Top Shops’ Secrets to Success

What does it take to run an effective, profitable machining business? 2013 Top Shops benchmarking data sheds light.

Article From: 7/31/2013 Modern Machine Shop, ,

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The goal of our Top Shops benchmarking program is to identify optimal shopfloor practices as well as operational and business metrics that define world-class competitiveness in discrete parts manufacturing. It enables companies ranging from mom-and-pop shops to large, captive operations to compare their performance against North America’s leading machining businesses and consider what changes they might make to emulate those top performers. Not only does the benchmarking data serve as a baseline “report card” of sorts, but it eliminates the need to rely on gut feelings as a fundamental method of identifying and prioritizing improvement efforts.

This year, more than 450 shop principals participated in our third annual Top Shops benchmarking survey. Their companies serve a diverse range of industries with the highest percentages supplying aerospace, machinery manufacturing, automotive, medical and military customers. One-fifth of the businesses are captive operations; the rest are job shops and contract shops.

As with our previous two surveys, the 2013 edition was divided into four main categories: machining equipment, shopfloor practices, business strategies and human resources. This article analyzes key findings in these areas by comparing responses from the Top Shops benchmarking group to other shops that participated in the survey. (The benchmarking group is a pool of shops identified as the best performers by totaling the points assigned to certain business- and technology-related survey questions.) This article also profiles a few companies that were particularly effective in each survey category—this year’s Honors Program winners.

We provide data for all survey questions in our 2013 Executive Summary, which can be accessed at our Top Shops Zone. That Zone also includes the special Top Shops digital magazine edition, which contains survey analysis articles, videos and profiles of this year’s four Honors Program winners.

Now, let’s review some of the highlights from this year’s survey.

Machining Equipment

Not surprisingly, the vast majority of all surveyed shops use VMCs. However, a higher percentage of Top Shops have costlier HMCs (61 percent versus 44 percent), and 42 percent take advantage of multi-face tombstones. That can enable one HMC to achieve the productivity of two or more VMCs. HMCs also hold many more tools than VMCs, enabling them to accommodate a higher number of jobs without changing/adding tools. These benefits are demonstrated in our February 2013 article “Worth Three Machines,” in which a shop that closely tracks machining performance found that its new HMC delivered productivity comparable to three VMCs.

This year’s survey also revealed that essentially the same percentage of Top Shops and other shops use turn-mill machines (approximately 30 percent). In previous surveys, a notably higher percentage of Top Shops used this equipment. This year’s findings indicate that more shops are beginning to integrate multitask machining, but those that are new to this platform might be facing a bit of a learning curve compared to Top Shops that have been using these machines for years and have established effective multitasking processes.

Table 1 highlights various types of machining strategies shops are applying. Essentially the same percentage of all surveyed shops can perform five-axis positioning. However, a significantly higher percentage of Top Shops are realizing the benefits of more advanced five-axis contouring, which can help them win more complex work with higher margins. Therefore, it’s no surprise that Top Shops are more apt to invest in simulation software to verify tool paths and prevent collisions during complicated multi-axis machine movements.

Similarly, more Top Shops perform high speed machining and run lights-out. What’s interesting is that survey data shows these advanced processes are not limited to very large operations. For example, nearly half of shops with fewer than 20 employees perform high speed machining. Likewise, more than 21 percent of shops with fewer than 20 employees have established lights-out processes, compared to 36 percent for shops with more than 250 employees.

As with previous surveys, this year’s edition revealed notable differences in cutting tool strategies (see Table 2). Nearly 75 percent of Top Shops use custom/specialty tooling versus just 50 percent of other shops. They justify the higher cost of that tooling knowing they’ll realize improved production and longer cutter life. (Wisely, 71 percent of Top Shops also have a carbide recycling program to recoup some of the cost of their advanced carbide tools and inserts.) A higher percentage of Top Shops have invested in tool presetters, too, in order to realize faster changeovers to new jobs that require different cutters. Performing tool measurements offline to determine offsets means the machine can spend more time making chips and less time sitting idle while operators manually measure tools.

Top Shops approach workholding in much the same way. They are more likely to use multiple-workpiece fixturing to enable longer stretches of unattended machining as well as quick-change fixturing and magnetic and vacuum chucks for faster changeovers. (Magnetic chucks also enable access to five sides of a part in one setup.) Having such advanced workholding equipment is one reason why Top Shops have faster setup times than other shops. The median setup time for Top Shops and other shops is 52.5 minutes and one hour, respectively, while the average setup times were 77 minutes and 138 minutes.

This year’s machining technology Honors Program Winner is Davan Manufacturing, located in Washington, Pennsylvania. Davan has become adept at machining precision components in short to medium volumes for the steel, oil, power, glass, mining, valve and construction industries. Mark Vanistendael, company president, is always on the lookout for a new piece of technology to bolster his machining arsenal. “The way I look at it, we should always buy the most advanced machine we can afford, because it isn’t long before the competition catches up,” he points out. In the late 1970s, Davan was one of the first companies in Southwest Pennsylvania to add CNC machining capabilities. Today, the shop doesn’t want plain lathes or machining centers. “I seek out advanced machines with live tools, shuttle pallets and high-pressure coolant,” Mr. Vanistendael explains. “We separate ourselves from the competition by offering a mix of machining technologies with value-adding engineering and design services. (More information about Davan and the other three Honors Program winners can be found in the special Top Shops digital edition, available at mmsonline.com/topshops.)

Shopfloor Practices

Having advanced machine tools and ancillary equipment does not ensure success, however. Top Shops excel because they work to establish effective processes around that capacity to facilitate flow and minimize waste on the shop floor. In doing so, they are able to realize higher spindle utilization (80 percent versus 65 percent in median values), faster order lead time (17.5 days versus 21 days) and a better on-time delivery rate (95 percent versus 90 percent in median values).

Leading shops don’t rest on their laurels, either. As noted in Table 3, a significantly higher percentage of Top Shops have implemented a formal continuous improvement program. Those shops also employ lean manufacturing concepts, including 5S workplace organization, kaizen events and value stream mapping. In fact, the percentage of Top Shops that perform value stream mapping is twice that of other shops. Applying this concept can be challenging in a high-mix/low-volume environment, but it certainly isn’t impossible. This is demonstrated in the article “From Job Shop Chaos to Lean Order.” The article explains how a job shop is able to co-locate certain machines together in effective cellular configurations by grouping clusters of parts that share similar routings into potential process families.

Top Shops are also more likely to use machine monitoring and connectivity tools. This technology provides real-time process data that helps them make the proper improvements more quickly. They also do a better job of providing employees with the advanced tools they need where they need them. For instance, Top Shops are more likely to have sophisticated measurement equipment, such as CMMs and measurement arms, near production areas on the shop floor rather than only in the quality lab.

A greater number of shops are integrating machine-tending robots, which isn’t surprising given today’s challenges of a small pool of skilled labor and growing healthcare costs. While the percentage of Top Shops using automation has remained relatively steady over the last three surveys (right around 16 percent), a much higher percentage of the other surveyed shops said they have robots (14 percent) compared to past surveys.

The shopfloor practices Honors Program Winner is NASDAQ-listed WSI Industries, a contract shop located in Monticello, Minnesota. WSI pursues ongoing production programs and divides its work into three primary sectors: high-volume aluminum work, repetitive batch work and large-part machining for primarily energy-industry customers. Benjamin Rashleger, WSI’s president, says the shop’s customers expect their suppliers of parts and assemblies to have advanced, accurate machining equipment. WSI does. Therefore, what separates WSI from others, he believes, is the shop’s additional value-adding services and shopfloor processes that maximize efficiency and workflow. For instance, the company creates cells that include additional processes such as parts cleaning, testing and assembly. Some integrate automation, too. WSI also employs a number of shopfloor CMMs and a measurement arm so employees can perform precision measuring routines on the shop floor. These and other examples are highlighted in this video.

Business Strategies

In terms of absolute spending on capital equipment, Top Shops and other shops outlay similar amounts. However, a comparison of capital equipment spending per gross sales reveals that Top Shops spend much more of their revenue on capital equipment than other shops. In 2012, this value was 10 percent (median) and 13 percent (average) for Top Shops, compared to just 2 percent and 6 percent, respectively, for other shops. The data is similar to our last two surveys, demonstrating that Top Shops continually make significantly larger investments in the latest machine tool technology.

Top Shops’ investment in advanced equipment and focus on establishing processes to leverage that capacity is reflected in their financial performance. As shown in Table 4, their profit margin is nearly double that of other shops. Their growth rates are significantly higher, too. The median growth rate for Top Shops is approximately 100 percent higher, and the average rate is 50 percent higher. Top Shops have higher gross sales per machine, too, at $266,123 versus $152,000 (in median values).

Top Shops are also more effective at quoting. The quote-to-book ratio is a metric tracked primarily by job shops, but it’s interesting to note that the median values for Top Shops and other shops were 70 percent and 51 percent, respectively. Top Shops are able to generate more accurate quotes because they have a better handle on their overall processes. They also seem more disciplined about the type of work they go after, quoting only jobs that look to be a good match in terms of their capability and capacity.

Table 5 shows that many of today’s leading shops have adopted a business model whereby they strive to provide more than just accurately machined parts. For example, some operations now offer assembly, customer inventory management and design for manufacturability (DFM) advice. In applying DFM, shops review customer designs and suggest modifications that would simplify manufacturing while lowering costs. In fact, the article “Beyond Parts from Prints” profiles a company that leverages its engineering capabilities to apply DFM principles to both its own product line and the contract work it performs for others. Working with customers in such a way makes the company more like an essential, integral partner than a parts supplier.

This year’s survey revealed an uptick in the use of the Internet and social media as sales and marketing tools. In 2011, only 5.4 percent of the Top Shops created videos and uploaded them to YouTube. This has grown to more than 16 percent for 2013. Similarly, nearly 23 percent of this year’s Top Shops use social media—Facebook, Twitter, LinkedIn, etc.—compared to only 11 percent in 2011. It’s hard to judge how effective these marketing tools are, but it’s evident that an increasing number of leading shops are testing the waters in an effort to get their company’s message in front of additional customers.

The business strategy Honors Program Winner is JD Machine, located in Odgen, Utah. JD Machine is a manufacturer of high-value machined parts, sheet metal components and complex assemblies. It is the only business for which Matthew Wardle, now company president, has worked. This is one reason why he feels benchmarking is such an important part of his business strategy. “I appreciate that Modern Machine Shop offers its Top Shops benchmarking survey,” he explains. “The data it provides enables us to see where we’re excelling, where we need to improve, and what processes and technology we should consider to enable us to become more profitable. This type of information can be very tough to come by, especially for small shops like ours.”

Human Resources

As shown in Table 6, Top Shops pay their manufacturing personnel only slightly higher hourly wages than the other surveyed shops. However, Top Shops also use other human-resource efforts to attract and retain good employees (see Table 7). For example, they are more likely to offer bonus plans. This is a win-win in that the employees are motivated by the potential for additional compensation and the shop can realize improved productivity. In addition, a significantly greater percentage of Top Shops provide annual review/raise programs and team-building exercises. Both facilitate communication within a shop. Review/raise programs enable managers and employees to come together to discuss an employee’s strengths while mapping out a path for growth within the organization. Similarly, team-building exercises help improve how employees interact within the company and make it easier to overcome obstacles because people come together to solve problems.

In addition, a higher percentage of Top Shops have formal training programs. That said, the relatively low values reported for the amount of annual training punctuate the reality that numerous manufacturers have eliminated internal training programs. Top Shops and other shops offer essentially the same amount of annual training per employee. More than 80 percent of them provide 20 hours or less of training per employee per year. However, some shops are not only being more proactive about training and adding new talent to the manufacturing labor pool, but also employing atypical strategies to do so. One such approach is detailed in the article “Not Just a CNC Degree.” This article details how the relationship between a shop and a nearby college might ultimately evolve into what could be the 21st-century model for manufacturing instruction.

The human resources Honors Program Winner is Micro-Matics, located in Fridley, Minnesota. Micro-Matics specializes in Swiss-type machining of components and subassemblies ranging in diameter from 0.010 to 1.250 inches with tolerances to ±0.0001 inch. It produces these primarily for the medical, defense, dental, aerospace, commercial, automotive, computer and telecommunications industries. Rick Paulson, general manager, says the shop’s dedicated, motivated staff is its number one asset. “We’ve always practiced empowering our employees to excel in multiple areas,” Mr. Paulson explains. “The fact that the average employee has been with us for 15 years is a testament to our company and a benefit to our customers.” Micro-Matics provides continuing education and training programs so its machinists and technicians can keep on top of the latest machining innovations and lean manufacturing concepts. It emphasizes open communication with all employees in order to achieve productivity gains and quality goals. Plus, the shop’s employee recognition program acknowledges and rewards individuals as well as group excellence.

One Additional Resource

While additional benchmarking resources can be found in the updated Top Shops Zone, there’s another more interactive resource you might find helpful: our Top Shops LinkedIn group. This exclusive group—now with more than 1,000 members—is for decision-makers in North American machining facilities. We’ve tried to keep the group solely for machine shop personnel by letting in only those who seem fit that description. The exclusivity is part of what makes this group different and valuable, but what really makes it valuable is your participation in it. Visit bit.ly/mmstopshops to join the group and add your insight.

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