Feature Stories - April 2006

INDUSTRY FOCUS: Manufacturing

by Kathleen Foley

As part of its monthly Industry Outlook series, Nevada Business Journal brought manufacturing executives together to discuss their industry and the challenges and opportunities brought about by Nevada’s ongoing economic boom. They confronted concerns such as regulation and taxation in Nevada, the increase in utility rates, workforce education, recruitment and retention, and the relocation of manufacturing facilities – and their jobs – to foreign countries. Connie Brennan, publisher of the Nevada Business Journal, served as moderator for the roundtable discussion, which was held at the ArrowCreek Country Club in Reno. Following is a condensed version of the discussion, beginning with introductions.

Ray Bacon: I’ve been with the Nevada Manufacturers Association since November 1991. Before that, I was the vice president of manufacturing for Bently Nevada in Minden, which led to my involvement in a groundwater clean-up issue. That got me interested in politics, and I found out how much I didn’t know about what the government was doing to us. So that’s how I got started with this.

Marcie Rose: I’m with Solo Cup, located in North Las Vegas, and I’ve worked there for 26 years. We manufacture the plastic cups people use every day.

Sonny Newman: I’m president of Electronic Evolution Technologies. We produce circuit board assemblies and electro-mechanical assemblies. Our headquarters are in Reno and we also have a plant in Mexico.

Grant Gaither: I’ve been the plant manager for RMAX Corporation for 25 years. We manufacture rigid-foam insulation for homes. We have an atypical company because it’s a small, privately held corporation with 125 employees. Our headquarters is in Texas. We were the first manufacturing firm to locate in Fernley.

Bill Rieger: I’m the plant manager for Fortifiber’s manufacturing facility in Fernley. We’re a privately held company that manufactures weather-resistant barriers used in construction. We’ve been in business for 66 years and have been in Fernley since 1994. Our corporate headquarters are in Incline Village.

Randy York: I’m with FalLine Corporation. I retired from active business in 2000; my son is currently president of the corporation. Our company was founded 26 years ago in Southern California, and we moved to Nevada in 1987. We manufacture products out of polyurethane elastomeres. Half the products we manufacture we market out of our own brands; the other half are manufactured as component parts of other products.

Sallie Haws: I’m president of Haws Corporation. We manufacture drinking fountains and emergency drench showers. We were founded 100 years ago in Berkeley, Calif. We moved our manufacturing facilities to Nevada in 1977 and brought our corporate headquarters here in 2000. We have facilities in Switzerland, Singapore, France and Brazil. I’m the fourth generation of my family to run the company.

Harvey Shelton: I’m the plant manager for James Hardie Building Products. We are also a 100-year-old international company. We opened our ninth manufacturing plant in the U.S. between Sparks and Fernley a little over a year ago. We employ 110 people and are in the process of expanding.

Gavin Wyatt-Mair: I’m the general manager at the Alcoa Micromill plant in Sparks. We’re a big company with 137,000 people employed worldwide. Currently, we are the biggest aluminum manufacturing plant in the world. In the Micromill, we are doing research and development to find a new process of manufacturing aluminum sheet that is environmentally friendly and cost-efficient.

Mark Sankovich: I’m the general manager with PCC Structurals’ plant in Carson City. Precision Castparts Corp. is a worldwide manufacturer of complex metal components and products. It’s the market leader in manufacturing large, complex structural investment castings, airfoil castings and forged components used in jet aircraft engines and industrial gas turbines. It is also a leading producer of fasteners for aerospace, automotive and other markets.

Cammie Smith: I’m the owner of Labelsmith Incorporated. We’re a label manufacturer located in Sparks. We make custom labels – anything from the labels you run through your laser printers, to product labels, to parking decals. We’ve been in Sparks since 1985.

Tony Ciorciari: I’m the executive vice president of operations for IGT (International Game Technology). We employ 6,000 people worldwide and generate $2.3 billion in revenue. We design and manufacture gaming machines and gaming systems. Our headquarters are in Reno, where IGT employs 2,700 people.

Alex Carter: I’m the vice president of manufacturing for ClickBond. We’ve been located in Carson City for 20 years. We manufacture adhesive bonded fasteners, primarily for the aerospace industry. We have a wide customer base with military and commercial aircraft manufacturers. Our biggest problem is keeping up with growth and not letting it get out of control.

Jeff DeMatei: I’m a plant manager for B-Line division at Cooper Industries. We’re based in Houston, Texas, but are a multi-national company with plants around the world. Our revenue is $4.5 billion. Our plant makes support systems for telecommunications companies, industrial applications and light commercial. Like many manufacturers, our problem is the spiraling cost of raw materials, especially metals like aluminum, steel and copper. We also have a problem hiring and retaining employees in the Reno area.

Regulation and Taxation

Connie Brennan: Is the state of Nevada business-friendly for your industry? How does it compare to other states?

Shelton: This is our ninth manufacturing plant in the U.S. We’ve found Nevada to be business-friendly in many ways, and in areas where it isn’t business-friendly, we think that’s due to the lack of manufacturing in the state, relative to the other states where we do business. A good example would be the power rate structure here. It doesn’t take into account the stable load that manufacturing companies offer the power companies. The discount versus residential rates isn’t on par. Another thing is that we understood Nevada to be a regulatory-friendly state, but in the last 10 to 15 years, the mining industry and utilities have apparently had conflicts with the state’s environmental regulators. This has brought scrutiny to all plants – even medium-sized and smaller businesses – particularly in terms of air quality. The state environmental people aren’t used to the manufacturing industry here, and our little company is getting put in the same category as Sierra Pacific or Barrick Mining. We don’t consider ourselves a major polluter, and we don’t have a big legal staff. We don’t have the resources to handle these issues.

Bacon: Because there isn’t much manufacturing in the state, the regulators have limited experience with different industries. When government people don’t know about something, they tend to say “no” because that’s the safe answer, instead of recognizing they need help to understand what they’re really dealing with. It’s a challenge for many companies.

Wyatt-Mair: Our experience is a little different. We wanted to install a new furnace, but we had to get permission from the air quality people. It was a quick process; they were knowledgeable at the Nevada Department of Air Quality Management. Once we handed our permit application in, the process took about a month. However, water seems to be a problem, and it’s going to become worse. And, as Mr. Harvey mentioned, we have a big problem with the power industry. It’s very difficult to justify expansion in the face of power rates that are as much as five times higher than other places in the U.S.

York: We moved our business here 19 years ago from Southern California, and found the business climate to be inviting. But now, regulation in Nevada is moving towards what we see in California. That’s a problem down the road, as more people move here from California and as politicians learn more about how to utilize regulations and fees as a source of income, rather than going to the public and raising funds through normal taxes. We have to be careful in this state to make sure that it remains a business-friendly climate if we want to see manufacturing prosper and grow.

Brennan: Do you think that Nevada taxes are conducive to the manufacturing business?

Shelton: Yes. Not only is Nevada friendly, but the economic development employees are very helpful in navigating the system – more so than we’ve experienced in other states.

Bacon: New actions have been taken in the Legislature in the last couple of sessions; for example, the battle we had over the gross receipts tax. Now we have petitions circulating that would wall off property taxes and other forms of taxes from being raised. Sales tax and gaming taxes aren’t likely to increase in the near future. The only place left to collect taxes will be the business community – not strictly manufacturing, but across the spectrum. So we’re at risk of doing something that will move us in the wrong direction.

Brennan: Does anyone feel that the regulators are always breathing down your necks?

Rose: Yes, because there’s not much manufacturing. There are the same number of regulators, but fewer places for them to go.

Ciorciari: I’ve had opportunities to manage operations in different states and I look at Nevada as being friendly to business ventures; the environmental controls and expectations are sound and balanced. It is still quite friendly for businesses coming here from other areas. Organizations like EDAWN reach out quite well and offer assistance and help businesses grow and settle into the Northern Nevada area. There are always concerns and things that need improving, but we have to be careful not to lose the recipe that has made us successful. Once you lose that balance, it’s hard to get it back. I am, however, concerned about power rates. It’s the single biggest cost increase we’ve seen in a long time, and that’s problematic.

Brennan: Do you think power rates will continue to increase?

Ciorciari: There’s no indication they’re going to slow down. The increases are not just 2 percent or 3 percent. The proposed numbers you hear are enormous.

Bacon: Natural gas is subject to spikes in the market, and right now it’s high. If the various coal-fired power projects that are on the map come to fruition, we can expect lower-cost power generation from coal instead of natural gas. They could actually cause energy prices in Nevada to stabilize. Unfortunately, you don’t build a coal plant in 15 minutes; those are three- to five-year projects once you get through the permitting process.

Shelton: We started the site-selection process three years ago. We looked at three sites in Northern California and three in Northern Nevada. What tipped the scales were taxes; that’s why we’re here instead of Northern California. At the time, the power rates we were projecting were 60 percent of what we’re paying now. If we’d have known then about power rates, we would have gone to Northern California. We’re the second biggest power user in Northern Nevada, and looking at expansion and competing against our sister plants, that’s a big deal.

Employee Retention a Challenge

Brennan: Nevada has one of the lowest unemployment rates in the nation. Do you have problems finding and recruiting the right people?

Gaither: We’ve been around a long time and don’t have very much turnover; I only hire a few people per year. But elsewhere in Fernley, there are a lot of new businesses and a lot of employers. There are about 150 job openings every month in Fernley, mostly turnover jobs, and the companies fight amongst themselves for employees.

Rieger: Fernley has a limited labor pool. It is developing a reputation as a bedroom community for the Reno-Sparks area, but people are still working in the Truckee Meadows area. In our plant, we’re paying an average of $13.50 to $14.00 per hour, which isn’t bad, but those aren’t the kind of wages that would enable you to buy a house. Many people jump from job to job, thinking, “The grass is greener on the other side of the fence.” There are opportunities and openings all year-round in manufacturing facilities. Fernley is its own little world, from a labor standpoint. It is a tough place to operate. The bottom line is, if you treat people with dignity and you treat them fairly, you can keep the good ones. That’s what we’re all struggling to do. It’s important to do the simple things that don’t cost a lot of money but send the right message to your associates that you care about them beyond the time they clock in and clock out.

Haws: With our general office staff, we have little turnover; our ability to keep people is tremendous. One thing about Nevada that we didn’t find in California is the quality of people. When we place an ad, we get a tremendous number of good, quality people, many “just off the bus” from California. It’s the lower end of the manufacturing jobs in the assembly area where we have the most turnover. With more manufacturing moving into Nevada, there is a smaller pool of people willing to work for $10 to $14 an hour. And they will move for another 50 cents or dollar an hour. They don’t care what kind of benefits they have – they just think, “I'm getting another 50 cents per hour.” We have five to 10 temporary employees working, on average, just to keep up our labor pool.

Ciorciari: Our turnover at IGT is probably equal to the national average when you look at total jobs, but if you look at entry-level positions, you see a higher turnover rate. You have to be on your game, all the time, in order to keep the people you have. You need to pay attention to the details, make sure the benefits are right and ensure that the small things you do for employees differentiate yourself from other businesses. People leave for a dollar an hour difference when they’re not invested in the company for a long time. But we’ve found that changes as time progresses. You have to pay attention to how you deal with not only pay, but with benefits and perks, where you establish a relationship with your employee. They’re not just coming to work for the money, but for a good environment.

Bacon: Finding people with specific technical skills is a real challenge. We need people with a solid background in maintenance fields and technical fields such as computers, engineering, drafting or CAD. Our education system is not turning out the volume the state of Nevada needs, and finding talent is challenging.

Shelton: We’re happy with the quality of the workforce in Nevada, especially with the work ethic. Of all the states I’ve been in manufacturing management, this is definitely the best. But I have to agree with Ray about needing people with more technical skills.

Ciorciari: We have, on average, 60 to 70 job openings in the Reno area at any given time. One-third to one-half of them are in the technical fields, like code writers, software people and IT employees. Those positions are extremely difficult to fill.

Brennan: Do you recruit nationally or internationally?

Ciorciari: Both. In Northern Nevada, we haven’t experienced the problem we have now with the cost of living. To be able to purchase a home and to live at the middle-class level is becoming more and more difficult. I’ve been with IGT for 12 years. The first five or six years in Reno, we never had problems recruiting someone from California, Chicago or the East Coast because the quality of life is excellent. However, we’re seeing engineers, material planners, analysts and IT people come out here saying, “How can I afford to buy a home?” And these are salaried positions.

Shelton: We’re having the same experience. The South and the Midwest have a huge manufacturing base to draw prospective employees from, but that’s the one part of the country where we’re not competitive on housing prices.

Rose: It’s worse in the southern part of the state because we don’t have the quality of people. We’re having a difficult time getting employees with basic skills, like being able to read and showing up to work on time. It reflects upon our education system, but also on the availability of other jobs in other locations.

DeMatei: I feel like my company is a training ground. We’re more industrial; we have punch presses, forms and welding, and individuals with those skills just aren’t available in this area. We assume that anyone who comes into our plant doesn’t know how to use a ruler, scale, calipers or anything else. We go through a training program, make the investment in the individual, and all of a sudden, they will move for that dollar an hour.

Carter: Machinists are hard to come by. We’re paying higher wages to get people interested, but the skills still aren’t there. We’re looking at high schools these days, trying to get kids into some of the machine technology programs at the community colleges. We offer jobs to 16-year-olds who are in these programs, hoping that they’ll stick around.

Brennan: Healthcare costs have gone up in the last few years. Are you able to provide benefits for your employees?

Haws: We’ve had to use a more self-insured type of a program, and now we’re looking at the HSAs (Healthcare Savings Accounts). We haven’t offered them yet, because we feel people aren’t informed enough, and you can really hurt yourself if you don’t use the HSA properly.

Rieger: We use a high-deductible health plan with an HSA. We’ve invested time on the front end in having the HSA administrative company and insurance company come to our facility and explain how it worked. We’re only a couple of months into it, but it’s been a good move for us.

York: We used to pay for the employee and for dependents, but had to scale back the last few years. We offer a fairly large deductible and pay half of the dependent coverage. In the last two years, because of escalating costs, we are seeing more of our employees in hourly ranges drop their dependent care because they can’t afford it. That’s scary, because they end up in the emergency rooms without healthcare coverage.

Gaither: We’ve been able to maintain coverage for all our employees, but the dependent coverage has gone out of sight. It’s a big stretch for salaried people to handle, and it’s beyond the reach of our other people.

Brennan: How do you educate your work force? Do you have to train them to read in addition to training them to operate the machinery?

Rose: We teach them basic math, reading and living skills. We retain our trainees for a long time, and they seem to be happier than they were when they came in. However, it shouldn’t be up to the businesses to give people basic education; they should have that when they come in the door.

Is Offshoring a Solution?

Brennan: There has been a lot of discussion about U.S. manufacturing jobs going out of the country. How concerned are you?

Bacon: Some jobs now in Nevada companies will go to China or Mexico or somewhere else over the course of the next couple of decades. That’s almost a given.

Haws: One of the biggest threats U.S. manufacturing faces is the decline in our birth rate. As we have fewer births here, we need our materials made where there are plenty of people to make them at the right price. We need service-based industries and entertainment to survive, but manufacturing is going to move where there are people. If our birth rate continues to lower, we’re going to see a crisis in 25 to 50 years.

York: The basic raw materials used in manufacturing are now being produced overseas: mining, steel and chemicals. Shipping those materials in will make us less competitive compared to those who are manufacturing offshore, close to where the basic building blocks are located.

Brennan: Are any of your companies looking to move overseas?

Newman: I opened a plant last year in Mexico because I was losing my customer base to China and Mexico. It’s been a great experience so far. There are a lot of people who want to work, and I can get them for under a dollar an hour. There are union dues and fees, but I think the minimum wage is around 55 U.S. cents an hour, including socialized medicine.

Wyatt-Mair: Alcoa’s approach is to place plants where it makes sense from a power perspective, because producing aluminum is power-intensive. We’re spending a lot of money putting plants overseas in Iceland, Jamaica and China. At our facility, we are making aluminum with less labor and less energy. That negates the value of placing the technology or the plant overseas, because the two big drivers – energy and labor – aren’t there anymore. So, one approach I would recommend is to look for ways to reduce the labor content of your product by automation, efficiencies, redesigning and reengineering your process. That is the motivator for the process we’re developing for making aluminum sheets, which requires a quarter of the labor and a third of the energy.

Shelton: We started in Southern California 17 years ago. We went from zero market share to over 90 percent of market share in fiber-cement siding, and over 50 percent in the tile backer-board market. The marketplace is littered with the bodies of foreign competitors from Mexico and the Far East. Our secret has been leveraging our workforce. We can make a product with less labor with our competitive culture and efficient utilization of the labor.

Kathleen Foley
Kathleen Foley is a freelance writer based in Southern Nevada.