The business of lasers
As we all know, the laser industry has seen easier times. Economic and market pressures have changed the competitive landscape for laser cutting equipment, and the changes are likely to continue. Both lasermakers and laser users need to adapt to the changes in the laser market, and the companies that recognize and adapt first are likely to be those that succeed.
From the laser manufacturers' standpoint, the U.S. market for lasers has simply gotten smaller. This is a function of multiple market forces. The slumping manufacturing sector is a major influence, but so is the increased productivity of today's laser systems. At its peak during 1994 and 1995, the industry needed about 1,000 new machines per year to meet manufacturing demand. Modern laser systems would handle that work load with far fewer machines. So even if demand for U.S.-made laser-processed parts returns to its historical peak levels, fewer machines and shops will be needed to meet that demand.
Several other realities have a significant impact on this market. One of them is the shift in the wants and needs of the buyers of laser-processed parts. Buyers are putting significant pricing pressure on their suppliers. In many markets, retail pricing has been deflationary. Manufacturers of those products are asking for deflationary prices from their suppliers—and they are getting it. If they can't get it here, they get it overseas. Overseas competition is very real, and very stiff. The labor is extremely cheap, and the manufacturers can make the same parts, from the same materials, on the same equipment as U.S. manufacturers do.
So how do U.S. manufacturers continue to operate profitably? Some will and some won't. Some already have disappeared, and others inevitably will. However, every market has businesses that thrive. In the laser processing market, the thrivers are likely to be those who understand how to add value to their products. Edge quality and consistency of the finished part are, of course, important measures, but more and more quality is becoming a baseline expectation. Primarily, this value is added in two ways—service and price.
Service is an added value that overseas competitors can't take away. Some very practical realities can help keep laser work in U.S. shops. Certain parts are needed on a just-in-time basis. The distance factor gives U.S. partmakers a major advantage. Added-value services that allow manufacturers to off-load internal costs such as inventory management, CAD file conversion, and prototyping also are becoming cornerstones of some supplier relationships.
A service approach to the business means looking for every opportunity to respond quickly to the needs of the customer. With the pace of change and communication in today's business environment, this is a mindset that has never been more important to success. Successful U.S. partmakers will find ways to leverage and improve service.
The most challenging changes that need to be made relate to pricing. The only way to reduce the price of the part is to reduce the cost of the part. Traditionally in the laser market, pricing has been addressed in two ways: Lower margins on increased volume and add more speed and power to the machine so more parts can be made per day. While these principles are still a part of the pricing equation, the approach to this issue is changing significantly.
Change the Way You Look at Lasers
Until recently evaluation of a laser system was based primarily on measures of speed, power, and cut quality. While these measures remain important, a real evaluation asks two fundamental questions: How does this system lower my cost per part? and How does it position my business for the future?
To answer the first question, shops must know the true cost of making a part. The laser process must be examined from start to finish, including costs of labor, materials, energy, capital, overhead, and all other identifiable costs. Every shop is different in this regard. The most important aspect of this calculation is relative efficiency. If the current equipment can put X number of parts out the door, and it can be doubled or tripled with the same floor space and labor cost, relative efficiency is greatly enhanced. Higher volumes significantly reduce the cost to produce a part. In factoring the cost of capital investment into this equation, shops must consider the cost of existing equipment.
The point is that before shops can evaluate honestly their ability to upgrade equipment, they must calculate a return on investment. When the costs of production are more calculated and clear, the impact of system improvements becomes much more apparent.
During the evaluation process, material handling inefficiencies, work flow bottlenecks, maintenance costs, and other operating costs that have never been scrutinized before also might be identified. Once shops get a handle on these true costs, they can understand the potential throughput of a laser system. The speed of a laser system is only one variable. The maximum published cutting speed of the system usually is not even relevant to the equation because it is rarely achieved in real-world production.
The second question concerns keeping a business positioned to grow and adapt as the market gets increasingly competitive. Laser shops are much more sophisticated than they used to be. The most successful laser shops have found ways to meet the price that the market demands, but also to deliver the quality, precision, and service needed to grow in a down market. They are leveraging hardware and software to minimize their costs—finding ways to turn commodity work into high-value product and service. They offer a competitive price, deliver on time, and manage inventory for their customers.
To achieve these goals, they view their business as a production system and constantly are looking for ways to reduce the number of steps it takes to make the part. The power of software is transforming the way parts are made. Networking systems link processes that used to be separate, and processes that used to be manual are being automated. The net effect is that these advancements significantly lower the cost structure and reduce the labor load for every part.
Software applications simplify CAD file conversion. This enhances service and makes low-volume work and prototyping more efficient and profitable. Software also creates efficiencies in materials management by nesting parts from different jobs on the same sheet when the material requirements match.
Laser systems with automated material handling modules can run multiple jobs back-to-back, using several different materials with very little human intervention.
The Value of Partnering With Manufacturers
The pinch on the manufacturing market has caused both shops and equipment manufacturers to adjust their approach to the market. For job shops, this could mean a helping hand to help guide them through a sea of change. Manufacturers realize now more than ever that their customers' success and profitability are vital to their own prosperity and survival.
Laser manufacturers have adjusted their product lines, sales approaches, and application support. They are trying to find ways to help their customers make the transition to automation and flexible manufacturing system (FMS) equipment and to processes that will allow them to compete profitably with overseas providers.
The new products also reflect changes in the market. Nearly every laser manufacturer has shifted its product emphasis to FMSs that offer automation and process reduction (see Figure 1). The push for power is giving way to the push for real-world productivity, such as cutting thicker materials with less power and consuming less gas. If throughput can be matched or exceeded with less power and gas, the savings will go straight to the bottom line. Automation greatly increases the productivity of the laser operator.
People inherently resist change because it is unfamiliar, but change is inevitable in every industry. This just happens to be a critical time for ours. Some in the industry fear that automation eliminates jobs. The important thing to remember is that reducing labor costs does not necessarily mean reducing people. Companies that evolve successfully often experience growth in revenue and people, and each person has a function that delivers a higher level of productivity. If the industry is going to compete, it needs to make more parts per person employed. If it doesn't, it simply cannot compete.
So while the current state of the laser market is challenging, a paradigm shift is in play that makes for an interesting future. Automation systems and software advancements will continue to streamline the manufacturing process, and lasers will continue to evolve. Eventually the process may look more like that of a laser printer than a traditional job shop. Imagine a future in which a network receives an order directly from a customer, the material is pulled automatically, and the part is produced and prepared to ship—all in one seamless process. This level of automation already exists in other industries, and it is just a matter of time before it exists in this industry. Technology to reduce steps in the process and achieve operational efficiency is here to stay.
Bill Isaac is vice president of Mitsubishi Laser, a division of MC Machinery Systems Inc., 1500 N. Michael Drive, Wood Dale, IL 60191, 630-616-2970, fax 630-860-4248, email@example.com, www.mitsubishi-world.com.
The FABRICATOR is North America's leading magazine for the metal forming and fabricating industry. The magazine delivers the news, technical articles, and case histories that enable fabricators to do their jobs more efficiently. The FABRICATOR has served the industry since 1971.