beam.)
And Greenblatt is buoyed what he calls the “stunning outcome” to Baltimore’s recent attempt to raise the minimum wage to $15, a proposal that caused a furor in manufacturing circles here. City council passed it, but the Democratic mayor vetoed it. (The council may still override.)
Like many small-factory owners around the country, Greenblatt applauds much of the Trump administration’s manufacturing agenda. High on that list is the promise of regulatory relief. Citing a National Association of Manufacturers study, Greenblatt says compliance costs small manufacturers $34,000 per employee per year. “For guys like me that is terrible,” he says.
Until recently, Greenblatt was more ambivalent about trade. “I was a big proponent for TPP. I think NAFTA is good for our country,” he says. But in a recent meeting with Mike Pence, the vice president assured Greenblatt the administration still wants trade deals. The difference is they’ll be bilateral instead of multilateral. “Their thrust is that is when America sits down with Peru or Vietnam or New Zealand, we are going to dictate the trade deal in a much more powerful setting,” says Greenblatt. “When we negotiate with 14 countries at a time, it waters down our impact. I had not thought of it from that perspective.”
Such policy shifts, as well as what he sees on factory floors in Baltimore and at small manufacturers across the country, make Greenblatt very bullish about the future. So bullish, in fact, that he recently embarked with two partners on his very first startup: a maker of industrial robots called Ready Robotics.
“Automation and robots are going to make U.S. manufacturers more competitive,” says Greenblatt. “There are new innovations coming out all the time. Policies are changing. There’s more appreciation for intellectual property rights.”
“I see a confluence of positive developments,” says Greenblatt. “American manufacturing is going to have a renaissance.”
Source: Google news - Steel production