2010 survey METHODOLOGY
January 2010 - Modern Metals e-mailed 2,498 surveys to a group of service centers, fabricators and OEMs in October 2009. Six percent of those surveys were opened by the recipients, and out of the 156 opened surveys, we received a response rate of 67 percent (105 total usable returns). By industry sector, we received usable responses from 30 fabricators, 26 OEMs and 49 service centers.
Those surveyed were randomly selected on an nth-name basis from the circulation of Modern Metals using the following business and industry classifications: metal service centers and offices; fabricated metal products (including metal cans and shipping containers; cutlery, hand tools and general hardware; heating equipment and plumbing fixtures; fabricated structural metal products; screw machine products (bolts, nuts, screws, rivets and washers); metal forgings and stampings; coating, engraving and allied services; ordnance and accessories; and miscellaneous fabricated metal products); machinery, except electrical (including engines and turbines; farm/garden machinery and equipment; construction, mining, materials handling machinery and equipment; metalworking machinery and equipment; special industry machinery; general industrial machinery and equipment; computer and office equipment; refrigeration and service industry machinery; and miscellaneous industrial and commercial machinery and equipment); electric and electronic equipment (including electric transmission and distribution equipment; electrical industrial apparatus; household appliances; electric lighting and wiring equipment; household audio and video and audio recordings; communications equipment; electronic components and accessories; and miscellaneous electrical machinery, equipment and supplies); transportation equipment (including motor vehicles and motor vehicle equipment; aircraft and parts; ship/boat building and repairing; railroad equipment; motorcycles, bicycles and parts; guided missiles and space vehicles and parts; and miscellaneous transportation equipment).
Job titles surveyed included corporate officials, president, owner, vice president, general manager, treasurer-secretary, controller, chief engineer, plant manager, production superintendent, department managers, chief metallurgist, chief chemist, engineers, metallurgists, designers, production men, chemists, supervisors, foremen, and purchasing and sales personnel.
Economists classify the current recession as having begun in December 2007, although the metals industry took the hardest hit in fall 2008. Looking back, weathering 2009 was a bit like facing a big-league pitcher for the first time and trying to guess what he’s going to throw: a floundering automotive industry in Detroit, stimulus packages, climate change legislation, credit tightness and health care debates.
Many of those topics remain unresolved going into 2010. According to Chairman and U.S. Process & Industrial Products Sector Leader Tim Hanley’s comments in Deloitte’s Process & Industrial Practice 2010 Manufacturing Outlook, "The economic picture for 2010 is cloudy at best. Many expect demand to return, but timing is uncertain. Emerging markets (e.g., China) will continue to lead the global recovery."
Hanley also points out that "critical end markets (e.g., automotive and construction), capital markets and emerging geographies are undergoing fundamental changes that will require new business models for manufacturers to stay competitive." In addition, "government regulation (e.g., carbon management) will increase the cost of doing business and potentially create grounds for indirect protectionism."
"We’ll still have to continue to watch the developing countries: Brazil, China, India and Russia," says Bob McCutcheon, U.S. metals leader for PricewaterhouseCoopers. "Eyes are still very much on China. If you just look at per-capita consumption, China is beginning to catch up to the developed world on a per-capita basis. Given the size of their population and because that per-capita number continues to grow, you have to believe that developing economies will drive the growth in the future."
Of the respondents to Modern Metals’ Eighth Annual Consuming Industries Survey, 53 percent of the service centers, 57 percent of the fabricators and 88 percent of the OEMs do business outside of North America. Respondents all agreed with Hanley and McCutcheon, saying that out of the global emerging markets, Asia had the most potential, followed by India, Brazil and Mexico. OEMs were the one group that cited Eastern Europe as a potential growth market.
Cautious optimism
The good news is that survey respondents don’t see an upcoming decrease in customers’ orders. Fifty-one percent of service centers expect orders to increase, and 45 percent expect them to remain flat. Fifty-three percent of fabricators expect orders to increase, and 43 percent expect them to remain flat. Forty-six percent of OEMs expect orders to increase, and 35 percent forecast a flat order book for next year. However, "the manufacturing industry still looks weak, based on our customers’ forecasting," says Greg Moore, president, Tell Steel Inc., a 50-year-old supplier of stainless, aluminum, alloys and carbon steel, among other products. "We do expect a pickup in construction that isn’t related to housing, and I believe the energy sector, from gas, oil and electricity, will be spending more to upgrade their facilities. The machinery-repair business is still pretty strong, but there seems to be no new machinery being built."
And, going forward, "capacity utilization should begin to match real demand," says McCutcheon. "If you looked at capacity utilization in the earlier part of the year, it was below real demand because the supply chain was still working off that excess inventory. As we begin to approach that balance, and even potentially some restocking, the mills will begin to mirror or more closely resemble real demand.
"Once the mills are matching real demand, there’s probably a bit more clarity, then the focus shifts to where real demand will take us. The disruption in the supply chain creates its own uncertainty," he says.
Many respondents to the survey showed optimism about the future. A Midwest-based service center noted, "We’re cognizant of the uncertainty in demand and the challenging dynamics facing the economy. At the same time, we’re optimistic and are positioning our business for long-term growth. We’re strategically adding staff to more effectively build and sustain our value-generating capabilities while continuously analyzing costs and identifying means of enhancing the overall efficiency of our organization." MM
FIND QUALIFIED PERSONNEL
Basic training
In 2006, the oldest of the baby boomers (the generation born between 1946 and 1964) celebrated their 60th birthday. Today, the youngest of the group is 45. According to the U.S. Census Bureau’s annual population estimates, as of July 1, 2008, there were 89,406,928 people between the ages of 45 and 69 in the United States.
As this generation reaches retirement age en masse, many industries will be searching for skilled workers to fill their positions. But today’s high school students and recent college graduates often overlook manufacturing careers.
"The difficult part is finding good people interested in going into the steel industry," says Greg Moore, president, Tell Steel Inc., a 50-year-old supplier of stainless, aluminum, alloys and carbon steel, among other products. "It’s not glamorous, and if you’re an outsider, it seems a lot like sweat and dirt. We have the most luck with people who know who Tell Steel is and are somewhat industry related. They come from the employee-related avenue, as well."
Once potential employees realize the growth opportunities that come with a manufacturing career, however, they tend to stick around.
"Maintaining good employees is not so much of a problem," Moore adds. "Of our 48 employees, my 28 years places me ninth in seniority, and nearly two-thirds of our people have been with us for more than 10 years. We did not have a layoff in 2009 because people are important to us. We want people who want a career, not a job, and they appreciate not being a number or a way to cut costs in bad times."
For now, according to results from this year’s Annual Consuming Industries Survey, respondents aren’t having major difficulties finding personnel. Fifty-four percent of OEM respondents currently have no difficulty finding personnel, while 35 percent are finding it somewhat difficult. Fifty percent of fabricator respondents are having some difficulty finding workers, and 33 percent are having no difficulty. And 67 percent of service center respondents are having no difficulty finding personnel.
Continuous improvement
"Our culture requires a broad base of skills, a collaborative mindset and a lot of energy," says a Midwest-based service center. "We seek associates capable of performing area-specific tasks while understanding the big picture, who contribute value beyond the requirements of their specific job descriptions. Once we find them, we challenge our associates to challenge the organization to get better. This creates a sense of ownership and a stake in the success of the company."
Many of the survey respondents are continuing to invest in their employees by providing a variety of training programs. Of the survey respondents, 62 percent of OEMs, 50 percent of fabricators and 47 percent of service centers are providing some type of personnel training.
Service center respondents are providing job-specific programs such as "supervisor training, sales training, management training, lean training, measuring device training and job cross training;" "seminars, computer-based training, podcasts and an initial new hire program;" and "metal composite breakdowns and crossover abilities." Several other respondents provide sales training and safety programs, as well as station-by-station in-house training. One service center respondent mentioned his company offers an inventory management course, an absolute necessity in today’s marketplace.
Fabricator respondents are providing continuous training in all phases of their operations, including lean manufacturing, safety, crane training and cross training on equipment.
One fabricator respondent even comments that his company offers personal improvement training, "including finance and communications," while another says, "We work with the states in which we have facilities and do a lot of in-house training. One of the factors in pay is skills acquired."
This year’s OEM respondents were focused on safety training and in-house training on processes and procedures. One respondent specifically participates in a technical college partnership program, and two others participate in various types of apprenticeship programs.
For Jeff Owens, president and COO of Advanced Technology Services, Peoria, Ill., as "a service organization, our raw material really is people. As we expand with our customers, we grow by adding people with the specific technical skills needed to make factories run better."
To accomplish this goal, ATS created a "multi-skilled technical career program. It’s a program that takes motivated students through a 40- to 50-week program that teaches them technical manufacturing skills, particularly as they relate to asset maintenance. After successfully completing the program, the students are recruited and begin on-the-job training in real manufacturing environments."
Owens also comments that "the military is a fantastic resource for providing a steady flow of talented and skilled resources for our company. In fact, close to 30 percent of our workforce is made up of former military personnel. The trainability, the cultural attributes of the candidates and the work ethic the military experience provides makes a great match for the service we provide to our customers.
"As a professional maintenance company, we provide a career path for people that are at the top of their game in the maintenance field. Continuous training opportunities, individual career development plans and the ability to increase responsibility and move between our customers’ sites is a strong draw for maintenance professionals." MM
2010: A FOGGY OUTLOOK
Survey respondents plan to implement flexible business strategies
Respondents to the Eighth Annual Consuming Industries Survey have a lot on their minds. Pricing topped the list of top concerns for all three groups, followed by business activity levels, the cost of health care, foreign competition, trade policy issues, metal supply, and energy and transportation costs.
"As with all businesses going into 2010, there’s a cloud of uncertainty as to how the current administration’s policies will affect the businesses we serve," says Jeff Owens, president and COO of Advanced Technology Services, Peoria, Ill. "Public policies around health care, jobs and the general economy make it difficult to plan. Our strategy will be, as always, to deliver excellent service to our customers but also to remain flexible to their changing needs as the events of 2010 unfold."
That flexibility allows companies to better serve their customers. "We continue to improve our visibility relative to market dynamics, macroeconomic trends and end-use demand," says a Midwest-based service center respondent. "We feel we have a relatively strong handle on inventory management. More of our customers and supply partners rely on us to help enhance market visibility, and we’ll continue to emphasize this capability during 2010 and beyond."
Communicate with suppliers
Eighty-four percent of service center survey respondents source metal primarily through producing mills, while 14 percent receive their material from other service centers.
Sixty-three percent of fabricators and 69 percent of OEMs source their material primarily through service centers, while 37 percent of fabricators and 23 percent of OEMs source material through producing mills. Overall, respondents seem relatively happy with their suppliers’ performance. On a scale of one to 10, 92 percent of service centers, 93 percent of OEMs and 93 percent of fabricators ranked their customer service as either a five or above, with five indicating that service remained the same compared to last year.
Specifically, fabricator and OEM respondents commented that the low levels of inventory tend to cause problems within the supply chain. One fabricator respondent commented, "Inventories are down, and deliveries have been affected." Still, a fair number of fabricators and OEMs commended their suppliers’ performance. One OEM respondent said his suppliers have remained consistent, a fabricator respondent complimented the "quality and on-time delivery" from his suppliers and another fabricator noted that his suppliers "ship quickly and accurately."
It isn’t surprising that service centers’ comments on their supplier performance, both complimentary and otherwise, mostly centered on price: "[Suppliers] could stabilize, hold pricing a little better," "Pricing is all over the place," "They have kept up with deliveries and improved their prices" and "[Suppliers] continue to support us with high-quality, competitive market prices, on-time delivery and marketing."
Moore says, "We have always been loyal to our suppliers and maintain an ongoing dialogue with them on what the future forecast will be in regard to stock availability and pricing. They’re loyal to us, as well, often notifying us as soon as they become aware of market shifts and the like. I’m sure it helps that we pay our bills on time all of the time. That way, we maintain our inventory and ensure our customers’ needs are met."
"Our approach with customers and suppliers continues to be one of collaboration and building win-win outcomes," says the Midwest-based service center respondent. "From our supply partners’ perspective, this includes proactive communication and forecasting, rapid payment of invoices and a collaborative mindset in resolving claims. From our customers’ standpoint, we continue to emphasize our flexibility, just-in-time inventory, cash flow optimization programs, predictable quality and on-time delivery."
Take command of inventories
"Inventory management this past year has been very trying for the distributors of raw material. Most are sitting on overpriced inventory, and major airframe manufacturing is scaling back production, leaving very little outlet for the bulk of their products," says Joanne Beach, director, J.I.T. Metals LLC, Boynton Beach, Fla.
"In the near term, the focus has clearly been on liquidity, working capital management and running lean," says McCutcheon. "In the early stages of the economic crisis, companies were looking to reduce costs and enhance liquidity as much as possible. And a lot of liquidity was provided simply by working down inventories and working capital. That resulted in a lean supply chain. Even as things begin to pick up, companies, at least initially, will continue to run lean and will probably be much more conservative in maintaining their liquidity and keeping their working capital at minimal levels using just-in-time inventory practices.
"Running up to the economic crisis, when we were in the throes of a high-volume, high-price [environment], often companies lose some discipline and start to buy in advance. I think there were a number of companies that were physically hedging in anticipation of price increases that found themselves sitting on a lot of inventory at higher prices six to 12 months after the fact."
Fifty-nine percent of service center respondents are maintaining current inventory levels, 24 percent are decreasing and only 16 percent are working on increasing the amount of inventory they carry. Sixty-seven percent of fabricator respondents and 50 percent of OEM respondents are maintaining their inventories.
But for Moore and Tell Steel, "Fiscal year 2009 was probably the easiest year to manage inventory in my 28 years on board. We don’t worry about turns. Our only concerns are maintaining a consistent year-end total and making sure we have products in stock when a customer calls for it. There were no wild fluctuations in month-to-month buying by our customers, which is normally the case, so building back our inventory to satisfy our year-end requirement was rather fluid for a change."
Moore says there are three big challenges to business, two of which are related to credit. "We’re seeing more companies stretch out their payment terms in large part because they cannot get a line of credit from the banks. Credit tightness is also restricting our sales due to the fact that companies that can get jobs can’t get the line of credit to start them up.
"The greatest challenge comes from the competition within the steel service center industry. The larger companies have written down their inventories to sell the products cheaper so they can get the desired turns, and the smaller outfits are selling at or below cost just to generate enough cash to keep the doors open. Somewhere, many folks forgot the object of a business is to make money." MM
