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Capitalism and Consumerism: The Journey of Marlin Steel

This story on the American manufacturer Marlin Steel offers a look at a company that has survived the healthy phenomenon of competition, adapted, and risen to success.

Marlin saved itself by facing a truth that few threatened manufacturers can stomach: It was failing because it had gotten everything wrong. It had the wrong customers; it had the wrong products; it had the wrong prices. Greenblatt realized--just in time--that even wire baskets could be innovative. The simplicity of Marlin's technology is not what we typically associate with innovation--there's no algorithm, no microchip, no touch screen. Instead, Marlin learned how its products could help its customers, providing the quiet innovation that can give a fellow U.S. factory a critical edge and help keep jobs in the United States.

The themes of this story include Consumerism and Capitalism; more narrowly, the story shows a shift from a focus on lower order capital goods (baskets for bagels) to higher order capital goods (baskets for auto and airplane parts) and illustrates the concept of foregoing short term consumption for capital investment in productivity enhancing equipment.

Greenblatt has slowly accumulated smart machines to go with his smart staff, starting in 1999 with a $200,000 piece of gear that does wire bending and butt welding. (Incredulous Marlin workers likened the purchase to using a howitzer for killing mosquitoes.) Marlin now has $3.5 million worth of computerized industrial robots--a couple that can pull and bend hundreds of feet of wire a minute; an automated router; an automated welder; a steel-punch press; a cutting laser. These aren't the kinds of robots you see on newscasts about assembly-line work; they don't have jointed, anthropomorphic arms wheeling in every direction. They're really just highly automated, highly computerized, and very fast manufacturing machines. Greenblatt nods at one of them. "I could have had a yacht instead of that," he says, though Greenblatt isn't really a yacht guy.

The automated machines have helped make Marlin Steel possible, letting it produce quickly, in small batches, with great precision--and economically enough to compete, even against China. Marlin recently won a job from a Chicago company for 160,000 metal brackets a year, each one smaller than the palm of your hand. The manufacturer had been buying the parts from a Chinese company. Even though Marlin's salaries are 10 times higher than in China, the labor costs in Baltimore are actually lower.

One Marlin staffer earning $25 an hour can tend a massive punch press that turns out 2,000 perfect parts an hour. In China, one worker earning $2.50 an hour uses basic tools to make 75 brackets an hour. Even though you can hire 10 Chinese workers for the cost of one Marlin worker, together those 10 workers are making only 750 brackets an hour. So the labor cost of producing 1,000 brackets in Baltimore is $12.50, versus $33.40 in China--60% less.

Read the complete story over at Fast Company.

Indeed, if there is any hope for the American economy to become robust again, we need to have companies like Marlin Steel lead the way. The FED needs to remove the artificial stimulus so companies can better perceive what will be feasible projects and quickly respond to the demands of the market.