Welcome to another episode of Heat Treat Radio, a periodic podcast where Heat Treat Radio host, Doug Glenn, discusses cutting-edge topics with industry-leading personalities. Below, you can either listen to the podcast by clicking on the audio play button, or you can read an edited version of the transcript. To see a complete list of other Heat Treat Radio episodes, click here.
Audio: Heat Treat Radio: Heat Treat Megatrends with Gary Doyon
In this conversation, Heat Treat Radio host, Doug Glenn, interviews Gary Doyon, president and CEO of the Inductotherm Group, based in Rancocas, New Jersey on megatrends in heat treating. Inductotherm Group develops and manufactures advanced technologies, products, and systems for the heat-driven transformation of metals and specialty materials, providing localized manufacturing, engineering, service, and support in every region of the world through 40 full-service companies providing 50 individual product lines organized into 10 global brands. In addition, Doug asks Gary talk about a broad range of heat-treat related topics, including design change, electric vehicles, recycling materials, Brexit, immigration’s impact on U.S. manufacturing, a younger workforce, USMCA, and cybersecurity.
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Transcript: Heat Treat Radio: Heat Treat Megatrends with Gary Doyon
The following transcript has been edited for your reading enjoyment.
Extra support for this episode of Heat Treat Radio is provided by the Industrial Heating Equipment Association, IHEA, where leading companies in the thermal processing industry meet to discuss ways of advancing the industry. IHEA, on the web at www.ihea.org.
THERMPROCESS, the largest heat treating trade show in the world is just around the corner, as of the original airing of this Heat Treat Radio episode in mid-June 2019, and there is no better way to prepare for that event than to spend some time talking with someone in the heat treat industry who has a uniquely global perspective.
Hi, and thank you for joining us. I’m your Heat Treat Radio host and publisher of Heat Treat Today, Doug Glenn, and the gentleman we are talking to today has been in the industry for over 30 years and is CEO of over thirty metals-related companies around the globe, many involved directly in the North American heat treat market. You’d recognize many of the company names. Take, for example, Inductoheat, Radyne, Thermatool, Banyard, as well as Consarc and PVT. Today we’ll talk about international heat treating megatrends with our guest, Gary Doyon, president and CEO of the Inductotherm Group.
Before we get to Gary, let me remind you that you can keep current with all things heat treating by visiting Heat Treat Today’s website: www.heattreattoday.com or by receiving one of our many E-newsletters. You can subscribe by visiting our website. And, if you’d like more information on THERMPROCESS, that huge heat treat show I mentioned above, jump on your browser and go to www.thermprocess-online.com. You can also Google “Heat Treat Radio THERMPROCESS” and be taken directly to a previous episode of Heat Treat Radio where we interviewed Eva Rowe from Thermprocess.
DG: On today’s episode, in anticipation of THERMPROCESS, which is being held in Dusseldorf, Germany, on June 25–29, we’re going to talk with Gary Doyon, one of the most qualified individuals in the heat treat industry to discuss international megatrends. Our conversation is fast-paced and wide-ranging, covering topics as diverse as cybersecurity, immigration, the impact of electric vehicles on the heat treat supply train, and Brexit.
First, let’s learn a bit more about the man, Gary Doyon.
GD: My name is Gary Doyon. I’ve been with Inductotherm Group for 33 years. I started off in sales in Connecticut at a company called Thermatool and progressed up through operations. I took over a Thermatool group which was a number of companies and then eventually got into the management of the Inductotherm group which is some 40 companies around the world, and today my title is president and CEO of that group.
Global Growth of Heat Treat Industry
DG: First question for Gary: Geographically, where do you anticipate higher than average and lower than average growth in the heat treat world over the next 5 to 10 years?
GD: Geographically, I think the above average is going to be seen in the next 5 to 10 years in North America for sure, Asia—India especially, and Brazil if it can get its political identity issues under its belt. Not above average are Europe, Middle East, and Africa.
DG: In the above average group, you said, “especially India.” Why is that?
GD: India right now is a 6% GDP growth, year-on-year, and it’s going to grow up from there. If you visit India, you’ll see the infrastructure is poor and they are investing a lot in it. They are making a ton of cars. They are getting into the possibility of aerospace manufacturing of parts, land-based turbines, and things of that nature. They want to become more self-sufficient on all the infrastructure needs which means metal production of the utmost volume, and their foundry and steel-making businesses are rising incredibly fast.
Technology Trends in Heat Treating
DG: Let’s move from geography to technology. Where do you see above-average activity? And where below average activity?
GD: Technically, powder metallurgy and 3D printing probably have the largest potential impact on thermal processors from a disruption standpoint. The composition of the steels and metals used in 3D or powders affect the heat treating practices because what’s good for part making may not be good for heat treating. Today the regular methods of part making like forging or casting are cheaper in volume, but they are not as flexible in the design change of parts. I see that the pace of design change is slowing down, especially in automotive, because the automotive producers seem to be actually practicing standardization in power train and frame and engine programs, so this may mean that the flexibility of 3D powders is less valuable while volume producing by traditional methods will stay more economical. We’ll have to see what happens about that.
DG: Interesting. You say the pace of design change is slowing down, especially in the automotive industry?
GD: I believe that, yes. I believe that the carmakers internationally have decided to standardize and do less design changes which means it will increase the volume of parts per their vehicle spectrum. That’s good for thermal processors today because they may be able to use the same processes they have in place for years to come.
Environmental Concerns
DG: How about the evolution of electric vehicles?
GD: The evolution of electric vehicles I think will cause a shift in the types of metal parts that are heat treated. You will go to much more gears versus crankshafts, camshafts, and things like that. But it seems to me that the EV progress is going to be dictated more by the two larger issues. One is the ability to produce better battery technology for longer trips and for faster charges, and what comes with that is the faster you charge, the larger the electrical peak load is needed. The whole issue of the electrical grid sizing for peak load or how to charge for the higher demand charge that comes with rapid charging—this all remains to be seen. If they can’t get over those subjects, then I think EV evolution is going to be stagnated. Then there is the big one which is recycling of the batteries. As far as thermal processors getting into gear heat treating, etc, that may or may not elevate as fast as they may think, depending on these issues, in my opinion.
I think another technical/situational event that is happening is the worries of legislation on climate change. I think it may have an impact on the thermal processors, especially the gas-fired or the flame-type systems people. Despite the science that they’ve put in for minimizing any sort of output from those kinds of processes, perception is reality on furnaces. So, again, on that we will see what happens.
The other issue I think we should bring up is composites. I think composites will always have a place, but the recycling ability of these also flies in the face of climate change worries. The ability to recycle metals easily, in my opinion, will always be a natural positive for metals, which then affects metal processors.
DG: It sounds like environmental concerns will act more as a restraint than a stimulant on the growth of electric vehicles in the next decade, due primarily to the recyclability issue?
GD: I believe so. I think the excitement about getting into electric vehicles and composites causes a lot of upfront research and development, but then it hits into the face of the reality of the electrical grid, environmental considerations—the realities of living in America especially, where no one wants more power lines in their backyard, etc. In a lot of ways, it’s the same as renewable energies and how that stagnated a bit when people don’t want to have windmills in their backyard. I think these are real situations that could cause stagnation of these technologies for the next 5 or 10 years.
DG: Beyond 5 to 10 years, do you see us ultimately moving to electric vehicles?
GD: Yes, it’s inevitable. I think the race is going to be between creating good hydrogen or another fuel type of engine, and if they can’t do that economically, they’ll have to go to electric vehicles, no question.
Growth in North America Heat Treat Industry
DG: Let’s focus in on North America for a moment. Where do you see North America excelling throughout the next decade or two?
GD: If you want to talk about America, I think the real growth is in aerospace. The design changes in aerospace, especially in the jet engine, the turbines, the gearing components, and how these metals are made to get the weight out and how they’re heat treated to give the fatigue strength and the strength that it wants for that application. I think automotive trends will still likely be led by American companies, both the traditional companies and others like Tesla and Rivian. I think that’s another important consideration going forward. As far as America goes, leadership, medical devices, medical procedures using electron beam laser therapies, induction—these are technologies used by heat treat processors. These will be led by Americans and this is a new business for some of these companies to get into at the end of the day. I believe firmly that manufacturing will keep returning to the U.S. as the trend towards these fair trade raises the want to invest in America in manufacturing. The renewed interest in good jobs that you hear from politicians also bodes well for America’s growth.
DG: Which driver do you think is more important for America’s growth: low energy costs or the political trade climate?
GD: I think the political trade climate is absolutely the most important thing. If you take China, for instance. I look at the China trade war as not really a war, but it’s finally heightened public discussion on what should have always been happening and that a continued robust negotiation between the U.S. and China on specific trade items should have been happening and is happening now. I think the U.S. is putting their foot down harder than we have before. Once that settles down, I think a better trade situation benefiting both countries can become a reality.
As we continue below, we’ll talk about some really interesting topics such as Industry 4.0 and the big warning that Gary has for companies getting involved, as well as cybersecurity and working with the younger generation. But first, a special thanks goes out to Anne Goyer and all of the good people over at the Industrial Heating Equipment Association (IHEA) for their support of Heat Treat Radio. In case you didn’t know it, IHEA provides top caliber training for many of your heat treating needs. In fact, on September 24th and 25th, IHEA is bringing three of their most popular training courses to the home of the rock and roll hall of fame, Cleveland, Ohio. Whether it’s their combustion seminar, their safety standard seminar or their process heating seminar, someone on your heat treating team will find one or more of these seminars valuable. You can find out more about these seminars by visiting IHEA’s website at www.ihea.org.
DG: I next asked Gary about how the heat treat business world has changed over the past decade. Here’s what he had to say:
A Decade of Changes in Heat Treating
GD: One, I think customers have far less technical staff than they had 10 years ago and that pushes companies like ours to offer much more services and technical support and maintenance throughout the life of the machinery that we sell.
I think that a huge issue is the legal issues forcing companies to pay more attention to terms and conditions and safety and contractual issues. I think that has become much more prominent over what, when I was younger, the handshake type climate of 20 years ago.
Industry 4.0—and Over-Digitization?
I think that the push towards Industry 4.0 has companies approaching us wanting a lot more automation connectivity while simultaneously, they want to increase the digitization of data. This trend towards smart factories could provide a rush to provide a lot of data without understanding if it is productive or not, and that could lead to a very costly system and mass amounts of nonproductive data. This happened in the early days of ERP and ISO implementation, and I see it happening again.
DG: Perhaps we are swinging too far with data collection and collecting data just because we can.
GD: Yes, usually what happens, I think, is that companies that are not used to data collection will hire people that are used to data collection and so they won’t be as concerned about getting the key points of their process to make sure the process is robust, but they want to just capture every piece of data. That is a very costly thing for people to both implement on the machinery and implement on their factory floor. I think people should measure twice and cut once, and you should really think hard about what your goals are before you lay out that smart factory.
The Industry 4.0 was driven by the Germans back in the mid-2000s, and in a lot of ways, it was driven to give a competitive edge to European companies over low-cost countries like China or India. The thought there was that their advantage in science and computerization would give them the ability to have a factory with far fewer people or more knowledge. It’s been a top-down approach pushing different manufacturers into the Industry 4.0 so they can get this production data. I would believe that heat treaters would be very concerned about people coming in and telling them they need 30 data points on every part that they make when only 15 are relevant to the quality of that part. I think that is tantamount in what the heat treaters need to push back on, which is information that is useful and productive versus information for just information sake.
They will say to us, “Okay, on this crankshaft, we need these 40 data points,” and they will force people to do that. Then we will say, “In order to do that, we have to destructively cut every fifth piece, we have to do this, we have to do that.” And then they will say, “No, no no, this is what our R&D people want, so you have to do this.” Then we’ll say, “OK. This is the cost to do this. What do you want for maintenance?” And they will say, “Well, for maintenance, we don’t want to have anybody that knows about the machine, so we want you to prepackage all of the power supply in three boxes so if there is a problem with part of the power supply, you’ll take this part out and just slip a new part in—without having maintenance intelligence.” And we will say to them, “Well, okay, we get that, so instead of a $500 capacitor, now you give us 30K to redo the inside of the power supply.” That’s where their engineering and production people want to push you. Then you get with purchasing and the purchasing person says, “What are you talking about? We aren’t doing any of that. We want the lowest cost equipment and a $500 capacitor; we don’t want to have ‘the works in the drawer.’”
I believe we are at this cross point. In Germany, because they invented Industry 4.0, they put a lot more muscle into this, and I think that’s why some of their competitive disadvantage is happening. If you come into America, they are asking for it, but they’re not killing you yet, but they’re going to.
Remember when ISO came in and everybody made the same mistake with ISO. They let the ISO auditors tell them that they needed to document every little thing they did in their entire company, and most people’s companies got brought to a standstill. Over time, they developed it down to just the most important things you needed for processes, and then your plant ran better. That is where we are right now in some of this Industry 4.0. I don’t want to sound too negative because it has a lot of positives to it, but the implementation of it will make it or break it, for sure.
DG: But that is the way new technologies are adopted. It’s like when a child gets a new toy for Christmas, the first several days they spend 100% of their time with it because it is shiny and new, but later on they either forget about it completely or strike a more sensible balance of when to play with that new toy.
GD: That is 100% correct. But if you’re setting up a $100 million factory, and you get it wrong, that’s a big problem.
Lower Costs and Customer Support
DG: Let’s jump back to the question about how the heat treat business world has changed over the past decade. You mentioned customers have far less technical expertise. You mentioned the more litigious environment that we live in and the importance of those terms and conditions. And then the demand for data and the emergence of Industry 4.0 and perhaps our somewhat mindless collecting of data. Does anything else jump to mind?
GD: I think the difference between companies that are so-called full-service companies and ones that aren’t is a huge issue for heat treaters to be selecting equipment from. One of the negative trends has been a huge separation between engineering and production departments and purchasing departments, especially in the larger companies. That puts more emphasis on price than the real needs of what that company looked for, and in the short-term, that can favor the price-leading suppliers—on the short run, the people that give it a lower price. But in the longer run, these customers need support. They just don’t have the people in there, and it cannot serve them well if they don’t work with the right company.
Geopolitics and Trade
DG: Let me throw out some geopolitical names and tell us what pops to mind. Brexit—
GD: I don’t think Brexit has very much effect. It certainly is not going to affect the way the media says, because at the end of the day, I believe European Union regulations have added costs and dissuaded innovation in Europe, therefore I believe Brexit is good for the British because it possibly leads to more pressure for other people to leave the union, and they’re going to open up to have less regulation and cost. It is very costly to do business in Europe.
DG: China. Any additional thoughts on China?
GD: I think China is a huge trading partner for us today, but I think it’s going to be a much more equitable one in the future, once we get over this short-term tension between them and once we get our “win-win” attitudes in line with each other, I think it’s going to be a phenomenal trading partner going forward.
DG: North Korea.
GD: I don’t think they have any effect on us today economically. It could become a new market in the future, but today they have no effect on us economically whatsoever.
DG: How about Venezuela?
GD: When I was younger, Venezuela was a serious energy player. We sold a lot of equipment in Venezuela and Venezuela was obviously one of the major energy exporters in the world, so reviving their economy and becoming a market, if they can do that, I think would be good for especially the South American hemisphere area. But, unless they get their political stances straight, they’re just going to remain where they are.
DG: Brazil?
GD: Brazil sort of lost its way in the last couple of years from a manufacturing standpoint and a socialist trend in Brazil took away a lot of the desire to invest in Brazil. They had lots of union issues, a tremendous amount of union issues, especially with things like pensions and extra costs like that. And then secondarily, their stance on imports and how they stop other countries from exporting to Brazil has turned off a lot of people from investing in Brazil. The new president there says he’s going to bring back fair trade, and if he does that, I think Brazil could become a world player again.
Immigration, Labor, and Retaining Younger Employees
DG: Let’s talk for a minute about U.S. immigration and how it’s impacting your business and the heat treating economy generally.
GD: U.S. immigration is mostly a southern border issue, in my opinion, and it is mostly an issue with people from South America, not really people from Mexico. I think this has to be worked out by Congress, and Congress is just being silly in the view that it isn’t an issue. It’s been an issue for 40 years, and they have no answers for it. I think we have to have a system in place, as we have for years and years and years, and outside of asylum, anybody that wants to come in should enter through this system.
DG: How about the U.S. labor market for you? And what are you hearing from your customers regarding their ability to find qualified workers?
GD: For my customers, I hear that all the time. I have been with this company for 33 years and many of the people that are in our group have more years than I do. I think we have 3200 in our group and I would say half of those employees have over 12 or 15 years with the company. One way we’ve been able to hang onto people is, by having 40 companies globally, we give the people the opportunity to travel to these companies or relocate to another area of the U.S. or to another part of the world. I think if you can keep the younger people challenged, give them this ability to try another area of their life, pay them fairly, and most importantly, if you can show them a future through a well-developed succession planning effort so that they think they have a chance to get promoted in the future, I think they’ll stay with you for a long time.
United States-Mexico-Canada Agreement (USMCA)
DG: Let’s talk about two more topics. The new North America trade agreement—USMCA—and then cybersecurity. What are your thoughts on USMCA?
GD: I think the USMCA, the way I understand the legislation, is that a big part of it is raising wages in the lower cost areas of Mexico, and I think evening the wages out will even out the flow of trade between the three countries versus just flowing to the lowest cost country because of the low wages. Personally, I think that wage increase is a good thing. Henry Ford proved that out a long time ago when he gave his workers unheard of type wages. I think that at the end of the day, it will create a better middle class and that feeds into the economy like a gas pedal and becomes self-sustaining, even if inflation rises a few percentage points. I think people shouldn’t buy the media hype about things like robots doing away with a lot of jobs in the United States. To me, all this talk stems from academics and politicians who haven’t spent much time of their life in the business. We have a situation right now where our unemployment is below 4%, so that means that most people that want to work are working. How do you grow that economy? I think you grow that economy by paying people more money and then they can use that money to buy what they want and it becomes a self-fulfilling prophecy.
Cybersecurity
DG: Last question: Cybersecurity—What are you seeing?
GD: We’ve seen a tremendous increase in email intrusions with people tricking our customers into remitting payments to scammed accounts. This is especially bad because it strains our relationships with our customers. At the end of the day, there is no clear person to blame: it is this unknown person on the internet. As an example, we had a customer recently that gave us a $900,000 down payment, and he remitted it to a bank account that he had received on a scammed email where they had taken our invoice that we had put into the email, and they had changed it to their bank number, and so the $900,000 was put into that scammer’s bank account, and they withdrew about $120,000 of it before the proper government officials could shut it down. We have got that back now and there have been some arrests made, but I can think of 20 or 30 of these situations happening just in the last 5 or 6 months.
DG: Have you changed the way you do business because of it?
GD: Yes, what we’ve done is we’ve gone out to try to tell our customers that we will no longer put any sort of remittance information in email form anymore. We will only do that in an encoded or encrypted manner which we will send directly to their accounts payable people. We will also duplicate a message to them of what the bank they should be using is, not the account number and what have you, and so when things line up correctly, they should remit the payment. Otherwise, they should treat everyone that has some skeptical information, and not pay us. We’d rather not get paid than give it to a scammer.
The other problem I see on cybersecurity is again going back to Industry 4.0. I think the people that are trying to implement this smart factory, or what people like to call “the internet of things.” It is a highly digitized handshake between machinery and then up and down to management, from shop floor management all the way through upper management of the company. These are easy targets for pirates. I think that’s an important thing to think about. Most companies do not have the capabilities of really protecting themselves from these kinds of threats, so I think simpler is better in any of these areas.
Just as a little bit of color, I am an autonomous vehicle skeptic and I am this way for two reasons: One is that the sensors needed for these truly autonomous vehicles and roads being all autonomous and transportation being autonomous, they’re definitely not good enough yet in all weather conditions. But I think the most important thing, unlike airplanes where you can afford to have multiple systems, people are never going to be able to afford a vehicle that has multiple computer systems. I think the potential for hacking, for economic reasons, political reasons, and terrorism reasons are just because some bad behavior on some kid in his back yard can affect this autonomous vehicle information grid. I have my doubts about autonomous vehicles because of cybersecurity.
DG: Gary was very gracious with his time and answered a boatload of questions, many of which were able to include in this podcast. You’ll notice that I asked Gary to keep this noncommercial, so he hardly ever mentioned any of his company names or any specific products. We would, however, like for you to know, that Inductotherm Group is exhibiting at THERMPROCESS and GIFA in Hall 10 Stand B42 which perfectly straddles both of those shows. If you’re headed to Dusseldorf this year, I’d strongly encourage you to stop by and meet Gary and take a look at all the products he so politely refrained from mentioning in this podcast.
If you’d like to get in touch with Gary Doyon, feel free to email me directly at doug@heattreattoday.com and I’ll put you in touch with him.
If you’d like more Heat Treat Radio, you can simply Google “Heat Treat Radio”. Believe it or not, we are the first thing that comes up. Apparently, no one else is using those three words. From there, you’ll be able to link over to our website where you’ll find 18 other Heat Treat Radio episodes, including one on Inductotherm founder, Hank Rowan. Also, if you have a topic you’d like to see covered on Heat Treat Radio, please contact me directly by email. Again, that’s doug@heattreattoday.com.
Don’t forget that additional support for Heat Treat Radio is provided by the Industrial Heating Equipment Association (IHEA), where technical training is on the schedule for this September 24th and 25th in Cleveland, Ohio. Check out their website: www.ihea.org and learn more about the combustion seminars, safety and standard seminar, and their process heating seminar.
This and every other episode of Heat Treat Radio is the sole property of Heat Treat Today and may not be reproduced in part or in full without prior written approval from Heat Treat Today.
Jonathan Lloyd from Butler, Pennsylvania, produced and mixed this episode. I am your host, Doug Glenn. Thanks for listening.
To find other Heat Treat Radio episodes, go to www.heattreattoday.com/radio and look in the list of Heat Treat Radio episodes listed.