The pros and cons of tooling supplier consolidation.
As noted in the AMERICAN MACHINIST 2006 Benchmarking Survey, the top performing 20 percent of U.S. machine shops outspend all other shops on tooling by a 4-to-1 margin, and the desire to streamline the tooling supply chain has led to a number of differing strategies. These strategies include consolidating the numbers of cutting tool suppliers, purchasing complete turnkey manufacturing packages that include cutting tools and opting for integrated-supply programs that help to wring the cost out of tool acquisitions. Most shops realize significant cost reductions with these strategies; but each are accompanied by trade-offs.
Shrinking the supplier list
One trend among shops is to reduce the number of tool vendors they deal with. By consolidating vendors, shops try to increase their bottom line through reductions in paperwork and by freeing-up personnel to do other things. Although purchasing large quantities of tools from one vendor is a good idea to lower costs for some shops, the trade-off is such a consolidation can reduce the knowledge of technology and metalworking that flows into a shop from a diversity of sources.
Many local suppliers and service personnel often assist in the day-to-day decisions that make a shop operate as efficiently and as profitably as possible and contribute to many shops' successes by delivering ideas that increase productivity through new technology and metalcutting methods. Those suppliers compete to serve a facility and deliver a steady stream of new ideas and products free of charge. By reducing outside sources that provide such manufacturing support, or by relying on remote purchasing, such as over the Internet, shops risk limiting the new knowledge that is available to them.
A manufacturing engineer in a large mold and die shop says that some cutting tool manufacturers have responded to consolidations in customer supplier bases by becoming one-stop-sources for all the tools a shop might need. To make that transition to a one-stop shop, the larger cutting tool manufacturers have acquired smaller tooling companies as they expand their product base. However, those acquisitions have cut the resources that the larger companies have had for research and new product development, so while they increase their ability to provide a large variety of cutting tools, their product lines are weakened because they are not always in the front of the drive to develop new products.
Separately, smaller cutting tool makers have been successful in developing new products, but these innovators have a tough time getting the larger cutting tool manufacturers to evaluate their new products. And, they find challenges that come from the trend toward supplier-base reduction when they try to sell their innovative products and technologies directly to machine shops.
Letting someone else do it
Another strategy shops use to streamline their cutting tool purchases is buying turnkey manufacturing packages. Shops that have limited staff or expertise see such turnkey packages as ways to free time for manufacturing engineers so they can concentrate on production. To get an edge on their competitors, many machine tool builders and distributors offer complete, ready-to-run-when-delivered, turnkey manufacturing packages. These are available as value-added systems that include the machine tool, workholding fixtures, cutting tools and material-handling equipment.
Shops benefit from the wide range of engineering expertise and experience that resides with the machine builder, distributor and component manufacturers and that is focused on the project that they are purchasing the turnkey system for. Such turnkey systems once were made available only to manufacturers that had large-scale, multi-machine operations, such as automotive transfer lines. However, today's turnkey machining systems are being made available more frequently.
Besides supplying ready-to-run hardware, a turnkey provider considers workflow to and from the machine and workholding fixtures that are coordinated with existing equipment. Also, a turnkey vendor can ensure that the system meets specific requirements such as cycle time, quality level and cutting tool life. In most cases, customers do not pay for the system until it meets all of the specified performance requirements.
There are some differences between the deliveries of a turnkey system purchased from a machine tool manufacturer and a distributor, although either source could deliver a working system to the shop floor. A large national or international machine tool manufacturer typically has the resources to tackle a project of any size, regardless of complexity or sophistication. While a local distributor might have limited resources in comparison, the local distributor is likely to be more familiar with the type of work performed in the area it serves.
In opting for a turnkey system, shops can recommend tooling vendors that they have worked with in the past, or the vendor could choose tooling suppliers that their engineers are comfortable with. However, because the ultimate responsibility for the performance of a turnkey system rests with the provider, the turnkey vendor may overrule a customer on the choice of a tooling supplier.
Tooling manufacturers see turnkey manufacturing projects as ways to get in on the ground floor with an end user. Once the tools are delivered on a completely engineered system, customers often are reluctant to try tools from different suppliers for the entire run of parts.
However, the vendors who supply turnkey manufacturing systems need extensive information about a customer's business and manufacturing practices. Some shops are reluctant to divulge such in-depth information because they worry that their vendor could use that information to develop a project for their competitors. Builders counter those worries, saying they are unwarranted. They would not run the risk of losing future business by divulging proprietary information to a shop's competitor, and nondisclosure agreements can be required to maintain confidentiality.
A strategy for larger shops
Integrated-supply programs are attractive to larger shops that want to optimize their supply base. These programs usually are aimed at streamlining purchases of indirect (nonproduction) items such as products needed for maintenance, re-pair and operations (MRO) equipment, office supplies, information technology and services.
However, similar integrated-supply strategies now are being used for purchases of direct (production) items, such as cutting tools and other production materials and parts, and some purchasing agents see a trend toward the continued use of these strategies.
Some models for integrated-supply programs are based on cost-plus contracts. Under such models, integrators may include a profit-margin that is based on the total value of purchases. That establishes an incentive for the shop that is based on the value of purchases, rather than on increases in productivity.
Some shops use a hybrid model of integrated supply in which outside vendors handle administrative tasks while the shop retains control of critical functions. For example, one large outdoor power-equipment manufacturer has used an integrated-supply program for the last several years to handle its maintenance, repair and operations requirements. Cutting tool inventory administration is part of this program.
The company, Stihl Inc., has about 130 persons in the machining department of its main plant. It retains responsibility for evaluating and specifying cutting tools for specific jobs. The company works directly with cutting tool suppliers during cutting trials to ensure desired performance and quality. Once a machining process is stable and ready for production, the company issues tool specifications, part numbers and price objectives to the integrated-supply vendor. That vendor is responsible for acquiring the specified tools and for stocking several tool-vending machines in the plant on a weekly or biweekly basis. The company pays for the tooling only after its machinists remove the tools from the vending machines.
With this arrangement, the company believes it does not suffer from a lack of exposure to a variety of suppliers as a result of its integrated-supply program. Its manufacturing engineers have the responsibility for keeping up with new cutting tool developments and vendors concerning the specific types of tools the company uses.
Contributors to this article include:
Arlington Machine and Tool Co. (www.arlingtonmachine.com)
Guhring Inc. (www.guhring.com)
Stihl Inc. (www.stihl.us)
Titex and Prototyp (www.titex.com, www.prototyp.com)
T.M. Smith Tool International Corp. (www.tmsmith.com)
PHOTO COURTESY OF SECO TOOLS INC. (WWW.SECOTOOLS.COM)