11/21/2007 | 2 MINUTE READ

Finding A Silver Lining

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Generally, precision parts manufacturers are busy running the business and keeping costs down while making sure employees and customers are happy.

Generally, precision parts manufacturers are busy running the business and keeping costs down while making sure employees and customers are happy. For a long time, this management model was sufficient to run a successful company.

However, in today's changing climate, I think a necessary addition to a shop manager's job description is the ability to look outside the four walls of the shop for new business opportunities and new customers. That's one of the reasons Production Machining added the editorial column, "Free Thinking." It offers a source of ideas to help shops adapt to today's changing manufacturing marketplace.

In a recent Wall Street Journal article, two precision machined products shops were profiled as examples of taking advantage of opportunities external to traditional customer sources. The article states that the current weak dollar compared to the Euro has created an opportunity for the nimble U.S. manufacturers profiled.

International currency valuation is a mystery to me. The bit I understand is that currently the dollar is weak in comparison to the Euro, which means U.S. products are cheaper for Europeans to buy. Conversely, European goods and services cost more to sell here. That has a two-fold benefit for domestic manufacturers: More work stays in the states because the Europeans are less competitive, and additional business opportunities exist when we supply products to European manufacturers.

The shops highlighted in the Wall Street Journal article have taken advantage of the currency situation to sell products to Europe. One shop, Superior Products (Cleveland, Ohio), is emblematic of this shift. Because of the weak dollar, its costs have come down to a point where the company is in position to make parts that it formerly purchased from a German supplier.

Another shop, Ohio Screw Products (Elyria, Ohio), has sold products to Europe for a while, weathering the ups and downs of the dollar. It has seen the margin of its Euro-priced line of quick disconnect couplings go from very bad to very good as the dollar value declined. Sales have remained flat, but the company is making more profit on each sale.

Being able to take advantage of currency shifts means positioning your business to be nimble enough to quickly change direction as an opportunity arises. Multi-national manufacturers have the luxury of shifting production from country to country to take advantage of currency swings. Smaller, domestic-based shops cannot. But the smaller shops that have an export strategy can more quickly adapt once an opportunity is recognized.

Moreover, reaction to currency fluctuation creates a role for joint ventures among smaller domestic and foreign manufacturers. The thinking goes like this: Because of the weak dollar, the United States is currently a low-cost producer compared to Europe. Smart shops are selling products to Europe and effectively taking business away from European shops, at least for the time being. When the dollar regains strength against the Euro, these roles will be reversed.

As a hedge, it might be prudent to have a relationship with one or more foreign suppliers that allow both companies to better weather the ups and downs of currency fluctuation. In effect, such a relationship would allow the joint venture to emulate a multi-national company by shifting production among the joint venture parties to maximize profit margins.

One thing's for sure: Currency changes are inevitable, and they cut both ways. Smart shops, whether they are dealing with Europe, Asia or NAFTA, have learned the necessity of keeping an eye looking out of the shop door as well as on the shop floor to see what's really happening.