Limited capacity, shortened timelines, and stretched supply bases have left Tier I, II and III metal stamping suppliers with strained supply chains and pose unique challenges to profitable expansion in a growing market. US demand for metal stamping is forecasted to grow to $43.5B in 2020, up from expected $38.6B in 2016. The 2009 economic recession caused large scale consolidation and the subsequent closing of many smaller to mid-size suppliers.
As a result, fewer suppliers offer wide tonnage ranges, variety of presses, aluminum stamping expertise or the capability to produce both large stampings and complex sub-assemblies. Further, capacity hasn’t kept pace with industry demands, providing suppliers pricing power to command piece-price premiums. Metal stamping suppliers that take action to maintain metrics-based strategies, develop robust processes, and institute variable and flexible models best position themselves to both expand in current market conditions and ensure sustainable future profitability as market conditions inevitably shift.
Challenges
Metal stamping suppliers compete on the basis of quality, capacity, capability, timeliness, and price. Continuous quality control system improvements utilizing total quality management (TQM) and Six Sigma systems are critical for ever more complex processes; hot stamping, joining steel and aluminum, and bonding techniques pose new supply challenges.
Suppliers are balancing the desire to match production capacity to demand with the desire to minimize business exposure to long-term risks. OEMs are depending increasingly on suppliers to supply highly-engineered assemblies, in turn requiring suppliers to have better visibility and cooperation between all supply tiers.
Demanding prototype turnaround times and production part-delivery timeliness are keys to winning and sustaining these new larger OEM contracts. Raw material prices are both critical costs to minimize and volatile commodity risks to mitigate. These industry challenges can pose strong headwinds for metal stampers looking to expand and take advantage of strong industry demand.
Key Considerations
There are a number of micro and macro trends that influence metal stamping suppliers’ current and future supply chain operations. Because customer buying habits demand increasingly more optionality, the ongoing shift to mass customization will result in greater product variety, lower volumes and more flexible manufacturing processes and setups.
Vehicle platform components will continue to be designed utilizing lighter-weight, non-ferrous metals to address fuel economy, safety, and environmental issues. Innovative process capabilities to stamp difficult-to-form materials such as high-strength steels and aluminum alloys will become a price to play for both suppliers and their supply bases.
Fast-growing suppliers in developing countries will compete more and more to supply North American OEM plants by building plants, acquiring suppliers, or exporting smaller components and subassemblies. End-to-end supply chain visibility between suppliers and OEMs will continue to increase, which will require suppliers to increase investment in research and development, manufacturing processes, and information systems. Below are some supply chain actions to position your company for sustainable short and long term profitable growth.
Solutions
Action 1. Maintain Metrics Based Supply Chain Strategy
Implementing market indicator tracking to forecast demand changes allows for proactive adjustment of supply chain strategy. Key economic indicators; US seasonally adjusted annual rate (SAAR) of vehicle production, payroll employment, and unemployment rate provide trend indicators for forecasting future capacity needs. Actively monitoring commodity prices; raw material steel and aluminum cost per pound prices and crude oil cost per barrel via exchanges LME, Platts, and NYMEX can provide more frequent indicators of global economic trends.
Leading suppliers are starting to utilize rate based planning (RBP) tools to forecast commodity family category demand to better align supply with demand. RBP aggregates all aluminum 6061 needs to forecast total demand as opposed to treating each part forecast separately reducing volatility, inventory, and costs. Supply Management Systems (SMS) allow suppliers to manage critical supply-base performance across raw material, component, and transportation buy. OEM late delivery penalties are costly and thus closely monitoring supply base performance is key.
Action 2. Execute Robust Supply Chain Processes
Developing robust supply chain processes for coil and processed metal, specifically purchasing, forecasting, scheduling and transporting raw material is a key enabler to success. Raw material procurement provides an opportunity to generate a 2-5% profit by procuring and reselling steel at a premium to suppliers and select lower-volume OEM customers. Typical OEM raw-material programs markup steel up to 10%. A well-executed raw-material hedging strategy utilizing financial or non-financial hedging could significantly reduce raw material buy risk.
Many Tier I suppliers utilize OEM metal-buy programs, however there are many material purchases that often fall outside of these pass-through programs and thus expose the business to risk. Innovative tooling manufacturing processes can support smaller production volumes by dramatically reducing die costs. Casting dies from liquid molding compounds, cement and polymer mixture composites or CNC machining of cured polyurethane boards can save die manufacturing costs.
Action 3. Institute Variable & Flexible Supply Chain Models
Automotive OEMs are undergoing dramatic reinventions toward mobility. This allows forward-thinking suppliers to assume more body-in-white assemblies via larger contract manufacturing scopes of work. Suppliers are leveraging pricing power to have OEMs pre-fund part or all of capital, equipment, and tooling to de-risk expansion. OEMs are resorting to creative funding arrangements to incentivize Tier I suppliers to expand capacity and expedite program launches.
Suppliers are starting to aggressively leverage third-party services, such as Supply Chain as a Service, to institute variable people cost structures to augment and support their internal teams. These new business model hybrids are allowing suppliers to aggressively expand at lower risks. Implement flexible supply chain models and processes to support different types of OEM and tier customers, product lines, and volumes. Production components for traditional OEMs must follow different processes than prototypes for new OEMs to ensure optimal product flow and profitability across varying volumes and customers.
Conclusion
Since the recession, the metal stamping industry has exhibited a low level of volatility; however, it is implementing the above actions in the present that will ensure suppliers maintain profitability through the next downturn and beyond. Maintaining metrics-based supply chain strategies will allow suppliers to profitably expand by providing visibility into future market needs from which ongoing capacity can be optimized. Developing robust supply chain processes will ensure continued execution excellence with ever more complex metal stampings and assemblies. Strive to lead the seismic shifts underway in the metal stamping industry by reflecting on every process within your supply chain to ensure that each step adds value to the end customer.
Instituting variable and flexible models will position suppliers to evolve their structures and processes to support new automotive OEM business models. Push your team to benchmark supply chains outside of the traditional automotive and aerospace markets to rethink the very nature of what it means to be a metal stamping supplier. Suppliers that take action to maintain metrics-based supply chain strategies, execute robust supply chain processes, and institute variable and flexible supply chain models will generate superior supply chain performance in the short and long term.
-William
