ANNOUNCER: You're listening to Behind the Ops, presented by Tulip.


MADILYNN: Natan.


NATAN: Yeah.


MADILYNN: Have you seen Monsters, Inc.?


NATAN: Yes, I have seen Monsters Inc. 


MADILYNN: How does it rate in your stack of, like, most fun for both children and adult movies?


NATAN: It is very fun for adults and children alike. It's loved by many.


MADILYNN: [laughs] Do you mind sharing your high-level summary with our listeners? Like, what is the Natan manufacturing tech CEO's view of Monsters Inc.?


NATAN: There's definitely a lean coach in that movie that kind of works on this guy.


MADILYNN: [laughs]


NATAN: Sullivan, Sulley.


MADILYNN: There you go. Sullivan is also just, like, a solid manufacturing name.


NATAN: Yeah. And it's definitely a factory; very tough to produce the product, I'd say. 


MADILYNN: Energy is a tough industry.


NATAN: Energy...yeah. And there's definitely corporate overlords there. 


MADILYNN: Yes. 


NATAN: Very strange supply chain.


MADILYNN: A strong quality department.


NATAN: Quality department [laughter], yeah.


MADILYNN: The quality department there, no socks. 


NATAN: Yeah. And Billy Crystal is funny, you know.


MADILYNN: [laughs] I thought it'd be a good place for us to start as a way to introduce this concept of one energy in manufacturing energy and its kind of role in driving this manufacturing supercycle, which you've been emailing me articles about.


NATAN: Yeah, for, like, a few years. Are you referring to the last, like, up and to the right insane curve where the amount of money going into manufacturing real estate...or did I send that to someone else?


MADILYNN: No, that's exactly the one that I'm talking about. And we'll link it in the show notes. The one that Natan shared was the Axios article on the supercycle, which highlights just the incredible rate at which money is coming in. But also, construction is happening of American manufacturing.


NATAN: For manufacturing in operation, which is phenomenal. It's weird because we're missing all these working hands in operations. So, theoretically, if we're missing them now, we have a place to put them now. And, on the other hand, you're seeing all these new facilities being set up across the country in various programs. So big companies are coming in and setting up shop, or federal and state-level incentive plans and areas of sort of economic development are being set up across the country to get manufacturing back into America, which is awesome. 


MADILYNN: Let's talk about a couple of the big ones there because I feel like that's a major driver, both of innovation and interesting public policy. So you have the Chips Act, which I feel like everyone else has been covering in more depth than we are. But that is an area of direct investment and subsidy from the government.


NATAN: Yeah, Chips Act should be its own episode. 


MADILYNN: [chuckles]


NATAN: It's not to say we don't have opinions about it, but we're just not ready to share them. 


MADILYNN: Yeah, so we'll put that one on the shelf.


NATAN: We'll put that on hold, yeah.


MADILYNN: But we'll acknowledge that it's a contributor here.


NATAN: For sure. 


MADILYNN: And then the other or one of the others is renewable energy, especially around batteries and electronic vehicles, which has been, like, a global race for getting those industries to set up shop. And you're seeing the States really win in terms of subsidies for attracting companies, at least at the building production stages. Though we'll see how that shakes out. 


And then the third one that I wanted to mention, not on the government side, I think is a little bit surprising. Do you know what I'm referencing?


NATAN: Is it tensions with China, say, for example? 


MADILYNN: There's -- [chuckles]


NATAN: Just to think about something that could impact the reason why people are considering their operations --


MADILYNN: There's two kinds of pieces to that, right?


NATAN: Yeah.


MADILYNN: So you have your intellectual property protections in the States just being much stronger for global companies than a lot of other countries. But the other, I think, is more surprising from China. And that is that folks there are just rejecting, in a lot of ways, lower paying factory jobs in the way that working in factories is as an experience, a work experience in China, which is both notable for thinking about attracting talent if you're investing in building these factories but also a caution for those that are building now and what they need to think about when attracting talent and keeping talent.


NATAN: Yeah, so global supply chain, manufacturing economies are not going to change overnight, right? The multinational companies are still sourcing parts all over the world, and, like, this trend of building close to the customer, in fact, started before COVID. I know we all forgot about COVID, but it impacted [chuckles] our global supply chain quite a lot. Remember the part that it was hard to get stuff on Amazon? Our --


MADILYNN: Yeah, holiday decorations.


NATAN: Or cars. 


MADILYNN: We were feeling the pain of that one. 


[laughter]


NATAN: That one...you're still on that one?


MADILYNN: No, the, like, ricochet of hard-to-get cars. I feel like we're at the end of the cycle. But I distract from the [laughs] conversation.


NATAN: Yeah, no, I mean, you're a consumer; it's important. But my point is that for several decades, a lot of labor has shifted to Asia-Pacific and other low labor arbitrage-type developing areas of the planet. And multinationals did that to have great value to their customers. And also, like, paying with logistics because logistics was so perfect. 


Well, that didn't work so well either when everything was, like, too much just-in-time, and we were missing chips to build the cars. And ships are waiting in Shanghai Bay for, I don't know, weeks and weeks because of blockades. And suddenly, like, a very fine-tuned global supply chain comes to a halt, and I think COVID just exacerbated that. But, in fact, the trend to build close to the customers, so you have the inventory, and you are ready to go. And you talked about other benefits with them, like quality and IP are more pronounced and people trusting brands. So I think that's definitely happening. 


But I guess the other part is that some organizations are now questioning, like, well, what is productivity? Like, is it just dollars and cents on, like, my labor rates and all that kind of stuff? And, like, what do I do with workforce and things like that? And maybe they're paying more for the labor component, but they're getting way more productivity.


MADILYNN: Well, it's interesting you bring up the labor component because we found this study from...and I want to say it's Boston Consulting Group (BCG), that total cost in manufacturing is about 15% lower than Western Europe and 30% lower than Japan, both areas that you think of as high labor costs but not as high as the States, which coupled with the labor and just production build-out challenges in China show the States is a much more appealing, even on a cost productivity basis, appealing place for folks to build. 


NATAN: Yeah, and, of course, there's still issues in the U.S. here and in westernized economies that there's lots to be done. But I'll give at least one different view for the problem. But it's almost like, by now, they have a bad rep. You know, it's like if we want to get it done then cheap and on time, and all that kind of stuff, we need to go to make it in China. 


But our problem in the U.S. is different. We have the productivity. And I think some of the people there it's, like, but we're starting to lose on basic stuff. Like, there's not enough CNC machines, so it's, like, capacity. Or there's like, we're losing knowledge because it's shifted away for so long. Yeah, sure, there's a lot of people who can put together a PCB, but there's not enough SMT machines States side [laughs] to create the supply such as the pricing, like, drops down. 


And so it's still the knowledge, the market hustle of getting on the resistors, capacitor, or whatever is in Shenzhen because the government invested in making it happen, and enabling that, and promoting that. And then all those little shops tied with, I don't know, DHL, FedEx, and the like, you have global supply chain. Boom, that's where you make your PCB. 


There's a different name for that. Like, you know what manufacturing does? It creates innovation. And I forget who said that, but if you don't have that manufacturing, you kind of lose a big part of your ability to innovate on an ongoing basis because you lose the part where we tried to make it, and actually, we couldn't, so we had to do something different. So we innovated. And then it fed into how you design it. And then the cycle continues. Now what we have it's like, well, we designed it, and, like, we send manufacturing engineers to China. So where's the innovation of making the thing happens? Not here.


MADILYNN: I love that thread you're pulling at where it's like, okay, like, we know the forces that are happening here. But where's the opportunity? Knowing what was lost before when there was a lot of offshoring, how do manufacturers in the States take advantage of this investment and opportunity? And what are things to think about if they're working towards leadership or any manufacturer with this opportunity is looking for leadership in the future? 


NATAN: Yeah, my first recommendation is to go into these really elaborate and boring websites [laughs]; one of them is called reshorenow.org [laughter], which I find fascinating. So much so that, you know, I spend hours trying to understand [laughs] what is actually happening. It's like a bunch of resources—like, really, kudos to the people who put this together—that shows, like, where is reshoring happening and gives all sorts of resources. So that would be a good starting point to read stuff. We have to understand not all reshoring is created equal because are you really wrapping up the operation back East and coming back to the U.S., or is it actually diversifying? 


MADILYNN: Okay, that's a [crosstalk 09:50] perspective.


NATAN: Or is it actually it's not all the way to the U.S.? We're going to do a part in areas that are closer to the U.S. or have different export regime from tariff and all that kind of stuff...that perspective. So it's, like, not one strategy that does this. And we're seeing in Tulip instances of everything, basically. So I think it depends on the size of the company and how people want to set up this operation.


MADILYNN: I would add, and maybe this is a shameless plug from this perspective, but if you're going to start just new, I feel like you can build in digital and adaptability in work or training into your facility from day one.  


NATAN: [inaudible 10:28]


MADILYNN: You know, learn from the mistakes or shortfalls, rather, of industry 3.0 and avoid picking up the, like, we'll figure it out later mentality. So you have that solid foundation. And also, from the workforce point, like, it's an interesting place to work day one.


NATAN: Yeah. And I think there's another interesting example. What you're saying is a phenomenon we're seeing. It's like, it's not necessarily, well, we used to make stuff back East, wherever, and now we're bringing it back. Like, we're seeing all these companies that are born in the U.S., and either they fall into, like, we're a hardware company, and we need to set up shop. So they would look for even contract manufacturing expertise in the United States. So that's also a form of, like, deciding to stay local. 


And then they actually invest in their own factories. So suddenly, you know, they're on the smaller side, and they take time to brew and all that kind of stuff. But they become pretty good at making this thing they're making. And they could be, like, all sorts of products like drones, or modular homes, and things like that. And I think they're cutting their cycles to the market. 


And in some cases, like, for example, if you think of a modular home, logistics is a thing. So it's kind of like some products, like, it really makes sense to make close to your customer because how are you going to ship it and make money, basically? And so there's lots of examples like that. I don't think there's one holistic way to think this through.


MADILYNN: Yeah. And that ranges from people being close to customers who have a perception of higher quality when they see their country of origin listed on where the manufacturing facility of the good is. Or also, and I think, an interesting example in order to preserve the craftsmanship of a process...I don't know if we've talked about the Metallica buying their own factory to make vinyl records in Virginia. 


NATAN: Did they do that?


MADILYNN: Yeah, [laughs] it's a very fascinating story. It was...there were only so many facilities that were making the type of vinyl records that they wanted because there's not a huge demand, but they wanted them for their fans. So they purchased a manufacturing facility in order to ensure that lived on, which I think is another kind of unique and localized example of thinking about things that your customer cares about that are independent from just maximizing cost efficiency.


NATAN: Yeah, I think that some of the stuff we'll see in the near future is in reshoring. It's going to change all sorts of local economies. And you kind of talked about the Chips Act. We'll have to see how it shakes out. But that's, like, there's demand from local government. Like, we need more jobs and more innovation in our section. And, like, the Federal Government goes, like, well, we want independence. We don't want to be so reliant on the global supply chains that we have to kind of take care of our base. 


So there's something...it's, like, very unique. And this is why some people call it like, okay, there's a renaissance or something like that. But it's interesting because you can argue that it's like the second Renaissance, you know? 


MADILYNN: Yes. 


NATAN: Because the Renaissance, you know, like, it took time until it kind of happened. I don't know, maybe enlightenment is, like, the second Renaissance or something like that. You know what I mean? Because the first one was like, okay, we're opening up. Automation is happening, and it's happening now. Go manufacture. We want a global village.


MADILYNN: This is a very artistic reimagining of the traditional industrial revolution journey that I'm very supportive of.


[laughter]


NATAN: There's that...Industry 1 was like...what was that actually? 


MADILYNN: I want to pick at this Renaissance thing. So talked a little bit earlier about this idea of, like, what foundations can people do to, like, think more future going? And where are places that if the first renaissance was industry 3.0, a lot of American manufacturers missed out in a lot of ways and are still kind of adopting that as, like, first --


NATAN: Still missing out, yeah.


MADILYNN: First digitization. But now we have an introduction. And maybe we're not allowed to keep talking about this. It's on the bingo card, generative AI and other more applied artificial intelligence, and digital access to information, contextualized information as table stakes for accessing the value from a lot of those technologies, if not all of that technology.


So, to your point about Renaissance, taking that investment and thinking not, like, where do we need to be today? But what do we need to do today in order to be competitive tomorrow and applying that to all things like the tech, the people, supply chain management, like all of these things as part of your core strategy?


NATAN: Yeah. Like I said before, there's a problem with supply. So if the machining base is quite a lot of shops, but they run a couple of Bridgeport and, like, one 3X of CNC...and you go to many places in China, and you see just, like, rows and rows of 5X CNCs, all connected, like, born digital. It's like, this is where we're missing. This is exactly why we can't get enough local reshoring. Because it's not just about the OEMs or the integration companies deciding to build the product local to the customers. They actually need the rest of the supply chain. So this has eroded over the years. 


So reshoring is not just going to impact the companies themselves; it's going to impact all the supply chain around them. And that's a huge opportunity for, you know, the way the industrial base is actually constructed where, you know, we have a ton of small and medium businesses that they need to modernize. And, you know, this is where, you know, you read all this original MIT Made in America thought leadership analysis research, like, even as far as 20 years ago. They're saying all those things. And we failed doing that. [laughs] And so, to me, that's the second chance, you know, so, like, designed in America, made in America.


MADILYNN: I think this is an interesting place for us to close, right? Like, there's a lot happening. [laughs]


NATAN: Not only the episode, but it's...I don't know if we get a summer break for real, but maybe this show gets a summer break.


MADILYNN: Show gets a summer break. This is going to be our finale episode. So second chance for me this season to do season of the podcast with you as my co-host. 


NATAN: Uh-huh. Yeah, it's been a ride.


MADILYNN: And [laughs] all of this money is a second chance for American manufacturing to take a more innovative leadership role in how the industry shapes up in the future.


NATAN: Yeah. We're ready to help and talk about it more [laughter] next season.


ANNOUNCER: Behind the Ops is brought to you by Tulip. Connect the people, machines, devices, and systems used in your production and logistics processes with our frontline operations platform. Visit tulip.co to learn more. 


This show is produced by Gaby Elanbeck and edited by Thom Obarski.


If you enjoyed listening, support the show by leaving us a quick rating or review. It really helps. If you have feedback for this or any of our other episodes, you can reach us at behindtheops@tulip.co.