Episode 2 | The Need For Speed In The Metals Industry

Greg Raece (00:00): Hi, I’m Greg Raece. Today, we’re going to talk about the metal industry and the need for speed, or as I like to call it, speed metal. Joining us is Jason Ray, co-founder and CEO of Paperless Parts. We actually have a little history of working together. Jason and I put together a fast and easy quoting tool on the onlinemetals.com site. I’ve invited him as our guest to talk about trends we’re seeing in the metal industry, as well as the impact we’ve seen from COVID 19 so far. So welcome, Jason. Why don’t you tell us a little bit about Paperless Parts and what major trends are you seeing with your customers?

Jason Ray (00:40): At our core, we are a software company that is providing modern software tools to job shop manufacturers. Our primary focus today is on helping those companies quote faster, communicate more clearly with their customers, and grow their sales, retain existing customers. It’s all founded based on this premise that job shops today, they really lack modern software tools to run their businesses. Companies like ours, we’re constantly looking to software to find the best possible way to improve efficiency and increase our scalability and increase our profitability. So when we went out, we started talking to job shop owners, the biggest thing we found is that this industry is completely underserved by modern software, cloud-based modern software.

Jason Ray (01:29): One of the trends that I think you and I can both relate to is this need for speed. Constantly in the product development cycle, we are seeing job shops get crunched on both, “Hey, we need quotes faster, and oh, by the way, we also need those parts faster.” It’s constantly downward pressure on the supply chain that’s forcing job shops, our collective customers, to need to move much more quickly. So whether that’s getting a metal quote faster or whether that’s being able to turn around a quote back to their customers quickly, they need to do it because it’s what’s going to unlock their ability to win those jobs.

Greg Raece (02:07): I completely agree with that. Quoting an order used to take a lot of time and effort. Somebody would have to write it up, submit it, they would take the order, they would process it, they would review it, they’d send it back. Maybe a change needs to be made. It would take a long time. Now, with tools like Paperless Parts, I mean, the turnaround time is key to winning the business and you really increase the conversion rates there.

Jason Ray (02:27): Yeah. It’s really interesting because especially with COVID-19, I think the first to quote is really the first to win and we’re seeing that more and more every day. We recently did a buyer survey with over 400 industrial buyers of both prototype and production parts, and over 65% of those people said that they need a quote back in under 24 hours. I think there’s even more pressure to be fast now because those customers, those buyers are really… They’re being forced to fill gaps in a broken supply chain. So whether that’s, “Hey, the state is closed because of COVID-19,” or because of wildfires or because of who knows what or, “Hey, our supply chain in China is broken.”

Jason Ray (03:11): We’re seeing more and more supply chain disruptions, and every time the supply chain gets disrupted, buyers are looking local for their local job shops or local manufacturers to fill those gaps and it’s always an urgent need. So our job and our focus is making sure that American manufacturers are set up with the right technology to be able to respond to that need very, very quickly. I think that’s a lot of where our partnership comes into play.

Greg Raece (03:38): Right. We even used Paperless Parts for quoting for our water jetting. So a customer is able to go and submit their drawings securely, safely. Those are then processed by the US-based water jetter and quotes just able to be immediately sent back to that customer. It’s really helped us skip a huge manual step and it’s allowed us to really see an increase in those win rates that you mentioned.

Jason Ray (04:01): Yeah. I don’t think this is just a trend that’s going to be associated with COVID. I think buyers more and more are starting to realize that there’s an opportunity cost with going abroad. So what ends up happening is in the early days I try to save a buck a part. So if I go over to China and I’m buying a million parts and I’m going to save a dollar a part, that seems like a pretty substantial savings over a five-year period of time. But then we get into a situation like we’re in today and the disruption to the supply chain, well, that costs $10 million as a result of not being able to get a car off the production line, having a facility or an assembler be down in the US for a matter of days, the assembly line not being able to fly a rocket, you name it. Those opportunity costs, that risk associated with not having what you need when you need it, that’s a significant gap in the supply chain.

Jason Ray (04:56): I think more and more buyers are being able to say, “Hey, what is the cost associated with taking this risk of going outside of our local supply chain?” We build these tools to help manufacturers quote very quickly, but we’re never going to replace the human element in a job shop.

Greg Raece (05:16): What do you mean by human connection? That’s a really interesting point. I know as things are starting to become more automated, there’s a real big concern that maybe software and hardware is replacing what humans and individuals can bring with their skills and experience to the job.

Jason Ray (05:29): Every single report you read in manufacturing today says we’re going to have a massive gap in skilled people in this country. So the idea that software is going to take your job is I just think it’s a complete misnomer. We’ve been talking in this industry for 20 years about the skills gap. Now it’s, “Oh my gosh, I don’t want to lose my job to a piece of software.” Paperless Parts is not out to take someone’s job. We are out to help people do their job much, much more efficiently. It used to be, “Hey, I got to do 20 quotes a week.” I’m talking to shops today that used to do 100 quotes a week and now they’re getting 300 RFQs a week because the shop down the street went out of business, supply chains are starting to come back alive and all of that work is falling in their lap.

Jason Ray (06:23): But if you don’t have the ability to respond very quickly and use automation to do the rote tasks associated with your job, well, you’re in a situation where you’re about to lose all of those opportunities that you just got. So at Paperless Parts, we call it automation with a human touch. We’re all about focusing on giving the human operator the ability to focus on the areas where they can have the biggest impact. So whether that’s identifying critical aspects of a component that you’re making, that maybe only you’re able to understand and able to catch, so those little tricky aspects that might cost you a job or might cost you profitability on a job. But what it comes back to is also the ability to go out and win that work.

Jason Ray (07:11): There are two things that impact your ability to win work in job shop manufacturing. It’s the speed at which you can respond to that quote request. We see that having the single biggest impact. But secondly, it’s following up on the quote. So whether I call right before I send you the quote or I call right after I send you the quote, it’s that connection, that human to human phone conversation that not only allows you to show that you’re a responsive, organized manufacturing partner, but it also allows you to catch your own mistakes.

Jason Ray (07:47): Because one of the key reasons that quotes don’t get ordered in job shop manufacturing is because the estimator or the salesperson misses some critical piece of communication, whether it got sent on a different email, “Oh, by the way, I need you to add quantity of 1,000 instead of just 100, 200 and 300.” You know what I’m saying? Yeah.

Greg Raece (08:09): You’re bringing the estimator, the skill of the fabricator, the human element, the touch that you call it, and really what you’re doing is you’re giving them the competitiveness of the change of the digital marketplace provides. What that is is you’re reducing the paperwork or the bureaucracy in many ways. What that’s sounds like it’s able to do is take a fabricator shop and really allow them to compete at a level that previously they may not have been able to compete with because the software was out of reach, and that software now within reach with Paperless Parts is something that they’re able to basically bring into their business as a new strategic element. You had mentioned something else to me a little bit earlier, and that’s the generational change in the shops that you’re seeing. I was wondering if you talk a little bit about that too, because I think that’s also important.

Jason Ray (08:58): Yeah. It’s really interesting. It’s like there’s an entire generation of people that watched too many movies about Wall Street. I mean, I look at the average estimator in the shop and we’re talking about folks in their fifties. Then you’ve got other folks coming in as apprentices in their twenties. It’s like where’d all the people in their thirties and forties go. How do you go and transfer the knowledge from someone who has 30 years of experience in that specific shop with those tools, with those customers, with those jobs to someone who maybe has two or three years of experience and give them the ability to do that job successfully?

Jason Ray (09:35): I think over the next 10 years, we’re going to see massive turnover, massive change in the industry as folks start to retire. I think as a product of that change, you’re either going to see new younger owners coming up, taking over the shops, doing innovative things, or you’re going to see huge consolidation across the board. This is going to be a result of a shift in private equity companies realizing that the manufacturing industry is really interesting and that’s going to drive a shift in buyer-supplier power. I think we’re actually already seeing it.

Jason Ray (10:09): Today, job shops have very little power over the companies they buy from. The price is the price. We’re starting to see the companies that we work with get purchased by large private equity portfolios. It’s not just one shop now that’s going out and requesting cutting tool quotes or material quotes, but now it’s the power, buying power of 25 shops. Instead of spending $3 million on material, now they’re spending $75 million on material as an entire organization. I think this just changes the dynamics in the buyer-supplier power ratio. Now as a buyer, I’ve got a lot more weight behind me. So suppliers, they feel the threat of me taking my business elsewhere, and if I don’t get fair prices for whatever I’m trying to buy.

Jason Ray (11:02): So I think, that comes back to a key premise in economics, which is buyer-supplier power. Today, job shops are stuck in the middle. They’ve got very little power over their customers because a customer will say, “Hey, I’m just going to go to the guy down the street.” They’ve got very little control over their supply chains that are providing goods and services to them. Once we see this consolidation, I think we’re going to see some really interesting dynamic shifts in the entire industrial supply chain.

Greg Raece (11:32): Right. We see that on the metal supply side too, where a lot of the smaller distributors across the country are being consolidated, and add on top of that is the role of the internet and direct to consumer marketing. It’s an opportunity to take that consolidation and really expand it out. On the metals, we’re a piece of that among a bigger industry, but we expect to grow as more companies make their presence online. It’s really interesting to see that change starting to happen and really interesting to see what it will mean from a supply and demand point of view.

Jason Ray (12:04): Yeah. I see consolidation happening. You read about companies that are either consolidating specific components on a GE airplane so that now they completely control the engine supply chain and they can drive the prices up on GE. There’s recently a book by Jonathan Tepper and Denise Hearn, it’s called the The Myth of Capitalism, and it talks all about this idea that you’ve got companies and as a way to combat commoditization, they’re going out and they’re consolidating and they’re building either monopolies or oligopolies that allow them to either dominate a specific industry or a region. So the real question comes back to, are we really dealing with a competitive market? I mean, I know you just saw on the news that Google now, this is one of the first antitrust lawsuits in a very long time.

Jason Ray (12:53): So what I end up doing is I go out and I ask buyers, “Why do you buy parts from China?” Because that’s the real thing I’m trying to figure out. Is the US supply chain efficient enough to support American manufacturing and the re-shoring of manufacturing, even with that opportunity cost that we were talking about before? The response I get is, “I can buy parts from China at the cost of the material in the US.” How is that even possible? What is going on? The thing I keep hearing is that in China, the material is really one step away from the buyer, one step away from the ground to the buyer. So what I mean by that is it’s coming out of the ground. It’s getting turned into bars and it’s getting sold from the very same company. Whereas in the US, maybe we’re three or four or five steps away from that mine. I’d love to get your take on it.

Greg Raece (13:47): Well, you’re right. We are removed from mining in the US. Unfortunately, COVID hasn’t helped with US mining production dropping almost 15% year over year in September due to the economic downturn. Right now, gold, copper, and iron ore, those lead the list of the top of mined materials and metals in the US. In the world of iron, Australia is the leader, mining 20 times more tons a year than the US, whereas Brazil and China come in at second and third. So materials are generally not mined in the US except for a little copper, a lot of it is outside. Buying it means that it’s a market based price that you’re paying. So as a US company, you’re out there buying and bidding, and sometimes the quantity just isn’t available. So when that happens, that’s where you see a run on the price. Or other things go into place, such as tariffs that may be driving up the price.

Greg Raece (14:38): In the US, you have different houses competing with each other, and a premium gets applied for every single purchase. Sometimes there’s not that much material available and one particular company is able to corner the market on it. For example, if you’re looking for copper 101, it’s going to be harder to find because there’s just not that much supply of it. To stay competitive, you have to be really clever with your futures buying and commodity trading, and all of that leads to increase prices, which really leads to, as what you were mentioning, it can be cheaper to manufacture the entire part than actually to buy the material when you do it in the US.

Jason Ray (15:13): That’s really interesting. It’s interesting that you have to go through it. Most people probably don’t think about that when they go buy a bar rod from Online Metals. They don’t recognize all that goes into making sure that those materials are prepositioned and they’re available when they’re needed so that they can have that speed of turnaround on those parts.

Greg Raece (15:33): Yeah. COVID too has been really interesting. COVID pulled a fast one on a lot of people, and it just about appended every single economic trend we’ve seen. I was thinking of that Mike Tyson quote where everyone has a plan until they get punched in the mouth. Industries like aerospace, they were expected to boom this year, but it’s disappeared. I mean, Boeing has shut down production lines. Subcontractors are not getting that work anymore. The industry has ground to a halt. Whereas on the other side of the fence, you have industries that have boomed such as firearms. Those have increased and firearm production is probably at the highest it’s ever been. The materials that go into supporting either one of those vary. So you may have a huge decrease in aluminum, but then you see on the other side, copper prices are going up. It’s really been a fascinating response to the surprise that we’ve had this year of the pandemic.

Jason Ray (16:26): I think it also has to do with the election year.

Greg Raece (16:29): Right.

Jason Ray (16:29): The fear of firearms becoming something that can’t be sold or you can’t go out and just buy a firearm, it’s so interesting. I mean, I’m talking to customers today that their entire facilities are producing components that are going into firearms. I think, COVID created this boom in firearms and so did protests and now there’s an election year. So you’re basically getting this multiplier effect on the demand for firearms. The customers we talked to, they just can’t seem to produce them fast enough, which is really interesting. I think another thing that we’re seeing with COVID is it more and more companies are realizing that a penny saved in a part could create a dollar of risk going into the future, and that goes back to those China parts where it doesn’t really matter if I save a buck a part and it costs me three, four, $5 down the line in lost opportunities. It’s just not worth it.

Jason Ray (17:29): So what’s the risk? I think buyers more and more asking themselves that. How do I price in the risk? Because as I’m comparing apples to oranges, looking at quotes coming in from China, looking at quotes coming from local manufacturers, I really have to find a way to normalize that and understand, hey, the risk of going a completely off shore supply chain is that at some point over a decade, we may take a hit that costs us X amount. That’s the message a lot of OEMs are starting to take away from this situation. We have to calculate and bake risk into the supply chain and into our evaluations of costs so that we’re not penny-wise and pound-foolish.

Jason Ray (18:15): So at the end of the day, it comes back to time savings, getting people prices and access to material faster. I think that’s where our company can have the biggest impact on the US supply chain. Shops are quoting hundreds of parts a month because buyers are more automated in the way they’re sending RFQs. The number of RFQ is continuing to go up and the amount of time spent quoting goes up. Every time I quote a part, I have to go figure out what the cost of the material is. So for me, when I’m looking at how I can make a job shop more efficient, but I’m trying to do is figure out, “Okay, well, if I have to quote 100 parts a month and it takes 10 minutes to figure out how much material I need,” and that’s a lot of time. That could be 1,000 minutes that someone’s spending just figuring out the cost of the material. That’s where I think the solution that we’ve collaboratively put together is really impactful.

Jason Ray (19:13): It’s just saving that few minutes 100 times. I tell my team that all the time. If you are going to build a feature, you have to take into consideration the minutes. There’s not one feature that we build that’s going to save, oh, this one feature is going to save you tens of hours a week. No. It’s more like this one feature is going to save you 90 seconds on a quote. Because you’re sending 100 quotes a week, that’s really impactful because if we build 10 of those features, now we’re saving you an enormous amount of time.

Jason Ray (19:46): The other thing is the opportunity cost for a shop. One of my favorite stories coming out of COVID was a shop that we work with. By the nature of our product being in the cloud, it allows our customers to be hyper responsive to requests for quotes. What we’re seeing is that these requests for quotes that are being born out of supply chain disruptions, you need to respond to those in minutes. So one of our customer was we’re sitting at home on a Saturday morning with his kids watching TV, reading the news on his iPad, gets an RFQ that comes in, goes into Paperless Parts, is able to return a quote back to the medical device company in 15 minutes, and won 15 minutes later over a million dollars worth of work. That’s huge. I mean, for about 30 minutes where we went in, was able to configure it, send it back out, game changer for his business. Highly profitable work.

Jason Ray (20:45): In another situation without Paperless Parts, he would have had to either be watching his email, see that email, get dressed, go into the shop, pull it up on the computer and then send the quote back to the customer. Frankly, that could have cost them the job.

Greg Raece (21:04): Wow. I think we saw that too from buyers on our website, especially during the COVID period, when one weekend there was a rush on a particular grade of plastic that you use for making medical visors and people were going from site to site to site wiping out the inventory. That was what we experienced too, is people coming to our website immediately buying. I wonder if maybe that was the same person who got up on a, who checked their iPad on Saturday and then went on to Online Metals and bought the material. I do agree with you as well on the speed issue and it’s the speed of accessibility.

Greg Raece (21:37): We just completed an update to our website where we focused on reducing the speed by 50% on our mobile website. The idea behind that was because we have a lot of people who are buying now from their phones. They’re actually out there, they’re remotely purchasing things, and we need to make sure that they have as fast of an experience as possible.

Greg Raece (21:57): Well, Jason, so in closing, I think we have three main takeaways for today. First, in this business, the speed of quotes is a major competitive advantage. Second, more and more customers are realizing the risk involved in sourcing parts from overseas. Third, COVID disrupted supply chains in a way that exposed weaknesses in those systems. Hey, Jason, why don’t you tell us about how we can learn more about Paperless Parts?

Jason Ray (22:20): Yeah. Thanks so much, Greg. I think, anyone who’s interested and wants to learn more about Paperless Parts, I definitely recommend you visit our website, paperlessparts.com. As a company, our mission is to make job shop manufacturers better, make that industry better as a result of everything we do. So what I’m saying is when you come into the sales process, whether you end up buying Paperless Parts or not, you are going to learn something about your quoting process. We’re going to map it for you and we’re going to show you where all the potential risk points are and all the opportunities are for improvements. You will walk out of that process saying, “I did not waste my time.”

Jason Ray (23:04): I think that’s the most important thing for me because I want to know that every time we interact with a shop, we’re doing so in a way that makes them better and helps promote the future of American manufacturing. So I’m super excited. I also think it’s really great idea for companies to go to onlinemetals.com, check out the tool that we built. You can sign up. It’s a free tool. It’s very collaborative. It’s going to allow your customers and our customers to much more quickly source the metal that they’re looking for.

Greg Raece (23:37): Well, thank you very much, Jason. That’s a great way to end and conclude this episode of this version of the Metal Press Podcast. We’ll talk to you next time where we’re going to discuss lessons about what we’ve learned how to thrive in this industry during the pandemic. Thanks to everyone out there for listening.