Challenges Facing The Precision Machined Products Industry

It is impossible to ignore the current perfect storm of extreme pricing escalation for raw materials versus the multi-year fixed price contracts we have for our products. (Does anybody know the surcharge du jour?)


It is impossible to ignore the current perfect storm of extreme pricing escalation for raw materials versus the multi-year fixed price contracts we have for our products. (Does anybody know the surcharge du jour?)

While we try to figure out a way to deal with these impossible-to-absorb price increases and still maintain our businesses, there are five more silent trends working under cover of the current pricing storm. These trends are challenging our businesses every day. I expect that each of these trends has a just-as-important, if less visible, role to play in the success or failure of our businesses.

Challenge # 1: Expectation Of Ever-Decreasing Global Lowest Price

Our biggest challenge is that many of our customers expect to only pay the lowest global price. They also expect that price to continue to decrease. This expectation has driven our customers and our jobs overseas in search of the pot of gold that continuously lies about 2 hours west of wherever the parts are currently being manufactured in Asia.

Challenge # 2: Smaller Lot Sizes

Many customers still keep asking us to quote those 100,000-piece inquiries. Somehow, that seems to be the only price-per-part that they see. It is almost unheard of to see one of those top-sized order quantities show up today on an actual release. The shrinkage of the actual deliverable or release quantity impacts us in several ways. Being unable to recover set-up time on the smaller release quantities is certainly near the top of that list. Managing and reducing setup times are the only ways to deal with this challenge as long as jobs are being quoted below the cost of recovering capital.

Challenge # 3: Greater Precision And Zero PPM

The parts that remain in the United States for manufacture have requirements for dimension, concentricity, surface finish and other parameters that are at or just beyond the limits of our most widely available equipment. Many parts must be made using the latest technology, but many shops are still waiting to justify that kind of investment. Leading shops have already made that investment, but pricing battles often make their newer precision technology uncompetitive on price.

Challenge # 4: Performance Beyond Demands Of Commodity Materials

“Lights out” manufacturing is being used by some members to try to minimize the effects of higher employment costs compared to those of the low-cost overseas manufacturers. This requires raw materials that meet all quality requirements. It means using material that does not require an operator/loader to give it special attention to make sure the stock feeds and that the end is straight and free of burrs. This is critical and it’s what our members are looking for from our suppliers. In today’s challenging world, we can no longer use run-of-the-mill for precision manufacturing.

Challenge # 5:Miniaturization – Parts Are Getting Smaller

It isn’t only cell phones that are getting smaller these days. Parts being quoted for automotive, transportation and electrical applications are shrinking in size and mass. They’re shrinking to reduce energy demand and to improve both operating and purchasing economies. Because of maintained strength or property requirements despite smaller section, many of these materials are no longer easily machinable materials.

Yes, the global pricing storm is undeniable. It affects us here in the United States, and it affects our competitors all over the world. But although we have businesses to manage and parts to manufacture, perhaps the best approach might be to think globally, but act locally. That is, we should deal with the above challenges that are within our grasps and abilities to tackle.

What can I do today that will make my company the most money? Take a look at the five challenges above, roll up those sleeves and go to work.

Excerpts from comments presented to the Metal Service Center Institute Bar Product Conference in February 2004