*Editor’s note: This is an edited transcript of a focus group of manufacturing executives conducted at Marsh McLennan Agency in Golden Valley as part of the 2025 State of Manufacturing® survey research project. It was one of six focus groups.
Q: What is the state of your business today, and what do you see it looking like in 2026?
- We are about 30% machining/medical and 12% packaging. We also do CNC parts, some O-ring gaskets, and cleanroom fabrication. We had a great Q1 of the calendar year, and we were excited about growing. Then the rug got pulled out starting at the end of April, and we experienced four months that were smaller than we expected. We were just idling. I had half my machines shut off. Now in the last three weeks everything is coming back alive. I don’t know if it was a tariff scare, but I think we’re going to finish within 8% of our forecast.
For a while customers were just not resupplying. They slowed way down, almost as if they had too much inventory. I don’t know what happened there.
- We felt that tariff concerns were holding people back from placing orders. Also interest rates — they couldn’t get ahold of money as easily. Now that the interest rates are coming down and tariffs have kind of leveled off, we’re starting to see more orders for later in the year.
- Our biggest industry is aerospace, and that has been pretty good with increasing demand. Then the next biggest portion is defense, which has just been kind of flat, but we are waiting longer in between orders. Our last division is commercial customers, and those are all way down. So, the aerospace industry is saving us.
- With our heavy equipment — the big packaging equipment — it’s very expensive, and with the uncertainty, the interest rates, and the global chaos, the big purchases slowed down quite a bit. Now we’re starting to see those orders that have been sitting on the CFO’s desk waiting for approval come through, and that has held true for the last two fiscal quarters. At the end of the year, we will be within 2% of our budgeted growth — we budgeted for 8% growth in fiscal 2025 and will be probably 6% growth over last year.
- We’ve seen a weakness in agriculture. We do a lot in ag storage and getting these ag companies to pull the trigger has really been tough. They’ve been holding the cards very close to the vest. With the tariff situation, can you blame them?
Since we are jumping into tariffs, do they affect your ability to plan for 2026? Do you see the tariff situation improving or are you mapping out your future for uncertainty?
- It makes us hesitant to make any big capital expenditure decisions. We’re looking more internally at cutting costs wherever we can because we have seen tariffs affect a lot of things. It was material pricing first, but now it’s trickled down into hardware and paint. So, we’re definitely cautious.
- We had to look at reducing staff at two of our machine centers because of foreign competition that plagued us earlier in the year. But we’re starting to see some things trickle back. Our third quarter is usually our lowest and it was actually our highest. So, we’re trying to continue to make up from the first half of the year in this last fourth quarter.
Tariffs have been disruptive, and of course business doesn’t like disruption. I don’t necessarily think that all these decisions are thought of with the long-term health of the U.S. manufacturing economy in mind.
- It’s been a crazy topsy turvy year. How do you predict what this president is going to do? I mean he essentially shuts down Canada. He shuts down China. How the hell are you going to manage 145% tariffs? How do you plan for that?
Given the tariffs and your own supply chains, are you thinking of bringing your overseas business back to the United States? Or is that just a pipe dream?
- I think every electric motor in the world is made in China, and if you want to buy an electric motor that is made in the United States, it is virtually impossible and it is going to be two to three times the price of what you’ve historically been paying for that kind of equipment out of Asia. The only certainty in my view with the tariffs is the absolute uncertainty. There’s no way to predict what is going to happen. I bought a two-year supply of most of our inventory just after Pres. Donald Trump took office, as we anticipated supply chain issues. We also went to our suppliers, most of them from China, and negotiated with them to reduce their prices to absorb the bulk of tariffs.
- We’ve dodged that bullet because we bought substantial inventory in anticipation of that kind of turmoil. But once that inventory runs out, then we’ve got the same problem everybody else has.
- I was buying $250,000 in gaskets out of India and now they have a tariff. So I found a manufacturer that actually got me a lower price with a distribution system right out of Pennsylvania. So I’m moving it back.
What would you say your biggest challenge is for 2026?
- The biggest issue for me is finding good, quality employees. People who will show up every day and do their job and won’t get injured half an hour after they start their work, which happens. It’s so hard to find good employees who will show up every day and who aren’t alcoholics or on some kind of prescription drug or worse. Cocaine and heroin are rampant for us in the northwestern suburbs. When we talk about bringing manufacturing back to this country, we are competing with an environment in China and Vietnam where employees work from nine in the morning until nine at night. They work six days a week and in many cases they never leave the plant. The plant is on the first floor, the living quarters are on the second floor, and the temple is on the third floor. And there is a line of people, a thousand people, around the block who want these jobs and will work those hours for not a heck of a lot of money. We are never going to beat them in manufacturing if the whole point of it is to bring employment back.
- I’m losing a lot of people to retirement. I don’t want everybody to work until they can’t walk, and I want them to have a good life and go hang out with their grandkids, but retirement is a major issue for us.
Finding good people is job number one. It’s almost impossible.
Is attracting workers or retaining quality workers a bigger problem?
- Quality? How about finding those who can simply write and read?
- To me, attracting and retaining are the same concept — you’re trying to get them to come in and then have them stay. The weird thing is these young people will move for a dollar more an hour. Whatever happened to loyalty and sticking around and learning a trade and becoming really good at it?
- I’m an hour and a half west of the Twin Cities. I have no problem. I have a stack of welders who want to come work for me. We try and treat people the way we would want to be treated. I’m not going to say we’re the highest paying in town, but we are flexible, and culture makes a huge difference. Especially to the younger ones. Being able to show that they are appreciated for their work goes a long way.
Let’s jump to automation — are you using it? Is it of interest to you and your employees based on the worker issue?
- The machine doesn’t ask for a raise, doesn’t play on its cell phone, and doesn’t go to the bathroom for 30 minutes a day. I see it as revenue enhancement because you can do more with fewer people. Of course, because it is running it can break, there are still shift changes, but it can run lights out. That’s why I like it.
- We have not done much automation at all. We have a couple of things on the table right now, but it is a half-a-million-dollar investment, and interest rates aren’t great right now. So, we are waiting and haven’t pulled the trigger on that.
Does your company have a formal strategy for eventually incorporating AI into your company?
- We are looking at that. I’ve heard a lot of people say that AI is the next internet. Automation can be helpful with certain internal processes, connecting various systems together to be able to give you better information and more predictive information. AI can help with things that people just don’t necessarily realize. Even having AI create marketing materials is helpful — for image generation, video generation, music generation.
- We’re developing an AI component to our software that will pull that information once a product leaves the plant. It will report it up to accounts payable, accounts receivable, operations, inventory production, accounting, legal, every aspect of the business. And then the AI will spit down the information that allows you to make the right buying orders when you’re inventorying and connect to the marketing people so that they know what’s selling.
- We are using AI a lot for our prospecting, and we are looking at how to integrate it with our accounting group. We have some resistance, such as a 78-year-old father who has spent 56 years with the company and wants to keep people, doesn’t want to look at robotics, doesn’t believe in AI.
What are your thoughts on the new paid leave law that is about to be implemented on Jan. 1, 2026? How have you planned for it? Are you angry? Are your employees ready?
- I look at our employee base and already know who is going to use it. I don’t think I’m going to have a big problem with it. I think I have two people who might try and abuse it, but all in all, I don’t think I’m going to have a big problem with it.
- It’s going to be painful for us if people take their leave. People who probably didn’t take a leave before, such as paternity leave. I think the father should be able to also take time, and everyone should be okay with that, but 12 weeks seems a bit extreme. I’m worried about it, but that is out of our control. I’m also trying to see the good of it, in terms of trying to retain the younger people, keep them happy. I think with them it’s going to work in our favor.
- We will be using the private carrier option, not the state option.
- Time for more robots.
- This has been probably the cleanest I’ve seen the state implement something. The guidance that they have put out, the FAQs, have been much better, more comprehensive, and more in line with what businesses need to know. And that’s the first that I’ve seen where I would be willing to say that out loud.
Because this is a new program, even though you may have seen smooth sailing thus far, what message would you like to send to legislators? Would you rather have something else in place? Was this program necessary to implement?
- I don’t think it was necessary after ESST [Earned Sick and Safe Time]. We currently pay for short-term disability for all our employees, so that’s going away. Now I’m sharing that cost with my employees, and I hope that they think twice about leaving on Thursday and having a bender because half of our short-term disability goes to individuals who are kicking this or that and harming themselves. Hopefully we’ll see a change.
- This is a great state to do business unless the legislature jams legislation through without calling the other half in. Running the numbers of what this is going to cost me doesn’t include the cost involved when the people are gone. That is lost opportunity, never to be brought back. The lost productivity is worse than the math.
If you had to pick one issue out of all the things that we’ve talked about, or maybe something we haven’t talked about, what is your heartburn issue? What keeps you up at night?
- Employment. Hiring and retaining the best, quality people. People who want to grow, learn, be contributing employees rather than somebody who just shows up for a paycheck every day. Part of that is on us to create that environment, which I think we do, but it’s still very hard, very difficult.
- I would say employment, as well.
- I think it’s just the environment. What’s the next thing that is going to try and beat us down? We’ll get over this, then there is going to be something else we’re going to talk about next year. I don’t know, are we building a utopia here and nobody works? That’s the trendline I’m seeing.
- The cost of doing business in the state of Minnesota keeps building, layer upon layer upon layer, and we will become less and less competitive and less likely to attract companies like ours to the state. That’s not a place we want to be.
- It’s almost all employment related. I hear more and more about incentive programs that will keep people in the office and that will keep people working. I mean, obviously nobody’s really excited about paid family and medical leave, but I think clients are more concerned about making sure that their employees are sticking around and getting work done.
- Lost productivity is worse than the math with paid leave. What’s next? I have clients moving to Wisconsin, moving their facilities from St. Paul over to River Falls. Or they’re in outstate Minnesota and they’re just going across the state line because that is where their growth is. They’re basically saying, “Any future growth is not here in Minnesota.”
Return to the Winter 2025 issue of Enterprise Minnesota® magazine.
