Editor’s note: This is a longer version of the interview than what appeared in The Lane Report’s June 2016 issue.
Mark Green: Give us a brief history of Mazak in Kentucky and what the ownership structure is.
Brian Papke: It’s family-owned by the Yamazaki family in Japan, and in 2019 it’ll be a 100-year-old company. We’ve been in Florence, Ky., since 1974. In Japan, it started as a very simple company making tatami mats, bamboo mats that people sleep on. The former chairman, Teruyki “Terry” Yamazaki, is the one who took a completely different approach than most Japanese-owned companies. He internationalized much sooner than other Japanese-owned companies.
He started an office in Long Island with one American secretary and 20 to 25 Japanese guys. Today, we probably have 25 Japanese here full-time and 30 maybe in North America, out of about 1,100 people. We were the first Japanese-owned company to manufacture in the state of Kentucky. And I think there are about 160 now, many of which came through here quite a bit sooner than Toyota. Mazak in Florence started very small, 12,000 s.f., and grew to 800,000 s.f. today, plus what we call technology centers around North America.
MG: Why does this region have a significant history of machine-tool companies?
BP: This was a machine tool manufacturing center in the country. Cincinnati was the machine tool manufacturing capital of the world. That was why we came here. It wasn’t such an international industry many years ago. European companies came to certain areas like Milwaukee; Cleveland; Rockford, Ill.; and Cincinnati was actually the largest center. A lot of them were German. In the Illinois area, they were more Swedish. Milwaukee also was a very German heritage. The people settled here, and then they started machine tool businesses.
Most of these guys were really strong entrepreneurs. They were very creative in making machine tools, but the industry and its scope looked so different than it does today. I had occasion to be in China on one trip at a big dinner in the Great Hall of the People, in Tiananmen Square, with maybe 1,000 people from the machine tool industry from all these different countries. We all felt at home with each other because the industry is so international today. But it’s not large. Countries want to make machine tools because it’s kind of a gateway to other kinds of technology.
MG: It’s a cornerstone of manufacturing.
BP: It is and it’s radically, absolutely radically, changing. There’s a lot of opportunity for the companies that want to change and innovate – it’s a classic “Who Moved My Cheese?” scenario. Machine tools are innovating in terms of software usage, and the eventual relationship to the Internet of Things is considerable. We just spent three days with a cool group of people from Cisco Systems, the leading builder of equipment for the internet. We didn’t even know those people years ago; there wasn’t even an internet. Machine tools were hardware-based.
MG: How mature is the internet’s influence on the machine tool sector?
BP: We’re at the infancy. The Association for Manufacturing Technology brings together a broad group of people – software providers and people who make accessories for machines and coolant manufacturers and truck manufacturers and a wide variety of people who affect manufacturing. We’re no longer just making machines that are hardware based. Some years ago, computer-controlled machines came into the picture, and that’s fantastic. They became more sophisticated. Then the controls evolved and started to look like your smartphone; they’re internet-compatible, but still kind of individual pieces.
AMT wanted to do something for U.S. manufacturing to differentiate not just machine tools but manufacturing per se from things being done in other countries. It got together with a group from the University of California at Berkeley – I was on the AMT board at that time – and we embraced a whole new protocol they came up with called NT Connect, which is a connectivity standard. You use software and create analytics that allow you to get better utilization. It’s pretty complex stuff. And that’s before IoT.
MG: Before internet-of-things development? When was this?
BP: Just nine years ago. Now, that world has evolved. As we start doing that, we get involved with Cisco because they provide the cybersecurity for IT departments. Like Big Data for other things, Big Data manufacturing is coming. With networking of information and cloud-based technology, you can study patterns and make determinations. Companies today get high utilization of their equipment; the machines are more sophisticated and maybe they require fewer machines but more complex machines. They’re very dependent upon them, and they want them to run constantly.
One thing you can do is predict the maintenance that’s required – not just preventive but actually predictive. So a component’s going to fail; when is it going to fail? That’s just one example. You can compare it to what’s happening with the unmanned car. Nobody is going to step out today and buy an driverless car, but we all have more sensor technology on the cars we’re driving, and that’s going to continually evolve toward that goal and result in the driverless car. The same thing is happening for machine tools. And Mazak is a leader in terms of adopting that technology and trying to move this industry toward IoT.
MG: How will that affect personnel needs? It will require more technical skill to oversee these more sophisticated machines, but does it mean fewer workers?
BP: We’ve done so much in terms of technology that supposedly reduces employment, but it’s the opposite. Employment has grown because we found all kinds of things that provide value to customers. Mazak’s employment has grown. And every time you create a manufacturing job, it creates anywhere from three to 10 other jobs. There’s all kind of people who work around this area who are not Mazak employees, but they get their livelihood as a result of what we do. But, yes, you need experience with manufacturing.
As far as our needs, we were very involved with the origins of Gateway Community and Technical College in 2001. I personally went to Frankfort and talked to Gov. Ernie Fletcher at the time because we saw we have different needs. We’ve got software engineers needs that are obviously a growth area. Companies today must be more automated in what they do, so there are needs for automation-type engineers. We can’t just sell machines to customers as much as we did at one time; we have to help them apply it. So we created these technology centers in the building across the street and a whole group of engineers are needed that help customers apply those machines to their operation. How do you program them? How do you set them up? How do you set the applications up? And then all the people in the plant, making the machines.
We finally accepted the fact that we were going to need more skilled workers and that people were going to retire, and so we had to play a role in that. We started recruiting people and actually paying their tuition to Gateway.
MG: Are broad industry trends creating an expectation for further growth?
BP: Everything kind of evolves. Years ago everybody thought all manufacturing was going offshore, and it was a mistake. Educational institutions, the media, even the manufacturers themselves made some mistakes in that assumption that all manufacturing was going offshore. As we talk about the kinds of products that we’re developing, that are more high-tech, there’s a great opportunity to do that here. There are all kinds of smart products that are being developed by companies that want to do it here, but you have to set up the right kind of manufacturing to do it. You can’t do it the way you did 20 years ago. You need new automated machines and so forth. Automation requirements are increasing, and the technology in terms of electronics and internet capability and connections with the machines is evolving, and that trend is absolutely going to continue.
MG: What does the rise of the internet of things, in which nearly everything is connected continuously by the internet, mean for your business?” Already it has accelerated your innovation, growth and change.
BP: Looking to the future of our industry, this digital solution area is going to play a bigger and bigger role. Not just with the machines, but selling different kinds of software that will be compatible with IoT and that you can use for predictive maintenance. There’s what we call ‘health monitoring’ of the machines, where you’ve got a footprint of the machine and then you can compare it so that when somebody makes a part, they know that the machine can do it. These machines are incredibly accurate – we’re talking tens of a thousandth of an inch accuracy in their positioning. And they’re getting more accurate all the time, because the end products are getting more accurate. As companies want to make fewer parts, the parts tend to get more sophisticated.
MG: Is U.S. manufacturing growing today?
BP: The opportunity is there. We’ve seen it go down as a percentage of the GDP and kind of bottom out. It’s fluttering around a little bit now, but actually we’ve seen this glimmer of hope that, as a percentage of the GDP, it’s going up. I see that continuing. This is still a huge manufacturing country.
People have mistaken impressions. They have a huge misunderstanding of what factories look like. Factories are evolving! There are still some old factories that need to change, but as companies build new ones and new companies are coming online all the time, these are really neat places to work. People here are excited. We have very low turnover at Mazak. However, there are work skills concerns because turnover is so low that although we are a relatively young company we now have an aging workforce. We have to replace people that are retiring and then we have our growth. It’s really evolving now.
MG: Does Mazak have difficulty finding enough skilled employees?
BP: It jumps around. On the whole, that is true. And in the future, we’re going to have more needs for high-tech people. The skill levels are going to go up, and then the wages will go up relative to their skill levels. There are great opportunities. And I see the same thing happening in other companies, because they have the same kind of skill requirements that are still evolving. The training levels that are going to come into play are going to be even higher than they are today. The skill needs we’re training people for right now are only going to become higher.
MG: How did Mazak play a role in the 2001 creation of Gateway Community and Technical College, which has created special training programs for you?
BP: I remember Gov. Fletcher walking into the room, and I thought I was there just as one of the members who was providing input, and he said, “Mazak, we’re going to decide what we’re going to do on economic grounds. I’d like to hear from you.” So right from the beginning we’ve been very vocal on the need for more skilled worker requirements, and that has continued.
MG: So Gateway, from its origins, has had training programs that were, to some degree, designed to train employees for Mazak?
BP: Gateway provides the basic training that people need to work here, and then we have to supplement the training – things that make them specific to what our needs are. So while they’re going to school, they also work here.
MG: How many employees does Mazak have?
BP: I’ll say 700 in Kentucky, about 1,100 total around the country.
MG: How many expansions has Mazak had in the past decade, and why has this growth happened?
BP: There have been 16. This started with a building across the street that was originally 12,000 s.f. We now have 800,000 s.f. here in Northern Kentucky. And I don’t see it being the last expansion as we broaden our technology out. There are a number of reasons for that. One is, we invest in our own factories. This factory is a very high-tech factory. We’re a leading innovator, and we put in place ways of keeping ourselves competitive relative to other countries of the world that manufacture machines. We took a company that manufactured and engineered all its products offshore to not just manufacturing here but now designing the products here. Significant numbers of products we sell are designed here, and some of those designs get transposed on a world basis, and we export some machines. So that’s played a role in our expansions.
We came up with this Technology Center concept, where we located facilities to help customers develop their manufacturing processes. We’ve changed from a machine tool manufacturer to a solution provider, and that made another significant difference in our business. We have wonderful people here, frankly. Among our North American operations, we only manufacture in Kentucky – we never felt the need to go anywhere else, we just keep expanding here.
MG: How many products does Mazak make?
BP: We can make 100 models of machines here. We can make 400 models around the world at different plants, but this plant actually probably makes the most number of models of any plant in the world. That’s because of our design capability; we can develop products here that match the market, which gives us opportunity for growth.
MG: What’s the price range?
BP: The price range would be anywhere from $100,000 to $2 million for a machine. But we also sell a lot of systems that integrate machines together; they can be much higher. One of the magic things we do is to sell machines that match smaller companies, and we have machines that match larger companies. We have products that match a wide-ranging number of industries. If you need a hip or knee, we’re the leading builder of machines for the medical service companies – the Zimmers, the Strykers, Johnson & Johnson, all the big ones – and a lot of small shops that make those components.
We’ve been the leading supplier for the oil service industry, which is slower right now, so that’s really had a temporary impact on our business. We make machines for the mining industry. Construction equipment: Caterpillar is one of our largest customers, and all the companies that make parts for them. Right now the aerospace industry is very active for us. We do a lot of semiconductor – vacuum chamber kinds of parts – we do big machines for that industry. Automobiles, of course, and trucks. Anywhere there’s a product that takes tolerance and precision machining, would be a Mazak machine.
MG: Are any of those categories your most significant ones, or the biggest buyers?
BP: We were the leader in creating what we call multitasking machine tools that combine a wide variety of processes into a simple machine. Innovation is the area that has been one of our real premier areas. And now the breadth of those machine tools has reached a whole new area. We now manufacture laser gunning machines here, and we’re going into the manufacture of “additive” machines as opposed to subtractive (that create parts by cutting and shaping metal). We’ve come up with a product that will be additive and subtractive. It combines the existing sophisticated multitasking capabilities with the ability to add features and then precision machine them.
MG: Additive is a whole new range of machine-tool activity?
BP: It’s going to add a whole other level of growth to what we do. And we are clearly moving in that direction to embrace that technology.
MG: There are individual machines, but you sell lots of systems. Is there a typical Mazak customer order?
BP: I have a theory about machines. When you look at a factory, you look at it as a highly complex – look at these machines, and the handling and so forth. Well, a good share of the machines we make are actually pre-engineered modules. I think of them as a LEGO set for adults; you have these pre-engineered things that can go together to make something more complex. When we look at a factory, we look at each one of all the things that come together as pieces, that fit together and are pre-engineered – a quotation can be made from an iPad.
You’re just putting all these pieces together in different ways. You can have different numbers of loading stations, different numbers of machines and a palletized system that can have one or eight machines in it. You can grow it over time: Different numbers of tools can be included. So it becomes something very complex, but actually the components are pre-engineered. And we’ve done nearly 1,000 of those in North America alone. We’re doing so much proprietary work on things, even defense projects. We have to sign NDAs for everything we do.
MG: Your relationship with customers can be very collaborative. How many customers order straight from your catalog, as it were, versus customers for whom you have to create a customized product or system?
BP: It’s a blend. Probably half the machines customers order are pretty standard, and then there’s another group of machines that there’s something completely unique about it. And then there are those – and that may be the other 25 percent – that have really got some engineering involved. Special software, special handling, a lot of robotics involved that might be special. Today there’s a lot of partnering in the industry among people who make specific products that come together with our products.
MG: Special licenses are required at least some of the time to purchase your products. Why is this?
BP: It’s restricted in terms of where we sell them. The concern is always that, because of the sophistication of the products, in the wrong hands they can make products for weapons systems and so forth that could be detrimental to our country. And we’re very, very supportive of doing that because, as a company, we want to be very careful about that. We have to get licenses on products that we import: for instance, an export license out of Japan. We also need export licenses to send a machine to Mexico that is a Japan-produced machine. It’s a little complex. But the reason is to control where machines go. Mazak took a further step and put something in our machines that’s not a GPS system, but we call it a relocation detector. The relocation detector essentially shuts off the machine if you move it. And we have to then verify the location and give a new password for that machine. Let’s say a machine becomes a used machine, and it’s sold to a used machine dealer who sells it to another used machine dealer. At some point you have the potential to lose track of where that machine is. But they can’t start the machine until we know where it is and what it’s doing.
MG: How many of your products have relocation detectors?
BP: All of them. Not just some: all. We’ve been doing it for maybe 6-7 years now. As the old ones get retired, we’re getting a base of knowledge that we can feel very secure.
MG: How significant is it for Kentucky business industry to have a machine tool maker like Mazak located here?
BP: Yes. And we’ve evolved into a company that is known everywhere in the world in manufacturing circles. We’re known as a high-tech leader in manufacturing. The International Machine Tool Show in Chicago every two years is the largest – it’s 1.2 million s.f. Mazak is the biggest presenter and has the premier booth, front and center. But it’s much more than machine tools and draws companies from all over the world to show manufacturers all kinds of new technology related to manufacturing. That include more software and IOT compatibility as we look towards the future and adaptive technology that I spoke of, these adaptive machines.
MG: Do the local or state economic development officials use Mazak as a recruiting tool?
BP: A great deal of the companies that have come to Kentucky have come through our plant, looking at what we do and deciding where they’d like to locate. We have a very strong passion towards this area. So we’re happy to do that, and I think we do set a nice image, because the equipment is very modern, the method of manufacturing is very up-to-date and the technology that we use is up-to-date.
MG: Is current public policy and government regulation for your industry at an appropriate level, or are there changes that you would advocate?
BP: We would like to see the tax code change. This country is the highest for corporate income tax. Not just for us – I’d like to see it change for manufacturers; that would improve the ability to recruit them and keep them here in the U.S. Looking at the future, there’s a danger that other countries could go farther in terms of advocating compatibility in the IoT or Industry 4.0. I’m starting to see initiatives towards tax incentives for investment in that area by other countries. We’re the leading country, and you don’t see that being advocated. I’d like to see the government give encouragement to manufacturers to invest in IoT technology. But because of our international connections, I see that this could move faster in places like Japan, Germany and even China than here. The technologies are here, and the big guys in IoT are here. But there’s not really a specific incentive to invest in that.
MG: What are your expectations for growth and demand in the near term?
BP: Now is a slow time because of the global economy. For our customers who export to a place like China, if China’s economy is slow, then Caterpillar sells fewer machines, and their subcontractors make fewer parts, and that all comes back to us. Right now large construction equipment, mining equipment, farm equipment and the oil and gas stuff particularly all are slow. So that affects us. Aerospace is high, and medical is coming up, and the automotive industry is hot. So we have some pluses and minuses. Those companies right now that are only oriented towards automotive manufacturers are doing well, but those that only do business with oil service are really bleak. Mazak is much more diverse, so we have some pluses and some minuses. But the net effect now is a little negative.
But the future? Excellent. I feel very good about manufacturing here and what can be done from a manufacturing standpoint. I’m also including Mexico, because the U.S. is so closely related economically. There’s a lot happening in Mexico for U.S. companies too.
MG: Do you have a closing statement?
BP: The future of manufacturing is going to be much different than we’ve known it. Even for people who feel comfortable that it has advanced and is different than it was, it’s going to be much different in the future, much more so. There are going to be very good job opportunities for people if they have the right backgrounds. And each manufacturing job will provide multiple jobs outside that company. I see it as a nice opportunity for us because our customers are all kinds of manufacturers who make precision equipment, and the way we’re going to address that is to be a continual innovator, come up with new products. So I think it’s going to be a strong success for this company. ■
Mark Green is executive editor of The Lane Report. He can be reached at [email protected].