Mike Collins in the News

Job shops need new strategies for the new economy

By Michael Collins, President, MPC Management
National Tooling & Machining Association Record, March 2008

The new economy almost put job shops out of a job.

In the late-1990s, customers began purchasing job shop services and parts from Asia. First to go were high-volume, commodity-type parts. Then foreign suppliers forced price discounting, which drove down margins of the remaining American suppliers.

Like it or not, the whole job shop industry had changed. To survive, job shops were forced to re-evaluate their strategies and develop new ways to do business. Many American job shops have downsized, moved operations to Asia, or closed their doors.

But here are three stories of job shops that stayed on the job - and three manufacturing leaders who figured out how to make it in today's economy: Harry Brown, of EBC Industries in Erie, Pa.; Ron Davis, of Davis Tool in Hillsboro, Ore.; and Guy Ellis and his team, of Nimet Industries in South Bend, Ind. Each, in their own way, is a Manufacturing All-Star and part of the innovative spirit working to save American manufacturing - and stay on the job.

1. EBC industries - Erie, Pa. - New Services and Lean Manufacturing

In the early 1990s, Harry Brown at EBC Industries in Erie, Pa., saw the handwriting on the wall for production work and changed his company to focus on emergency and short lead-time work. He identified two trends that made him carefully evaluate high-volume production work.

• First, if the volume gets large enough, the customer is more likely to source from an overseas supplier - often without warning.
• Second, there is a relentless pressure from customers to drive prices down.

This might eventually erode the supplier's margins to the point where there is simply no way of making a profit.

Brown also knew that his large customers had their own pressures. They also were being forced to re-engineer their businesses to compete and do their work with fewer employees, fewer suppliers, small inventories of parts, and many problems of their own. However, they still had to meet their delivery promises and they often needed emergency parts delivered in a matter of hours, not weeks. If they couldn't get these parts, they would suffer the costs of lost production time and missing customer delivery dates.

"When customers get into trouble and need parts in a big rush - price is not the priority - time is the priority," Brown said.

Always the optimist, Brown decided that the new situation being presented by his largest customers could be a business opportunity. He looked at his own facilities and did a bit of improvisation. He created a "Rapid Response System" in his shop that included special machine cells, heat-treating, roll threading, metallurgical testing, and mechanical testing. The idea was to change the nature of some of the services he offered so that he would be able to respond in hours rather than days.

Brown began talking to EBC's customers about how they could collectively work on reducing waste and cost. This is known as "monitoring customers," and is perhaps the key to making a strategy like Rapid Response work. The customers became working partners with EBC to drive out waste and reduce costs.

One of Brown's objectives for using Lean Manufacturing methods was to make customers realize that they did not need to buy parts in large volumes from overseas vendors. They could buy parts as they need them from EBC and not carry inventories. This means, "only making what you have to make."

This "just in time" approach to making parts for his best customers was a key strategy in gaining a competitive advantage over foreign competitors, who can always offer lower costs.

From his adoption of Lean Manufacturing techniques, he learned to Flow Diagram his processes. By relocating equipment into manufacturing cells, multiple processes were combined into one operation, creating a continuous flow of material. This allowed Brown to reduce his costs, reduce his and the customer's inventory, improve throughput, and improve quality.

Because all of the various processes and materials could not always be supplied by EBC, they also had to enlist key suppliers into the Rapid Response System.

Each selected supplier had to be ISO 9000 certified and have a proven record of being capable of re-organizing to provide the quick services. They also had to agree to open up their doors any time of the day or night, and on weekends.

Rapid response in action

A customer recently challenged EBC's Rapid Response System with a classic emergency requirement. The customer operated large power generation turbines in Texas. A very special stud for the turbine had broken and the turbine had to be shut down. This was a generator-type turbine, so every minute it was down it was not generating power.

The customer called Brown on a Friday night and requested the part be delivered on a Sunday. This would mean utilizing his new Rapid Response System 24 hours a day, but Brown confidently said he could do it. The parts were so important to the customer's operation that they promised to send a Lear Jet up to Erie to pick up the parts on Sunday morning.

The stud was made of very special materials. Brown called the steel supplier on a Friday night to go in after hours and pick up the material. They started work on the part on Saturday morning and Brown notified two other vendors that he would need their services immediately. The Rapid Response team worked straight through Saturday and Sunday and the job was completed on time. On Sunday morning the customer's jet plane arrived with an inspector and they picked up the part and flew back to Texas. However, the Rapid Response Team was able to respond to the emergency needs and had the parts inspected and ready to go in 32 hours.

Your Customers Have Problems, Too.

The whole point is that your customers (even large customers) also have many pressures and problems trying to compete. They also have to lay-off people, "farm-out" systems that were integral to their manufacturing, and reduce inventories to a degree that there might not be any emergency spare parts.

The key is "to go to the customers and find out what you can do to help them solve their internal problems," Brown said.

Once again, we see the value of external information as a source for new ideas, growth, and guidance. Brown acknowledges that globalization will cause a huge cultural change in manufacturing, but believes there will always be opportunities for manufacturers that can change with their customers and continuously offer innovative services.

Brown personifies what the managers and owners of small and midsize manufacturers must become in our new world of globalization.

2. Davis Tool - Hillsboro, Ore. - Vertical Integration and Market (customer) Diversity

Ron Davis, CEO of Davis Tool, also saw the handwriting on the wall as commodity job shop parts were sourced more and more from Asia. In 2000, Davis Tool had 220 employees. By 2002, they were down to 120 employees.

"If customers have the time, they can get anything they buy from us for less money in China," Davis said.

Davis Tool decided to change their strategy to offering quick turnaround on custom or low-volume jobs. Davis knew that many of their customers were operating on a just-in-time basis and could not live with the unpredictability of using foreign suppliers as long as the deliveries were quick. One of their customers is Lite Edge Inc., of Tualatin, Ore., John Erickson of Lite Edge said, "We operate on a just-in-time basis and we frankly can't live with the uncertainties of ordering overseas."

Supporting the new strategy also required adopting the following:

1. Consolidation - They consolidated their five different locations into one building and auctioned off some of the old equipment.

2. Vertical Integration - Davis offers machining, fabrication, nickel plating, anodizing, laser cutting tool design, Solid Works, Pro-Engineer, powder coating, painting, and engineering design from one location. This strategy allows them to offer very quick deliveries and gives them control of most processes.

3. Customer Profiles - Part of the new strategy was to profile their customers to find out which customers best fit the new service offering and where they could gain a competitive advantage with their offering. The best customers were those companies that were operating just in time and needed high quality and overnight service.

4. Market diversification - The strategy also included a conscious effort to diversify into more market niches and industries. Davis Tool sells to the high technology, military, medical, and aerospace industries; as well as the many market niches and applications within these industries.

5. Equipment upgrade - Davis has invested heavily in the latest and most efficient machine tools.

6. Certifications - Davis Tool is ISO 9001-2000 certified, is FDA approved as a medical device manufacturer, and has NADCAP certification for their EDM department.

7. Lean Manufacturing - The company also is implementing Lean Manufacturing methods to improve efficiencies and eliminate waste.

8. Cross training - Specialists in one operation are cross-trained into other operations. For instance, a machinist also is trained in laser cutting of sheet metal. That gives the managers the ability to move people around and work in back-logged areas.

The result of the new strategy is that they have reduced their flow time (average time a work order is open) from 40 days two years ago to 17 days today. They are back up to 225 employees working three shifts, five days a week.

3. Nimet Industries - South Bend, Ind. - Proprietary Processes and Industrial Marketing

Nimet Industries is a job shop in South Bend, Ind., that is doing very well. Nimet offers proprietary anodizing, and nickel finishes with a 75-person job shop in a 60,000 square foot plant. Their primary strategies can be described as follows:

• Market diversity - Nimet has consciously tried to diversify into industries such as medical, dental pharmaceutical, food processing, fluid power, and electronics. Within these industries, there are many market niches defined by processes and application. "The advantage for us is that when one industry segment is down it's hardly a blip in our sales, "said Guy Ellis, the company's vice president. "We really try to diversify as much as we can to minimize the impact of business cycles on our company."
• Geographic expansion - Most job shops focus on local markets and customers. Nimet, on the other hand, has expanded their market to the whole country. Very little of Nimet's work comes from very close to their facility.
• Sales organization - Nimet uses a combination of independent reps and factory sales people to call on their customers.
• Customer profiles - Part of their sales strategy is a conscious effort to not sell a large percentage of their capacity to any one customer. Ellis said, "If it looks like a job will take too much of our capacity, we won't quote it as competitively as some companies might. Anything above 20 percent of total sales we really scrutinize to try and make sure it makes sense for us." This is a very progressive strategy because most job shops depend on two or three customers for the majority of their business and rise and fall with these customers.
• Proprietary processes - Nimet has developed NiTuff, a PTFE (Teflon) impregnated hard anodize finish that also is available in dyed black. They also offer NiCoTef, which is a co-deposition of nickel and PTFE. Both are proprietary processes that give them a solid competitive advantage in the market place.
• Licensing - As Nimet began to produce these PTFE impregnated finishes for other companies, they eventually signed a license agreement with a company in Switzerland that was making fluid power components. They now have five licenses and provide their NiCotef finishes on bronze, steel, stainless, and other substrates besides aluminum. Nimet also has licensed a new technology from a company in the Netherlands. The new technology is a multi-color anodizing process that a third proprietary processes to offer their customers.
• Low volume - Ellis said, "We don't do big parts. We largely work with small components for industrial equipment. We don't do architectural parts for instance, and we don't do high volume." Nimet has focused on market niches that are low volume of 100-500 pieces.
• Quick deliveries - From the company's 3,000 active customers, they get orders that average 100-200 line items per day. They are able to average 3.5 days from the time an order is received until it is shipped.

Conclusions

Job shops in industries like die-casting, injection molding, machining, and foundries have been particularly hard hit by the impact of foreign competition.

The old concept of working diligently for three or four major customers, offering high-quality, full-service work for a fair price has literally gone out the window.

Just being a good supplier and a dependable business partner is no longer enough. Job shops need to rethink their primary strategies for doing business.

These three example companies display a wide variety of strategies that can be used to survive in the American market as a job shop. The primary strategies can be listed as follows:

1. New Services - Like the Rapid Response System or doing all of the customer's maintenance for them.

2. Expanded sales coverage - Developing a new sales organization that expands sales territories and coverage.

3. Market diversification - Prospecting and exploiting new market niches on a continuous basis and not allowing any one customer to dominate capacity.

4. Licensing - This can be licensing your proprietary process to other manufacturers or licensing technologies from other manufacturers.

5. Proprietary processes - This means developing a unique process that gives the company a definite competitive advantage over competitors.

6. New products - Some job shops have decided to offer new products instead of just services to compete.

7. Vertical integration - Generally, this is an attempt at bringing "in house" most of the critical processes to control quality and cost, and to shorten delivery times.

8. Quick deliveries - Gaining an advantage simply through fast deliveries is an excellent advantage over foreign competitors. Quick deliveries depend on the type of shop and services and could range from hours to days.

9. Certifications- ISO 9001, military specifications, Nuclear certification, and FDA approvals are just some of the certifications that can give a job shop an advantage.

10. New sales organization and sales channels - For some small job shops this could be a strategy of hiring the first outside sales person. Or for shops that want to expand coverage, they will have to invest in independent reps or factory sales people in sales territories.

11. Lean Manufacturing - Lean manufacturing methods to reduce costs and waste are internal strategies that can give the shop and advantage in price, delivery, etc.

12. Cross training of employees - This often-overlooked factor is especially needed in job shops. Investing in a program to cross train people will allow the shop more flexibility to quote a variety of applications and market niches. It also will avoid the issue of internal backlogs on specific machines.

13. Equipment upgrade and investment - Sometimes simply buying the latest machine tools can give a shop a temporary advantage in a local market. Purchasing the latest machine tools and other equipment with the best performance give the company a competitive advantage in terms of output, speed, and other performance factors that affect delivery or cost.

These are not all of the possible strategies that can be used to help a job shop survive and make the transition to the new economy. There are other strategies like retrenchment, mergers, and acquisitions. But these three examples of progressive job shops hopefully will inspire owners to consider new options and not give up.

Author's Note: This article is based on interviews, other published materials (particularly an article entitled "Nimet Finds its Niche" in Product Finishing Magazine; June, 2007), and the author's own book, "Saving American Manufacturing. Growth Planning for Small and Mid-Size Manufacturers." Questions or comments can be e-mailed to mpcmgt@att.net