How to Thrive in 2005

How to Thrive in 2005

Smart U.S. manufacturers can grow their businesses and beat back foreign competition in the coming year.

Smart U.S. manufacturers can grow their businesses and beat back foreign competition in the coming year.

By Pat Ropchock,
editorial assistant

Tru-Cut Inc., a tool/die shop and contract manufacturer in Sebring, Ohio, received help from CAMP Inc., Cleveland, which delivers engineering, business, and training services to manufacturers.
Photo courtesy of CAMP Inc.


American manufacturers — particularly small, agile shops — could have a good year as the economy continues to expand across many market sectors. They still have to contend with rising oil prices, inflation, and uncertain foreign economic and political climates. But they can combat such forces and flourish in the new year by developing a growth plan, working more closely with their customer base, and streamlining their operations.

Developing a growth plan starts by understanding your organization, marketplace, and customers, according to Bill Barnes, director of consulting services with Cleveland-based CAMP Inc., an organization delivering engineering, business, and training services to manufacturers and other technology-based partners and an affiliate of the Manufacturing Extension Partnership. This starts with a critical selfassessment, says Charles Alter, a CAMP consultant.

In the self-assessment, a company would be wise to examine well-developed quality systems, embrace lean manufacturing, and thoroughly understand its costs and markets. Alter is often surprised at how little information companies compile for such an analysis. Peter Zale, communication and public relations manager for CAMP, believes this is because small jobshops don't always have the resources — such as sales and marketing people — to learn how markets are changing. This makes it difficult to keep up with what customers may want that differs from what they've been supplied.

After the self-assessment, companies can tackle the four steps to building a growth plan: setting goals; evaluating breakthrough potential by examining markets, customers, and competitors; identifying growth opportunities (such as developing a new product, putting an existing product into a new market, acquiring another business, or selling); and finalizing a breakthrough plan.

Focus on the customer
In an effort to understand your market and customers, it's helpful to define your niche — then concentrate on serving it — says Steven A. Epner, CSP, a St. Louis-based consultant who works with manufacturing companies. This is a smart tactic, agrees Clare Goldsberry, a consultant for the American Moldbuilders Association, Roselle, Ill. She says, "Niches are riches. Find something you do well, then specialize in that and do it better than anyone else."

Specializing lets shops deal with customer needs and time constraints. It also allows small shops to become service-oriented 24/7 businesses that can grow larger than their worth.

Another benefit to having strong customer relationships is that it prevents competitors from stealing your business. That's why it's important to be proactive with your customers. For instance, compile customer "report cards" showing the value of the work you deliver to specific customers. This practice lets you learn more about your best customers and helps them understand the value you offer. Sell value to customers, Epner emphasizes, instead of price.

Another way to cement relationships and gain market share in your niche area is to offer value-added services. According to Goldsberry, providing services such as engineering, design, prototyping, and product development enhances a company's value to its customer.

A close customer relationship can also refer to location. Overseas competitors are often at a disadvantage when it comes to quick deliveries. And stocking inventory can be a costly proposition for your customers. Gain business by developing a cost-savings analysis showing the difference in buying parts JIT from U.S. suppliers versus half a world away.

Streamline operations
Obviously, streamlining your physical operations can ensure the health of your business. For instance, using advanced metalworking technologies can reduce per-piece costs. Bruce Tompkins, a Raleigh consultant who helps manufacturing companies with supply-chain issues, recommends companies investigate cellular systems, laser and plasma cutters, automation equipment, and new workholding tools and approaches. He also suggests implementing lean manufacturing practices to reduce process waste and Six Sigma to cut down on defects. Lean concepts that integrate into machine shop environments focus on improving material flow, dealing with small lot sizes, and reducing setup times.

Another critical piece to remaining competitive, Tompkins adds, is integrating multifunction machinery for greater process flexibility.

In addition to machinery, companies should ensure they have the software and personnel to tackle product design. Having design capabilities lets manufacturers accommodate rapid design changes and shortens product life cycles.

Get help
Although small to midsize manufacturers are typically more flexible than larger companies, they often lack the resources to keep up with the latest technologies, markets, and customers. And they're often hesitant to leverage the entire business on new technologies or processes. But they can get help from the Manufacturing Extension Partnership (MEP), part of the U.S. Department of Commerce's National Institute of Standards and Technology.

MEP helps small manufacturers with everything from lean manufacturing practices to quality issues and industrial marketing, says Kevin Carr, the group's executive director. Consultants examine entire businesses and offer enterprise-wide solutions.

The partnership has 350 offices throughout the U.S. and Puerto Rico. It also maintains relationships with about 3,500 organizations that help provide those services. MEP offices also have a number of other resources they can tap. To find out more about MEP, go to mep.nist.gov or contact 800-MEP-4-MFG (637-4634).

Carr suggests small manufacturers also exploit their existing ties to organizations such as trade associations and local chambers of commerce. Other helpful resources include universities, laboratories, machine tool builders, and engineering and consulting firms.

2005 Outlook

Metalworking industries will face a variety of opportunities and challenges in 2005, according to industry experts. Patrick McGibbon, vice president of strategic information and research for AMT—The Association For Manufacturing Technology, McLean, Va., says AMT members anticipate 12% to 20% more machine tool orders over 2004.

Opportunities: He predicts gains in industries such as offroad and highway construction, medical equipment, automotive, and appliances.

Challenges: A strengthening dollar could slow export growth. Analyst outlooks suggest the dollar will strengthen against the Euro and eastern European currencies and remain at current levels or slightly weaker against Asian currencies.

Matthew Coffey, president of the National Tooling Manufacturers Association, Ft. Washington, Md., says NTMA members forecast good to very good business, with machine tool consumption up and employment continuing to fluctuate.

Opportunities: NTMA's Business Forecast predicts die orders will rise 10%, molds up 6%, precision machining up 15%, aerospace machining climbing to 17%, and special machines will be essentially flat. By industry, NTMA projects 70% growth in construction machinery, a 70% jump in semiconductors, 31% growth in mining equipment, defense up 29%, electronic components up 28%, farm machinery up 12%, automotive rising 7%, and medical up 5%.

Challenges: U.S. economic growth could slow in 2005, and high oil prices could have a negative impact on manufacturing. In addition, China's "overheated" economy and unstable banking system could cause problems. U.S. concerns, adds Coffey, include rising trade and budget deficits and the perception that the U.S. is more focused on protectionism than fair trade.

Purchasing and supply executives belonging to the Institute for Supply Management, Tempe, Ariz., are also optimistic about economic growth in 2005 according to those surveyed for its 68th semiannual economic forecast.

Opportunities: The survey names fabricated metals and transportation and equipment as the industries to watch in 2005. It also projects higher-than-average capital expenditures for industrial and commercial equipment and computers.

Challenges: Survey respondents focused on cost pressures and supply-chain constraints; higher prices and inflation; energy price increases; the weak economy; war and geopolitical concerns; and labor, benefits, and healthcare costs.

The Manufacturers Alliance/MAPI, an executive development and business research company serving senior management in Arlington, Va., believes a broad-based manufacturing expansion is underway and expects moderately strong production across many industries in 2005 and 2006.

Opportunities: Metalworking machinery, one of four industries expected to have double-digit growth in 2005, should jump 11%. Industrial machinery and medical equipment could grow 5% or more in the next two years. Daniel J. Meckstroth, Manufacturers Alliance/MAPI chief economist, expects solid growth for industries supporting defense, machinery, medical, freight movement, and information technology.

Challenges: Meckstroth says industrial and manufacturing growth has slowed because of high material, energy, and employee healthcare costs, squeezing profit margins. Continued import growth, he adds, also limits domestic manufacturing.


North America Has the Technology to Compete

The Save Your Factory initiative promotes automation as a way to keep manufacturing in North America.


North America does have the technology to compete globally, according to the Save Your Factory industry initiative. Organized by Fanuc Robotics America Inc., Rochester Hills, Mich., the group also includes The Lincoln Electric Co., Cleveland; Automated Concepts Inc. (Formerly Meritage Manufacturing Systems), Council Bluffs, Iowa; Genesis Systems Group, Davenport, Iowa; AMERICAN MACHINIST; Society of Manufacturing Engineers, Dearborn, Mich.; and others.

Rick Schneider, Fanuc Robotics president and CEO, says Save Your Factory promotes automation as a way to slash operating costs, improve product quality, and keep production in the U.S. For instance, Lincoln Electric analyzed the cost of manually producing a part in China versus using automated welding in the U.S.

The cost was the same — $0.30. But keeping the work in the U.S. lets manufacturers maintain quality, improve process controls, and reduce leadtimes. Moving the work offshore, says Schneider, puts companies at risk of currency fluctuations and counterfeiting through lost intellectual property. It also adds the burden of supply-chain control.

Schneider believes automation is key to keeping manufacturing in North America. He points out that China has lost manufacturing jobs because of automation and other productivity-enhancing technology, such as lean manufacturing. In fact, from 1995 to 2002, China lost 15 million manufacturing jobs versus 2 million in the U.S.

The initiative website, saveyourfactory.com, features case studies, tools, and other useful information. The group is also recruiting more partner companies, as well as end users, to add information to the site.


On-line Matchmaker for Jobshops

Many manufacturers are gaining new business through on-line marketplaces that let them post and bid on requests for quote (RFQs). But they need to further exploit this process by establishing long-term, mutually beneficial relationships, says Perry Gathings, CEO of SourceHorizon Inc., Greensboro, N.C. His company's marketplace, SourceAuthority.com, not only hooks up jobshops via the Web but also offers project management and engineering services that help cement the buyer-supplier connection.

According to Gathings, SourceAuthority blends sourcing information, technology, and expertise so that manufacturing buyers can find and qualify critical sources of supply, reduce costs, and improve their products. "It also provides machine shops, jobshops, and other custom manufacturers with access to new opportunities and critical information that lets them become more responsive, efficient, and profitable," he comments.

SourceAuthority project managers will help companies assess, define, and document a project. This stage often includes gathering information, such as critical dimensions, the latest drawings or CAD files, or quality specifications that suppliers need to formulate reliable quotations.

Suppliers also have access to tools to better market themselves on the site as well as feedback services that let them gage how well they are doing versus their on-line competition.

Rather than annual subscription fees, SourceAuthority asks suppliers for a one-time registration fee. After that, it uses a "pay-for-results" approach, where suppliers pay a commission on work that's awarded to them through the marketplace.

The company also partners with the National Tooling and Machining Association (NTMA), Ft. Washington, Md., on SourceNTMA.com, an on-line marketplace that promotes NTMA's member companies.

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