April 1, 2017 / benchmarking, best practices, continuous improvement, Cost Management, industry news, LIT, maintaining talent, operations metrics, optimization, performance metrics, productivity, skills gap, supplier relationships
While no one would likely call it a “boom,” recent months have provided good news for industrial manufacturing. Reports have been positive, and business confidence among metal-cutting companies and other industrial manufacturers is up. Experts admit that some challenges and risks remain, but most believe that growth will continue in 2017 and well into 2018.
There is no question that uncertainty has plagued the manufacturing sector for the last several years. Hints of recovery followed by sluggish growth have made it hard for many companies to trust that business was fully rebounding. Last year, terms like “cautiously optimistic” were being thrown around, but many were still wondering — “Are we there yet?’”
Reports and forecasts indicate that we are at least heading in the right direction—both globally and within the U.S. The JP Morgan Global Purchasing Managers’ Index (PMI) has remained above the neutral 50.0 mark throughout the past 13 months and registered 53.0 in February and March—its highest level in 69 months. According to the bank, the expansion in March “remained broad-based by product type, with PMI readings for the consumer, intermediate, and investment goods sectors all signaling further solid growth.”
Forecasts from Manufacturers Alliance for Productivity and Innovation (MAPI) also point to growth, although slower than some would like. According to the latest outlook, manufacturing growth is expected to be 1.2% in 2017 but then accelerate to 2.6% in 2018. Average annual manufacturing output growth is expected to be 1.5% between 2017 and 2020.
Recent data show U.S. manufacturing expanded in March, following a very strong February. The Institute for Supply Management Purchasing Managers’ Index (PMI) hit 57.2% in March, a 0.5 percentage point reduction from a record-setting 57.8% in February 2017. Of the 18 manufacturing industries, 17 reported growth in March, including Fabricated Metal Products and the Primary Metals industries. According to one survey respondent from the Fabricated Metals segment: “Regional business is strong. Hiring qualified team members has improved.”
Cliff Waldman of MAPI says that March data adds to mounting evidence that U.S. manufacturing output performance is on track for moderate improvement, relieving the factory sector from the sluggish growth that has plagued it since 2013. “Data on actual manufacturing output from the Federal Reserve are basically in sync with the recent ISM data as they show an acceleration of growth in U.S. manufacturing since the beginning of 2017,” Waldman said in a blog post. “However, the year-over-year improvement thus far is moderate. Nonetheless, the reasonably broad-based nature of factory sector growth in both January and February suggests growth stability.”
Business confidence among industrial metal-cutting companies and other manufacturers is also up. The first-quarter Manufacturers’ Outlook Survey from The National Association of Manufacturers (NAM) revealed that manufacturers’ optimism rose to a new all-time high in the survey’s nearly 20-year history.
According to NAM, the rising confidence stems from the hope that the new administration in Washington, D.C. will bring much-needed regulatory relief, as well as tax code reforms and a significant infrastructure package. “Indeed, business leaders are cautiously hopeful that pro-growth policies from Washington will allow the country to emerge from the sluggish expansion seen in the years since the Great Recession,” the association said in the report.
Metal companies are confident as well. According to industry leader ArcelorMittal, global apparent steel consumption is estimated to have expanded by 1% in 2016. Based on the current economic outlook, ArcelorMittal expects global apparent steel consumption to grow further in 2017 by between 0.5% and 1.5%.
In the U.S., Mittal says that apparent steel consumption (ASC) declined in 2016 by approximately 1.0% to 1.5%, driven in large part by a significant destock in the second half of 2016. “However, underlying demand continues to expand and the expected absence of a further destock in 2017 should support ASC growth in the U.S. of approximately 3.0% to 4.0% in 2017,” the company said in its 2016 Annual Report.
Sentiment about customer markets is also positive. Mark Millett, president and CEO of Steel Dynamics Inc., told Modern Metals that he expects growth in the energy sector and continued growth in construction spending, “especially for larger public sector infrastructure projects.”
And although there have been reports that automotive manufacturing peaked in 2016 and will decline in 2017, metals companies don’t seem too worried. AK Steel told MM that a richer product mix, including the premium pricing that can be obtained on newer, more specialized or custom grades, should help offset declines. “Our volumes are going to be fairly stable, and fairly steady compared to what they were last year,” Kirk Reich, AK Steel president and COO, said in the MM article.
Trends to Watch
That’s not to say that companies don’t still have some concerns. In late January, M. Robert Weidner III, president and CEO of the Metals Service Center Institute (MSCI), urged the new Trump administration to take serious and immediate action to restore growth and to help the industrial metals supply chain fully recover from the lingering effects of the Great Recession and government policy.
“The industrial metals sector needs action now,” Weidner said, noting that service center aluminum shipments are registering 20 percent below their pre-Great Recession peak, and carbon steel shipments from service centers are still down 30 percent. “The erosion in the U.S. industrial metals supply chain hurts our communities; erodes local, state, and federal tax revenue; and reduces the pool of well-paying U.S. jobs,” Weidner continued.
The strong dollar and reduced capital spending are also concerns. “Signs of wide, yet modest, improvement in global growth are the key drivers of better performance in U.S. manufacturing,” Waldman of MAPI says. “Unfortunately, the problems of a high dollar, a long-term capital spending malaise, and significant policy uncertainty remain to challenge the magnitude of the U.S. manufacturing improvement, even as the world finally provides much-needed support for U.S factories.”
Many industrial manufacturers also remain risk averse. In a recent PwC survey, only 30 percent of U.S.-based industrial manufacturing senior executives said that their companies were planning to increase spending on information technology in the subsequent 12 months. “There is a remarkable opportunity here,” PwC says in a blog post. “Yet the industrial manufacturing sector remains risk averse, unwilling to spend on new machinery, software, and talent during a period of protracted slow growth and limited proven solution.”
According to PwC, there are six actions industrial manufacturers can take to be more profitable in 2017. You can read the full list here, but the following four strategies are the most applicable to industrial metal-cutting companies:
- Leverage data and analytics in a new business model. By upgrading their technical capabilities, industrial manufacturers can bundle a variety of services enabled by connectivity and data, replacing the increasingly outmoded model of selling one big complex machine under warranty and a service agreement for maintenance and repair.
- Develop strategic partnerships. Industrial manufacturers must become more active players in the technology ecosystem, seeking expertise outside the industry in order to develop equipment connectivity, data analysis, and software that are beyond their current abilities.
- Mine operational data. If connected machines—the primary components of the Internet of Things (IoT)—are to be the backbone of industry in the near future, industrial manufacturers will have to figure out how to manage the data coming from an avalanche of sensors, integrated equipment and platforms, and faster information processing systems. There is a critical need to hire people who can mine these bits and bytes of information and work more closely with customers to use the data to improve equipment performance and open new revenue streams.
- Create strategies for talent development and retention. industrial manufacturers must purposefully map out an exciting technology strategy with specific benchmarks and achievements anticipated for the next 18 to 36 months—and then communicate this story clearly to job candidates. Even companies that have not yet felt the shortage of technology-savvy staffers need to take steps to prepare for it as the number of job openings in this field will continue to outpace the number of available hires for the foreseeable future.
Of course, a major technology overhaul may not be possible for every shop, but there are always improvements that can be made. As stated in the eBook, Five Performance-Boosting Best Practices for your Industrial Metal-Cutting Organization, thriving in today’s market requires companies to embrace change and focus on continuous improvement in all areas of their business.
“Whether implementing a lean manufacturing tool to improve processes or investing in training to develop people, proactive leaders are focused on making positive changes in their operations so they can quickly respond to today’s changing customer demands,” the eBook states.
Yes, the sentiment among industry players and experts is positive, but that doesn’t mean companies should put improvement activities on the backburner. Industrial metal-cutting organizations that keep a close eye on mega trends while continuing to optimize their internal operations may not only do well in 2017, but exceed expectations.
February 10, 2017 / best practices, LIT, operator training, quality, strategic planning, supplier relationships, value-added services
For most fabricators, supplier relationships are the building blocks of success. While there are still some companies that base their supply chain on price, as customer expectations for both quality and delivery continue to increase, many industry leaders are taking the time to form strong supplier relationships that are built on a lot more than an affordable product or service. In many cases, suppliers are becoming strategic partners.
Data confirms this trend. As reported in the eBook, Five Performance-Boosting Best Practices for Your Industrial Metal-Cutting Organization, a survey conducted by Tompkins Supply Chain Consortium found that 80 percent of supply chain professionals believe that the supply chain is an enabler of business strategy. “A majority of companies also felt that the supply chain is a source of business value and competitive advantage,” the eBook states.
How can you form strong supplier relationships that provide real value? The eBook offers three best practices:
1. Schedule on-site visits. Like any relationship, communication is key. Expect your prospective supplier to assume a “partner” role from day one by focusing more on service than on the sale of the product. To facilitate this relationship, start by asking for an on-site needs assessment. This gives you the opportunity to discuss your business goals in person, as well as providing the vendor with a full overview of your operation.
2. Include training in your purchase agreement. Most suppliers should be willing to provide some level of value-add training as part of the purchase agreement. This is especially important when it comes to your equipment and tooling providers. No one knows your production equipment better than the people who designed it, and they should be willing to share that expertise with you.
3. Expect thought leadership and self-service tools. Industry-leading partners should be able to support your business by providing informational and educational materials, as well as practical tools and services. You can and should rely on your supplier to be an industry thought leader that provides a steady stream of valuable industry trends data, operational strategies, and technical product information.
Of course, maintaining strong supplier relationships doesn’t come without its challenges. According to the 2017 Manufacturing Outlook Survey conducted by ASQ, 83 percent of manufacturers experienced problems with suppliers last year. However, only a third felt concern that those issues would spill over into 2017. In addition, 66 percent of those surveyed said they are working with current suppliers to fix previous concerns—an indication that the majority of manufacturers see the value of working closely with existing suppliers to address challenges they face. As an article from Supply Chain Drive notes, “…a consistent cycling of suppliers can harm long-term performance as relationships take time to cement.”
ASQ does warn, however, that manufacturers should be prepared for those moments when suppliers don’t come through. The key is to openly communicate with existing suppliers to determine any potential risks and, more importantly, to have back-up plans—and back-up suppliers—to alleviate supply chain disruptions. Ultimately, the goal for any manufacturer should be to turn vendor relationships into strategic partnerships. By taking the time to build trust and value into the supply chain, suppliers can become an integral part of your business strategy and, more importantly, your shop’s success.
In what ways can your fabrication shop get more out of its supplier relationships?
February 5, 2017 / best practices, continuous improvement, Cost Management, LIT, operator training, quality, ROI, strategic planning, supplier relationships
Keeping costs low and quality high are the top goals of just about every industrial metal-cutting operation. What’s interesting, however, is that many companies treat these two areas as independent variables. A recent series of articles from IndustryWeek (IW) shows why it is important for managers to look at quality and cost together. More specifically, it recommends that companies quantitatively measure the cost and benefits of quality.
“Tracking the financial impact of any support function is necessary in order to illustrate its value and garner continued support and resources from senior management,” the IW article explains. “This struggle is vitally important for quality management departments that continue to struggle with competing for resources. Once organizations get clarity on the financial impact of quality, the next step is to understand what practices and applications help improve the financial value.”
Unfortunately, this seems to be easier said than done. Based on the results of a 2016 survey conducted by the American Society for Quality (ASQ) and the American Productivity & Quality Center (APQC), approximately 60 percent of organizations say they don’t know or don’t measure the financial impact of quality. According to a report on the survey’s findings, “this lack of measurement may be attributed to not having a common method for capturing the financial impact.”
Many companies also do not understand the benefits of measuring quality and, instead, simply use it as a means of “compliance” or to keep customers happy. This is especially true in today’s market. As stated in the white paper, The Top 5 Operating Challenges for Metal Service Centers, customers continue to expect higher quality and tighter tolerances from their metal-cutting suppliers.
However, the IW article states that quality should be about more than “checking a compliance box” or basic due diligence. “Developing a solid foundation of quality assurance for continuous improvement, risk mitigation, and compliance provide immeasurable value,” the article states. “However, once that solid foundation is established, organizations can then leverage quality for the benefit of the customer and enhance brand image, thus serving as a competitive differentiator.”
In fact, based on ASQ and ASQC’s survey findings, “organizations that leverage quality as a strategic asset were more likely to report higher levels of financial gains from their quality program.” In other words, companies are using quality to drive profitability.
For more information on how to start measuring the cost of quality, click here to access IW’s four-part series. The articles look at the relationship between financial benefits and the following areas:
- the role and uses of quality,
- governance and standardization of quality,
- quality training for suppliers, and
- quality incentives and training for staff.
How are you measuring the financial impact quality has in your service center?
February 1, 2017 / agility, customer delivery, customer service, industry news, LIT, strategic planning, supplier relationships, value-added services
Although there is still a lot of uncertainty surrounding the economy, many metals companies and experts are fairly optimistic about the short term. According to the January 2017 Precision Metalforming Association (PMA) Business Conditions Report, metalforming companies expect strong business conditions throughout the next three months.
Much of this optimism is based on positive forecasts for end-use markets. At the Metal Service Center Institute’s Forecast 2017 Conference, for example, economists and industry experts shared positive outlooks for several customer segments, giving the metals supply chain an idea of where to place their focus this year.
Below is a summary of segments that show some growth potential for industrial metal-cutting companies this year, as reported by MSCI. (You can access the full report here.)
- Aerospace. According to Richard Aboulafia, vice president of analysis at the Teal Group Corporation, aerospace continues to be the strongest industry and “the only one that saw growth accelerate through the recession.” Aboulafia said that commercial deliveries to China are setting a new record, but now, in part due to a lot of backorders on jets, it is the civil aviation sector that is offering “major opportunities for long-term growth.”
- Military. Aboulafia expects military aircraft to be stable and profitable, but says he is only cautiously optimistic about any growth over the next five years or so. The good news for steel and aluminum producers and processors, however, is he doesn’t expect a lot of competition. He believes that both civil and military aviation will “continue to favor legacy products” in their manufacture.
- Energy. Experts are the most optimistic about the renewable energy sector. “Federal tax credits are the heart of what is driving this industry,” said Andy Lubershane sector specialist at IHS Energy. “And those credits have now been renewed, so we are looking at a lot of strength for both wind and solar perhaps into 2021.” Costs are dropping in both segments, Lubershane said, and efficiencies are increasing, both good signs for industry strength.
- Construction. A continued demand for new housing is adding muscle to residential construction, according to Ken Simonson, chief economist at AGC of America. He judged the outlook for this sector as “very positive” for the foreseeable future.
While these are broad-based outlooks, they should provide metal-cutting companies with some confidence as they invest in existing customer segments or consider branching out into new markets. Knowing where the growth is located is a critical part of strategic planning.
Of course, the other key element is knowing how to best serve those customers—both new and existing. As reported in the news brief, “Strategies for Improving Customer Service and On-Time Delivery in Industrial Metal Cutting,“ on-time deliveries are no longer enough. Today’s customers are looking for trusted suppliers that go the extra mile. “Whether offering a new, value-added service or investing in certification, metal-cutting companies have several opportunities to cultivate a strategic customer relationship built upon premium service,” the brief states. (For some specific strategies for improving customer service, you can download the full news brief here.)
It is far too early to tell how this year’s market will shake out, but as the above forecasts show, there are several segments that offer growth potential for industrial metal-cutting organizations. With a little strategic planning and a strong focus on customer service, companies may find they can make this year one of their best.
January 5, 2017 / best practices, continuous improvement, industry news, LIT, strategic planning, supplier relationships, supply chain
As metal service centers and other industrial manufacturers find new ways to stay competitive, the role suppliers play is becoming more and more critical. Now more than ever, manufacturers need to be in tune with what is happening within their supply chain.
One major trend companies need to be aware of is the shifting dynamic within the supply chain, much of which has been caused by cost pressures. “Competitive pressure to reduce costs is forcing changes in supply chain operating models, creating more complexity and dependence in the value chain,” notes PricewaterhouseCoopers (PwC) on its website. “The number of entities and interdependence between parties is increasing and expectations regarding reporting are also becoming more burdensome.”
Another trend is increased collaboration with suppliers. Many service centers are looking to form strategic relationships with suppliers that can provide value, not just low-cost services or products. A white paper from the Lenox Institute of Technology discusses how this is happening within industrial metal-cutting:
“Operations managers increasingly find that to be successful, they must establish a collaborative vendor relationship that moves far beyond the sale of a product. By leveraging all of the assets their vendors can bring to the table, companies can form strategic partnerships that not only help fulfill their customer demands, but that also help optimize other aspects of the business such as cost management and employee training.”
A recent article from ThomasNet confirms this trend, stating that supplier collaboration will be crucial in 2017. The article, which you can access here, lists three more trends worth noting:
- Increased Emphasis on Ethics and Transparency. In 2016, many companies came under fire due to a lack of ethical practices within their supply chain. As consumers become more environmentally and sustainability conscious, supply chain professionals will be under enormous pressure to ensure that their products are safe, ethical, and environmentally friendly. As a result, procurement teams will invest in technologies that provide greater visibility into their suppliers.
- Digital Will Become Standard. For years, the supply chain has been shifting away from the paper-and-technology model of information management to an all-digital approach. In 2017, that shift will go from optional to essential.
- The Supply Chain Will Get Agile. Today’s intricate, global supply chains are inherently risky, so supply chain managers need to be able to plan ahead and react quickly when a disruption does occur. Thanks to the advent of real-time data, it’s now possible. Leveraging data, supply chain professionals can make quick decisions that can resolve potential crises.
Of course, only time will tell how much of an impact these trends will have on your service center this year. Some of them may have no impact at all. However, for those companies that want to have an edge up on the competition, it is critical to keep a pulse on every aspect of your business, including your supply chain.
November 10, 2016 / best practices, blade life, continuous improvement, Cost Management, industry news, LIT, preventative maintenance, ROI, strategic planning, supplier relationships
According to research from Kronos, U.S. manufacturers as a whole are bullish about future growth prospects. As reported by IndustryWeek, the research shows that nine out of 10 company leaders expect revenues to increase every year over the next five years, and well over half anticipate strong annual growth of 5% or more.
That doesn’t, however, mean companies don’t anticipate stumbling blocks. In fact, the report lists five critical challenges today’s manufacturers feel could limit their potential sales and profit growth. Not surprisingly, three of those challenges are cost-related—material costs, labor costs, and transportation/logistics costs.
So while some manufacturers are optimistic right now, there is no question that uncertainty about market conditions remain. The latest data from the Institute for Supply Management, for example, revealed that that Fabricated Metal Products sector contracted in October; however, new orders were up in September. This type of instability means that most fabricators are keeping a close eye on cost.
As stated in the brief, Cost Management Strategies for Industrial Metal-Cutting Organizations, there are no “one size fits all” answers when it comes to cost management. However, there are some of guiding principals industry leaders are using to keep costs low.
From an operations standpoint, managers can better manage equipment costs by making sure saws and other metal-cutting tools are operating as optimally as possible. According to the brief, this includes ensuring that equipment is running at the proper settings and that fluids are adequate.
“Closely monitoring blade life and maintenance reports are a critical aspect of managing equipment costs,” the brief explains. “If operators are taking too long to cut a specific material or blade costs are up, managers should review equipment settings and monitor the operator in action.” Consistent general and preventative maintenance programs can also help metals executives better manage costs.
From a more strategic standpoint, there are several best practices metal fabricators can follow. Below are three strategies to consider:
- Partner up to increase buying power and save money. As suggested in an article from Thomasnet, partnering with other small businesses can yield volume discounts and achieve savings. Consortiums put the benefits of economies of scale into effect for small businesses that would otherwise be left paying premiums. In addition, small firms should seek strategic partnerships with key suppliers. Purchasing from fewer suppliers saves time and resources while building trust. A small business owner can talk openly with a strategic partner and ensure the company is not overspending due to unnecessary costs.
- Include financial personnel in improvement initiatives. If your company has decided to embark on a continuous improvement activity to save costs, you may want to check out this article from IndustryWeek. In addition to discussing the dangers of disguising cost cutting as improvement, the article also reminds managers to spend time with the financial community and hold discussions on costs and savings before starting an improvement project. Managers should work closely with the financial team to develop a tracking system for possible problems to prove cost savings in the future. The article also suggests that a person from the financial community be included in each improvement team. This person will be able to validate cost savings and ensure all costs are tracked accurately.
- Factor time into the cost equation. While most people believe the old adage “time is money,” traditional accounting practices don’t exactly account for the cost of time—specifically, customer lead times—in metal fabrication. As explained in an article from The Fabricator, traditional cost accounting treats inventory as an asset and does not capture the true costs of long lead times. However, according to the author of the book, The Monetary Value of Time, there is an accounting method that corrects this oversight and complies with generally accepted accounting principles. You can read more about this method here.
Regardless of whether you are optimistic about the market and making investments or taking a more cautious approach and holding your pennies close, it is always important to closely monitor costs. By taking the time to approach cost strategically, today’s metal fabricators can save money, stay competitive, and, hopefully, see long-term increases to the bottom line.
September 5, 2016 / best practices, continuous improvement, Cost Management, industry news, LIT, ROI, strategic planning, supplier relationships
The manufacturing industry is experiencing a roller coaster market, making it difficult for metal service centers to know when to grow or scale production. As reported in here in IndustryWeek, the Institute for Supply Management’s index recently registered the steepest manufacturing drop since January 2014. The August index dropped to 49.4, marking the first contraction for U.S. manufacturing in six months. New orders in August also declined 7.8% compared to July—the first drop since December 2015—according to the August 2016 Manufacturing ISM Report on Business.
In addition, data from the Metal Service Center Institute (MSCI) shows that U.S. service center steel shipments in July declined by 15.2% compared to July 2015, while shipments of aluminum decreased by 14.8%. In response to lagging shipments, steel and aluminum inventories also decreased in July by 14.5% and 1.3%, respectively, from July a year ago.
The uncertain outlook is causing industrial manufacturers to adjust and carefully manage costs. According to a recent survey by PricewaterhouseCoopers (PwC), only 35% of industrial manufacturers were optimistic about the U.S. economy in the year ahead, down from 69% last year. Despite the slowdown, however, manufacturers continue to invest in growth opportunities, with 80% of respondents planning to increase operational spending and 52% planning on new product or service introductions this year.
Despite current market challenges, many companies are finding that a moderate market can be an ideal time to revisit their growth strategy. In fact, as reported here, research from McKinsey & Company found that transitions between growth phases often predict a company’s success or failure. “Companies that are growing at a slow or normal clip have more time to consider their options and make wise decisions,” the article states. “Rapid growth may be desirable, but slow and steady does indeed seem to win the race.”
The fact is that while business growth may seem impossible right now, there are still simple ways to keep your company headed in the right direction. An article from ThomasNet provides three simple steps manufacturers can take to help them grow their business:
- Choose a goal. You can’t grow your business without knowing what you want and need to grow. Will you grow by gaining new customers or doing more business with current customers? Do you want to expand into new product segments? Decide what the best opportunity is for your business and focus there.
- Build your credit. Deciding to partner with a company—either on the supplier or customer side—requires due diligence. If a potential customer ran a business credit report for your business, what would it show? Tracking and regularly checking your credit file will help ensure your company’s image is attractive to future business partners and creates credibility. This will also enable you to easily pay increased or unexpected expenses as you grow such as additional payroll for new employees, or loans for new equipment or warehouse space.
- Spread the word. Once you’ve decided to grow, let people know and get the word out. Add a listing to online business directories and build your online presence to drum up new orders.
This is also a good time to lean on your supply chain. As cited in the eBook, Five Performance-Boosting Best Practices for Your Industrial Metal-Cutting Organization, a report from Tompkins Supply Chain Consortium found that 80% of supply chain professionals report the supply chain is an enabler of business strategy. In addition, a majority of companies felt the supply chain is a source of business value and a competitive advantage, leading the Consortium to conclude that “the importance of an integrated supply chain and overall business strategy cannot be ignored.” Identify your strategic suppliers, position them to add value, and see where they can help you grow your business.
While there is a lot to consider when deciding whether or not to expand your business, employing a few basic strategies can help put you on a path to steady growth, even if it is slow moving. As many service centers are finding, today’s market conditions offer a unique opportunity for companies to re-evaluate and improve, not only to survive current market conditions but also to position themselves for growth when the demand rebounds.
Are you thinking about growing your metal service center? What strategies are you employing?
August 30, 2016 / agility, best practices, Cost Management, industry news, LIT, Output, productivity, strategic planning, supplier relationships, value-added services
There is no question that the supply chain is evolving. As reported in a previously published blog, instead of treating supplier relationships as a series of business transactions, more and more manufacturers are treating their supply chain as a valuable part of their business strategy. In fact, this trend is listed as a best practice in the eBook, 5 Performance-Boosting Best Practices for Your Industrial Metal-Cutting Organization.
With an increased focus on building closer partnerships with suppliers, it’s not too surprising that many companies are starting to move back to sourcing suppliers closer to home. As one article from Automotive World quips, “local sourcing—it’s the new global sourcing.”
According to the AW article, local sourcing can bring cost savings across the entire supply chain, especially in light of rising costs in traditionally low-cost regions. “This phenomenon of local sourcing is being witnessed across the globe, with leading OEMs sourcing locally from developed as well as emerging countries,” the article states.
A report released by MFG.com, an online manufacturing marketplace, shows similar trends. Based on the data gathered from buyers of custom manufactured parts from the MFG Watch 2016 marketplace survey, 80% of U.S. sourcing professionals chose to source their parts predominantly in the U.S. The report also found that since 2012, buyers have seemingly moved away from sourcing from Chinese suppliers, as sourcing in China has fallen by about 14% in 3 years.
It is worth noting that the MFG.com report found that U.S. sourcing professionals nearly doubled their sourcing activities in regions like Eastern & Central Europe, as well as South America and North Africa. In other words, not everyone has jumped on the bandwagon.
However, there are definitely some benefits for ball and roller bearing manufacturers that choose local sourcing. Local suppliers, for example, can quickly and easily respond to any troubleshooting or maintenance problems with your tooling and equipment, often in-person. They can also assist with other key business areas, such as preventative maintenance and operator training.
Of course, those are just a few examples. An article from Thomasnet gives a more comprehensive list in its article, “Top 6 Benefits of Local Sourcing:”
- More Reactive. Local suppliers are typically more reactive than suppliers who are farther away. They are able to deliver products quicker, and it is much easier for a supplier to coordinate a shipment across the neighborhood than around the world.
- Greater Control. The further away you are from elements of your supply chain, the less control you have over them. There’s also less chance of things being “lost in translation,” which often occurs when working with far-flung teams of people, many of whom aren’t actually on the floor and touching your products.
- Reduced Supply Chain Costs. North American businesses send and receive parts and products all over the continent, and the expenses can add up as quickly as the miles. Localizing your supply chain can reduce many of these costs. And, with less money being sunk into logistics, there will be less weighing down your bottom line.
- Better for Business. Local sourcing doesn’t just help save money; it can also help you generate more of it. That’s because companies in your region may be impressed by your efforts to keep a tight and fast-paced supply chain, which can help you attract new customers.
- Good for the Community. It stands to reason that if sourcing locally increases your bottom line, it would do the same for other suppliers and manufacturers in your area, which can be a big boon to your local economy and the people who live there.
- Helps the Environment. Localizing your supply chain represents a tremendous opportunity to help the environment. When you reduce shipping and storage, you also reduce emissions and energy usage.
Whether building cars or manufacturing ball bearings, more and more operations managers are finding that their success is directly tied to collaborative vendor relationships—relationships that go far beyond the sale of a product. While not everyone believes in local sourcing, it is one of the many ways you can build closer, more valuable relationships with your supply chain.
To read more about building valuable supplier relationships, including some key areas where suppliers can help, check out the white paper, Managing Your Blade Manufacturer Relationship.
August 15, 2016 / benchmarking, best practices, bottlenecks, continuous improvement, KPI, lean manufacturing, performance metrics, productivity, quality, supplier relationships, value-added services, workflow process
As part of the push toward continuous improvement, more and more industrial metal-cutting companies are measuring overall equipment effectiveness (OEE). This is definitely a good trend, as measurement is the first step in making quantifiable change. However, some companies have jumped on the OEE bandwagon without being fully informed, which can cause a lot of misunderstanding and misuse of this important metric.
Knowing what OEE is—and what it isn’t—is the only way to make sure you are using it effectively. The following is a quick primer.
What is OEE?
According to leanproduction.com, OEE is a best practices metric that measures the percentage of production time that is truly productive. It takes into account all six types of loss, resulting in a measure of productive manufacturing time.
In simple terms, OEE can be described as the ratio of fully productive time to planned production time. According to leanproduction.com, it can be measured in one of two ways:
(Good Pieces x Ideal Cycle Time) / Planned Production Time
Availability x Performance x Quality
(You can find a more detailed description of the calculation here, as well as a sample calculation.)
A plant with an OEE score of 100 percent has achieved perfect production—high quality parts as fast as possible, with zero down time. While that’s ideal, it’s not quite possible in the real world. According to oee.com, studies show that the average OEE rate among manufacturing plants is 60 percent, which leaves substantial room for improvement. Most experts agree that an OEE rate of 85 percent or better is considered “world class,” and many companies use that number as a long-term goal for their operations.
Managers can use OEE as both a benchmark and baseline. Specifically, leanproduction.com says it can be used to “compare the performance of a given production asset to industry standards, to similar in-house assets, or to results for different shifts working on the same asset.” It can also be used as a baseline “to track progress over time in eliminating waste from a given production asset.”
How to Use—and not Use—OEE
It’s important to note that OEE is not necessarily a useful metric for every manufacturing operation. “Measuring OEE only makes sense if you are trying to meet a certain demand on a daily basis,” explains Paul Bryant, senior OPEX manager, LENOX Tools. “If you have a problem with yield, then I would definitely suggest OEE.
“If you have a problem with inconsistent production output and/or downtime on a piece of manufacturing equipment, OEE is a great way to measure and identify how to where to improve your operations,” Bryant continues. However, for smaller metal-cutting operations that are more custom and low volume, Bryant says OEE probably isn’t worth measuring.
Bryant also says that a lot of shops use OEE incorrectly. Specifically, he says there are two common ways metal-cutting operations misuse the metric:
- Too Focused on the Benchmark. “Everyone knows that world-class OEE is 85%, but too many people get hung up on that number and how their shop compares to it. When I look at OEE, the number doesn’t mean much to me. I look at three components—availability, performance, and quality—and then break them apart and look for opportunities. That is the true essence of OEE: To find opportunities that help keep your machine and production system optimal.”
- Too Focused on the Operator. “Another misuse is that people use OEE to measure the operator. OEE is used to measure equipment. If you run into an issue with the metric, look at the machine first. There are so many variables, don’t always assume it is the operator. Once you’ve evaluated the machine, look at the material and then the operator last.”
An article from IndustryWeek (IW) adds that OEE should be used as an improvement measure, not a Key Performance Indicator (KPI). It also states that it is best used on a single piece of equipment or synchronized line.
Finally, if your shop is ready to start measuring OEE but doesn’t know where to start, enlist the help of some key suppliers. As stated in the eBook, Five Performance-Boosting Best Practices for Your Industrial Metal-Cutting Company, many companies don’t possess all of the knowledge, resources, or infrastructure necessary to do in-depth measurement. This is where a willing supply partner can help. In today’s competitive market, there are plenty of equipment and tooling suppliers that are willing to share their knowledge and experience as a free, value-added service.
A Helpful Tool
There is no question that OEE can be misused and misunderstood, but as the IW article reiterates, it is not a “bad metric.” When calculated and applied correctly, OEE can be a very useful tool to help industrial metal-cutting companies quantify and uncover new improvement opportunities.
July 25, 2016 / best practices, blade failure, blade life, continuous improvement, Cost Management, material costs, preventative maintenance, productivity, strategic planning, supplier relationships
Cost reduction will always be a top priority for manufacturers. However, in today’s ultra-competitive and uncertain market, manufacturing executives need to be both creative and strategic as they look for new ways to reduce costs.
As stated in the white paper, Top Five Operating Challenges for Forges that Cut and Process Metal, there are several ways forges are reducing operational costs. Measuring total cost, monitoring blade life, and instituting ongoing preventative maintenance programs are just a few examples. According to the recently revised Forging Industry Technology Roadmap, the forging industry as a whole is also working toward finding new ways to reduce material and energy usage costs—two of the most significant cost factors in forging.
A recent article published by Thomasnet, however, notes that while the tendency is for small and mid-sized businesses to focus on reducing costs for their overall operations, there is also a huge benefit to reducing costs within specific business functions, most notably procurement.
“Small businesses spend between 45 and 65 percent of sales revenue on procurement of inputs,” the article states. “Therefore, procurement should be considered a viable opportunity to reduce costs and improve efficiency. Even basic changes to the procurement process can cut procurement costs by 5 to15 percent and start a smaller business on the road to strategic sourcing.”
The article goes on to list five strategies small and mid-size operations can use to improve procurement. Read below for a summary of three of the five best practices (You can read the full article here.):
- Build and Maintain Strategic Partnerships. Small firms should seek strategic partnerships with key suppliers. Purchasing from fewer suppliers saves time and resources while building trust. A small business owner can talk openly with a strategic partner and ensure the company is not overspending due to unnecessary costs.
- Improve Internal Procurement Processes. Procurement efforts should include annual analysis of spend and demand, with supplier pricing reviews occurring semi-annually or even quarterly. Use spend analysis to detail all costs and terms associated with procurement and demand analysis to define essential needs with a focus on improving cost and quantity.
- Organize with Others to Increase Buying Power. Partnering with other small businesses can yield volume discounts and achieve savings. Consortiums put the benefits of economies of scale into effect for small businesses that would otherwise be left paying premiums.
Of course, there are no quick fixes when it comes to cost reduction. However, by taking the time to approach cost strategically—and perhaps even one business function at a time—small and mid-sized forges can make improvements that may have a long-term and sustainable impact on the bottom line.
What strategies has your forge adopted to reduce costs?