Buyer Beware

Editor’s Note: Dennis Myers is the founder of Global Laguna Group USA, Laguna Beach, CA, an industrial consulting firm that specializes in metalworking issues, technology, and projects. He has a broad base of technical and business-management experience with several metalworking companies. The opinions expressed in this article do not necessarily reflect those of CUTTING TOOL ENGINEERING. Please direct comments or rebuttals to Martin Eastman. Telephone: (847) 714-0174; Fax: (847) 559-4444; e-mail: meastman@ jwr.com.

Even though "buyer beware" is a common phrase in consumer markets, it’s rarely applied to industrial buying and selling activities. But it should be. Certain trends in the metalworking industry are making this warning more urgent than ever before. 

Trends toward cutting tool supplier consolidation and integrated-supply programs are inhibiting technological advancements and productivity gains in the machining industry.

These trends are occurring among both cutting tool users and cutting tool vendors. Users are eliminating or severely cutting back their technical staffs, which spur the advancement of manufacturing technology. At the same time, many users are implementing supplier-consolidation programs. Cutting tool suppliers are acquiring companies to expand product offerings and are developing sole sourcing programs. These activities dilute manufacturing technology and relegate much of the cutting tool technology development to academia and small businesses with limited resources.

Techno-Drain 
The downsizing of American manufacturing over the past decade has undoubtedly added value to the productivity numbers. Regardless of the improved profit margins, however, there have been some casualties, notably the engineers and manufacturing-technology personnel who had focused on improvements in day-to-day operations, long-range upgrades in manufacturing technology, and even basic application research in metalworking technology. Many of these valued contributors were sacrificed at the altar of reengineering and downsizing, much to the detriment of the entire manufacturing organization.

Enter the idea of outsourcing. Perhaps well-intending executives have seen this technique as a means of cutting overhead and better controlling outlays for ancillary manufacturing expenses not directly related to getting product shipped out the door. However, you can’t outsource dynamic processes such as manufacturing improvements and productivity gains from metalworking technology; they just do not function at arm’s length. Such processes require the dedication and technical involvement only an internal staff can provide.

A more subtle reduction in manufacturing-technology development has happened via computers and electronic machine controls, which management often views as substitutes for the creative skills of well-trained manufacturing specialists. Budgets for experienced people are replaced by budgets for things. Computers and electronic controls are major enhancements for machine tools, but they cannot replace technical input from experienced engineers schooled in machining techniques. The net result has been the gradual attrition of resident manufacturing-engineering personnel who know anything about metalworking technology. The manufacturing engineers who remain soon tire of battling those who can’t grasp what it takes to manufacture a quality product and still realize productivity gains.

In the past, production engineers dealt with keeping production equipment running at peak efficiency, and tool engineers focused on reducing the cost of machining and achieving productivity gains. Today, reengineering budgets often combine the two functions, so restarting production halted by machine problems now takes priority over improving the current process. A “Band-Aid” usually gets slapped on the machine to keep product moving out the door. As a result, long-term improvements are postponed. Production trouble-shooting and process improvement cannot be performed by the same person.

Supplier-Base Reduction 
Another harmful trend is the reduction of the number of suppliers feeding manufacturing facilities or networks of facilities. This concept is based in part on the assumption that if you buy more of one item rather than fewer of many similar items (the “economies of scale” theory), you can obtain the very lowest cost per item. This theory looks good on paper and on laptop presentation screens. And it works, as long as you focus on things like pencils and paper clips. Many costs associated with buying production tools and similar productivity-enhancing items from multiple suppliers can be isolated and criticized as being excessive, if one wishes to overlook some important considerations.

Manufacturing any product in a metalworking plant could be considered a minor miracle. It is a coordinated chaos of employees using machines to maximize their productivity, create the highest quality product possible, and adhere to the delivery schedule. Anyone in a manufacturing firm will admit that much credit goes to the local outside suppliers and service personnel who help them accomplish their goals and in turn earn their portion of business at the location. Credit also should go to the continuous application of the productivity-enhancing tools and systems that these suppliers propose and assist in implementing. (Why else are there supplier-of-the-year awards?)

The value added by local suppliers working in concert with the inventiveness of the plant’s manufacturing staff manifests itself in the form of permanent productivity, which usually outperforms what could be achieved by outsourcing the production entirely to an independent entity.

Having the ability to utilize computer systems and electronic communications to reduce the supplier base in an organized manner hardly justifies eliminating the contributions to manufacturing productivity that result when many suppliers must compete to serve each facility. Manufacturing companies not only are weakening their technology and metalworking knowledge base by reducing internal staff, but they also are compounding the problem by eliminating outside sources that have been supporting the manufacturing staffs. But wait, it gets worse!

Supplier Product Development 
When suppliers of cutting tools observe their customers consolidating their supplier bases, they conclude that they must expand their product base to remain attractive to end users who want one company that can supply all the tools they need. The fastest and most cost-effective way to achieve this expansion is to divert basic research and product-development funds into their financial war chest to acquire existing companies that can add to the suppliers’ product offerings. Many of the major cutting tool manufacturers and supply networks today are following this path. The result is less technological development and fewer productivity advancements.

Some product development has been picked up by smaller companies, or by companies that recognize the opportunity to step in. But these innovators get locked out of the system: They can’t convince the manufacturer’s personnel to evaluate the products; nor can they gain access to the plants with their limited personnel and resources. Of course, even if they are accepted, these small suppliers have to be funneled into the reduced supplier base.

Integrated-Supply Systems 
A popular response to the supplier-base-reduction programs is for the cutting tool suppliers to formulate complex supply systems that allow most products needed in a manufacturing entity to be supplied by one source. Just as supplier-reduction programs look good on laptops, integrated-supply programs seem rational and efficient at first glance. The problem is, if you get down to what happens on the manufacturing floor, service for the manufacturing processes is lowered, and competition to upgrade the performance of cutting tools is lessened or eliminated. The fact is that inserting a controlling distribution layer into the formula does not add value to the manufacturing process. It only adds cost and inefficiency.

In an integrated-supply program, all those small local suppliers that provided the hands-on service in the past are now screened by the controlling supplier. Much of the incentive for competition among suppliers is reduced or eliminated via the controls installed by the external distribution channel. The small supplier with a new invention has no incentive to give its competitive advantage to a larger competitor serving as the primary distributor to a given customer. Nothing prevents the controlling supplier from replicating or slightly modifying the idea to maintain or improve its own gross margin. Reduction of competition by consolidation of distribution channels is tantamount to putting the fox in charge of the hen house. It represents a major step backward for competition in the manufacturing workplace.

A Final Caveat 
Manufacturing companies need to understand the consequences of the actions they are taking. Manufacturing executives are delegating management of their own plants to outside entities while eliminating their resident applied manufacturing-technology resources. They are eliminating one of the most powerful influences on their own bottom line—competition among their suppliers. They need to take back responsibility for controlling support of the manufacturing processes. Cutting tool suppliers need to focus more on how to add real value to the manufacturing process with innovative cutting tool products instead of yielding to the pressures imposed by manufacturing management to help solve internal-systems and management problems.

Without changes, the rate of metalworking-technology innovation figures to spiral downward. Incentive born of competition is being wrung out of the system. The new management concepts being applied to manufacturing need to be re-examined.

Author’s Note 
Input for this article was obtained from manufacturing and tool engineers. Their ideas and comments were greatly appreciated, but these sources will remain anonymous to preserve their job security.