Strategies for Metal Processing Industries: Competing in Today’s Global Economy
Figure 1 - The distribution of the technological gap between productivity of new vintages and average practice for equipment and software of 62 industry groups. Image supplied by Dan Twarog, North American Die Casting Association.
By: Diran Apelian
Author’s Note: The Metal Processing Institute (MPI) is an industry-university alliance dedicated to advancing the state of the art in the metal processing industry. It is located at Worcester Polytechnic Institute. MPI’s mission is to carry out research projects identified and planned in collaboration with its industrial partners in its three centers—metal casting, powder metallurgy, and heat treating (www.wpi.edu/+mpi). More than 110 private manufacturers participate in the institute. A CD of presentations from the MPI symposium discussed here can be ordered from mpi@wpi.edu at a cost of $50.
Annually, the Metals Processing Institute (MPI) sponsors a symposium on a topical theme relevant to metal processing industries. This year’s topic addressed the issues facing manufacturing industries, and specifically outsourcing to China and India, labor issues, knowledge creation, and sustained innovation. The title of this year’s symposium was Business and Technical Strategies for Metal Processing Industries: To Compete in Today’s Global Economy. The symposium held May 26, 2004, on the WPI campus in Worcester, Massachusetts, was co-sponsored by TMS, ASM International, the American Foundry Society, the North American Die Casting Association, and the Metal Powder Industries Federation. More than 130 people attended the symposium; highlights of the presentations follow.
Dan Twarog, president of the North American Die Casting Association, Started the symposium with “Metal Casters’ Global Positioning Strategies (GPS) to Find Their Future.” He presented the die-casting industry’s perspective and shared results from focus-group studies with customers of die-cast components. He made it quite clear that the key to success and survival is innovation and technology development, and the winners in the race to embrace new technology will always be on top.
In presenting data on the productivity of leaders of a given industry versus the ones at the bottom as a function of time, Twarog showed that, averaged for 62 industry groups, the productivity gap has increased dramatically (Figure 1). Where it was only 5% in the 1950s, today the productivity gap is closer to 45–50%. The variable cost can be as much as 45% from the upper-quartile producer to the lower-quartile producer, thus, a part that costs $1.00 to produce by the upper-quartile producer costs $1.45 for the lower-quartile producer. This is a major concern and it confirms that fragmentation is taking place. The message is that to increase productivity one needs to innovate and to lead.
Vince Shiely, vice president and general manager of Briggs and Stratton’s Engine Products Division, presented an overview of the company’s operations in “Briggs & Stratton: Die casting . . . A Core Competency?” In his talk, Shiely described situational changes for the company with respect to manufacturing and lower-cost labor markets. He described in great detail the market opportunities in China, where more than 900 million farmers need agricultural equipment, pumps, generators, sprayers, etc. Briggs and Stratton decided in 1986 to enter the China market and formed a joint venture with Puling Machinery Works and Yimin Machine Plant. The joint venture has evolved into a new Briggs and Stratton company in China named Bail Li Tong, which means 100 years of strength.
Guy Briggs, who is General Motors Corp.’s (GM’s) group vice president of North American manufacturing and labor relations, said in his presentation that a strong manufacturing base creates wealth for a nation and jobs for its people. In “Metal and the American Manufacturing Base,” Briggs addressed the challenges facing the United States and made a passionate case for careers in manufacturing and metal processing, as well as for structural materials (vis a vis functional materials). He discussed the critical importance of labor relations and the important role unions play in enhancing the manufacturing base. In closing, Briggs said the emphasis at GM is on innovation and discovery and the need to invest in technology.
David Schaefer of Cloyes Gear & Products and managing director of Cloyes Europe GmbH, presented the issues facing a mid-size automobile metal manufacturing company in his presentation “A Mid-Size Automotive Metal Manufacturing Company View of the Automotive World—Past, Present, and Future.” Schaefer shared with the audience 12 critical events that have helped position Cloyes Gear for success in a global market. Schaefer presented an analysis of the powder metallurgy (P/M) industry over the last decade and showed data on the number of consolidations that have taken place—109 transactions overall, 83 of which are parts manufacturers that have been consolidated. These data further confirmed that P/M is a fragmented industry and that the trend is for further fragmentation. The danger is that the productivity gap between the market leaders and those in the lower tier is growing.
Discussing the P/M industry in more detail was Donald Spence, president and chief executive officer (CEO) of GKN Sinter Metals, one of the market leaders in the P/M industry and a keytier-1 supplier. In his presentation, “Building a Global P/M Company, ”Spence said GKN made 18 significant acquisitions between 1997 and 2001.He detailed the challenges of “digesting acquisitions” and described in detail his ideas on how to attain operational excellence. Investments in people and technology are key objectives at GKN, Spence said.
Kesh Narayanan, director of the Industrial Innovation Group at the National Science Foundation (NSF), was the luncheon speaker and presented the data on funding of basic research in the United States. Funding of basic research in engineering and the sciences has decreased significantly over the last decade, he said, in favor of funding in the life sciences. On the brighter side, Narayanan listed opportunities for corporations and universities for the development of technology and for resources to innovate via Small Business Innovation Research and Small Business Technology Transfer programs at the NSF as well as such U.S. governmental agencies as the defense, energy, transportation, and commerce departments. In sum, about $2 billion is available in 2004. Narayanan quoted Geoffrey Nickelson of 3M when emphasizing the need to innovate and to discover: “Research is the transformation of money into knowledge; innovation is the transformation of knowledge into money.”
Duane Becknell of Ford Motor Company and manager of the casting and forging engineering organizations discussed Ford’s strategy for penetrating the China market and how relationships are being developed in China. He presented “Understanding the Chinese Manufacturing Environment,” a detailed analysis of the Chinese market and the opportunities that exist, with a particular emphasis on the cultural differences. He shared with the audience a set of slides titled “What is China like” that was educational and also an eye opener.
Mario Ciampini, president and CEO of Ipsen International, presented “Ipsen International Process Heating Manufacturing in China,” an inspiring story of how Ipsen has succeeded in the global market by wise investments in strategic planning and in technology. Ciampini presented data on the Chinese economy; key results from a major study carried out by Bain & Company point out those markets in China will have quadrupled between 1996 and 2005 due to fast growth in automotive, aerospace, steel, and aluminum sectors. Ciampini described how Ipsen has invested and is presently manufacturing in China. Cultural differences, intellectual property protection, research infrastructure issues, and business challenges were among the topics addressed.
Don Graber, chairman, president, and CEO of Huffy Corporation presented the issues and challenges of the bicycle manufacturing industry in “China—Metal Processing Capital of the World in the 21st Century (Case Study—Bicycle Industry).” The data he presented points out that China is the metal processing capital for commodity products such as bicycles. Bicycle imports as a percentage of the U.S. market (in units) was 20% in 1980, 28% in 1985, 60% in 2000, and 98% in 2003. When it comes to commodities, Graber said, it will be difficult not to manufacture in China.
Diran Apelian is Howmet Professor of Mechanical Engineering and director of the Metal Processing Institute at Worcester Polytechnic Institute in Worcester, MA.
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