The U.S. Machine Tool Industry and the Defense Industrial Base (1983) / Chapter Skim
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2 An Industry Restructured
2 An Industry Restructured
Pages 7-51
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From page 7... ...
The industry has been characterized by fragmentation, relatively low levels of capital investment, and conservative management. Strong forces from outside the domestic machine tool industry, however, have made thi traditional posture of the industry permanently outmoded.
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machine tool industry technological trends shaping the industry segments economic trends new entrants and new competitive strategies response of machine tool builders to these changes THE TRADITIONAL U
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The United States regained the lead in machine tool production in 1979, only to be surpassed by Japan in 1982.4 The growth of Japanese machine tool production has been especially swift, averaging a~proximately 30 percent annually between 1976 and 1981. Notwithstanding this development, American machine tool builders have sold, and continue to sell, many machine tools for export.
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n It concluded that n it would be impossible to understand the American machine tool industry without appreciating both the depth and wide-ranging implications of these cycles.~7 Year-toyear swings in machine tool orders of t75 percent and -SO percent have occurred (see Figure 1) , compared with maximum sales swings of +39 percent and -34 percent in steeL.9 This sales pattern has forced upon the industry a strategy of buffering Business cycle downturns by accumulating order backlogs from boom times.l° As the following paragraphs indicate, this pattern has prevented even large machine tool firms from having the capital investment, R&D, and overseas sales structure found in other manufacturing firms (e.g., office equipment)
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Profitability. A common assertion has been that machine tool industry profitability is somewhat higher than the manufacturing average during upturns in the
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machine tool companies posted significant lossesl2 and at least one prominent industry analyst has commented that The machine toot industry faces difficult profitability through 1984.~13
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Percent 106 110 112 108 108 109 109 109 109 107 108 Research and Development. Conventional machine too 1 industry managers have been cited by outside observers and by members of the machine tool industry itselfls for taking a short-term perspective on their market.
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Analysis of this issue is complicated by the fact that the definition of "research and development" in the machine tool industry is not uniform. Because much of the industry's work involves the adaptation of basic machine tools and manufacturing systems to specific customer requirements, many mach i ne tool companies include such engineering application expenses with their R&D accounts.
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The U.S e machine tool industryls share in world machine tool production is significantly below what it was in the late 1960s. In 1968, for example, the U.S.
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It shows that machine tool industry productivity growth has averaged a negative 0.7 percent annually during 1973-1981, which is substantially less than the performance of U.S. durable goods industries during the same period.
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Tool Industry. The above paragraphs describe an industry that has lost its position as the world's number one producer of machine tools, to a nation whose own machine tool industry has been experiencing dramatic growth which does not appear to be slowing.
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machine tool industry, this pattern has evidently been accentuated both by industry structure (e.g., fragmentation) and by the practices of industry management (e.g., failure to adopt a global, longer-term view of markets)
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Virtually every Japanese [machine tooll builder was talking about it, preparing products for it and planning to use it in his plants. Several builders have manufactured and sold EMS systems and at least two of them have complete FMS-e~uipped parts-making plants under construction.2 This observation illustrates the increasing emphasis on integration in the machine tool industry, wherein traditional machine tools are used as parts of Larger manufacturing systems incorporating the products of non-machine tool manufacturers such as computer-makers.
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Figure 2 attempts to provide a pictorial representation of how technology is changing the face of the machine tool industry. Although there is substantial evidence that the U.S industry is at least an technologically advanced as the Japanese in the technology of FMS and other factory automation,24 the chief difference between the machine tool industries of both countries seems to be in the application of that technology.
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A larger number of firms manufacture equipment, such as computerized controls, programmable robots, CNC controls, and mater ials handling devices, that is ancillary to the machine tools in such systems. Significantly, a number
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From page 22... ...
There are conflicting indications as to how rapidly significant applications may occur, however, particularly in large airframes, due to long development lead times for new aircraft.26 These new materials represent a potential growth area for the machine tool industry. For example, plastics shipments already exceed the tonnage of steel, aluminum, or copper shipments.27 This large volume has created a potential growth market in plastics processing machines.
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ECONOMIC TRENDS The U.S. machine tool industry has been substantially influenced not only by technological trends but also by economic ones.
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In 1968, 29 percent of world machine tool output was exported: the corresponding figure for 1981 is 40 percent.31 As part of this trend, the propensity for global sources in the machine tool industry (i.e., looking beyond national boundaries for machine tools and components' is becoming more pronounced. As this report points out, the U.S.
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Japanese machine tool exports to the United States surged from 822.1 million in 1973 to 8687.S million in 1981. Although Japanese machine tools were less than IS percent of total U.S.
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machine tool builders well for several decades, was based on an implicit assumption that potential foreign competitors did not have the resources to take advantage of wide swings in the U.S. machine tool market.
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For many of those customers, lead time was the prime factor in the decision to purchase a Japanese machine. FIGURE 4 Machine Tool Industry -- Cutting and Forming Indices of Unfilled Orders and Imports (1967 5 TOO)
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Respondents who were interviewed for this report stressed the superior reliability of Japanese machine tools over the American counterparts, and the meticulous attention to after-sales service. A complete comparison of reliability characteristics between Japanese and U.S.-produced machine tools would require access to proprietary data.
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machine tool firms as much as it might reflect actual cost advantages. The Committee was unable to determine whether the Japanese machine tool industry may be more inclined to purchase a relatively small amount of materials (which might explain the lower figure for purchased material)
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For Japan, direct labor hours per unit are derived by increasing U.S. levels Dy 28 percent, in accordance with 1980 estimates by the Japan Productivity Center of comparative levels in the industrial machinery industry.
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During 1973-1981, Japanese manufacturing output per man-hour grew approximately 8 percent annually, compared to an average annual decline in output per man-hour of 0.7 percent in the U.S. machine tool industry.
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For a number of reasons, the slow growth of the American economy in the last decade expressed itself in a sluggish demand for machine tools -- as for capital goods generally. The weak demand for machine tools has been a significant factor in the slow productivity growth in the machine tool industry itself.
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From page 33... ...
Moreover, by their machine tool purchasing decisions, these companies may determine whether a substantial portion of the machine tools consumed in the United States is produced here or overseas. 0 Will the entry of these larger firms change the "rules of the game, n making it even more difficult for smaller, traditional machine tool firms to compete?
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machine tool industry to remain a international leader in new manufacturing technology? (3} The structure of the industry is changing, with the solidification and further development of Strategic groupsn34 based on new categories of machine tool production (e.g., robot systems, integrated manufacturin systemsI.
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Firms marketing these products' therefore, will compete mostly on the basis of price, delivery time, and reliability. Because this is one group where Japanese manufacturers have tended to compete heavily, competitive conditions will probably require U.S.
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The number of potential manufacturers thins out quickly once one leaves the lower left corner of the map. Relatively few conventional machine tool companies have the range of necessary skills to compete successfully in the middle group, which currently comprises primarily the large machine tool manufacturers who account for a sizeable portion of rig- _.
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Table 10 compares the skills descr ibed above with the characteristics of the traditional machine tool industry which was analyzed earlier in this chapter. While the comparison necessarily deals in generalities, the d irections they lead the observer are clear: each new strategic group requires skills substantially different from, and more complex than, the ones which were adequate for competing in the traditional machine tool business.
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From page 38... ...
identified some bottlenecks in the surge production of certain weapons systems. The response of the domestic machine tool industry will ~nfluence whether these bottlenecks will worsen or can be r esol~red in the long run.
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To gain come appreciation of this response, the Committee caviled a list of recent economic and technological trends shaping ache machine tool industry. Using a questionnaire, it then asked NMT8A members to cogent on the extent and ways these trends were affecting their individual firms and the industry an a whole.
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At least one U.S . machine tool f irm ~s constructing an automated factory.
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In view of the evident vigor and resolution with which Japanese machine tool builders are applying the latest technology, this attitude while understandable -- was worrisome to Committee members. It suggested that extraordinary ef forts might be required among Amer lean machine tool builders in order to maintain their reputation for technological excellence.
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S machine tool industry today.
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Recent examples include the Cross Company's merger with Kearney and Trecker, the acquisition of Unimation ta maker of robots but not of traditional machine tools) by Westinghouse (a maker of industrial controls and a seller of factory automation services but not a manufacturer of traditional machine tools)
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From page 44... ...
When Bendix acquired Warner and Swasey, for example, one of its first actions was to transfer nearly all of its machine tool production to the Murata joint venture in Japan. Subsequently, Acme-Cleveland has announced that its state-of-the-art NC chucked, jointly developed with Mitsubishi Heavy Industries, Ltd., will be produced in Japan, 38 and Or ^~ -~- a,- ~,; that it is not committed to the production of any percentage of its machine tools do~nestically.39 Concern was expressed by the Committee that if the practice of overseas procurement or production by U
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From page 45... ...
The argument for this action is that ~ the national secur ity of the United States in being impaired by current levels of imports of machine tools because such imports threaten to debilitate the domestic machine tool industry, which is critical to the United States' defense and deterrence posture..41 CONCLUSIONS This chapter has dear ibed a changing machine tool market which, in the course of f ive to seven years, has become significantly more competitive and complex. · Advances in microelectronics, robotics, systems engineer ing, computer science, and substitute mater ials have altered the character of manufactur ins and changed the nature of the machine tool industry, making machine tool construction (as defined in this report' one of the
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From page 46... ...
New entrants to the market for automated manufacturing have brought new (to the traditional machine tool industry) specialties such as computers and software for design and integration; electronic controls; machines for assembling, testing, plating, and heat-treating components; robots; and sophisticated engineering services.
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From page 47... ...
Thus, the signs of a far-reaching "shakeouts in the machine tool industry are unmistakable. While some domestic machine tool builders will be unable to respond to increased competitive pressures from abroad and from alternative technologies, there are a number of forwardlooking firms -- among them traditional machine tool builders as well as new entrants to the market for products and services ancillary to the use of machine tools in automated manufactur ing applications -- that have recognized and reacted to the trends that are fore ring changes.
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From page 48... ...
The danger exists that efforts to provide immediate help for domestic machine tool builders will, without vigorous and successful efforts by the industry to improve its own productivity and technological position, actually weaken that industry' s ability to provide the leading-edge technology and to compete successfully on a global basis. To deal with such issues requires an understanding 0 f how the Department of Defense, pr ime defense contractors, and the machine tool industry interact.
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From page 49... ...
14. Otto Hintz, et al., Machine Tool Industry Study Final Report,.
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From page 50... ...
Cincinnati Milacron r Annual Report r 1982 e 22. Testimony of We Paul Cooper r Chairman' Acme-Cleveland Corporation, before the International Trade Commission on June 28, 1983, p.
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153 - 154e 36. Japan Machine Tool Builders' Association response to NMIBA Petition, ~ Investigation of Imports of Metal-Cutting and Metal-Forming Machine Tools under Section 232 of the Trade Expansion Act of 1962, ~ pp.
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