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At USCTI roundtable: US toolmakers race to keep pace with technology.

At USCTI roundtable: US toolmakers race to keep pace with technology

High-speed-steel tools are giving way to new tool materials that offer longer tool life and improved performance characteristics. Metric standards are required for both domestic and export markets. Customers are demanding total support from the manufacturer, requiring changes to marketing and distribution methods. And a lack of partnership between government and industry threatens the entire manufacturing base. At a recent roundtable discussion, the United States Cutting Tool Institute's (USCTI) Board of Directors talked about how these issues will affect the future of their industry.

USCTI was formed by the 1989 merger of the Metal Cutting Tool Institute and the Cutting Tool Manufacturers Association. With a membership of more than 100 companies, it represents US manufacturers of tools or toolholders made from various types of steel, carbide, diamonds, and ceramics, for use in power-driven machine tools.

Impact of coated inserts

"Even though coated-insert technology is only 15 to 20 years old, last year 60% to 70% of our shipments were coated," comments Larry Cole, president of Cole Carbide Industries Inc and one of the member companies that possess coating facilities. "Because coatings are very technical in nature, we have had to add a lot of people to our staff in the last two years to keep up with the technology."

The company not only added personnel, but also acquired high-speed equipment to manufacture tools that are then coated. Up to 15% of all tools produced at Cole have to be replaced with newer products every year, requiring substantial investment in research and product development.

"I don't know how the small manufacturer can keep up with the rapid changes in technology," Mr Cole says. "When you consider the effects of near-net-shape workpiece materials, and the impact that EDMs, lasers, and waterjets are having on the cutting-tool market, small manufacturers won't be able to keep up with these changes."

Mr Cole said most of the equipment they are seeing tooled up in this country is high-speed machining. These types of machines require new grades of coated cutting-tool materials to operate at maximum efficiencies. Even new plain-carbide grades will not have the impact coated grades will.

"At the turn of the century, knowledge doubled about every 20 years," says John Knight, president of Viking Drill & Tool Co. "But by the end of the century, it is expected to double every four months." This rapid rate of change is forcing manufacturers to invest frequently in new technology to remain competitive. And they must do so in a taxation arena that offers little incentive for investment in research and development or competitiveness.

Discussing this phenomena, Bradley Lawton, executive VP of Star Cutter Co, explains how coated tools will continue to take away from the HSS markets. "The new coatings we are seeing are more selective in application," he says, pointing out that new combinations of substrates and coatings are being developed for specific uses. "Alternative machining practices will also contribute to the decline of the HSS market," Mr Lawton continues. "We are now seeing customers engineer traditional machining methods out of their products."

Lasers, EDMs, and waterjet machines are now widely used for holemaking applications, the traditional strength of USCTI members. "With the new machining methods, many holemakers won't even make chips anymore," comments John Summers, president of Jasco Tools Inc.

Opportunity in change

Even in the wake of diminishing domestic markets, all is not doom and gloom. For a group confronted with so many external pressures, USCTI members are generally optimistic about the future. "Anytime there is stress or change, there is tremendous opportunity," says John Summers. "It's up to our industry to take advantage of it."

For example, the automotive market, one of the largest consuming industries of HSS tools, has been down recently because of sagging auto sales, outsourcing, and the on-going success of imports. "Even in our best times," explains James Packard, president and CEO of Regal-Beloit Corp, "we operate over capacity, so we end up selling low, because there are many people chasing a fixed amount of dollars. Then every time the economy improves, a greater percentage of tools are not used because of productivity improvements."

However, a positive note is the strength of the commercial aircraft and related industries. Toolmakers are also seeing a mild pickup in the oil patch in Texas and Oklahoma. "We are also seeing a lot of new activity, new facilities, and new equipment in certain pockets of the country," says James Horan, president of Vermont Tap & Die Co. He named North Carolina, South Carolina, Mississipi, and Tennessee as growth markets for his company's products.

"The off-road and construction industries are also forecast to be very strong," continues Mr Horan. With the opening of the Eastern Bloc, many off-road equipment manufacturers are entering into contracts with the government of these countries. It is expected to keep this industry segment busy well into the 90s.

The estimated domestic market for cutting tools is about $2.5 billion. About 15% of that is now serviced by imports. "I think we will be fortunate if the demand in real dollars remains static," comments John Summers.

Japan is the largest exporter of tools to the US. But significant amounts also come from Israel, Yugoslavia, England, Germany, Sweden, Taiwan, Korea, and Canada, says George Briggs, president of Weldon Tool Co.

"We have a Philippines Treaty that allows their exports to come in without duty or declaration of country of origin. That makes these products difficult to track," Mr Briggs explains.

In addition to imports impacting the domestic market, the industry is beset by mergers and acquisitions.

"Six of my major competitors have been bought out by foreign concerns in the last few years," reports Donald Lucas, president of Abrasive Diamond Tool Co. "The tools are made domestically, but the companies are foreign owned."

As imports and foreign ownership change the rules of the game for US toolmakers, the influx of foreign machine tools is also affecting them in the area of metrication. With the plethora of machine tools coming from overseas, there is an increasing demand for metric tooling.

"We, as a group, hold to the inch standard," James Packard says. The growth of the tool industry over the years has been primarily with inch tools. Until the late 70s and 80s, the US was the largest consuming nation of tooling. It was also the largest producing nation of machine tools. In the past, this resulted in a strong demand for inch tooling all over the world.

The foreign dynamic

"The foreign dynamic represents our industry's opportunity to increase its bottom line," says John Summers about the window of opportunity for exporting. "If we live up to our potential, we can sell in most places in the world. We've been inbred," he continues. "We've sold into a domestic market that had great demand, and we relied on that for our growth."

Many member companies feel that the European tool builders will be hard pressed to meet the growing demand brought about by the opening of Eastern Bloc markets. George Briggs estimates the German market for end mills alone to be as large as that of the US.

"With the East Bloc opening, there is an opportunity," says John Haag, "but you have to position yourself. You must commit to metric and you must have a facility over there, at least a warehouse."

While Europe holds promise for US tool makers, the same opportunity continues to elude them in the Pacific Rim, especially Japan. "Japan has almost impossible barricades for us to serve that market," comments George Briggs. "Even though we can supply product to end users at less cost, we can't get by the large, stratified distributor organization."

Customer driven distribution

Amongst all of the changes in the tool industry, one of the most profound can be seen in the way tools are marketed and distributed. Initially, companies sold direct to localized markets. Then as markets and demand grew, distributors were employed, enabling builders to cover larger geographical areas. Today, there is a customer-driven swing back to direct selling.

Many large customers, especially the aircraft and automotive companies, are relying on smaller vendor bases and requesting master contracts. The customer wants to meet face-to-face with the tool manufacturer, to set specs, supply schedules, and prices. Often, they are then willing to take delivery from distributors.

"Previously, distributors offered technical assistance and training, but as customers demand more direct contract from the manufacturer, distributors are looking at their role in a different way," says George Briggs. "The new role of distributors is that of a sales and marketing organization, without offering the same level of technical support for the customer as before."

As customers demand more upfront contact with manufacturers, many larger toolmakers are buying distributors to get direct, local representation. Those builders without a large sales force are finding it difficult to reach the smaller companies. "Using direct salesmen, we cannot reach all of the small shops because it's just too expensive," says George Briggs. "You'll continue to see manufacturers buying distributors to achieve something like a national distribution network."

Customers are seeking total support from manufacturers. They want a tooling vendor that has the ability to supply all kinds of tooling, both coated and high speed. This is another reason for the mergers and acquisitions taking place throughout the industry.

On the support side, customers need technical assistance to apply the correct tool grades to the appropriate materials. In some cases, the customer wants a fixed-cost, annual contract to keep production in his plant going. "We are currently talking with one of the automotive plants, and they want us to enter into a contract that will require us to keep enough tooling in-house to keep a transfer line running, backups for the tool crib, and whatever service is necessary to keep that line up," says Donald Lucas.

"Customers are becoming more conscious of total value," says Clifford Preuss, director of operations for Cleveland Twist Drill. "They are willing to buy tooling with a higher up-front cost, as long as it saves them money over the life of the tool." An example illustrated by Mr Preuss is the new high-penetration drills. These tools are considerably more expensive up-front than traditional drills, but offer a huge savings in per-hole, per-part cost through superior performance and tool life.

Partners or adversaries

The health of the US cutting-tool industry will depend on its ability to absorb new technologies, export effectively, and offer total customer service. These same challenges are faced by the entire US manufacturing base. For all manufacturing industries to meet these challenges, a new relationship between industry and government must be initiated. USCTI members are seeking a teamwork relationship, with government providing an attractive investment environment.

"We, like other industries, have in the past focused on domestic markets," says Bradley Lawton. "And because a government evolves from within, many of our laws, policies, and regulations came about from our domestic orientation."

Foreign competitors typically operate in partnership with their governments and financial institutions, says Mr Lawton. But in the US, there is an adversarial relationship between industry and government. He looks for government to help companies improve their technologies through investment incentives.

"We need to compete on a level field," Mr Lawton continues. "We need investment tax credits, faster depreciation rates, and improved R&D tax credits. There is a tremendous amount of enthusiasm and optimism in this group, but we need teamwork with our government to succeed.

"To improve this relationship, it is necessary to recognize the importance of the manufacturing base in our country. If we don't have a manufacturing base, our economy is in trouble, and so is our standard of living."

In the wake of all these pressures facing the US cutting-tool industry, perhaps Clifford Preuss sums up the future best. "We are fortunate to have new workpiece materials. It has been proven over and over, as soon as somebody invents a new material, they're going to put a hole in it. And after the hole, a thread."
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Title Annotation:United States Cutting Tool Institute
Author:Arter, Richard
Publication:Tooling & Production
Article Type:panel discussion
Date:Sep 1, 1990
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