April 20, 2016 / best practices, continuous improvement, Cost Management, customer service, Employee Morale, industry news, LIT, maintaining talent, optimization, skills gap, strategic planning
Like the rest of the metal-cutting industry, machine shops were eager to see the end of 2015 due to weak demand. Unfortunately, experts are anticipating that market conditions in 2016 will, at best, be a mixed bag.
Taking a look back, 2015 started off strong. According to Gardner’s metalworking business index (MBI), industry conditions expanded in March 2015 for the 15th consecutive month. The streak stopped in April when the market contracted for the first time since December 2013, with the largest month-to-month decline since April 2013. Production also slowed while new orders declined. That contraction continued until the industry bottomed out in October and November and then ended the year with a slight uptick in December.
While growth did return at the start of 2016, it was often short-lived and fragile. For example, industrial production decreased 0.5 percent in February after increasing 0.8 percent in January, according to the Federal Reserve. On the other hand, according to Gardner’s most recent MBI index results, as reported by Modern Machine Shop, the metalworking industry has started showing signs of life. Despite the industry contracting as a whole, the trade publication says the market has improved significantly since December.
Spending trends are also a bit mixed. According to the Modern Machine Shop report, while future capital spending plans are still below the historical average, those rates are on the rise and have increased to their highest level since last March. “Compared with one year earlier, planned spending was down just 1.2 percent in March, the slowest rate of contraction since September 2014,” the trade publication reported. “This trend indicates that capital spending could begin improving later this year.”
Preparing for Returned Growth
While the start to 2016 hasn’t been the best the industry has seen, it also isn’t the worst and creates an opportunity for machine shops to invest in their operations, especially if they can afford the time to do so.
Like in 2015, most shops will continue to work on process optimization to increase productivity. However, this year, industry leaders will also need to focus on the next generation of machine shop operators to fill any skills gaps and prepare for an eventual market rebound. Based on the “Top Shops” benchmarking survey from Modern Machine Shop, leading U.S. machine shops are doing that and more.
Findings from the publication’s fifth annual survey revealed that leading U.S. shops are focusing on the following four key areas in 2016:
- Machining technology. A higher percentage of top shops use turn-mill multitasking machines at nearly 54 percent compared to 27 percent of other shops, helping to minimize work in process (WIP) and the number of times a part is touched during production. Top shops also use enterprise resource planning (ERP) software to help manage scheduling, costing and estimating and ensure they know all aspects of the workflow at any point in the process.
- Shop floor practices. According to the survey, top shops integrate unattended processes with new technology such as sensors and equipment monitoring technologies, including the Internet of Things (IoT) and MTConnect. Nearly 25 percent of survey respondents reported they’ve integrated machine-tending robots into their processes compared to 11 percent in 2011. Continuous improvement remains to lead on the floor with 62 percent of shops adopting formal improvement programs.
- Business strategies. Top shops report a median profit margin of 13.5 percent compared to 8 percent for other shops. Leading shops also invest more in capital equipment, spending 9.5 percent of gross sales versus the 3.5 percent spent by average shops. In addition, they invest in value-added services such as design for manufacturability (DFM) engineering services, which help refine product designs by working with customers early in the product development cycle and simplify machining and production costs.
- Human resources. Top shops use benefits to attract and retain employees. This is key as the majority of experienced workers get ready to retire. Top shops offer annual review and pay-raise programs, paid medical benefits, and bonus plans to attract top talent. They are also more willing to invest in growing the skills of their employees with education reimbursement and formal training programs. (For more information on workforce trends in 2016, check out this article from Production Machining magazine.)
As the past few years have taught us, no one can truly predict what the rest of 2016 will bring for machine shops and other industrial metal-cutting organizations. However, leaders remain focused on optimizing operations. By investing in workforce training and talent, improving shop floor practices, and investing in future technology, machine shops can survive current market conditions and, more importantly, prepare for growth in the future.
How are you preparing for growth? What is your shop focusing on in 2016?