April 1, 2015 / agility, best practices, blade failure, Cost Management, human capital, industry news, KPIs, LIT, operations metrics, performance metrics, predictive management, preventative maintenance, productivity, skills gap, strategic planning, value-added services
Like most manufacturers, industrial metal-cutting companies went into 2015 with both optimism and caution. While all signs seem to be pointing to a full economic recovery, concerns surrounding an unstable political landscape, foreign markets, and pricing continue to keep many metals companies on their toes.
Some Growth Ahead
As we enter the second quarter of 2015, most experts anticipate growth in the metals industry. Early predictions painted a positive picture for the year, and recent reports are confirming that the industry will, at the very least, see slight improvements over 2014.
According to the Manufacturers Alliance for Productivity and Innovation (MAPI), industrial production increased at a 3.8% annual rate in the fourth quarter of 2014 and posted 3.6% growth for the year as whole—over a percentage point higher than the 2.4% gain in the overall economy. The manufacturing outlook for 2015 and 2016 calls for a minor acceleration from the 2014 growth rate. According to the MAPI Foundation’s most recent U.S. Industrial Outlook, manufacturing production is forecast to grow by 3.7% in 2015 and 3.6% in 2016.
MAPI’s outlook also predicts that 21 out of 23 industries will show gains in 2015. This includes growth in metals industries such as iron and steel products (5%), alumina and aluminum production and processing (7%), and fabricated metal products (3%). The top industry performer will be housing starts, which is expected to increase by 16%.
Forecasts for steel demand are also positive, but growth rates will not be as strong as they were in 2014. According to the Short Range Outlook 2014-2015 from the World Steel Association (worldsteel), U.S. steel demand is expected to increase by 1.9% in 2015—much lower than the 6% growth the U.S. experienced in 2014. Globally, worldsteel forecasts that global apparent steel use will increase by 2.0% this year. This is a downward revision from previous forecasts, due to a slowdown in emerging economies like China.
“Recoveries in the EU, United States and Japan are expected to be stronger than previously thought, but not strong enough to offset the slowdown in the emerging economies,” stated Hans Jürgen Kerkhof, chairman of worldsteel’s Economics Committee. “In 2015, we expect steel demand growth in developed economies to moderate, while we project growth in the emerging and developing economies to pick up.”
Concerns and Challenges
Buying into the positive forecasts, most metals manufacturers expect business to improve this year. According to an annual survey of metals executives by American Metal Market (AMM), 42% of respondents expect the economy to turn around in 2015 and 67% expected business to improve overall, mostly due to growth in the auto and energy sectors.
However, AMM reports that respondents did have some reservations. Political events, cheap imports, and foreign markets were all causes for concern, as well as uncertainty about “where important industry segments like construction might be headed,” AMM states in its survey report.
In his State of the Industry address earlier this year, Robert Weidner, president and CEO of the Metals Service Center Institute (MSCI), listed several trends that will affect the metals industry in 2015 and beyond. Below are the five challenges he outlined, as reported by thefabricator.com (You can read the full coverage here.):
- Market Intelligence – Volatile markets and increasing competition have heightened the need for trustworthy data and analysis tools, as well as the need for cybersecurity resources and training to secure market intelligence.
- Business Disruption – World events have an even bigger impact on local economies than before, creating a need for topic- and area-specific experts and information and enhanced vehicles and technology to provide information.
- Congressional Gridlock – U.S. partisan politics have stalled action in the legislative branch, often resulting in extreme actions through regulators that have impeded manufacturing growth.
- Safety and Risk Management – Slow market growth has left companies cautious to invest.
- Skilled Labor and Changing Demographics – Attracting a skilled workforce remains a challenge for the industry.
With both forecasts and anticipated challenges in mind, industrial metal-cutting companies can strategically approach the market from both a business and operational standpoint. In fact, as we reported here, it is critical for today’s managers to develop operational short-term plans that are effective in achieving the overall strategy set forth in the business plan. For instance, if the goal is continuous improvement, then make sure your metrics, your daily practices, and communication with your team all point to that overall strategy.
As a global company serving the industrial metal-cutting industry, we at LENOX Tools have a unique vantage point of what is happening in the marketplace. We have watched some metal companies barely survive, while others have found ways to thrive. The difference, in most instances, seems to be the company’s commitment to making improvements. Whether investing in new equipment to improve cutting time and quality or investing in training to improve and empower their human capital, industry leaders are continuing to focus on making positive changes on the shop floor so they can be ready to respond to changing customer demands. In other words, the only way to offset external uncertainties is to focus on making internal improvements.
Based on industry trends and our own experience, LENOX sees the following as key strategies for industrial metal-cutting companies that want to be successful in today’s marketplace:
- Invest in Operators and Training. In light of the manufacturing industry’s ongoing skills gap, experts like MSCI’s Weidner are stressing the importance of employee safety and ongoing training as a means of attracting and maintaining workers. In addition, LIT’s benchmark survey of industrial metal-cutting companies provides evidence that investing in areas like training can provide additional benefits, including better quality, faster on-time customer delivery, higher revenue per operator, and lower rework costs.
- Embrace Proactive Care and Maintenance. No matter how efficient an operation, some machine downtime is inevitable. The key is to be proactive and minimize it as much as possible. This includes practices such as breaking in blades and regular coolant checks. By adhering to a preventative maintenance schedule, managers can actually anticipate maintenance bottlenecks and turn “interruptive downtime” into “predictive downtime.”
- Form Strategic Supplier Relationships. Whether you need help with training, gathering metrics, or de-costing, help is likely no further than your closest supplier. And if that’s not the case, you may want to rethink your supply chain. By utilizing value-added services from trusted suppliers and making them more of a partner than simply a supplier, metal-cutting companies can improve quality and productivity—both of which impact the bottom line.
- Seek New Opportunities. Market trends such on re-shoring and an automotive boom could translate into new opportunities for your metal-cutting company. Are there value-added processes you can add to your operation to stay competitive? Are there previous customers that could now benefit from the convenience and cost benefits of your U.S. manufacturing base? Is there new equipment or tooling that could help you better serve a certain customer base? Asking critical questions such as these may reveal new prospects for growth. Start brainstorming.