Made in the Bay Area
Secrets of Manufacturing Innovators
PDF of the Made in the Bay Area: Secrets of Manufacturing Innovators Booklet from the San Francisco Business Times October 4th Issue
On September 18, 2013, the San Francisco Business Times sat down to talk about the future of manufacturing in the Bay Area with a group of CEO’s of locally based manufacturing companies and expert advisors. The conversation was hosted by accounting firm Sensiba San Filippo LLP, and moderated by San Francisco Business Times publisher Mary Huss.
Panelists (in order above)
Karen Burns – Partner, Sensiba San Filippo and President & Co-Founder of East Bay Manufacturing Group
Jane Metcalfe – CEO, TCHO
Kevin Kelly – CEO, Emerald Packaging
Robin Azevedo – CEO, McRoskey Mattress Company
Mark Dwight – CEO, Rickshaw Bags and Founder of SFMade
Michael Shabaka – Industry Manager, Manex Consulting
MS. HUSS: Thank you, all. I know you’re so busy, so thank you, because this is valuable time.
And we’re going to listen to you today talk to us about manufacturing in the Bay Area and some of the things that are unique about your own operations and your own concerns and considerations and organizations. And then, again, what’s unique about the Bay Area and this whole concept of local. Right?
And I’m sure we want to learn a little bit about how you manufacture and where you manufacture and that sort of thing. What it is that makes your organizations unique, and Bay Area manufacturing really work. Or, if there’s some challenges that need to be addressed, we’ll get into that too.
So, Karen, anything you want to say in kind of an opening context?
MS. BURNS: Sensiba has a real passion around manufacturing. We work with a lot of manufacturing clients. We, as a result, have tried to penetrate in terms of manufacturing clients, understand what is going on in the manufacturing community and really get the word out. And that’s one of the reasons why I co-founded the East Bay Manufacturing Group, was to have a forum to be able to bring manufacturing executives together to share and learn best practices and really talk about the issues that are going on and hear from folks who can help make things easier or help kind of at least try to mitigate some of the challenges.
So as a result, I have immersed myself very much in the last five years at anything I can find out about manufacturing and going to conferences and meeting with manufacturers and taking tours and doing things like that, and really have discovered manufacturing is not dead as a lot of people would like to think that it is. I’ve forged a great relationship with Manex, and then decided that creation of a forum called the East Bay Manufacturing Group made a lot of sense to do, really to get the word out to everybody else.
So then this forum was formed and, now we’ve got National Manufacturing Day and it’s turned into a week with lots of different events that we’ve got going on. This would be a great way to kind of kick that off.
And so thank you for agreeing to kind of work with us to help make this happen, and to everybody for being here to contribute your ideas so that we can get the word out and get people really excited about manufacturing because, we’ll talk about it, but some of the questions are: What are the issues? And I’m sure work force is going to be close to number one. So the better we get the word out that manufacturing isn’t dirty and it can be kind of fun, I think helps as well.
MS. HUSS: Yes. And so it’s something we’re very interested in, at the heart and soul, the great, most interesting and compelling stories really are companies like yours. Michael, anything on behalf Manex that you want to say?
MR. SHABAKA: Manex is glad to be here. There’s a lot in the pipeline in terms of opportunities for us to work with manufacturers. There’s a lot of services, a lot of value-add that we bring to the table with businesses. And we’re really excited that manufacturing is picking up. It really is, as Karen says, a base for the economy in the Bay Area, the trickle-down effect, the fact is manufacturing jobs brings in a number of supporting jobs that tie into that. And that was really evident when the NUMI plant closed, how important manufacturing is to the Bay Area.
MS. HUSS: Great. So what we’re going to do is this: Everybody will have a chance. We’ll just go around the table and get a good, clear introduction, and then we’ll get into more of the questions.
So my opening for all of you is: Give us that brief snapshot of your business, get size and scope and kind of the age of the business. Not your age. The age of the business. And, again, keep this to what is that unique product mix and where do you manufacture, kind of where and how, so we get the essence of you and your relationship to local manufacturing and that thing that maybe is unique about you.
So I’ll start with you, Kevin.
MR. KELLY: I’m Kevin Kelly. I’m the CEO of a company called Emerald Packaging based in Union City, where we manufacture. We’re 200,000 square feet, 250,000 employees — 250,000, geez. I was in Boise yesterday, so I’m tired. “250” employees. 250,000. I would shoot myself. 250 employees.
And we operate 24/7, 362 days a year. So we’re very, very, very busy. We manufacture packaging that you basically find in the grocery store. So if you were to go buy salad in a bag or potatoes in a bag, the red bags, those are the kinds of packages we make. We’re not in the grocery carry-out sack business, which obviously has been under a lot of attack in recent years.
We’re celebrating our 50th anniversary this year. We were formed in 1963 by my father and three partners. We became a family business in 1993. And I became CEO in 2002 after a couple other jobs. And we were 18 million then, and we just crested 80 million this year. So we’ve been growing fairly quickly in our sector.
And our advantage really is that we focus on produce. And we’re located an hour and half from Salinas, three to four hours from Bakersfield and two days from Yuma. So we’re really able to support that industry. On top of that, there has been consolidation and a number of companies in our area have simply gone out of business.
I would say 20 years ago, there were about 25 companies that do what we do. And today, there is one left in the Bay Area. And that’s us. And so I don’t know if you call that a competitive advantage, but it probably is. I like to think of that Woody Allen statement: “If you stand around long enough, something good will happen.”
So we’ve managed to stand around long enough, and good things have happened.
We’re happy to be in the Bay Area. I think there are real limitations, obviously, and challenges we face, but I think there are a lot of opportunities too, and we’ve benefitted from them. So I’m happy to be here.
MS. HUSS: And are all 250 in the Bay Area?
MR. KELLY: We export to Mexico and have one poor guy down in Mexico, where we export packaging. But, otherwise, they are all in the Bay Area. And I would say of the 250, 210 are in actual production itself.
MS. HUSS: Great. Thank you. Jane.
MS. METCALFE: I’m the president of TCHO Chocolate. The company was started in 2005 when my partner Louis wrote a check to the original founder to buy the equipment to produce our chocolate. And it’s been sort of a crazy ride ever since.
The factory was built, really, starting in 2007-2008. We started shipping our first products in 2008 but really only hit market, both the professional and consumer line, in 2009. At this point, there are 40 employees; most of them are on the floor, the production workers wearing hair nets.
We have a really diverse work force. We have people who don’t have a high school diploma and don’t speak English very well, and we have people who are trained botanists on staff, our chief chocolate maker. A sourcing director who spent 15, 20 years in sourcing commodities around the world from Venezuela to Miami. We source in Ghana; we source in Madagascar; we source in Peru and Ecuador, Dominican Republic.
I think our unique selling proposition is that, unlike you, we have more than one competitor as a chocolate maker, chocolatier. We entered the market in a very crowded time, and there’s been an increase in fragmentation of the chocolate market as opposed to consolidation. So there’s more and more entrepreneurs, more and more people starting chocolate companies.
We’re unique in that we don’t just do things by hand, our artisanal needs making by hand. So we call it “craft.” So craft-style manufacturing that we built from the beginning to scale.
So, in the chocolate market, there tends to be a lot of very small companies who like to do it themselves. We talk a lot about “watching them stirring the pot.” Who do it, say, as a lifestyle business because they like to photograph the cocoa pod, blossom and then stir the pot. And then there’s these massive companies, like Hershey and Mars and the big manufacturers, and there’s very little in between. So we’re one of probably two dozen or less chocolate manufacturers who actually buy from the bean all the way through to a finished product.
But our focus has been on flavor. And that may not sound like a differentiator in the chocolate space, but it’s the flavor of the bean itself that differentiates our bars from each other. And it’s sort of as if you went into a wine store right now. The market is about single origin percentage of cacao, and we want people to think — it’s not like you go into a liquor store and you say “Give me a 13.5% red.” That’s not how you buy it. You buy it based on flavor. Because “I’m having lamb tonight, and I want something that’s going to taste good with that.”
We have three good market strategies, basically. Distribution, direct to consumer and private label. We’ve used private label as a way to grow our business, spread the overhead, gain some efficiency, particularly in purchasing. But what we’re really focused on is growing the chocolate brand. And chocolate brand revenue has been growing 50 percent year over year. The last 12 months, trailing revenue is $6 million. I think we’re on track to do somewhere between 7.5 and 8 million next year. And that’s kind of a magic number for us as we approach 10 million for getting to break-even.
So for us, we are thrilled to be in the Bay Area. We’re located at Pier 17, which is where Green Street meets Embarcadero. We had, as of June 30, over 150,000 people come through the factory in 2013. And that was before the opening of the Exploratorium and America’s Cup really started to generate huge amounts of new visitors to that place.
There were 11 million people last year who walked up and down the Embarcadero. So, really, I think of our factory as our biggest marketing operation. And there are people from all over the world who now know about TCHO chocolate because they just wandered down the street and we said, “Free chocolate,” and they said, “I’m in.”
So there’s enormous challenges for us being located in the city. All of the chocolate factories that have been located in the city have left. Ghirardelli is down in San Leandro, and Guittard is in Brisbane, and there’s a reason for that. And right now we are — my partners like to refer to the San Francisco real estate market as Twitterville. We can go look in the Twitterloin for manufacturing space but, in fact, there are a lot of tech companies that are willing to spend a lot more money for warehouse space than a manufacturing operation can. So that’s a challenge.
Finding qualified personnel, for instance, a plant manager position, is a big challenge because, again in the food business, particularly in the Bay Area, there tend to be very small companies and very large companies; and finding somebody who is entrepreneurial and comfortable in sort of this small, fast-growing company is really challenging.
I come out of the tech world. My partner and I founded Wired Magazine and Wired Digital, and you could just attract the best and brightest to come to the Bay Area with a tech company. This isn’t the same thing. You could talk to people from Guittard and Ghirardelli, but those are over 100 years old so they are being asked to do little tweaks to a system that’s well implanted; whereas we drive 180 miles down the road asking somebody to change the tire.
So we have a lot of challenges. But being in the Bay Area, being at the absolute red-hot center of food innovation in the country, and possibly the world, has been an extraordinary opportunity for us, and we’re very excited to be here. And I’m anxious to plug into this network of manufacturers, just having an opportunity to talk about packaging opportunities or systems and people that can help us grow our business.
So thank you for inviting me, and I look forward to the network this can provide.
MS. HUSS: That’s great. We’ll get more into some of these challenges. It’s interesting, even if you do chocolate and you do packaging, and there’s a cross sharing of ideas and innovation. Right? Okay. Michael, let’s hear from you.
MR. SHABAKA: I’m Michael Shabaka. I’m with Manex. We are a corporation that is a private, nonprofit corporation. We were established in 1995, and we provide services to small and mid-sized businesses in Northern California. We are an MEP, and what that means is that we are part of the Holistic Institute for Standards and Technologies. We’re supported by the NIST, which is the National Institute For Standards and Technology, and our focus is on medium and small manufacturers. We’re based here in San Ramon, in Northern California, so we’re the MEP for Northern California and work with manufacturers and help them innovate, to help them improve their processes to help retain jobs in Northern California.
And we’re also a resource for many manufacturers in terms of special funding that may be coming out for specific types of programs, such as ETP, for example, which is through the State and also a special biotech medical device grant that we’re in receipt of.
So we do a lot of different things across a wide range of manufacturing areas, from food production to high-tech manufacturing to making widgets. There isn’t much that we can’t do. Because we are nonprofit, the delivery of our services is really different from a regular consultant. Whatever we do, we really do it with a lot of passion. The services that we provide, generally you will get a survey at the end of that process that says “Did Manex do what we set out to do for you?” And if we didn’t do what we set out to do, then we do it again. So we really have a holistic approach to what we do.
We’ve been around since 1995. Prior to us being a private nonprofit corporation, we were a part of San Jose State University. But we did separate from San Jose State University in 1995. And we’re based in Northern California, so we cover everything from Fresno up to the Oregon border.
MS. HUSS: Thanks. Okay. Mark, tell us about you.
MR. DWIGHT: I’m Mark Dwight. I’m like you (Metcalfe), a Silicon Valley refugee. 18 years in technology in Silicon Valley. I am the founder of a company called Rickshaw Bagworks. We’re a local manufacturer of messenger bags, backpacks, fashion totes. I am also the founder of SFMade, supporting local manufacturers here in San Francisco; and I’m also a San Francisco Small Business Commissioner. So several hats there in sort of the small business community.
I founded Rickshaw in 2007. It’s self-funded. We did 2 million in sales last year. Just hit break-even end of last year in Q4. And we’ve been teetering around that for the first couple quarters this year. We have 21 employees, 12 in production, doing cut and sewing, we’re in Dogpatch, out past the ballpark. Five people in operations and four people in a retail store that we operate in our factory.
Like you, our factory is our primary marketing vehicle. And I tell people I’m not just in manufacturing; I’m in show business. And we invite everybody to come in and see what we do; whereas many manufacturers either are located in places where you can’t readily go see them or would prefer not to show you what they do because they think it’s a trade secret. Anybody can buy a sewing machine and anybody can buy my product and deconstruct it and it is a pattern for what I do. So there’s no sense trying to keep it a secret. So, instead, we turned that on its head and said and “come on in and see what we do.”
Mr. Rogers had it right when he showed us how to make crayons and slinkies and so we’ve continued the tradition.
We specialize in custom built-to-order product. We don’t carry any finished goods inventory other than in the retail store. So whatever we make is made to order, and we sell directly to end consumers via our website. And we also do more than half of our business with corporations, from start-ups to large companies that want to celebrate their brand in the form of caps and shirts and bags.
So it turns out that the messenger-style bag is part of the sort of San Francisco and broader urban uniform. And so we find lots of business for companies that want to put their logos on bags, to give as employee gifts or as customer gifts and then for events. So we do trade events. We did the TED conference. We’ve done bags for nine TED conferences, if you’re familiar with that. And we just did 2,000 bags for a Mozilla event going on in three countries in two weeks. So things like that.
We tend to get asked to do things very quickly, so we’re fast turn, high quality and highly customized. So we operate in a premium niche in our business.
The bag business itself is a multi-billion dollar business from Wal-Mart to Louis Vuitton. So, no question, there is a market out there. Our challenge is just to find our niche in that market, and I think we’ve got a pretty good place. There’s plenty of business out there; it’s just a matter of going out and getting it.
And so I think that what we’re looking forward to is growing to maybe 5 million in sales. And from there, we’ll make some decisions about what we want to do. But all of our growth is organic. And as a small business owner, my interest is not in being king of the bag business but in just running a profitable business. I tell people “I’m not here to make a killing; I’m here to just make a living.”
I think San Francisco is an essential part of our branding and why I started SFMade. SFMade is modelled after the Intel Inside campaign, Intel Inside technology ingredient branding program. I was in Silicon Valley when that program was launched, and so I was familiar with it. And when I was at my previous company, Timbuktu, another bag company here in the City, which I was part of the turnaround effort and sold that company, and then got fired after I sold it.
MS. METCALFE: That never happens. [laughter]
MR. DWIGHT: I came up with the idea of celebrating what we were doing in the business because I was the one who joined Timbuktu to rescue it from bankruptcy and started manufacturing in China. And so the San Francisco Chronicle ran an article about us in 2004, basically saying we had moved everything to China, which wasn’t at all true. We started manufacturing in China but were growing our business in the San Francisco factory. And they showed a picture of a Chinese worker in the article, and so the immediate assumption, if you did not read the article and just read the headline, was that that was a worker in China. Well, it turns out the Chinese community is the backbone of the sewing community in San Francisco, has been since Levi’s was here. We forget we used to have a thriving sewing community in San Francisco and in the Bay Area. Levi’s, Gap, Esprit. We are literally two blocks from the old Esprit plant in Dogpatch. So I really kind of took offense to that article, and I said, “well, I think we ought to be celebrating manufacturing.” And SFMade, me and everybody else is doing the hard work, making stuff in an urban environment, to celebrate that. It was not designed as a protest, but merely as a celebration of what we were doing. And then also to serve as an open-source model for any other city that wanted to do the same thing. It’s a consumer facing initiative. Though it is a 501(c)3 nonprofit built around the notion of preserving and promoting manufacturing jobs in San Francisco. So it’s not a trade association.
So it’s funded partially by City Hall and lots of other independent funders here in San Francisco.
I love making things, and so that’s kind of what I’ve always — when I was in tech, I was always on the hardware side, never on the software side. So it’s just kind of a continuation of what I like to do personally.
MS. HUSS: Interesting. I’m actually going to just expand so we get to Karen and get to Robin. Just a question I wanted to ask: Are these different organizations collaborating? And, Karen, as founder of EBMG, you can introduce yourself and just maybe address that.
MS. BURNS: Perfect segue, because I was going to say: Yes, as company founder of the East Bay Manufacturing Group, one of the things that I did relatively early on, once we kind of got the concept around what is this East Bay Manufacturing Group and what do we want to do with it, we said: Okay, we’re starting to gain a little traction. I need to reach out to somebody that I’ve heard of, named Kate Sofis. Her name came to me as this SFMade executive director. And I need to see what’s going on over there because we might want to be the SFMade in the East Bay. And so we actually did do quite a bit of collaboration.
And to just step back for a moment to do the introduction part: For the record, I’m Karen Burns. I am a partner with the CPA firm Sensiba San Filippo. We’ve been around 30-plus years in the Bay Area. We are a regional accounting and financial consulting firm, and one of the areas that we specialize in is serving the manufacturing community. So it can be through traditional tax work, audit work, typical compliance services you would expect, but also a lot of additional services relative to the growth that is starting to occur again. Finally. Yay. And that is: How do you manage that cash flow gap? Where is access to capital? And so I have a strong passion for that.
As a result, I decided that I wanted to really hang out with the manufacturers because then I could learn more about manufacturing and be a better advisor to my clients. So I started looking for organizations I could be a part of.
My headquarters are in Pleasanton. I live in Fremont. So I’m on the east side of the bay. Very familiar with the manufacturing that goes on in 880 corridor, particularly around food production, but a lot of other things as well. The port, rail, airports, all that kind of stuff. So I was finding that there wasn’t a whole lot necessarily that was happening in the East Bay, other than the occasional event that Manex would put on. So I was finding that I was having to go into the City to find out some things. So then I said let’s establish an organization in the East Bay.
So I got together with a few others, Steve Tessler, with California Bank of Commerce, and is on the board of Manex, being one of them, to collaborate, sort of a coffee klatch going on, and ^ Bill Grad of Manex was part of that, to say: What should we do? And kind of surveyed manufacturers to say: If we build it, will you come? Does it make sense to have something?
So what’s resulted is the East Bay Manufacturing Group. We’re committed to holding events once a quarter in the East Bay. But anybody can come from anywhere. So if you’re coming from San Francisco to our event in Oakland, it will probably be a little easier for you to get to that than in Oakland trying to get into the city for a BART-less event.
But really, just because there is a significant amount that is going on in the East Bay, we’re going to host the events in the East Bay. The purpose is to provide a forum for sea-level executives to network with each other and share in best practices. And we have keynote speakers and panels and different hot topics that are going on in factories. We have an event on manufacturing week. We start on October 1 with the San Francisco Business Times event. Sensiba San Filippo is a sponsor of that but also East Bay Manufacturing is sort of a partner organization, but then on October 2 we’re going to be holding events specifically on hot topics for manufacturers. And we’re going to be talking about the healthcare reform because as of October 1 there’s some things you’ve got to do. And talking about timely issues around expiring tax provisions or new incentives or just the different kinds of issues that are going to be kind of important to manufacturers.
So anyway, we founded this organization. We’ve been holding events. The response has been great. It’s been growing. One of the things that differentiates our group from some of the other events that go on is that it’s exclusive to sea-level manufacturers. So I know those of you who are manufacturers around this table, you’ll go to an event sometimes and there are a bunch of service providers and you sort of get bombarded, and you really want to kind of hear from other folks that do what you do. So we’re very, very good about that screening.
We’re a little bit different than SFMade. At this point, we’ve decided not to do any advocacy in terms of political, if you will. We’re still fledgling; we’ve been around for about a year and half, but we’ve put on seven events and have been very successful. We do quarterly newsletters. Feel free to go up to our website and find that. We don’t spam, just give really give good topical information.
But we do collaborate with SFMade. One of the things SFMade did that Mark did not happen to mention, but I will, is they are one of the co-founders of the Urban Manufacturing Alliance. That’s a very important group to be aware of as well because — I think it’s New York is the other co-founder, basically saying there is a lot of urban manufacturing that’s going on. And there are SFMades and EMGs all around the country, actually, and let’s figure out a way to convene and to share.
There’s a LinkedIn group. There’s going to be the second annual conference that’s going to be held in Oakland on Manufacturing Week, on the 3rd and 4th, or 2nd and 3rd. I think kicks off the night of the 2nd. To basically foster those kinds of collaboration and say there is manufacturing going on in urban settings and we should celebrate that, and how do we help each other in each of these different urban areas so that we’re not each re-inventing the wheel.
MS. HUSS: Very interesting. I would love to get a listing of all of these groups and get it all worked out. Now we have Robin.
MS. AZEVEDO: Good morning. I’m Robin Azevedo with McRoskey Mattress, which is a mattress manufacturer and retailer in San Francisco. We have a showroom also in Palo Alto, but we’ve been in business since 1899. What we make, we sell directly to the user. And what we make, we make from scratch. So we buy wood, wire and fiber and make very comfortable mattresses and box springs.
So our factory now is located in the flats of Potrero, south of Dogpatch. I guess just outside the neighborhood.
MR. DWIGHT: You can consider yourself Dogpatch.
MS. AZEVEDO: We’ve manufactured for years on Market and Gough on four floors, so we’ve happily gone from up and down manufacturing to a better plant. And we are very happy to be in the Bay Area. As long as I’m involved, I wouldn’t leave the city. And it’s been a great marketing statement to say and play on that, “made locally” and actually our tag line is “locally made, universally adored.” We will ship anywhere, and we do. Mostly Bay Area.
So we have 36 employees, about 20 in production and the other is admin and sales floor, engineers. And our revenue is about 7.5 million. It’s been higher. We suffered through the 2008-‘9 stuff and got more efficient. The blessing of that is you learn how to do that.
I would like to play on factory tours. Actually, market into that a little bit more with a QR and a poster in the window so you can do a virtual tour and take advantage of the walk-by traffic, which in Palo Alto is a little bit more leisurely than San Francisco. But we’re on Market and Gough and that’s really, I suppose, in the middle of all the high-rise going on and getting a little bit more foot traffic there. Not quite the…
MS. METCALFE: Embarcadero.
MS. AZEVEDO: — Embarcadero. I don’t think we’ll ever quite be that. No water.
And challenges are just, I think, when you manufacture it’s sort of like a sports game all day long, and part of the sport is you can go to work all day long and seem a little bored doing what I’m doing. You’re always staying focused and needing to change and not come to the end of the week and say, “Oh, we didn’t make numbers.” You’re really watching that all the time.
We’ve had an employee that hired on as HR. We are a union shop. She had a background in working with union employees really in the hospitality industry, came to work for us in HR. She’s now in charge of manufacturing. And the reason that happened is she’s really good at HR, managing people, has that kind of ability to dig in her heels and keep on point with people. So if somebody is upset, she can really keep an even keel and keep on point and get to a solution. So that’s just really interesting. And then she’s a bit of a street fighter. But that’s good. But that’s a person that I would be worried about should she leave, where do you find talent like that?
MR. DWIGHT: We have a den mother that runs our shop too.
MS. AZEVEDO: So, we’re higher end. We manufacture about 40 mattresses a week because that’s what sales are, we tend to build to order. We are always building components. We sometimes have some stock that could be delivered the next day, but we’re not out there advertising next-day delivery like all the competition does out there.
So, to us, everything is really competition. There’s a lot of noise in the mattress industry, so it’s learning how to hold us up and separate ourselves from the riffraff that’s out there. But it’s a business my grandfather started and my dad and uncle. And I wandered in when I was about 40. At that time, it was a situation where everybody had been there forever and 40 was young to that group.
MR. DWIGHT: You were the kid.
MS. AZEVEDO: And they were delighted to tell me anything. And I was sort of returning to work on a part-time basis, because the kid was little and then — so it was not an intentional career path. And I got hooked. So it’s really interesting. And what really hooks you — or at least what hooked me was we sell to the sleeper, the user. And you feel really responsible to the customer. You have a transaction; you sell the mattress, and then you want to be sure they are sleeping well. And we’re available; if there’s an issue, we can respond to that. So we all like doing it, and I think everybody that works there is hooked on what we do, how we make it.
MS. METCALFE: We talk about that chocolate is such an intimate relationship; it’s something you’re putting in your body, the ultimate consumer confidence. And sleep is right up there. Intimacy and connections.
MR. DWIGHT: Direct manufacture used to be a way of saving money. Go direct, save money. But today, I think more and more, we’re using direct manufacture as “know the maker.” Using it not as a cost-savings vehicle but as a way of getting more intimate with the people, the process and the company that provides these products. We’re the same way. We get e-mails every day; people say “I love my Rickshaw bag.” And that’s really important to us because when we get an e-mail and someone says they are disappointed in their product, “Oh, my God, how are we going to fix this situation?” And that intimate relationship between the manufacturer and the actual maker of a product and the consumer is something that I love about running my own business, and it’s why we do very little wholesale business. We don’t have retailers standing between us and the customer. For one, we’d just end up lower on the food chain; so we’d like to take as many mouths out of the distribution process as possible because that’s tough — for all of our businesses, it’s tough to make money. And there isn’t any business that’s not competitive in that way.
But manufacturing, I think, is particularly challenging to get yourself in a place where you’ve got margins that make it profitable. So Internet technology has made it much easier to go direct to consumer and, I think, in fact, vice versa. It’s made it much easier for the consumer to go direct to the manufacturer. And so that dialogue is vitally important to us.
MS. HUSS: Yes.
MS. AZEVEDO: “Know the maker” is a great phrase because “factory direct” for years sounded — it had appeal at one time, but kind of…
MR. DWIGHT: It sounded like you were going around your distribution network, so you didn’t really want to broadcast that. But today, I think — we just set up our business that way. We just can’t feed the retail beast. And, in fact, that’s where the heavy hitters are, you know, duking it out. And I tell people if I get into that ring, I’m going to get a bloody nose, whether by a head-on punch or someone’s elbow, and I don’t want to be there. And I think there’s plenty of business that’s not in that arena for us. Customization and, increasingly, locally made, whether made in U.S.A. or made in Switzerland, but wherever, you might just call it “not made in Asia,” “not made in some anonymous factory somewhere.” I think people really are getting back to “I want transparency.” That comes with the Internet. “I want to know more about these companies.” And I find it so ironic when I see “made ethically in China.” Well, okay. How would you even validate that? Not to say that there aren’t ethical factories. Again, I have no…
MS. METCALFE: Based on whose ethics?
MR. DWIGHT: — no issue with worldwide trade and overseas, other than obviously environmental and social issues that come with it. And so it’s like, “Oh, my God,” it’s like everybody calling themselves “green” and now everybody is going to be “ethical.”
MS. HUSS: I’m going to jump in with another question. I’m going to actually get back over here to Kevin. Really, what is it that keeps you up at night? That’s the mattress thing. But what keeps you up at night? So what are really the top challenges to manufacturing companies here in the Bay Area or for your company specifically?
MR. KELLY: From what I hear, we’re very different from everybody that’s around this table. We’re a much larger company. We’re selling to very large companies. We’re going around our customers very often directly to Wal-Mart and Super Value, very large grocers and retailers. We’re selling to the industrial, if you will, agricultural companies. Dole, Del Monte and so on and so forth.
So our relationship to our customer, the ultimate end customer obviously is remote. We don’t have a strong relationship with — I don’t know that we have any relationship with the people who actually buy Dole’s product. Dole has that relationship.
So in terms of manufacturing, I would guess we’re much more large scale than what’s around the table. And I think that if the Bay Area is going to only become a group of niche manufacturers whose relationship is solely with the customer, then manufacturing really, other than curiosity, doesn’t have much of a future in the Bay Area. The multiplier effect of us, at 250 jobs, 80 million dollars in sales, we figured was about 2,000 jobs directly in the Bay Area. To some degree Los Angeles, unfortunately, because I don’t like L.A., but we have many suppliers down in Los Angeles. That’s the way it goes.
But what keeps me up at night? Everybody around the table, everybody does share probably the same issues that keep them up at night. What’s going on in the factory at night keeps me up at night. Even though the factory runs well at night, I’m down at the factory at 11:00, 2:00, 5:00 in the morning, just dropping in and seeing how things are going, talking to the employees, getting their ideas, but also making sure the machines are running efficiently.
So I’m worried about productivity. I’m worried about quality. I worry about the work force a lot. The same issues. Again, even though we’re larger, that probably complicates matters even more. If we lose a plant manager, where do I go find a new plant manager? Same issues. While companies were going out of business in our sector in the area, we were able to grab the best of those people. But all of those companies now have gone out of business.
MR. DWIGHT: You’ve harvested that.
MR. KELLY: We’ve harvested that. Where do I go to get the next generation? Because they are not obviously out there. So we’ve begun to form relationships with universities, whether they are in Wisconsin, San Luis Obispo, Lowell, Massachusetts, where industrial engineers are being graduated, programs focusing on packaging, students are being graduated. We’re trying to recruit from those areas.
For instance, our director of operations is a young woman, 34, who immigrated from India and went to school in Wisconsin, went into packaging with a large company in Wisconsin. She happened to move to the Bay Area and found out about us, joined us as a process control engineer and worked her way up. And so that’s what we’re finding, is that we have to bring people in at lower levels, train them up and train them in our culture. Because when you have, I think, a much different culture than many other manufacturers in terms of our emphasis on up time — we’re way beyond the industry in terms of industry up time, the speed. Our presses, average speeds are much higher. Union people come in and leave, in general, within two weeks because they think we’re a sweat shop because we run fast.
If machines go down, if we’re not producing, then we’re not making money. So, again, probably that’s something we all share.
Cash keeps me up at night. Ever since 2008, I watch what’s in the bank really, really closely. Probably more closely than I did before that. I’m not a favorite customer of Wells, in part because we don’t go into our line of credit very often. If there’s another downturn, if something happens in the economy — we’re talking about Syria right now; but in the next two or three weeks, the most important issue in the economy is 6 going to be whether the government shuts down and defaults and interest rates go up and everything that follows from that and the potential of recession because of that. And if there’s a recession, people quit buying. People start buying heads of lettuce instead of salads, and that affects our bottom line, which then affects our cash flow, which then potentially puts you into your line of credit, where I don’t want to be. And so you end up — I spend a lot of time looking at inventory, at finished goods and reducing these things so that we keep a very comfortable cushion in the bank in case something happens. And very often it’s something that happens, obviously, that we can’t control.
The other thing I guess that keeps me up at night are just customers, because we have very large customers. We worry about customer consolidation and what that could potentially do to us. And in that regard, I also worry about just being in the Bay Area because, as our customers consolidate, we’re shipping across the country and shipping rates are insane. Sending a truckload quantity to Atlanta is 30 cents a pound, and that’s a big part of margin. 10 years ago, it was probably 10 cents a pound. And just with the increase in diesel and the consolidation of the trucking sector, rates have gone up.
So I’m increasingly thinking about a plant in Texas. Not because of the costs in Texas, but because our customers are along the East Coast, Mexico, and I have to have better proximity to them. I have to be able to lower my transportation costs. And so I think we’ve gone about as big as we can in the Bay Area, which is pretty substantial. But if we are to continue to grow, I think it has to be outside the area.
MS. HUSS: And would you be here and in Texas?
MR. KELLY: Oh, yeah.
MS. HUSS: There’s the Texas land grab going on.
MR. KELLY: I could never live in Texas. Forget LA. We understand, just like everybody else here, that part of the reason we’re here is because we love the Bay Area. When my father was running the company, it was him and the production workers. We have engineers now. We have six, seven engineers. Engineers come to the Bay Area. I can find good engineers in the Bay Area who can help in manufacturing, who can help create new polymers, who can help differentiate our packaging by figuring out how to use lasers to extend shelf life and whatnot. I can’t find those in Amarillo, Texas. And I can’t find the 49ers in Amarillo, Texas. [Laugher]
MS. HUSS: So I wonder for large and medium, and small, what are the things about the Bay Area, and you could extend that to the state, that are attractors and benefits, and then what are the detractors? I sort of have this in our questions, but what are the things that need to be addressed? Are there a couple of things that would make it easier? And what are the detractors to having a manufacturing business in the Bay Area? Or in California.
MR. KELLY: I think for all of us, proximity to customer to some degree. My customers are an hour and a half from me. If they have a manufacturing emergency, I can respond. My competition, if it’s on the East Coast or somewhere else, it can take two or three days for them to respond. We’re quick turnaround. One of the ways any of us differentiate ourselves, sounds like, is the ability to turn quickly. And so we have two scheduling meetings a day. We’ll break into production if a customer has a crisis. It’s amazing, even the large guy in the sales department at Dole doesn’t communicate to the production department. So when something goes on ad, production comes running to us three days before and says, “Oh, my gosh, we need a million packages and we need them tomorrow.”
MS. AZEVEDO: And give you the problem.
MR. KELLY: And give us the problem. But we can turn it because we’re close to our customers.
MS. BURNS: One of the things I see across my customer base as a CPA advisor, but also through the folks that I have in the East Bay Manufacturing Group, in terms of a benefit also is the proximity to innovation. You can’t find a more innovative place than Silicon Valley. And I use that broadly because we all know it extends to more than just the Peninsula. But having your manufacturing close to where innovation happens is key. And that’s why we’ve seen a lot of re-shoring happening. “We thought it was going to be less expensive to manufacture abroad,” until they lose control of their IP, until there’s quality issues, until there’s rising costs of fuel to try to get the product back to the states after it’s manufactured. And so there’s that whole re-shoring initiative that’s going on as well and some real cases of re-shoring that are occurring. But then where do you locate? So having sort of a hub of suppliers that are close to you, customers that are close to you, if you have your R&D in house, that’s fantastic. Some small companies have to outsource R&D. And so working with the labs, Berkeley and Livermore and so forth, now, just to have R&D readily available, and they can’t wait to share with those manufacturers. And being able to tap into that, and it happens because we’re in the Bay Area. So I think that’s a plus that I see.
I know you were going to say something as well.
MS. METCALFE: I’ve been saying it for 20 years. It is innovation. There’s a reason why we’re willing to pay a premium to be in the Bay Area. That’s because the whole world looks to us for what the next thing is. The East Coast is sort of a season behind us. And the further east you go, it seems like the further behind they are. You get to Europe and they are five years behind you. It just feels like everybody looks to the Bay Area for a taste of the future. And, literally, “a taste.”
So we are building a global luxury brand. That’s where we want to be. I don’t want to end up chasing after the biggest grocery chain in the country or world because then you get into this position where it’s all about dropping your price. How much less expensive can you make it.
MR. DWIGHT: Commoditization.
MS. METCALFE: Exactly. That’s not what we want to do.
We sell to three Michelin star chefs, and they don’t want to find our same product on the bottom rung in the sales bin or with a big orange sticker on it or what have you. For us, it’s thinking about being modern. California has a tradition, but nobody ever talks about California tradition. If anything, we have a tradition of innovation.
MS. BURNS: Change.
MS. METCALFE: Change. For us, it’s all about making wonderful chocolate because all our competitors have been doing this “just like this” for 100-plus years. And there’s an artisanal maker who is literally using the equipment from 100 years ago, which doesn’t actually grind the sugar down to a nice mouth feel. So when you eat their chocolate, you get these little pops of sugar that hasn’t been refined. So that’s great; you guys play in that field all day long, because we’d like to take the 21st century.
And so for us being in California, I look at the countries around the world where there’s double-digit growth in chocolate consumption. And those countries tend to have emerging middle classes that have more disposable wealth, and they tend to be very brand sensitive. And so for them to find a 21st century luxury brand in California, that’s it. I’ve lived in Europe for 10 years; I’ve traveled all over the world; I’ve done business in Asia and Europe and Latin America. And people always say, “Wow. California.” I don’t know what it means to them. I don’t know what the image is. Maybe it’s Rodeo Drive –
MS. BURNS: The Golden Gate Bridge.
MS. METCALFE: — and the pine trees in Lake Tahoe.
MR. DWIGHT: In our business, we’re using that notion of providence “made in San Francisco” and the fact that we make what we sell. In my business — actually, most manufacturing, whether it’s fashion accessories or fashion garments, apparel, foot wear, are made in anonymous factories in Asia. In fact, many of them are made in the same factories, so there is no differentiation. There’s a lot of mixing that goes on. You’re in your own private room when you’re there with your merchandising person working on your line, but you know down the hall your competitors are there this week, last week or next week. And there’s an awful lot of mixing that goes on there. And, in fact, things start to look very homogenous.
And so we use this notion “we make what we sell,” and it isn’t coming from the same factories that all the other folks’ in our business brands are coming from.
And most brands today, in our business, are simply marketers; they are not makers. And they have lost touch, largely, with manufacturing. As a matter of fact, most people in our business are afraid of manufacturing. They are afraid of overhead, of equipment, people, and all the costs that are associated with that.
MS. BURNS: All the things that Kevin mentioned.
MR. DWIGHT: And they lost touch with their supply chain. I did a talk at Stanford a couple years ago on responsible supply chain management, and my famous quote from my presentation was that the key to restoring integrity in the supply chain was to restore intimacy in the supply chain. And my comment being directed towards companies that not only outsource but completely have abdicated the entire making process to the point where all they do is issue POs. And every time they send a PO, they say “It needs to be 10 percent cheaper this time.”
A great example of this was Mattel. Why did Mattel end up having lead paint in their products? Well, at some point they broke the back of their manufacturer in a PO and someone said, “Hey, you’re a process guy; go find us some cheaper materials.” So the guy says, “I found some cheaper paint.” Didn’t bother to ask why it was cheaper. And so the recall that resulted — and no one ever amortizes the recall into their cost of goods.
That’s a one-time hit to the business. Go talk to Lululemon about the big problem they have right now. Do you think anyone is amortizing that into their COGS, back amortizing, saying, “Gee, if we really amortize over the last 10 years, what really has outsourcing done for us?” Well, they just ate up most of their savings –
MS. BURNS: And reputation.
MR. DWIGHT: — in one huge hit. And it’s generally death from a thousand cuts, not a single big crisis like that. And there’s no denying the arbitrage of labor. We use a burden rate of $20 an hour in our factory to include insurance, benefits and all the stuff that goes along with hiring people here.
In China even the most expensive factories for us are $1.50 an hour. So there’s a huge arbitrage, and even when you add on the cost of transportation, minimum orders and all that kind of stuff, there’s still a pretty big delta.
And there’s a reason why most of my competitors aren’t repatriating into their own factories here in the United States. They are actually looking to Bangladesh and India and Vietnam and Cambodia. “Find another cheap place.” But eventually that game will be played out. Maybe not in our lifetime.
MS. HUSS: I want to ask Kevin, since you were talking about the Amarillo thing, are there incentives that are in this state for manufacturers? If so, what kind? Are there incentives that should be, and have you encountered incentives in other states?
MR. DWIGHT: Or disincentives.
MR. KELLY: There are wild incentives in California I think that manufacturers don’t know about, and it just shocks me. For instance, the PUC has this program administered by Lockheed Martin. If you buy equipment — and we buy very large capital equipment. We just invested in a printing press last year, 4.5 million dollars.
And Lockheed Martin will come in and do an energy audit. And they will they look at how much energy, electricity and national gas you’re saving using this new equipment versus the equipment it’s replacing, which just happens to be from 1969. And they look at it, say, over a five-year period. And in that case, through the PUC we received $200,000 back on that piece of equipment. In one case, we put in a push and control — a piece of push and control equipment and it was virtually paid for, $300,000 paid for by the PUC. And that’s an incentive that I don’t think is widely known out there. It’s one of the best kept secrets. And I don’t mind because that means there’s more money. We go back to it every single year because we’re putting at least a half-million dollars in the factory every single year to stay up with the latest trends, the latest printing or gadgetry. So I think that’s one incentive that’s clearly out there that folks ought to be taking advantage of.
ETP is another. It provides training for your employees, but you can’t be producing product that you will sell when you’re training them, which means you have to take them out of productive activity in order to train them.
MS. HUSS: What is it called?
MR. DWIGHT: Employee training program.
MR. KELLY: And just that’s absolutely California: “We’re going to give you money to train your employees but, oh, guess what?”
MR. DWIGHT: Put your hands out for the handcuffs.
MR. KELLY: “We’re going to handcuff you for 40 hours while you train them.” The other problem California has is, for instance, if you’re investing in equipment versus, say, Texas and New Jersey, we’re charged sales tax. So when we spend a half million dollars we’re forking over $400,000 to the State of California.
MS. BURNS: Can I chime in? Just to be sure everyone is aware: Effective January 1, 2014, they are having a program where you can buy manufacturing R&D equipment and get a sales tax exemption. So that’s a brand new incentive.
Understanding when things expire and when new things come into play is key to planning. For example, the sales tax exemption will be increased and effective state-wide beginning July 1, 2014. This will allow for a sales tax exemption when you buy manufacturing R&D equipment. If you buy equipment before December 31, 2013 you can get extra depreciation. So you really want to talk with your CPA about what is the best way: Am I going to kind of save more money to buy it now or buy it later? Because there’s different incentives and different timing. So understanding when things expire and when new things come into play are also key in planning.
Now, obviously, make the best business decision. If you need equipment today, don’t wait until January. But being aware of those incentives is huge.
MR. DWIGHT: We just got bitten by a business personal property tax, which I had no idea existed. And we got a bill from the Assessor’s Office for a huge amount of money which, ultimately, we got rolled back.
MS. HUSS: That’s a state –
MR. DWIGHT: It’s a state mandate levied by local government, but the state mandates that every city collect a tax on stuff you buy. Everything from, oh, by the way, pencils to equipment. Now, there’s exemptions, there’s a threshold. But just about everything you buy that you paid sales tax on and you bought with after-tax money, they want now to have a property tax on. And they have always had it. We didn’t know about it because we — and here I am, a small business commissioner. We didn’t realize just registering your business with the State did not register your business with the Assessor’s Office. So when we inquired, “Look, we never got a bill for this; we pay our bills”; “Yeah, by the way, you’re not registered with our office, so here’s your bill.”
It was $30,000. We should have been paying about $10,000 a year. We got a bill for $65,000 and then went back and said, “Whoa, what’s going on?” and ended up paying 11,000. We had to pay a thousand dollars in fines and interest, which was fine. But they scared the daylights out of us from the beginning. Then I just became very aware of this. And, wow, one more thing where we’re paying money on money that we’ve already paid money on. And it’s kind of crazy.
MS. BURNS: I don’t know that that’s any different, necessarily, than other places, certainly not anywhere different in California. Those are governed by counties. When you registered with the City, the City and County don’t talk to each other. But it’s a county thing. So if you’re in multiple locations as well, you need to think about your expansion. You say, “Oh, I’m going to not just have my facility in San Francisco; I’m going to have one in Palo Alto as well; now I’ve got a Santa Clara County property tax return I have to file as well as a San Francisco County property tax that I have to file for equipment that’s in each of those different locations.” And the beauty of this is that — I mean, the good part is you depreciate equipment, it’s worth less so you pay less tax except you have to depreciate it differently.
MR. DWIGHT: Totally.
MS. BURNS: It never goes to zero unless you get rid of it. So —
MR. KELLY: And you actually have to physically get rid of it. You can’t leave it. We had equipment disassembled and sitting in our yard and, still, we got nailed on that. We were forced to put it back on. We were fined.
MR. DWIGHT: We just retired a big laser cutter and bought a new one, but that laser is still sitting in our building. And unless I send it off to Recology, I’m not going to be able to take that off my books.
MS. HUSS: Robin, I’ll ask you: What are things that you need? It’s like you need a rule book to figure things out. How do you use advisors? What kinds of things do you need advisors for? I’ll ask anyone. Robin.
MS. AZEVEDO: One of the things we’re struggling with now is our IT system, our software.
MS. METCALFE: Is there any other thing?
MS. AZEVEDO: When I first came into the business, I was sort of horrified when I got into it, thinking our plant manager has been here since ’48; how do we replace him? Or should he retire? And that worked out, et cetera.
But the IT stuff is like every three years. And we’re looking for a software system that somebody makes a purchase and it takes us from production to the delivery to invoicing. And so while it doesn’t keep me up, because I don’t stay awake at night because my mattress is very comfortable — it’s a well-worn line, folks — IT does make me stay awake at night. So that is a concern. And that doesn’t have to do with location. I don’t think about Texas or anything else. I’m not leaving the city. We’re a regional company, and that’s where our customer is. But the software stuff, that would be interesting to know.
MS. BURNS: I hear a lot from my clients as well. And while we don’t, as a CPA firm, some have separate divisions which will actually do software selection and installation. We don’t do that. We have folks we refer out. We do IT audits where we kind of go in and what is the state right now of it? Do you have 12 different kinds of software, none of which are talking to each other? Do you have an integrated platform? Do you have a POS system? If you’re selling directly to customers, you need to have that point of sale. And what are some of the good ones that are out there?
And so, really, a big part of what I’ve been doing is putting my clients in touch with each other, and “This is what I like about my system and/or what I don’t like” and so forth, as well just to, again, have that sharing of what are those key issues.
But inventory management is critical. And most small businesses start out with QuickBooks, and there is no inventory management system. So as you grow, you’re thinking what’s that next level I want to do. Do I want to go to NetSuites or — it’s called something else now. So it’s a huge issue.
There are some platforms out there that are pretty good. I’ve waited for someone to have an inventory management system; and as far as my clients are concerned, it doesn’t exist yet.
MS. HUSS: Interesting. So I’m going to ask you, what is the key to the future of manufacturing in the region, state or what innovation we see on the horizon. What do you see as the future of manufacturing in this region? Are we going to have the ability for larger-scale manufacturing companies to continue to grow and expand and flourish and have the people? Are we going to see more of a — what?
That’s a broad question, and I would like to get everyone to weigh in.
MS. METCALFE: I think it’s a reflection of the California economy. We don’t produce cars, really, in California. That’s not what California is known for. So same thing: Sewing and fashion and all that may be down in Southern California, but it’s certainly not really got a toe hold or any kind of momentum in the Bay Area. So I think it depends on which industries we’re looking at.
I presume that the CPG growth here in California, sort of Colorado west, is going to keep a huge packaging opportunity on the West Coast. Same with food. But, really, I think — I just understand so well how systems can improve your business, whether it’s ERP systems, inventory control, IT systems, or whether it’s new equipment. And it seems to me that the way to build a profitable business — and, in your case, you’ve got people sewing. I don’t know how this translates to equipment.
MR. DWIGHT: We’re monitoring out output realtime. So every time something comes off the line, we see it up on the — we have a counter, and we manage our output every day.
MS. METCALFE: But just continued investment in information systems and infrastructure and equipment. So not getting ahead of your growth is a big trick. And having a really good forecasting system.
I just got an order for 800 cases of baking drops from my distributor on the East Coast. I have no idea who that is for. It just came in. I would like to know who that’s for. And you can forecast growth and then if it doesn’t happen, it’s like, “well, that was stupid.” But if something drops on you, now what?
So whatever you can do to just get tighter and tighter and tighter on your information and on your production.
There’s a book called The Emperors of Chocolate, and it’s really clear that the way those chocolate companies became big, successful, global is investment in equipment. And just make as big an investment as you can possibly support in the most leading-edge, best capability, and then drive your business towards that equipment.
MR. DWIGHT: I like to think there’s opportunity at both ends. I’m a micro manufacturer, maybe even a nano manufacturer. I think that there’s —
MS. HUSS: What did you call it?
MR. DWIGHT: Nano. I think preserving the industries that we do have in the U.S. and preventing them from fleeing for arbitrage reasons, largely labor or cost, general cost of doing business, preserving them and nurturing them. I like to think there is huge opportunity in the Renaissance of micro manufacturing, and I think that’s driven by technology. I think there are tools today — take 3-D desktop printing. When I owned a design firm 15 years ago, we paid an outside service to use a $250,000 laser centering machine to create prototypes. And today, I can buy a desktop printing machine that will probably produce a finer detailed model for less than a thousand dollars. And I guarantee within the next five to ten years, you’ll be able to print just about anything that’s physical that can be made out of plastic or metal in a machine that costs a thousand dollars. And it will print multi colors; it will be a serviceable part. The day will come when somebody comes to service your washing machine and doesn’t say, “Oh, I have to go get that part,” but says, “I’m going to go out to my car and print that part.”
MS. METCALFE: Your son is doing that now. 16-year-olds are designing stuff.
MR. DWIGHT: Whether it’s 3-D printing or laser cutting or, in our case, we’re getting into fabric printing, those digital technologies today and in the future are getting more and more — the price performance is on a steep curve down, and so you’ll be able to have a factory in your garage, not just start a company in your garage. Not of the scale that you’re talking about, but I think that in niche markets, where the products are specialty, both commercial and consumer, that micro manufacturing has a huge future in the United States; and those micro manufacturers are the ones that will ultimately — some of them will become the medium and large-size businesses as they prove out their businesses and invest in their capability.
We’re making a big investment. There’s innovation even in the bag business. And we just spent $70,000 bringing in a dye sublimation printing system to our business where we feel that our competitors, other people in our business, won’t do that and that we will become experts in that technique. So over the next 12 months our goal is to become the experts in dye sublimation printing for printing on fabric for our customers.
MS. HUSS: It sounds, again, if you’ve got the best equipment and best — that’s kind of what Jane said. I’m jumping to a grand conclusion, but: Is that one of the real keys? Because we are in this area with technology and innovation.
MR. KELLY: Sure, it is.
MS. HUSS: The most leading edge.
MR. KELLY: I think part of being in the Bay Area is that you have access to that, that thinking and that equipment. We’re looking at buying a digital printing press that prints in lots of one, changes over in one image, as opposed to 5,000.
MR. DWIGHT: Same reason we’re doing it.
MR. KELLY: And the company that makes those presses is Hewlett-Packard, and they are right across the bay. So we’ve been talking to them for 15 years. And I’m flying to Belgium next week to, I hope, finalize a deal to buy one of the first presses that’s put in the United States.
3-D printing. I want to learn more about it. Today, there’s a conference in San Jose. If I’m down in Amarillo, I’m not going to be able to access that conference. I didn’t know about the conference until yesterday, but there it is.
And different but somewhat the same: Instead of waiting six weeks for a part, we’ll be able to print the part. We’ll be able to, if a gear breaks, print an emergency part and get it in that press and get it back up and running. So I’m really excited about that technology. And I think we have awareness in the Bay Area of those technologies because they are from here.
MR. DWIGHT: Many of them are being developed here. We say “Hi, come try your technology in my shop.” If you’re technology savvy, you can be a collaborator.
MS. HUSS: You’ve been there?
MS. METCALFE: We’ve been a beta site for a number of different software platforms. Magento, Apple has tested a bunch of IOS stuff with us. Being a technology pioneer is a good differentiator. At one point we came really close to getting SAP in to do something for us.
MR. DWIGHT: On the software side we have partnered with Admiral and Square. You can get beta tests or alpha tests with software companies all day long here, especially in San Francisco.
MS. HUSS: So cool.
MS. METCALFE: Especially for manufacturing.
MS. HUSS: I’ve got to go there and learn how to make something.
MS. BURNS: A couple points quickly. The whole 3-D printing is advanced manufacturing that’s going on. And you’re right, it is becoming much more accessible and affordable, but one of the key things so far we’ve talked about it as an element of fixing something, getting that spare part. Kind of producing something once. But it’s really an impact on R&D. If you think again about innovation here, it used to be when you try to say “we’re going to do a new line,” you have the tools and dies and it takes months and you’ve got to create those, and then you’ve got to run a line for a while to see if that works. It has shortened the R&D process from months to weeks, from weeks to days. So everybody knows who’s first to market. Right? How far are you? That’s all a key when you’re producing things.
So increasing speed which, of course, that’s what the Bay Area is all about, right, is speed. So that’s huge.
Comment really quickly on the future and this micro manufacturing. One of the trends that I definitely have seen is the specialization. So, not being everything to everybody. And so if you say “This is what I do, and I do it really well,” I see that as a huge part of the future. Whether it just be micro managers or whether they become very, very large organizations, they are going to be doing a certain thing and they are going to be doing that thing really well.
You see it in food production, where you’ve got, let’s say, the Melt restaurant. Come and get whatever kind of grilled cheese you want. It is not the Applebee’s that has a menu 28 pages long; it is 12 kinds of grilled cheese. And that’s one example of a restaurant, but you see that really in production as well. I see that continuing here, again, because of sort of “know your maker” a little bit too. I want to know that they’re the expert at that, and I want them.
MR. SHABAKA: I just want to screen more off what Karen said. For me being an industry manager at Manex, I talk to, gosh, maybe 50 manufactures in a month and their challenges are like this (gesturing). There’s a gulf. You’ve got the big manufacturer that has resources to buy the equipment, but then you’ve got the micro manufacturer that doesn’t have the money to buy those types of equipment. And it’s like how do those manufacturers take their business to the next step? And there’s a lot of low-hanging fruit. A lot of guys I talk to, they are 20 people or less. These are small guys. They don’t have a ton of money; they don’t have a lot of time to pull people off their production line, as you mentioned, to go through ETP training. So what’s the solution for those guys? And for a lot of them the solution is basic stuff. Low-hanging fruit. How do you become more efficient with people that you have, with the old equipment that you have? How do you capture energy savings? Really basic stuff that I think some of the bigger guys may take for granted. People with deep pockets, they can actually invest.
So I’m finding with a lot of clients that I work with, their challenge is with professional development. How can I take someone that’s been at my factory for 35 years, may not have a college education, but I have to take their skill set to the next level because they have to manage a new labor force coming in. Or how do I take my plant that has a unionized work force and we’re spending a ton of money in terms of medical and benefits and salaries, and how do I take some of that money and invest it into my plant? So I’m finding that a lot of those manufacturers need help with just being efficient and grabbing at low-hanging fruit.
MS. HUSS: Kind of pulling that up is the real focus.
MS. BURNS: And the add on, if you could just touch on quickly, Michael. So one of the things that Michael has access to, he mentioned MEP earlier, which is an abbreviation for Manufacturing Extension Partnership. What that is, that whole private/public partnership and how do you get the money out of the government and into the manufacturers’ hands? And that is what Manex does.
MR. SHABAKA: People see me and think the State doesn’t care, the government doesn’t care. I kind of come in waving a flag, “Yes, we do; and these are services available to you, and this is how we can help.” So we’re definitely a door and a resource for manufacturers that don’t know where to go. You just don’t know what you don’t know. So we come in; we do the assessment, which is oftentimes free. And you have so many different avenues to go in terms of making your business more efficient and more effective.
MS. HUSS: That’s great. So, just sum it up, Robin, the essence of what you think is important for the future of manufacturing in the Bay Area.
MS. AZEVEDO: I feel it’s hard for me to say because we’re so local, and we’ve made up our mind to not look elsewhere.
We’re not out there to make a brand and have other people make it and distribute it. So our future is taking advantage of everything that’s offered, that we’ve been discussing: Innovation, networking, finding out about IT systems that work, paying attention to the customer. And I really enjoyed today, hearing of making location an opportunity, like TCHO Chocolate is doing and you do, Mark, and it’s that walking by the factory, so to speak, and playing on that. So that’s our future.
MR. DWIGHT: We just want to be the best at what we do. When I was as Timbuktu and now at Rickshaw, I have never sort of looked at the world relative to my competitors. I’ve said, you know what, what does that mean? I’m competing with VF Corporation, Mountain Hardwear and JanSport, billion-dollar brands with global operations. I can’t even think about that. It would do me no good. I don’t lose sleep over that one. I just have to decide I’m going to define my business. I’m going to define my business by being the best at this niche that I’m in and try to build some capabilities that I think some of the other people in my business won’t invest in and then just keep telling people: You should come here; we have the expertise; you can trust us.
And sometimes we call ourselves the “Oh-shit bag company.” We get people come in, like you, “I need 10,000 of these tomorrow.” And you’re like, “Well, you’re not going to get those from a boat from China.” Right? And unless you want something totally generic that we can stamp or embroider your logo on, you need someone local who can start cranking them out.
And so even as a nano manufacturer, we have a certain amount of scale that the artisan doesn’t have who is sawing canvas bags by hand. We have 12 people and 20 machines that cost us a lot of money to do what we do in our scale, like you do in your scale. And so we just find we’re going to be of a scale; we’re not going to take the 10,000 bag orders but we can make a thousand bags or 2,000 bags in two weeks. We just did the Mozilla international conference. They needed those. Stuff them and ship them. And in two weeks, we had it done. We had to run overtime to do it.
Know what you’re good at. If we take that large order, we wouldn’t be able to get out the custom orders we’re also taking. So you just have to know who you are and where you can profitably go. And not every job is going to be ours. Matter of fact, while Timbuktu is working on that large order, we’ll be working on all our hundred-bag orders and making probably twice as much profit on them.
MR. KELLY: That’s absolutely true.
MS. HUSS: Well, thank you. I appreciate all the time you gave us. Thank you very, very much.