In this episode, we have our guest Dave Hataj, who describes the role gears play in our society. He also describes the process of gear manufacturing and the nuances associated with it. Finally, he shares several stories related to gear manufacturing and procurement.
Dave Hataj is the second-generation president and owner of Edgerton Gear, Inc., a Wisconsin-based custom gear manufacturer, where he has worked for over 30 years. He’s a journeyman machinist, a former pastor, with a Master’s degree in Family Business Systems and a Doctorate of Transformational Leadership. His innovative approach to small business has birthed two additional businesses, two charitable trusts, and a mentoring partnership with the local high school. He is the author of Good Work: How Blue Collar Business Can Change Lives, Communities, and the World.
We often don’t think about gears because they’re behind the scenes. But I often say that modern civilization would not exist without gears. It is because everything that is made everything from our computers, to our tables, to our furniture, to our clothes, to how our food is packaged, to deliver the chessboard, and everything is somehow made with it.
Growing a business requires a holistic approach that extends beyond sales and marketing. This approach needs alignment among people, processes, and technologies. So if you’re a business owner, operations, or finance leader looking to learn growth strategies from your peers and competitors, you’re tuned in to the right podcast. Welcome to the WBS podcast, where scalable growth using business systems is our number one priority. Now, here is your host, Sam Gupta.
Hey everyone, welcome back to another episode of the WBS podcast. I’m Sam Gupta, your host, and principal consultant at the digital transformation consulting firm, ElevatIQ.
Gears are among the most foundational parts of machines ranging from food delivery equipment to medical devices. While we all may recognize the prevalence of gears, how many of us know that gear manufacturing is almost like surgery? Yes, that’s the kind of precision and expertise required to manufacture gears. Manufacturing them could even be more difficult if you’re dealing with a customer who does not fully understand the engineering behind them.
In today’s episode, we have our guest, Dave Hataj, who describes the role geese play in our society. He also describes the process of gear manufacturing and the nuances associated with it. Finally, he shares several stories related to gear manufacturing and procurement. Let me introduce Dave to you.
Dave is the second-generation president and owner of Edgerton gear, incorporation of Wisconsin-based custom gear manufacturer, where he has worked for over 30 years. He’s a journeyman machinist, a former pastor with a master’s degree in family business systems, and a Doctorate of transformational leadership.
His innovative approach to small business has worked two additional businesses to a charitable trust and the mentoring partnership with the local high school. He’s the author of Good Work, how blue-collar business can change lives, communities, and the world.
With that, let’s get to the conversation.
Hey, welcome to the show, Dave.
Thanks, Sam. Great to be here.
Of course, my pleasure. Just to kick things off, do you want to start with your personal story and current focus?
Well, I’m a second-generation gear manufacturer, and a gear manufacturer actually makes gears for all sorts of equipment, from printing presses to food manufacturing equipment, to making boxes, to all sorts of things, but I never planned on coming back to the family business. I’ve been back here for 29 years. But I grew up in the shop because my parents started the business in 1962.
So as a child, I used to come down to the shop with my dad and put inset screws and wrapping parts and cleaning parts and cleaning machines. So by the time I was 15, I was already running a lot of the equipment, and I became a journeyman machinist. By the time I was 21. But by then, I said I’d had enough. I already have 17 years experience in running and working in the shop.
And I said I’m out of here. So as a 21-year-old, I just wanted to see what was out in the world. And so I kind of ran away from home, and I moved to California. I swore I’d never been back. I didn’t ever want to be in the gear manufacturing industry.
And then, eight years later, I was newly married, trying to figure out what to do with my life. And my dad was actually starting to have some health issues. And he invited me to come back and take a look at the business.
But you have to understand that the business we kind of think of manufacturing often is dirty, dark, and dangerous, and not a great environment. And that’s kind of the way the shop was back then people didn’t like each other. They weren’t getting along very well.
And so I actually came back and did my master’s degree on trying to figure out how to run the business, a family business, and see what would happen if we brought values back into the business and what effect that would have on the company and the shop itself.
So long story short, we plan to come back here just for two years, maybe five years we were thinking of selling the business, and then I’d figure out what I was really supposed to do with my life. That was 29 years ago, and I’m still here.
Okay, amazing. So we have an extended question. And obviously, we are going to be talking a lot more about gears. And obviously, they play a very important role in the whole manufacturing ecosystem. But before we do that, we have one standard question for every single guest that comes on the show. And that is going to be your perspective on growth. Dave, what does growth mean to you?
That’s almost a tricky question. Because I think in today’s world, everybody thinks you should grow as fast as you can. And once I had a customer, an associate, who said, if you don’t grow, you die.
And I said, but if you grow too fast, you die. Yeah. And we had another customer who just wanted to give us so much work this over and over and over. He was working seven days a week. His staff hated working there. He was burning people out. And he was actually upset at me because I said, we can’t take any more work right now. And his God, so to speak, was money.
And I’m like there’s a sense that there’s got to be a quality of life, it’s gotta be fun. You’ve got to make a quality environment for your staff. So they enjoy. So you get the most out of them, so they feel empowered. So my perspective on growth is you’ve got to be able to grow in a controlled way that you maintain your values, you maintain your metrics, you have to be efficient proficient, you have to be profitable in a way that it doesn’t get away from you.
Because I think we’ve all the stories of companies who’ve grown too fast, and they start sacrificing their reputation, their values, they start cutting corners. So for me, growth has to be organic. We don’t even have salespeople, and people say, oh, how can you not have salespeople because we grow by word of mouth, we grow with our customers.
So our perspective on growth is we are committed to our customer success. And so, how can we grow with them and not outgrow them, so to speak?
This is the best business, in my opinion. I mean, if you can grow with word of mouth, then obviously, you don’t have to have the overhead of sales and marketing. And obviously, you must be doing an amazing job there.
And that’s why you are able to grow with word of mouth. So now we are going to be talking about the gear manufacturing industry. Okay, so give me the rundown. Obviously, I am not as familiar with the gear industry. And obviously, my listeners are probably not going to be familiar with the gear industry as well. So let’s look at the geographic map. So how is the gear industry laid out? How many companies are involved in the gear industry? What are the current challenges of the industry?
Yeah, we often don’t think about gears because they’re behind the scenes. But I often say that modern civilization would not exist without gears because everything that is made everything from our computers, to our tables, to our furniture, to our clothes, to how our food is packaged or delivered and transported.
Everything is somehow made with gears. So even your biggest customers make cardboard boxes that Amazon makes a delivery to your door or pizza boxes when another of our customers makes aluminum cans and bottles and all the packaging when you go through a grocery store I love going through a grocery store because I can point out almost every single product was made with the assistance of our gears right no gears literally are everywhere, but people don’t know about it.
So from a geographic standpoint, we literally run the world. They are everywhere, yet our industry is struggling with not enough people. There are not enough gear manufacturers simply because we’ve sold students over the last generation that is going into manufacturer is dirty and dark and dangerous, and it’s there’s not a future but yet in our industry every gear manufacturer I talked to is overwhelmed does not have enough that can put out the products.
Okay, so that is very interesting. So, first of all, I don’t know if my listeners are going to be familiar with what gear is and how sophisticated these gears are. So are we talking about just a technical gear with a groove, and if that is the case, what is so difficult in manufacturing a gear?
So gear can be anywhere from literally under an inch in diameter to many feet diameter, so you may need a gear that helps make a cardboard box or runs a printing press. So gears often need to be incredibly precise. So gear has teeth, and another version of gear is called a pulley which also has teeth that run with a belt. And then there are our sprockets which run with a chain. So you have an almost an infinite variety of the number of teeth of the gear depending on what your goal is, how many power transmission your ratios, how fast you need to move the product then there are an infinite number of materials and gear that can be made out of aluminum or steel or stainless steel or plastic numerous products.
And then Yeah, I have all different configurations, like I said from under an inch to many feet diameter that maybe be used in mining equipment. Or we have a customer that actually braids the stents that go into medical that will go into your heart or your arteries for the medical profession. So you have this incredible variety of all the materials all the different configurations. There’s so much knowledge to learn that it literally takes a lifetime to gain at all, and then you try to pass that on to your employees, and it literally takes years and years to get really proficient in gear manufacturing.
So I am not sure if I understand this, to be honest, because see if you look at the current age, we are moving at rocket speed. People are talking about AI. People are talking about going to space. People are talking about building spaceships, and right you are telling me that gear manufacturing is very hard. So I’m still not convinced. Why is gear manufacturing so hard? What makes it so hard? Please tell me.
Well, it’s like with any technology these days. The equipment that runs that you use to make gears. And I’ll make any gear starts off with a raw piece of material. Maybe it’s a piece of steel. But you have to have a saw that needs to go in what’s called computer numerically controlled life of a CNC lathe, well working within oh my goodness, if three 5-10 thousandths of an inch. So if you take one of your hairs and you slice it, yes, six times, yeah, that is the tolerance that we need to work within to make these gears work properly.
So whether the bar and the gear or the teeth themselves, incredibly tight tolerances and so that laid that you learn how to turn the what we call the gear blank, that length could cost $200,000, that’s all computer numerically controlled, you have to understand your all your tooling that used to do that. And then from there, it goes to what’s called a gear Harbor, which actually cuts the teeth.
That machine can easily cost $500,000. But again, we’re working in such tight tolerances, and then the application might call for you to need the teeth to be actually harder than the steel is so that you have to harden the gear through different teeth treating processes. Maybe nitriding is flame-hearted. And then if the gear says goes into a helicopter, the precision even needs to be even tighter.
So now you have to grind the gear. So now you’re looking at a million-dollar piece of equipment to precision grind every tooth and every surface of that gear to the precision. It’s like working on very high-end medical equipment. And sometimes I look at our employees like they’re surgeons because the preciseness of what they do is so important.
Okay, so tell us some stories in terms of bad gear versus good gear. And obviously, if precision is going to be so important in this specific industry, then some manufacturers are not going to be as good.
So when we look at different micro industries or micro-manufacturing verticals, all the different gears that are being utilized in this micro-industry, and what are some of the implications that say if they don’t utilize good gear for the application?
Well, I go back even in the last 20 to 30 years. Yeah, and you’ve seen, we’ve all seen technology just explode in whatever industry we’re all in. It’s just changed so dramatically. We all remember, most of us are not very old. Remember when Google didn’t exist. And when laptops and we couldn’t have a zoom call, we couldn’t do a podcast.
We remember that wasn’t too long ago in our lifetime. So in gear manufacturing, all the equipment was all that we’d call manual. So it’s alternating cranks and handles, and it was very archaic and slow and couldn’t get the quality that we get today.
So if you didn’t keep up with technology in your industry, in my industry, you’re struggling to produce a product that is relevant and practical, and necessary. And even a printing press, let’s take that for an example. Printing presses today are running 510 times faster than what they ran even a generation ago, right?
Yeah. And so, let’s say you’re a manufacturer of bottles or aluminum cans that we all use. If you don’t keep up with the latest precision gears and understand that you have to run faster, you’re going to be out of business.
So I’ve seen customers that don’t keep up, they have very, very old equipment, and they’re going to be out of business. So again, technology has changed so much that for our customers, and for us, they have to be on the cutting edge of how to run equipment faster and faster.
Because the other big thing that we haven’t talked about I briefly touched on, if we don’t have enough people were coming in, that are skilled and making gears, but yet our world demands tremendous more output.
Like for our company, we’re ten times more output than we were just 20 years ago, we’re doing it with actually fewer people. So that tells me we have to figure out how to crank things out faster and faster. And you have to keep up, or else you’re gonna fall behind and be out of business.
Okay, so, what is the state of industrial automation in your industry? So I understand that you need to find people, but then we talk about industry 4.0, and we are talking about how smart these machines have become.
So are you not able to find any automated solution for your industry? Is it not complete for your application?
No, automation is tremendous in our industry, but our shop is not a production shop. Okay, so so we’re not producing 10,000 parts at a time of anyone or hundreds of 1000s like in the auto industry.
So we’re working with custom manufacturers that, let’s say you wanted to start a business and you wanted a pizza box if you want to start a big chain of pizza companies. And so you need 1000s of pizza boxes. So you have to go to a manufacturer says make me a pizza box.
Well, that is a custom size box. So that manufacturer has to come up with your specifications. So, therefore, what makes us successful is that we are the custom shop that can make the gears for the custom manufacturers that makes us the kind of equipment that you need.
So automation can only take you so far you can’t get a robot to just load machines when you’re only making maybe one gear or five gears at a time. So we can only go so far. So the tricky part for us and there’s, in our industry, what happened over the last 20 years, it’s much easier to buy automation than it is to train people.
So the industry has changed. And most manufacturers went the way of higher production. We are like the old-fashioned blacksmith who can make exactly what you need, maybe just one of them. So that’s the challenge. So we can use automation, but you still need that person that can stand there and figure out to be creative and be productive and profitable.
So let me see if I understand this. So obviously, you said that here manufacturing is extremely difficult. And obviously, we have a lot of automation at this point in time that is happening in your industry. And let’s say if somebody is still running the volume parts, then they can do this probably in a cost-effective manner.
But let’s say if they need just a one-off job, then you are going to be better suited for that. Because they cannot match the precision using the automated equipment they’re using, or is that really the cost argument from their perspective?
I think it’s both. One is you got to have very creative people that can think about, okay, we’re just going to make one. But on the cost side, you have to have all this equipment that is all dedicated. So in any job, the setup cost is when you’re working in ERP or whatever the initial setup time takes more time than anything, whatever industry so I think people say, okay, we want to devote all that time to that, but we don’t have time just to set up and make one.
And so I think people have decided it’s much more cost-effective. They think that it’s much more cost-effective to focus on high-volume parts. But our customers are such that say hold it. We recognize that you have all the setup time and making just one part, and we’re willing to pay for it because that one gear is running the entire factory if that one gear breaks, so we may make gear for say its printing press, let’s say it’s $500 just for that one gear.
But if you make 10,000 of them, maybe that cost goes down to $50. Yeah, so people like to focus on the higher metrics of let’s just do the production. But the profitability is tremendous because people understand that, that they need all that setup time, they need that custom part, and they’re willing to pay for it. It’s much more difficult like I said, because you have to have a staff that is very versatile, your manufacturing floor has to be incredibly versatile, you have to have all of the equipment, it’s almost on standby ready to take on that, just that one job.
So let’s talk about some stories. And obviously, you are coming across many different stories where you have to deal with your customers. And since this is a very precision-focused game, customers might say something. Then you might understand something else. And I think we were talking about one of the stories in the pre-show. So I don’t know if you’re going to be comfortable talking about that story. What happened due to miscommunication between your customer was telling you to produce, but something went wrong there.
So tell us some of the stories where you have had problems due to either miscommunication or not being able to understand the design that the customer was looking for. Can you tell some stories about that?
Yeah, and again, in our industry, and I think in all industries we get, we get engineers who come fresh out of college, but they have no work experience. And so, they assume that they know more than they do. And they will often draw things on prints, and we look at it and say you cannot get there from here, you cannot make it the way you have drawn it because they have never worked in a shop before.
So we are constantly working with customers and engineers say you want to make this part better. I understand you want to make your machine faster. But the way you designed it is an absolute nightmare. And that’s something that we deal with literally every week. So our role in serving our customers and working with our engineer saying okay, how can we make this part for you? It makes exactly what you need, but make it affordable, so you’re not wasting so much money.
And that happens so much that it’s actually quite humorous, that it’s gotten to the point that when we work with customers, we identified those customers where their engineers are humble and are teachable.
Yeah, versus working with those customers where their engineers are so arrogant, they think they know everything. And obviously, the best relationship works when we are both mutually respectful of each other. Yeah, we understand their needs. They respect our expertise, and we can help them get there when they’re not respectful, and they don’t listen.
We’ve had customers spend 10s of 1000s of dollars trying to prove that they were right. And it’s so difficult, trying to walk that fine line of pointing out to a customer that you’re really wrong, even though you think you’re right. And we often say the customer’s always right, except when they’re wrong.
Yeah. Nobody likes to see their customers losing money. So right, that we tell them that you know what I mean, this is not the right thing to do.
And sometimes they listen, and sometimes they don’t. And sometimes it’s like raising children. You have to let them learn the hard way and have natural consequences of their decisions of action,
I can relate. So let’s go one level deeper into the story. And you talked about the specific problem of the design. So what was the problem? Is it because the materials that they were using in the design that was not appropriate? Or just because they didn’t have experience designing a gear, that was the problem? What are the core problems in the design?
I think you hit on several of them. One of them, they’ve never made a gear, so they don’t understand the limitations of perhaps the material they chose. Because, okay, a gear can come in a variety of materials, as I said, you can have different hardnesses of steel, and that makes the gear last longer, and maybe it wears out too quickly.
And they don’t understand the stresses that they’re going to put on that gear and all the implications of it. So I think it’s pretty from our standpoint because we’ve been doing this for so long. It’s pretty straightforward. We’ve got one customer for instance recently, that they’re a manufacturer of machines, that prints on paper, whether it’s books, or magazines, or whatever it might be, well, their customer, they keep pushing their gear so hard, they don’t maintain them properly, they don’t lubricate them.
So then the gears wear out, they crash, something happens, and then the whole machine breaks down. Now you have an entire planet that is shut down.
And it could be 100 people that have to go home because the whole plant is broken because of one gear. So you would think that that customer would order another set of gears to have on standby, right? I mean, if this is such a critical component, you better have that on hand.
But they don’t get in this crisis situation where they say we are broken down. Can you make these gears in 24 hours? Well, normally, it takes two weeks to go through the whole process to make these gears. And so this one, I think, five or six times in the last two years, we’ve done the exact same breakdown service for this customer.
And because we have to do it so quickly, we literally have to charge double because we have to go and change all of our setups in different parts of our company to make these gears, and I look at that, and I go, but why would you pay double if you had just ordered some spares to have on hand.
And I think in today just in time delivery. Often companies don’t understand that. If you don’t have those parts on hand, it’s costing you so much more than if you had thought ahead a little bit.
Okay, so let’s talk about the design a bit more. So what is their driver? Why are they not able to get the design right? And you did mention that they don’t have the experience designing gear. I get it. But when you challenge them, but no, I mean, this is not the right way of doing it. In my opinion, they should be learning. So what is their driver? Is it just the ego? Or is it some other financial driver that they have?
The ego could be there. I see that all the time. But are there any other drivers? That could be, let’s say if they have preferred vendors where they have to use the specific material, or they may have that material in the stock, that could be the reason why they might be using that material. So what are some of the drivers that you see that they can come up with a design and they want to stick with it rather than listening to you?
Well, I think one is ego. You hit it right in the head. So often, you get people that I’ve been doing this my entire life. And I know better. And this is the way we’ve always done it. And it should work. And we have that sometimes in our own company where you’ve got the younger generation, the older generation, and the younger generation wants to be innovative and forward-thinking.
And I think we were all that way when we were younger. But then when we get older, we’re like, Okay, I’m tired, I don’t want to have to be innovative and creative. I just want to do things the way I’ve always done it. And so we run into that quite a bit. So that’s one part is that ego. But the other thing, I think everybody is under so much stress today, we’re so busy, we have so many demands, and it’s not just in our professional life, but it’s in our personal life.
And you often you can’t leave your personal life at home, you really can’t work. We look at our company and our employees. We are whole people. And if your personal life is stressed, we’re going to bring that to work. And then you have all this craziness that happens at work, so I think the time pressures, I think especially with bigger corporations, the pressure to get the product out the door as soon as possible, doesn’t allow enough time for research development and to really think through exactly the process to listen to people like us if they’re designed to gear to get our input in what they need.
Those customers that take the time to listen and to do that research and to test and to listen do so much better in the long run. But when we’re rushed, when we’re stressed, we just make bad decisions. And I think that’s what we deal with some of our customers.
So I would like to touch a little bit more on the just-in-time delivery aspect that you mentioned that you guys are taking roughly two weeks. So in my experience, when I talked to other manufacturers, obviously, they have very sophisticated capabilities these days in terms of their CAD or CAM capabilities, that majority of the work in terms of retooling of the machine is probably going to be done by the software.
So obviously, the specification has to be right. Nobody can really fix a bad specification. If the specification itself is not right, then that machine cannot help you. So obviously, you have to get that right. But you are actually going to get a lot of warnings from your some sort of ad system if that can test all the different parameters that you mentioned. So in your case, do you not have, let’s say, the CAD or CAM capabilities, that the reason why it is taking two weeks for you to be able to set up?
No, it doesn’t take us two weeks to set up? Because we have such a variety of equipment. But yeah, when you’re trying to manage hundreds of orders all at the same time, you work on this workflow, and you say, okay, where can we fit in? And how can we put this size of gear in with these gears, and it’s really managing the entire workflow of the entire shop.
So it’s not so much that we can’t do it. But when a customer called up and said, hey, I need this right now, it breaks that whole flow up. And since with just in time delivery, we have so many customers that they don’t want to stock anything, so we have to stock parts for them.
So it’s this game of how do we get all of our throughputs at the end and have it there for the customer without having all these interruptions? That’s why a lot of customers don’t work with companies. Gear manufacturers don’t want to deal with custom production because your schedules are constantly being interrupted.
So what are you guys doing at this point in time for scheduling? If I asked you that, are you guys doing manual scheduling? Do you have some sort of system that you utilize for the scheduling? What do you have for scheduling?
No, we have pretty sophisticated software that we have every work center for us. A gear may take five or six different machines. So those are called work centers. Yeah, so every operation has plugged into a setup time and actual runtime.
So if you’re making one gear, it might take an hour and a half to set it up in the actual run time is only 20 minutes. Well, if you do production, you still have that hour and a half set up, and then every part, it calculates, okay, 20 minutes times those ten parts. So the software’s very, very sophisticated. We never used to have obviously software to do this. So it was all manually scheduled. My dad would actually keep all the information in his head. So he’d go out to the shop and get some of the software himself. And he was the software, and when I came back and took over the company 29 years ago, I tried to be better than software.
But no, he wasn’t. It was actually pretty funny because I tried to do it his way for the first six months, and I said, Dad, this is insane. I can’t keep track of all this. And 90% of our phone calls back then were people saying, where’s my gear? Is it ready? When can I have it? My dad would have to go out to the shop and look for and say, oh yeah, it’s there, it’s there to that place.
Once we got software involved and we got advanced scheduling, I don’t think we have maybe one or two calls a week now asking where our gears are, and at the click of a few buttons, I can tell them exactly where it’s on the floor are just in time delivery is in like the 97 to 99 percentile we are very rarely late on any of our deliveries which that obviously builds tremendous customer loyalty and allows for even more relationship and growth with our customers.
Yep so I can relate to the problem of there is going to be a little bit of chaos there with respect to managing the workflow, and obviously, that is going to require time. So do you have any other interesting stories that you have seen where, let’s say, the customer did not listen to you, and there were some implications in their plan.
I want to be careful how I tell stories that don’t want to make some of our customers feel bad. But what we’ve run into one of the greatest challenges that we’ve had with our customers is when they have an inspection department within with staff who don’t know what they’re inspecting.
Yeah, so one of our top customers kept rejecting our gears and saying they’re not good. And like, what you are talking about. We have very specific advanced technology inspection processes and equipment, and then go on our equipment says these gears are spot on. That’s as precise as you’re going to get, and they would come back. Nope, they’re not good enough.
Finally, I went to visit them. And their inspection equipment was literally 60 to 70 years old. And our equipment is all state of the art within the last five years. And they’re trying to tell me that their inspection is better than ours. And I remember one time, I had to beg this customer, and I said, look, we’re gonna fight this over and over, have you put the gears actually in the machine to see if they fit?
Well, no, we know they’re wrong. I said, they’re not wrong. I’m trying to be as respectful as possible. And I’m getting angry. I’m getting so frustrated. And I said, look, I will pay you to put the gears into the machine to see if they work. And if they work, I don’t have to pay you. But if they do work, we just solve a very big problem. And very reluctantly, they put the gears in. And guess what? They work perfectly.
So you have to tell me a little bit more about the story. Okay, so why were they not putting the gear? Was there any financial motivation? Are they afraid of the machine failing or the machine breaking down because of the gear? What was their motivation?
Well, part of it, the gears off, and gears are very deep in a machine. So it could take them half a day, hours to put the gears. So it’s financial. Yeah, it was going to be a big stretch for them. And they didn’t want to waste half a day, and they’re under time pressure to get this machine delivered to their customer. So I get that, but we were wasting so much time.
And the other part of it, then we got back to ego, they did not want to admit that they were wrong. And they had people that had been there for many, many years. And they said, well, I’ve been doing this my entire life.
And I know if they’re right or wrong. And the worst part is finally once we prove to them that our gears were right. The worst part to me, as I said to them, finally one day said, Look, I’ve been to your company, I know our equipment is so much better than yours. And they used to make their own gears themselves. And then they stopped because, for a variety of reasons, they wanted to focus more on assembly and outsource all of their other gear-making other machine components.
So I went to visit them. And they were holding us this impossible standard that that was like these gears are good, but you don’t think they are. And finally, I said, I’m sure based on the equipment that you have in your shop, you never made your own gears to this, this quality level.
And finally, the purchasing agent said, Well, we never used to inspect our gears, and I went, you are kidding me. So you really are holding us to another level that you yourself couldn’t meet. And they just instituted this policy that any parts come in the door, they have to inspect, but they’re inspecting them wrong.
So it was just real. It almost got to the point I had to walk away from that customer. But then, eventually, we were able to salvage the relationship. And they got to a point where they trusted us and trusted our equipment and our processes that were producing better gears, and they’re giving us credit for.
interesting. Do you have any more stories?
Yeah, I do have another story. I have so many to choose from. It’s doing this for so long and getting beat up in this business. You learn the hard way, one of our top customers, and I won’t say what industry yet, but this whole idea of being so cost-effective and wanting to be as cheap as possible to get the product is as in, and I get that you want a quality product.
But too often, we look at just what the cost of the gear is without looking at the bigger picture. So one of our bigger customers there is one of our top five customers we probably did a half-million dollars a year of business with them. And they too often these companies and I think you’ve heard these kinds of stories, you get a financial person that comes in all they look at is the bottom line, they look at the cost of the gears, and they demand in the auto industry is famous for doing this, we demand a two to 3% reduction in the cost of your product your gears.
Well, if they demand that every year, you can’t keep up with the cost of wages, equipment, utilities, insurance, all those things. So your profit margins get less and less and less, and we have always tried to give our customers the best price possible with the quality and the service they need.
Well, a couple I’ve had this happen a couple of times where I’ve been called up to the customer, and I’ve said to sit down with what I call this hatchet man you know you’re gonna get beat up when you walk in you say where they’re just going to demand a price reduction, in particular, the one story that I had to fly out to Denver and sit down with this customer, and they hired a new financial guy who had never been in manufacturing, he’s only had been in electronics. So I’m sitting across the table trying to explain to him, this is all that goes into gear manufacturing, and he just looked at me like I wasn’t even there.
And his mantra was, 2%, 2% reduction or we’re gonna have to go somewhere else, and I finally said this is the best we can do, and I’m not gonna fight with you over pennies. This is who we are. So long story short, they pulled all the work, and they went away. And they sent all their business over to somebody in Ireland.
And so here our gears they’re made our steel. So they’re paying for all these shipping costs in Ireland. And I’m going, and then it takes all that time to get here. They can’t fly over. And I thought, well, that’s the way it is. We can’t work for free. We got to make a fair profit. About eight months later, I got a call from one of the purchasing agents who had been there for about 30 years.
And he said, Dave, how fast can you make this, the set of gears is like ten different parts. And I said, Well, we can get them out to you within a week. And he said, do it. And he said, and after that, and he’s paying next day air charges to Denver, over the next three or four months, he spent 10s of 1000s of dollars on next day air charges.
And I said what was going on. He finally admitted that the company that was making the parts in Ireland, the quality was just horrible. So they get the parts all the way across from two weeks to get them here, they put them in the machines when or they’d have to rework them, it was costing them double of what we would charge to make the gears and what ended up happening is, and this happens in large corporations too often you bring someone in, they think they can cut costs, but they don’t look at the relationship.
They don’t look like us, the vendor who understands what they need, not only the quality, not only the right delivery, and it ends up costing them more in the long run. And so what happened with this particular company? The senior executives, the owners, came in and fired the entire management team and put in place the old guy for 30 years.
And the old guy says You know what? This is like the third time I’ve been through this. Yeah, because they have these hot shots coming in, they think they can save costs. So for us, our customers and people to understand that if you want a quality product, you got to have that relationship that has a vendor or supplier who understands your needs, and who’s being honest and fair, and has the integrity to supply what you need when you need it at a fair price.
That’s it for today. Dave, do you have any last-minute closing thoughts, by any chance?
Well, for me, one of the things that I often talk about in manufacturing is this perspective that it is dirty, dark, and dangerous and that it’s not a great career path, every manufacturer that I talked to, in fact, I’m speaking at our national conference in a couple of weeks for, but there’s actually a thing called American gear Manufacturers Association.
But everybody that we know said the biggest challenge that we face is finding quality young people that come into our trades. Because of an aging demographic, the average age in most shops right now is between 55 and 58. So in the next five to 10 years, we’re going to be in an even bigger crisis than we are now.
And I would just say for any company or anybody looking to go into business. Boy, manufacturing has an incredibly bright future. And if we can tap into our young people to do that, and I actually believe that blue-collar work in manufacturing, I actually wrote a book about this called Good work, how blue-collar business can change lives, communities, and even the world.
We have such an opportunity in this country right now, even with COVID, that we’re asking the question, finally, what’s an essential worker? And I think we’ve realized that those of us in manufacturing, we’re asking those questions are plumbers, electricians, manufacturers, people, designing creating builds, were really essential in this in this economy.
And too often regret word we’re getting education for, for students for jobs that don’t exist. When the manufacturing world, there are so many opportunities for people to get into, whether it’s gear manufacturing or any kind of manufacturer or any of the skilled trades. So I just think we have an incredibly bright future, but we need to get our people to wake up to say, well, I want to get into that because it’s a real need.
Okay, amazing, and my personal takeaway from this conversation, Dave, it’s going to be, especially since this show is about CFOs. And the finance, folks, I mean, you guys are going to be great at business, you guys are going to be great at running the numbers. But listen to the expert, the person who has spent his life in gear manufacturing or whatever that could be any product.
Listen to the experts who understand what it takes to build that before you get into the cost argument. The first argument is to wait but listen to the expert. That’s going to be my advice. So on that note, Dave, I want to thank you for your time. I really enjoyed the insight. I really appreciated your powerful stories about gears.
Sam, thank you so much. It’s been a real pleasure. It’s been fun talking to you as well. Thank you so much.
I cannot thank our guests enough for coming on the show for sharing their knowledge and journey. I always pick up learnings from our guests, and hopefully, you learn something new today. If you want to learn more about Dave, head over to EdgertonGrear.com. Links and more information will also be available in the show notes.
If anything in this podcast resonated with you and your business, you might want to check other episodes, including the interview with Matt Guse from M.R.S. Machining, who discusses the challenges associated with manufacturing complex parts and short runs. Also, the interview with Mark Oser from Enteras Consulting Group, who discusses how to launch new products by simply changing the packaging.
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