Driving Improvements and Profitability to a Metal Former's Bottom Line

August 25, 2019

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The U.S. manufacturing industry currently faces great uncertainty, with tariffs, trade negotiations, the skills gap and economic instability contributing to an increasingly challenging environment for metal formers and fabricators.

That said, in 2018 the metal forming industry saw significant growth. A recent annual survey of stampers conducted by Harbour Results, Inc. (HRI) reports that the industry experienced revenue growth of more than 8 percent, with more than 74 percent of survey respondents indicating revenue increases for the year. While the first half of 2019 looks slower than 2018, survey results signal an overall uptick in 2019 for stampers, with capacity forecast to reach more than 72 percent.

Additionally, stampers expect to invest more in 2019 than they did in 2018. Specifically they are projected to increase machine-related capital expenditures. This investment in updated equipment and advanced software is critical for helping shops stay competitive through improved speed and efficiency. Finally, stamping throughput—a company’s total revenue minus outsourcing and material spend divided by the full-time equivalent of employees —continues trending upward as it has since 2011. In fact, stamping’s throughput leads other industries, due in part to the metal forming industry’s continued focus on efficiency improvements.

Improvement Potential: Operations, Marketing and More

HRI data show three areas with the greatest potential for improvement for stampers: operations, management, and sales and marketing. A strong strategy involves aligning these areas.

Yet, when leaders spend much of their time addressing day-to-day challenges, developing long-term strategies and a solid business plan for long-term success often are overlooked. When this happens, four common challenges can derail a business:

Lack of direction. When an organization lacks a vision of what it wants to be, everyone does what they believe is best.

Competing goals. This results when different communities within the organization disagree about vision and strategy.

Disconnected leadership. When leadership fails to communicate effectively its vision and strategy throughout the organization, employee buy-in does not occur and the vision and strategy does not take hold.

Wrong goals. When an organization unites in a direction counter to its vision and strategy, wrong goals and objectives are reasons why.

To identify a sound strategy, leadership must look at all aspects of the business and determine what the company does best and how to leverage that.

Sales Process Delivers Results

Stamping throughput—total revenue minus outsourcing and material costs, divided by the number of full-time employees—continues trending upward. Bars show the average value-added revenue per full-time employee in thousands of dollars.

Along with developing a viable strategy, metal formers and fabricators should focus on developing a sales process. Top shops leverage a best-in-class sales process to help define and implement a plan to fill their pipelines, manage capacity and bring in additional revenue. A good place for stampers to start: Gather market intelligence and use already collected data to better understand the shop’s current business state.

For example, an analysis of the company’s current request for quote (RFQ) hit-rate data across customers, jobs, type of work, etc., could provide insights that help drive strategy. This analysis, which reveals the number of quotes per customer, number of quotes won per customer, total value of the business won and total value of the quotes requested, enables a shop to determine its low- and high-volume customers and whether its business is appropriately diversified among customers and/or industries. Along with the company’s overall business strategy, this data provide the information needed for identifying sales opportunities and challenges, serving as the foundation for building an effective sales process.

Creating Operational Excellence

Advancements in pressroom automation equipment and software, when integrated with game-changers such as big data, the Internet of Things, virtual reality and artificial intelligence, point to a new era for metal formers and fabricators. Companies must find ways to continuously evaluate technology and opportunities to eliminate waste in all processes, both physical and transactional, and adopt automation that fits their business strategies.

One such practice, capacity planning, measures the maximum amount of work that a shop can complete during a given time period. Though this can be challenging, capacity planning provides a number of benefits:

Better on-time performance (fewer missed delivery dates), resulting from understanding the time needed for jobs;
Mitigation of margin erosion through better management of materials and resources, including predicting and filling the gaps, and accounting for quality issues and changeover times;
Recognition of new-work opportunities by predicting gaps in equipment/tonnage and space;
Improved profitability resulting from effective planning capacity throughout the organization; and
Effective budgeting for new equipment and additional resources, made possible by knowing the shop’s production capabilities.

The best scenarios integrate capacity planning with sales, providing a clear understanding of when and where the shop has open capacity and then working to find jobs to fill those gaps. The more lead time the sales team has, the better the chances of identifying and pursuing the right jobs, whether it’s transfer work or a bigger project.

Finally, shops should consider implementing task-based manufacturing to improve efficiency while maintaining or improving quality. By aligning roles and responsibilities by task, shops can better leverage the skills set of individual employees and capitalize on their ability to complete a task in the most effective manner. This translates to improved throughput and increased capacity without significant capital expenditures.

Task-based methodology, when not limited to the shop floor, can benefit the full enterprise. While challenging, companies that successfully accomplish this will see significant improvements as they reduce lead times and labor hours.

Moving forward, leadership must be informed and aware of several evolving areas, including the political environment, economic landscape, automotive industry slowdown, Industry 4.0, new technology such as 3D printing, the use of big data, and future mergers and acquisitions. MF

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See also: Harbour Results Inc.