Manufacturing

Inflation In The Early 80s: Three Lessons From A Manufacturing Executive Who Survived


The gift and curse of our four-decade stretch without a significant inflationary period is that most folks in leadership positions today can only read about what inflation does to a manufacturer. They have no first-hand knowledge.

That’s not true for Tony Mazzella, CEO of Mazzella Companies. In 1981, Mazzella was convincing his dad that it was the perfect time to build a new manufacturing facility. The company’s 13th employee when he graduated college in 1977, Mazzella was certain that with a little investment, the company would take off.

One problem: When he earned his father’s approval, interest rates sat around 7% to 7.5%. By the time the company moved into its 25,000-square-foot space in May 1982 and closed on the loan, rates had jumped to 21%.

The company eventually found its way through the storm and captured the growth Mazzella had imagined, but it wasn’t easy. “Everybody’s in the same boat. You can’t pretend it’s not happening,” Mazzella told me. “That way of thinking got me through some of the crazy times.”

To get a sense of what we can learn from Mazzella’s experience as we work through our own period of inflation—the full extent and severity of which is still unknown—I chatted with Tony and pieced together a few lessons.

Lesson 1: Act Now.

Mazzella says people ribbed him and his father for years over their decision to build when interest rates were more than 20 percent. And, of course, they likely wouldn’t have started down that road had they known how high rates would spike. (It would be five or six years, Mazzella says, before a neighboring facility that had been only slightly behind in mulling a build decided to break ground.)

But the company was able to survive the misfortune largely because it didn’t simply sit back and hope for inflation to go away. The Mazzella family worked out a deal with the company’s attorney for loan terms that included a penalty-free out once rates returned to more “normal” levels. A couple of years later, they refinanced at around 14 percent, Mazzella remembers.

“It sounds crazy now,” he says, “but 14 percent felt really comfortable back then.”

Lesson 2: Don’t Let Fear Take Over.

Another important move the company made: It swiftly raised prices, a concept that Mazzella says is extremely important for manufacturers to grasp today. You can’t control the value of a dollar. But if you’re the odd man out who hasn’t raised prices to account for inflation—not to mention rising costs—it’s going to hurt. Bad.

“You have to have the courage,” Mazzella says. “There’s a temptation to say, ‘Well, I bought this inventory for X’—when in fact the replacement cost is now X plus 30%, 40%, 50%, or even 100%. There’s that temptation to not deal in replacement costs, but to me, that’s where people have the downfall.”

In other words, thinking of your inventory in terms of how much it would cost to replace it forces you to work in present value of your goods, rather than discounting your product in a way that may end up hurting you down the line.

Lesson 3: Focus on Present Issues.

The talent landscape represents one glaring difference between the pressures facing manufacturers during the inflationary period of the early 1980s versus today. With unemployment growing to 10 percent by 1982, factory workers generally were not hopping from shop to shop back then. That has changed in a big way.

Today, manufacturers compete with well-publicized wages from retailers like Target and Amazon. The result is that it takes tremendous effort, intention, and money to hire and retain good workers. Not all manufacturers have wised up to this.

Mazzella says the talent landscape can’t be ignored as companies work through the current period of inflation. As he prepares the business, Mazzella Companies is investing in paying well and building a culture where employees want to stick around.

“We want to attract employees, not recruit them,” Mazzella says. “It’s more important now than ever. With so many people retiring, with all the employee dynamics. People have choices, and lots of them.”

A Turning Point for Mazzella Companies

Looking back, Mazzella says it was the naivety of youth that pushed him to dive into a plant expansion amid shaky economic ground. He didn’t fear what he didn’t know, and although it would be a difficult period, Mazzella Companies ultimately came out a stronger business for it.

“Every experience brings an opportunity to learn,” he says. “The sum of all the things that we do well and don’t do well creates wisdom.”

That’s tremendous perspective from an industry veteran. Act swiftly against inflation, curtail the damage, and we, too, may someday look back on this not as a crisis, but another opportunity to learn and grow.



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