Are Machine-Tool Shortages Thwarting Economic Recovery?

Sept. 9, 2010
Recent reports in the press contain accounts of production bottlenecked by shortages in cutting, molding, and stamping machines
Authored by
Leslie Gordon
[email protected]

Association for Manufacturing Technology,
Sandvik Coromant,

Companies making everything from syringes to car bumpers are in a bind because they can’t buy machine tools fast enough to keep up with a spike in demand. At least that seems to be a common belief among industry analysts. Recent reports in the press contain accounts of production bottlenecked by shortages in cutting, molding, and stamping machines. The reason: the domino effect from machine-tool builders themselves scrambling to ramp up after the recent downturn.

This is actually a good problem, according to Doug Woods, President of the Association for Manufacturing Technology (AMT), McLean, Va. “Last year saw a 60% reduction in machine-tool orders across the board,” he says. “This year, companies are seeing increased sales. So far, yearly figures indicate this trend will continue through the rest of this year and into the future. During the downturn, companies leaned-out to get everything they could out of their factories. Firms are now pulling the trigger on making new capital investments and bringing in new personnel.

“The recession hit on a global scale, from the U. S. to Europe and Asia,” says Woods. “So consider an OEM which had been purchasing from a global supply chain where the suppliers were suddenly one-quarter the size they used to be,” he says. “This slowed delivery time, which typically used to be a few weeks, to about several months. And domestic sources were cautious about hiring employees because bank credit remained uncertain. Add in concerns about health-care costs, caps in trade, and new financial legislation, and companies were somewhat constrained in how fast they could bring back resources.”

However, these factors will not diminish the machine-tool industry’s ability to meet demands, says Woods. “The good news is the machine-tool industry is responding by figuring out ways to include different local suppliers. The suppliers might provide key components or perform tasks such as grinding, machining, or assembly. Basically, companies are figuring out ways to get things done.”

According to Woods, the exchange rate currently favors U. S. companies. “Firms were moving to low-wage countries,” he says. “But escalating labor costs in Asia, and China specifically, have slowed or reversed this trend that was hurting U. S. machine-tool and manufacturing-technology industries.”

Among those who agree this year has seen an increase in global demand for machine tools is Glynn Fletcher, president of AgieCharmilles LLC, Lincolnshire, Ill. “Asia is the most active market at the moment,” he says. “And today, the Brazilian economy is stable, whereas traditionally it was more volatile. The government there developed a fairly aggressive stimulus package that did the trick. Heading toward a general election in October, the mood of the country is confident and, as a consequence, companies are investing. In general, U. S. and European manufacturing is doing better than last year. It’s almost as if the light has gone back on, perhaps a little dimmer than we would like, but gradually getting brighter.”

Fletcher says AgieCharmilles does have a few supply problems, some due to its own performance, but most due to a number of key suppliers having cut back significantly last year. “Things were tight for CNC controls, motors, and drives,” he says. “In Switzerland, we had a problem getting cables and harnesses. However, on the positive side, we are quickly increasing our capacity and opening a new factory in China to meet the increased demand there.”

The supply of machine tools is one thing, but service resources to support machine installation is another major issue, says Fletcher. “Last year, a lot of companies laid off support technicians,” he says. “But we tried hard not to. So when we get back to normal, whatever the new normal will be, we will have technicians to install and service the machines. Should a customer have to wait a few weeks for a machine, we feel that is a small price to pay to ensure support is in place. We have tried to find a balance. Currently, we have 150 support personnel in the U. S.”

According to John Oblazney, CFO of Hurco, Indianapolis, “The goal of most machine-tool builders last year was to cut inventories as the market plummeted over 50% from the previous year. As orders went down, companies were forced to lower production rates 60 to 80% to bring down inventories. When demand picked up this year, it put a squeeze on machine-tool manufacturers to quickly purchase components and hire personnel.”

Cutting-tool supplier, Sandvik Coromant, Sweden, sees an uptick in demand for machine tools in every major market around the world, says Brian Norris, vice president of marketing at the company. “Machine-tool buying is increasing every month. Compared with 2008, it is at a low level, but we see evidence of buying in quoting activity, the number of new projects we are running, and also how many machines we are tooling up.”

Norris says the company has not experienced difficulties with its supply chains. “A manufacturer that buys a machine tool typically buys all the cutting tools for it at the same time,” he says. “This is much better for us than companies purchasing a machine and buying the tools later, or, worse yet, scrounging for cutting tools that already exist in the factory.”

When a new machine tool arrives at the shop, it must be up and running immediately so the customer can get ROI as quickly as possible, says Norris. “That pressure has always been present, but even more so right now. Thus, we work with customers when they are planning on buying a machine tool, even helping define the cutting process and do the initial run-off.”

Before things slowed last year, times were great for the whole machine-tool industry. “We were part of that trend,” says Norris. “So we just continued to maintain our relationships, believing in an eventual turnaround. With the recent increase in demand, we are just picking up where we left off.”

© 2010 Penton Media, Inc.

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