Do What You Do Best

I recently returned from the international machine tool show in Italy. It's called BI-MU and is held every two years at the fairgrounds in Milan. The Italians seem to be doing well in the machine tool biz these days even though most admit there are some unknowns lurking down the road. For example, the so-called global economic crisis and implementation of a single European currency at the first of the year are causes for concern. Overall though, the Italians are confidant that their machine tool building business model will carry them through.

First, a little perspective on the Italian machine tool industry. It is comprised of a bunch of small to medium companies. More than 70 percent of the 450 companies engaged in machine tool manufacturing employ 50 people or less. The average for all builders is about 70 employees. Yet, the Italian industry is ranked fourth in the world in machine tool output. In contrast, Germany, the world's second largest machine tool producer, has 320 companies in the business with an average of 200 employees each.

So how do the Italians manage to play Goliath with a bunch of Davids? The secret to their success is collaboration. Most of Italy's manufacturing lies in the northern part of the country. Almost all of the machine tool manufacturing is located there. Since there are builders, there are also suppliers. This concentration of industry is a key component to the Italian industrial model. Suppliers of components, such as toolchangers and electrical cabinets, have set up shop close to the builders. The builders buy out those components they can't make efficiently in-house. It's very pragmatic.

The system enables the builders to take advantage of economic lot quantities. The supplier who is making only toolchangers for example, can build them at a much reduced unit cost if the orders are in the hundreds rather than in the tens if a builder was making its own. The builder is then free to concentrate on application solutions for the customer. The result is machine tool market reach that is larger than seems possible from such small companies. With 60 percent of machine tool production exported, the system seems to work. Business for the Italians is good.

Is there a lesson for our domestic shops in the Italian model? Perhaps. The idea is simple enough: do what you do best and work with others who have the same philosophy. It works in Italy. Why not here?