Surviving Global Competition Through Aggressive Business Practices

The future state of manufacturing in the United States can't be predicted with spot-on accuracy. One can presume, though, that manufacturers and machine shops will continue to face tough international competition from countries using low-wage labor.

Because the cost of new equipment is essentially the same no matter where it is purchased, how will U.S. shops compete against lower labor costs in the years ahead? According to John Lenz, president of CMS Research, Inc. (Oshkosh, Wisconsin), it boils down to more efficient use of both labor and machine tools.

For 25 years, Dr. Lenz has specialized in the design and operation of machine cells, ranging from flexible labor U-line operations to flexible manufacturing systems (FMS). The days of buying machines to produce one or two part numbers are gone, according to Dr. Lenz. Rather, shops will want the capability to run a high variety of part numbers across the same set of machine tools. He also believes that through the effective management of such flexible capacity, there is no reason why high-precision parts that require high-end machinery should not be produced in the country where they are consumed. During a presentation at Mazak's U.S. headquarters in Florence, Kentucky, Dr. Lenz touched on some alternate business tools that aggressive U.S. manufacturers may use to survive global competition. Here are a few.

1. Effectively manage flexible capacity. It won't be enough for shops to use robots to tend machine tools and perform other automated duties. In fact, much flexible capacity has already been installed in the United States, but the cost savings have not been as pronounced as expected. That's primarily a result of ineffective management of that flexible equipment.

Prediction: 
Shops will become more aggressive in the way they quote new work and determine true process efficiency.

The type of machine tools that will be purchased in the coming years will be those that offer the flexibility to produce a variety of parts on a daily demand basis. The challenge will be how to obtain a high level of use for both labor and machines in order to make the most of this flexible capacity. This can be achieved through the use of automated handling, performance monitoring and measurements, and scheduling software.

In the next 5 to 10 years, machine tools will likely be purchased with sufficient intelligence to properly schedule and manage multiple jobs. This capability will allow a cell to automatically know what to do if, for example, a machine tool goes down and work must be re-routed to be completed on time. Shops that will succeed in the future will be very effective at managing their flexible capacity.

This concept of flexibility also extends to the machine tool, which means that live-spindle and multitasking machines will likely play bigger roles in the years ahead.

2. Consider machine hours per worker per year. U.S. shops running at 50 percent spindle uptime simply won't be competitive in a few years—it's impossible to compete with a low-wage shop that is also running at 50 percent. Because the only time a machine tool is making money is when it's making chips, shops should shoot for 80 percent and higher spindle uptime.

Spindle uptime, however, can be misleading. Some shops may boast 80 percent spindle uptime, but if this calculation is based on a two-shift-per-5-day workweek, a good portion of the week's available time is not being tapped.

Dr. Lenz has developed a calculation that considers the efficiency of both machine and labor—machine hours per worker per year (MHPWPY). MHPWPY doesn't focus on the number of machines each worker is running, but rather it looks at what each worker is actually producing. Unlike spindle uptime, this calculation can't be bent or shaped to prove that a process has attained a certain targeted efficiency level.

Consider that there are 8,760 hours of machine time available each year. A single machine running at 50 percent spindle uptime earns money 4,300 hours per year. If this machine is tended by one worker for three shifts, then each worker yields just more than 1,000 machine hours per year. There's no way a U.S. company at this level of production can compete with a similar shop in a low-wage country. The next logical progression would be to have one worker tend two machines, which might lift MHPWPY to 1,800. Dr. Lenz suggests that shops should log a minimum of 2,500 MHPWPY, which is possible through the use of automation.

3. Quote new work based on future efficiency levels. 

The MHPWPY calculation allows shops to estimate future performance levels based on increases in process efficiency. By then quoting new work based on future performance levels, shops are motivated to make bigger strides in their overall efficiency. Tools that will help reach higher efficiency levels include lean manufacturing, quick-change tooling, DNC and scheduling software.

While this type of aggressive quoting is not for the faint of heart, it may be used by those shops with the confidence that they will be able to improve their process efficiencies to the necessary levels. Another way to push for increased efficiency is by evaluating and rating each individual process, rather than lumping all manufacturing processes together, which will mask the least efficient processes.

Similarly, manufacturers may use an actual costing method, versus standard costing, to justify new machine purchases or quote new work. Standard costing inherently passes along a shop's past mistakes and inefficiencies to its customers. These mistakes include under-utilization of labor, poor purchasing decisions and excess capacity, such as a warehouse or paint booth that is not directly involved in the production of a particular customer's parts. Customers don't want to pay for overhead not used in the production of their parts.

By contrast, actual costing considers the direct cost of labor, machine depreciation and overhead allocated just for that customer's part. It also accounts for total production time for a part, including setups, inspection, handling and so on, rather than just the time the part is on the machine tool.

What Will It Take?

The unanswered question that looms is: what it will take for manufacturers to adopt such an aggressive business mindset? In the end, the answer will likely be market-driven, as customers will refuse to pay for a shop's own inefficiencies. Shops are best served to look internally for improvement opportunities, rather than waiting for external sources, such as political pressure, to cover up for manufacturing inefficiencies.