What part will consolidation, service and support, the Internet, and distribution play in the machine tool industry's future?
The editors of AMERICAN MACHINIST thought the approaching millennium was an appropriate time to take stock of where the machine tool industry is headed. So, Editor Thomas Grasson and Publisher Joseph Fristik asked some of the foremost machine tool builders to share their thoughts.
Each discusses what he thinks will be the impact of major forces shaping the machine tool industry. These influences include technology developments, the Internet, the role of distribution, strategic partner-ships, and technical centers as a competitive strategy.
Without exception, the forum is optimistic about the viability and robustness of the industry. However, not all agree on the impact of the forces discussed.
President, Haas Automation Inc.
President & COO, Okuma America Corp.
Chairman & CEO, Giddings & Lewis Inc.
President & CEO,
President & COO,
AM: In general, where do you see the machine-tool industry heading in the next 5 to 10 years?
Lane: I think we will see continued consolidation in the machine tool industry; there will be fewer, but bigger, manufacturers. This has been a historical trend in the industry. Most companies started as family-run home businesses serving local markets. Then, many of them grew to be national in scope and the American, German, and Japanese machine tool builders emerged. I think it is only natural that we are headed toward global builders.
Giving customers what they want — accurate parts produced in a timely fashion and at low cost — involves many intertwined technologies including machine tools, workholding and handling and chip-handling stands alone some other system. the future I think we tool builders working other manufacturers
Seymour: It is amazing as old as the can have so much the future. Since we rather severe down are thinking hard are, where they are where they going, and how they are going to get there.
Certainly, one factor that will affect the machine tool industry is that our customers are consolidating. Also, customers want suppliers to be global and able to support them wherever they manufacture. Look at the automotive companies — the large auto companies are consolidating to form global alliances or global firms. Their sup-pliers are also consolidating to form global companies that can better support these new, larger customers. The same thing is happening in the construction equipment and agricultural equipment terms of faster spindle speeds and axis rates and the ability to control those in real time.
Haas: I see manufacturing in general becoming much more global and competitive. The advent of the Internet and information technology, in general, makes it easier for manufacturers to quote on projects anywhere in the world. Shops that traditionally bid on local contracts are now bidding against competitors all over the world. builders. The number of builders is shrinking in Japan and the U.S. You are going to see more mergers and partnerships among the machine tool builders — not unlike what we saw in the last decade in Europe.
The market will become much more global. We see the tip of that iceberg already with more U.S. companies — my potential customers — going global. Their expectations don't change regarding service and support just because they built a plant in China. They still expect you to service them as if they were in Peoria.
The machine industry is not unlike the automotive side of the business, potentially bringing greater value to investments.
Technology is going to have an impact on the sophistication of machines, servicing of machines, how machines can communicate, and the inter-connectedness of machines around the world.
AM: What landmark changes have made your company a leader in the industry, and how will the future affect your particular market niche?
Papke: Our basic intention is not to be dependent on any one industry. When you look at the cycles that are common in most major industries, including automotive, aerospace, and oil service, it would be disastrous to be totally dependent on one of them. We want to be very responsive to changing market needs. With technology centers around the world, we can have timely access to market information to quickly design products that meet these needs. With agile manufacturing, we can produce a broad mix of products and serve a variety of industries.
We really have to partner with our customers, regardless of their size, and understand their problems to find the best solutions. Often, they want to run seven days a week, 24 hours per day, so they become very dependent on our machines for profitable operation. Today, we have 3,000 different part numbers in stock and 97% of all parts for Mazak shipped within 24 hours.
Some of our business from large companies, from smaller companies. that some initially want work, then, at some that it could be more buy equipment and So, we see work going with some large manufacturers.
These firms quickly and can significantly costs for larger companies. them have grown rapidly, with a single, two-machine to operating machines, some of multitasking run unattended around-Lane: I think we may focused than development teams for the specific industry.
We organized to target three basic a machinery group automotive, a die and an aerospace these groups has applications personnel, "I think one of this country's basic strengths is our job-shop industry. These firms can move quickly and can significantly reduce costs for larger companies."
Our strategy is to talk to customers in terms of the parts they are trying to produce and the problems they may be having. Once we under-stand a customer's situation, we will recom-mend the best machine for the job. We don't try to be all things to all people. We are organized for specialized applications, and that is what we pursue. We do not go after applications for which cause we are very efficient at manufacturing them. We don't copy anyone; all our machines are designed from the ground up by our engineering staff. We have invested heavily in our plant and our people and this has made us a more efficient builder. Our job is to determine what a customer wants to buy and then provide that equipment so he can make a profit.
Michael: What distinguishes us is the way we are going to service our machines in the future. With audio and visual communication links, our technicians and engineers in any location can work with customers, in real time, to solve their problems. With our virtual tech units, we can work with in-plant service engineers who might not have a lot of technical know-how concerning our the customer waits for shipment. A service engineer can only serve one or two customers per day. Now, with virtual tech, we can guide a customer via video links in troubleshooting a machine so that parts can be ordered immediately. This way, one service person can serve five or ten customers a day. Customers will be able to support themselves because we will provide the technical knowledge they need to fix machines themselves.
Hendrick: The most significant thing our company did to make us a player was to produce in the United States. The first thing that a major machine tool manufacturer must have is the ability to make his product globally, and we have that.
Eleven years ago it was initiated, or certainly brought to the forefront, by the involvement of the value-added resellers at that time. Now we have flexibility when it comes to big currency fluctuations as to whether you build here or in Japan.
In the area of customer service, we have a program we call Okuma Care. We introduced a 24-hour, 7-day-a-week response to our customers. Parts and service are available just by dialing the phone. We will have parts shipped on the next available flight, or the customer gets the part free of charge.
Isles: The biggest change that will affect us in the next five years is being part of the Thyssen Production System. We now have a global R&D activity that supports metalcutting companies significant expenditures and focused areas of technology development. That kind of support and access to resources really changed our the better.
Lane: Our business involves a lot of process development and turnkey applications on expensive machines.
We don't feel we are going to have people purchasing our systems directly from the Internet. We see the Internet as a valuable tool for sharing our technology and process development knowledge with customers rather than a way to get orders for machine tools. We're designing our Internet systems to help customers understand their requirements and to exchange ideas so they will come to us for leading-edge process development and technology.
Seymour: Any area that is transaction intense will candidate for ordering website over the Internet.
"We see the Internet as a valuable tool for sharing our technology and process development knowledge with customers rather than a way to get orders for machine tools."
The tremendous increase in flow of information that the Inter-net offers will certainly have an effect on competition. For instance, a Malaysian manufacturer, which had no hope of reaching a small shop in Missouri, can now contact this shop fairly easily.
However, the Internet is not a panacea for customers — there are both pros and cons. The advantages are that customers can become much more technically sophisticated in their buying. Not only can they get technical information on which to base a machine choice, but I believe they will also have access to pricing.
The drawback of the Internet is that customers will be absolutely overwhelmed with choice. There will be so many choices that the decisionmaking process will become cumbersome. I think branding will play a stronger role than in the past. The reputation that backs a brand is going to be very important in making a customer comfortable about the choices they make in an otherwise 5% volume our a success is easy for both customers.
Haas: I see the Internet not as a channel for e-commerce in machine tools but more as an information channel for training dealers or getting sales people up-to-speed faster. For example, we are centralizing a database at our location that can be accessed by all our dealers. They will have access to fresh data and get the latest pricing and service information. And they will be able to look at the latest catalog, as will our customers.
I don't think people are going to buy machine tools over the Internet. There are probably a hundred thousand different configurations available on a basic machine, and a customer is going to need help and guidance from a dealer in choosing the best for his needs. Our goal is to make deal-ers more effective so they do not have to visit a customer 10 times — deals should close on the first or second visit.
Papke: We see information technology as being central to our operations. We have some 400 users on our Intranet system, which handles some 10,000 e-mail messages per day. Now we can send a message to someone in Germany and copy people in Japan and the Distributors are installing networks that will give them access to this tremendous resource of information. With video conferencing, a demonstration of a 5-axis machine can be produced in our Los Angeles Technical Center and sent to a prospect anywhere in the world. Then, if the prospect likes what he sees, he can travel to L.A. to see the machine in person and talk with our people. This personal contact is important, and we are not trying to eliminate it.
Michael: The Internet is a wonderful source of information that allows our customers to become much better educated about our products and technology. And it saves money. For example, our sales and service personnel communicate with us through their laptops, so we are realizing a tremendous savings on long-distance telephone charges.
Hendrick: Currently, we are already using the Internet as a source for information, but as yet, we don't have any ordering of product from our website. In my opinion, our industry needs new blood. Since it is difficult to find people who want to come into manufacturing, we should use the Internet as a recruiting tool.
With the use of e-commerce, I could sell to existing customers who are already familiar with our products. They know the control and the backup system from the parts standpoint, so they can get the latest information from our website and make their decisions right then and there.
Isles: We're doing a variety of things on the Inter-net. We have our parts business on-line and are making major expenditures in our internal ERP systems so they will be connected to the Internet. This will allow our customers and dealers to have real time information on orders and technologies along with access to help desks. Currently, we have parts on-line, sell machines across the Internet, and conduct auctions at our websites.
We'll be adding other capabilities to our website in those areas where we can see a clear value for our customers. Our plan is to eventually have all of our distribution seamlessly integrated with us on the Internet.
AM: How will the role of distribution change from both an industry and company perspective?
Lane: To remain competitive, I think distributors are going to have to find more value-added services to offer customers. For instance, one recently formed mega-distributor offers a great deal of system and process development services. On the other hand, a lot of people are starting to use the Inter-weary because he cannot evaluate these claims in terms of competitive products.
Seymour: Machine tools are not offthe-shelf products that you just plug in and use. They require a lot of support and application expertise. Also, a customer needs a face-to-face relationship with someone that can make him comfortable with his decisions. A distributor is positioned to play this role. Some portions of our business have so many customers it is impossible for us to effectively reach them ourselves. We look to our distributors to provide this face-to-face contact with these customers. We can supply technical help over the Internet, but I don't see the need for distributors diminishing. However, I think the distributors that will really succeed are those that can provide local technical and application help and understand a customer's unique manufacturing problems.
Haas: We want our customers to know that we are not only selling machine tools, we are also selling service. We stand behind our products, and our customers should feel comfortable and confident in dealing with Haas Automation. Often, the problem with reaching customers through, say, 50 independent dealers, is that 50 different philosophies are involved and 50 different messages are communicated. We want our customers to know that they are really dealing with Haas Automation and our dealers are really a subset of our organiza-want to be sure our represent us the way we represented. We want they project a high degree professionalism and have and service capabilities necessary to satisfy our customers' desires.
Michael: One interesting trend I see is the move for distributors in different parts of the country to consolidate to form a consortium for national or regional coverage. Consolidation of smaller distributors will also enhance their ability to negotiate with a builder.
Hendrick: The role of the distributor is not going to change as long as he can bring value to the table. The customer is going to want that forever.
Isles: There are new technologies that are coming out very rapidly. Our intent is to take full advantage of these opportunities to take care of our valued distribution network. It will mean a change in distribution in terms of how we service and products. But if the always doing a better customer, then you the right direction. to make it a win-win with our distribution.
AM: At last year's AMT there was a call in order to remain What are your thoughts?
Seymour: Partnerships, alliances, make sense where there is little lap between the type of products being sold, yet there is a common customer base. Many machine tool builders have spent the last several years trying to make machines with general appeal. Look at most of the Japanese builders. They participate in the broad, mainstream markets for machine tools. Forming a strategic alliance with such builders would immediately lead to conflicts because there are product-line overlaps. Resolving this problem when you're doing a strategic alliance is a very difficult thing to do.
When manufacturers are focused in niche markets, the problem in developing strategic alliances lies in finding a common customer base. What would a gear manufacturing business and a turning center manufacturer have in common in their customer base that would make an alliance worthwhile?
Cincinnati Machine has pursued many opportunities for strategic alliances, but because of these reasons, we have very few.
Haas: There are far too many machine tool builders in the world today. Although the U.S. industry has just a handful of builders, there are something like 400 builders in Taiwan and probably just as many in Japan. And in Russia, there are hundreds. This worldwide
"The role of the distributor is not going to change as long as he can bring value to the table. The customer is going to want that forever."
Michael: If you can have applications engineers and controls engineers at your tech center, it can be a wonderful local tool for serving customers. Too often, expensive tech centers are set up, but they lack the people to run them. A tech center without qualified, skilled engineers is just a showroom. I don't see the role of tech centers expanding because of the ability of virtual tech units to serve customers from a central location.
Hendrick: Tech centers are a way to prove your advanced technology capabilities and your solutions. But we're talking major expenditures here. The technology-center concept removes much of the risk from a customer standpoint. Once you know his product and he knows yours, then you are in a much better position to say what kind of performance guarantees you will give.
Hendrick: There are several kinds of partnerships. There are consolidations and mergers, partnerships with our customers, and partner-ships with our suppliers. But, all this is motivated by the fact that most of our customers no longer have extensive methods departments or manufacturing-engineering groups. They expect us to supply those capabilities. The whole thing is motivated by the customer, because the customer is always right.
Isles: I think that consolidation will be an integral part of what we're going to be doing in the industry on a global basis. There is real value that can be created as this industry consolidates. In most industries, you can see advantages of common product platforms, service, economy of scale, and global reach.
Along with consolidation will come increased partnering opportunities.
We plan on using technical centers as a means of concentrating people for the purpose of enhancing process and application development in a particular area.
Seymour: Typically, technical centers do three things: showcase equipment, conduct training, and provide technical support. We have chosen to cover these objectives in different ways and, consequently, have been closing our technical centers for some time. We feel that technical information is getting easier to disseminate over the Internet, and we encourage our distributors to be technical experts, rather than in-your-face salespersons. Some of our distributors have the ability to locally showcase equipment, so in these cases, we don't need a technical center. In most cases, our distributors can handle local technical training and dissemination of information in conjunction with what we do over the Internet.