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Productivity advances resulting from the technology revolution are reshaping global competition

DTI Globalwatch : 18 October, 2006  (Technical Article)
U.S. manufacturing technology consumption in May grew to $319.40 million, according to data compiled by the Association of Manufacturing Technology and the American Machine Tool Distributors' Association. The total was up 21.4% from April and up 29.7% from the total of $246.27 million reported for May 2005.
With a year-to-date total of $1,437.11 million, 2006 was up 22.0% compared with 2005. 'May's growth in consumption is particularly encouraging because it is shared across every region of the country,' says John J. Healy, AMTDA president. 'While May was one of the four best months in the current recovery, the important point is that the trend in orders continues to be upward.'

By July, record first-half reports began to be released, even by machine tool companies noted for specializing in serving the family-run job shops. For example, Oxnard, Calif.-based Haas Automation Inc. reported record production numbers and shipments for the first half of 2006. Small job shops typically comprise as much as 70% of the customer base, says Jeff Law, sales and product manager for horizontal machining centers.

Even amusement parks are staying ahead with robots. Kuka leverages its industrial robot technology with the Robocoaster, an adaptation serving as an amusement
park ride.

During the period of Jan. 1 through June 30, the company built and shipped more than 6,000 CNC machines to customers around the world, and June was its best month ever as it shipped 1,198 machines, an all time record for Haas.

At current production levels, Haas is on track to build more than 13,000 machines this year and surpass its goal of $700 million in sales. In 2005, sales topped $574 million, making it the largest dollar-volume builder of machine tools in North America. The company also built more than 10,000 machines in 2005, making Haas the largest unit-volume builder of CNC machines in the world. All Haas products are manufactured at the company's 1-million-square-foot facility in Oxnard, says Law.

But even as the industry revels in the new levels of machine tool investment, there are plenty of reasons to push on with the technology race. One is the potential for competitive gain among U.S. manufacturers. For example, notes John B. Byrd, III, president of the AMT, the average age of machine tools on U.S. plant floors is 12 years. Then, too, consider that China's machine tool investments are racing ahead of the U.S. without any signs of slowing. In 2006 China's cumulative investments in machine tools since 1998 will exceed that of the U.S., Byrd notes. In 2005 China invested more in machine tools than the U.S., $10.9 billion vs $5.8 billion. (China consumes 21% of the world's machine tool production, according to the AMT.)

A record trade surplus is one metric of China's competitive race strategies. On July 11, the New York Times reported 'the largest monthly trade imbalance any country has ever recorded. . . . The surplus in June reached $14.5 billion, a record for the second month in a row, eclipsing each of the giant surpluses recorded by Japan in the last few decades.'

China's embrace of the latest production technology challenges the traditional U.S. job loss discussion. 'Jobs are not going to China simply because of cheap labor,' Byrd points out, arguing that global competition via technology driven productivity is the new job-loss factor.

Robots quickly became essential to auto production,as with this Fanuc Robotics P-500 paint line,but non-automotive applications are growing rapidly. See 'Not Your Father's Robots'

Byrd refers to a fundamental transition that is accelerating among U.S. manufacturing's top performers. 'Manufacturing employment has fallen some 20% over the last two decades. The reason is the tremendous, continuing rise in productivity, allowing fewer workers to produce more goods, faster and at lower cost.'

In that evolving scenario, technological innovation,not local wage rates,determines competitiveness via productivity. Reducing labor content becomes an important competitive tool and he who plays technology best wins, adds Byrd. Low labor cost countries are not always the competition, adds Donald A. Vincent, executive vice president, Robotic Industries Association, Ann Arbor, Mich. In China, that kind of job loss is celebrated for the performance attributes it implies, lower cost and increased capacity. The added productivity increases China's capacity to satisfy burgeoning demand.

Byrd cites agriculture as one example: 'In 1900, 40% of the U.S. workforce was involved in agriculture, while today it is less than 2%, but you can't say agriculture is dying. For another good example, look at technology's impact on telecommunications. In the 1970s approximately 421,000 switchboard operators handled almost 10 billion calls. Today operators number only 78,000, but they handle 100 billion calls.' Byrd's point is that productivity advances are one inevitable way the technology revolution reshapes global competition.

The productivity of the latest machine tools and robots helps counter more than spiraling wages and benefits. Corporate taxes are another issue, and these costs should not be considered inconsequential, Byrd advises. 'In one study of the nine largest trading partners, U.S. manufacturers had a 22.4% competitive disadvantage,' he notes. Corporate cost pressures in the same study, conducted by the National Association of Manufacturers and the Manufacturers Alliance/MAPI, also included litigation costs, pollution abatement and natural gas prices.

A Kuka KR240 robot unloads parts from an injection molding machine.

However, productivity has made a strong showing as more and more labor is taken out of the product. Byrd offers as an example, 'Between 1992 and 2004, manufacturing productivity grew over 60%. And if you look at the last four years, it has grown 25%.'

Substantial advances are even evident within equipment categories. In one study an AMT member compared the evolution of vertical machining centers between 1992 and 2004. They found that the price of the equipment category remained essentially flat in spite of inflation. During that same period, the more modern machines became between 50%-70% more productive, depending on the complexity of the part.

Byrd's conclusion: The market is confronting a totally different financial justification. Winning the competitive race means new job circumstances, less labor content, but typically with a higher skill requirements. 'So the premise that all the 'good' jobs are going offshore is false,' he notes. 'Basically manufacturing is going through the same stage that agriculture went through and that telecommunications went through, which is really finding ways of taking labor out of the product.'

Replacing just half of the installed base that is older than 12 years would result in greatly increased productive capacity, but with proportionately fewer jobs, Byrd observes, adding that the jobs that are left will be much more technically demanding. 'Even today, close to 50% of the production employees have some college education, with 25% having a college degree.'

Byrd does describe job loss as a challenge, but only insofar as whether technology will be able to cut labor needs enough. He cites a workforce study of the next two decades that suggests that the U.S. may be challenged to replace even half of those that retire.

AMT's Byrd traces the rapid growth of machine tool performance and productivity to two events: the advent of electronics, specifically, numerical control, and the introduction of multi-tasking machines.

'Electronics, via digital control technology, accelerated performance optimization in terms of machine precision, speed and throughput,' adds Rich Curless, vice president, technology development for Cincinnati Machine, Hebron, Ky. His examples include faster communication between the machine tool mechanisms and the capability to allow parallel activities instead of just sequential activity of machine mechanisms. 'That accelerates both work and tool changing and also facilitates getting spindles up to speed and into the cut faster,' Curless notes. 'That reduces parasitic (non-cut) time substantially.'
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