The great business challenges of our age revolve around “customization”: how can something be designed effectively and manufactured efficiently while still allowing the buyer to indulge the sensation that he or she is individual, valued, unique. Manufacturers are caught squarely in the middle of this: a designer can pitch an idea to a consumer; a consumer can issue demands to a designer; but neither one will realize anything without a producer, a builder, or a manufacturer to make it real.
That is the big-picture analysis of this moment in time, but manufacturers continue to juggle the more practical difficulties: process design and execution; energy and materials; education and workforce development; safety and environmental regulation; and capital investment.
But make no mistake: as 2016 ends and 2017 begins, manufacturing businesses should be enjoying the moment. The Institute for Supply Management’s Purchasing Managers’ Index (PMI, and indicator of inventory trends) for November reveals growth for the 90th consecutive month, and growth in the manufacturing sector specifically for the third consecutive month. Total new orders grew for nine of the 18 industries that make up the PMI index, while production levels rebounded from an October dip, and employment levels remain stable. The readings are positive, if not exuberant. Data, however, is rarely absolute and always provisional. Manufacturers know this, at least in regard to their regular business activities.
Forgers are manufacturers, of course, but drawing their circumstances out of the mass of data represented by surveys like PMI or similar sources is futile. This is the reason for the annual FORGING Business Outlook survey.
During October FORGING surveyed readers by email to collect and evaluate the outlook of men and women responsible for North America’s forging operations. We seek to identify the problems they face in the economy, in their markets, and in their businesses. We also seek to learn what plans they're making for the coming business cycle, and to understand better they're expectations for the year ahead.
We also seek to know who the survey respondents are, so that their responses can be coordinated (to a reasonable certainty) to the operations and materials that inform their forging-industry experience and perspective.
The survey respondents are industry executives, managers, and operators from across North America’s forging industry. They are producers of all major types of metal — alloy, carbon, and stainless steels; aluminum, brass and copper, and titanium. Their operations realistically reflect the various plant sizes of the forging industry, from less than 20 workers to 250 or more.
The respondents are engaged in all process types typically characterized as forging, including open- and closed-die forging, impact extrusion, and ring rolling. Note, too, the scope of their production activities during 2016 represent businesses with less than $1 million/year in shipments to over $100 million in annual shipments. And, while the survey is designed to track shipments as a measure of business performance, we also seek information on that will help characterize production activity.
Last year, this year ... next year?
We begin the analysis by evaluating forging-industry business conditions at the end of 2016: slightly more than one-third (38.7%) of respondents indicate that their businesses’ total shipments this year will be comparable in volume to the 2015 result; equal portions of the remainders responded that 2016 shipment totals will increase (30.6%) or decrease (30.6%) over their respective 2015 totals.
Among those respondents (30.6%) who report this year’s results will improve over last year, a decided majority (55.6%) believe the rise will be in the range of 0-10%; 25.9% believe the increase will be in the range of 10-25%, with smaller percentages see the rise at 26-50% (7.4%) and 51-75% (7.4%), or even 76-90% (3.7%.)
Those respondents (30.6%) who anticipate falling 2016 shipment totals are less “cautious” in their estimates: while 32.0% of these expect the decreases to be in the 0-10% range, 28% forecast their shipments totals to decline 10-25%, and 36% see the current year’s decline to be in the range from 26-50%, and another 4% see the decline will range from 51-75%.
In detail, forgers now anticipating shipment totals to remain even from 2015 to 2016 are slightly more likely to be producers of high-temperature alloys (45.0%) and titanium alloys (44.4%); aluminum (36.8%) and carbon-steel (35.0%) forgers are more inclined to expect increased tonnages this year; and forgers of brass and copper alloys are more likely (41.7%) to see decreased tonnages this year.
Impact-extrusion (57.1%) and ring-rolling (52.9%) operators the likeliest to report 2016 shipments are running “about the same” with 2015 shipment totals; powder forging operations (60%) are most likely to report increased shipment levels; and open-die forgers (41.7%) are the most likely to report decreasing shipment volumes for 2016.
This same approach guides our evaluation of forgers’ prospects for 2017, and here the forecast is more decisive: 62.3% of all respondents expect their operations’ tons/shipped to rise in 2017, compared to 2016. More encouraging, just 6.6% of the total expect coming year to deliver an overall decline in shipments, and 31.1% are forecasting next year’s results will be “about the same” as the 2016 total.
Looking into the responses of those 62.3% of all respondents who have a positive outlook, we note that 43.9% of these see the coming increase to be in the range of 1-10%, 36.6% are preparing for a 10-25% increase, and 9.8% see the increase in the 26-50% range.
Aluminum (61.1%) and brass-and-copper (58.3%) forgers are the most likely to forecast rising shipments for next year.
While the percentage of all respondents who are forecasting declining shipments is minor, they are nearly evenly spread among alloy, carbon, and stainless steels and high-temperature alloys. High-temperature alloy forgers are slightly more likely to predict the 2017 shipment totals will be flat, compared with the current year’s results.
Last, impression-die forgers (62.5%) are most likely to predict rising tonnage for 2017 shipments, followed by impact-extrusion operations (57.1%.) Powder-forging (60%) and ring-rolling (50%) operators are the most inclined to predict 2017 results that are even with the current year.
Building on success
Shipment totals are a useful interpretive device, but there are other factors influencing forgers’ business outlook. For example, in relation to 2016 shipments, we learned from our respondents that most of them are operating their plants at significantly less than full capacity: 32.8% of all are operating at just 51-65% of capacity, 23.0% are operating at 66-80% of capacity, and 21.3% are operating at 80-90%; 18.0% are operating 0 to 50%, and 4.9% are operating at 90-99%.
In this area of discovery, it’s significant that more than half of all respondents (54.0%) confirm that forging imports are becoming more competitive with their products; 27.0% of respondents see no effect from imported forgings, and 7.9% see imported forgings as a declining source of competition. 11.1% of respondents are increasing their forging export totals.
We consider capital investment to be the most dispositive evidence of business confidence, and over 65% of all respondents have capital spending plans for 2017. For 50.8% of these respondents, the investments will take the form of new manufacturing equipment; 11.1% plan to expand their existing operations, and 3.2% plan to invest in new production plants.
Note that the capital-spending programs for survey respondents cover a wide range of value. For 30.5%, the coming capital investments will total less than $100,000; but for 18.6%, the total will range from $1 million to $5 million. 16.9% plan investments in the $101,000-250,000 range, and 13.6% will invest $251,000-500,000, and 11.9% will invest $500,00-1 million.
To put all these investments in perspective, note that 41.0% of all respondents estimate that their 2017 spending totals will increase over the 2016 totals, and 39.3% estimate that the 2017 totals will be “about the same” as the current year’s outlays. Not insignificantly, 19.7% plan to decrease capital-investment totals in 2017, compared to the current year.
Among the 41.0% of respondents who indicate their capital investment totals will rise next year, 37.9% put that increase in the 0-10% range, and 31.0% put the increase at 10-25%. Another 13.8% estimate their increases at 26-50% above the 2016 total, and 6.9% put the rise at 51-75% over 2016 totals.
As for that nearly 20% of all respondents anticipating a decline in capital investments next year, 36.8% put the decrease at 0-10%, and equal numbers (21.1%) of respondents peg their decreasing investment value in the range of 10-25% and 26-50%.
Following the money
The objects of these coming investments reveal where respondents see their needs, as well as their opportunities. In questions devised to elicit multiple answers from our respondents, we sought to identify where the 2017 capital investments will be directed. Topping the list is a tie: 32.3% of all respondents identified forging machine rebuilds and control modernization as their top targets, and that is equal to the percentage of respondents who will invest in training and education programs next year.
Following closely on this, 30.6% of respondents plan to invest in forging furnace and billet/bar heating technologies; and 29.0% will invest in robotic systems and/or manipulators.
Next on the preference lists are machine tools (22.6%), tied with forging handlers/conveyers (22.6%); and these are only slightly more likely objectives than new forging machinery (presses, hammers, upsetters, etc., 19.4%) and billet feeders/conveyors (19.4%.) Cleaning/finishing equipment also ranks high, drawing 17.7% of respondents. (Note that respondents were invited to make multiple choices, so the totals exceed 100%.)
The high-technology dimension of forging is best illustrated now by simulation programs for production process design: 75.0% of all survey respondents now confirm their operations are employing forging simulation programs, the highest percentage of respondents for this question in more than a decade of surveying the industry. 41.3% report the simulation technology is used to reduce shop-floor trials and/or to optimize the production process); and 8.7% report the simulation programs are in use to evaluate production problems. 45.7% of respondents are using the programs for both of these reasons.
And what about that remaining 25% of respondents who have not adopted forging process simulation?: 47.4% cite the cost of the technology, and 21.1% indicate their organizations do not have personnel qualified to deploy simulation technology. Equal percentages of respondents report they are unaware of any simulation technology that might improve their operations (10.5%), and do not see the value of simulation for their operations (10.5%.)
Trouble behind, trouble ahead
The survey takes the same approach to identifying the issues that inform or influence forgers’ business outlook. Respondents were asked to identify the issues that have significantly complicated their business decisions and/or results during 2016; again, the multiple-choice option means that the results exceed 100%. By a significant margin, 46.4% of all respondents chose “a lack of orders” as their chief problem during 2016; 32.8% identified “foreign competition“ as a problem, and in a tie 25.9% chose “energy costs” as well as “general labor shortage(s)”. Another issue pressing on survey respondents has been “raw material lead-times” (24.1%.)
Taking this same, multiple-choice approach, the survey asked respondents to identify the problems they anticipate lying ahead in 2017. Again topping the list is “lack of orders” (43.6%), followed by “foreign competition” (38.2%.) Falling in behind these are “general labor shortage” (27.3%), and then a tie between “energy costs” and “higher labor costs” (both at 25.5% of all respondents.)
Manufacturing is a systemized approach to problem solving, and manufacturers like forgers are adept at devoting insights and resources to overcoming challenges. So we asked respondents to evaluate some of the wider problems facing their industry.
A sizable portion of all respondents (36.4%) see “increased availability of qualified workers” as the change that would have the greatest effect on the industry; 29.4% see a lack of worker-development programs as most impactful. The “inability to retain workers” (16.4%) and “lack of continuing education/training” (14.5%) also elicited significant levels of response.
How would respondents address these problems? 36.8% recommend additional training programs, and 29.8% propose greater involvement by forging businesses in industry-wide development efforts.
Finally, we sought respondents’ view of new commercial opportunities for forging businesses: 25.0% see that opportunity in automotive components, while 20.0% of respondents see that opportunity in fuel-efficient engine designs. Only aircraft/aerospace components (16.7%) and alternative-energy systems (10.0%) drew respondents in double digits.
Customizing the forecast of 2017 business conditions for forgers is not difficult, but it must be appreciated within the expectations for the global economy, North America’s regional industrial landscape, and the manufacturing businesses within forgers establish their supply chain. The challenge for individual forgers is to clarify their understanding of the resources and obstacles before them, and to approach them with an informed approach to problem solving.
