How scalable is contract metal fabrication?

April 14, 2014
By: Tim Heston

How big can custom fabrication get? Judging by recent trends at some of the larger contract operations in this country—very, very big.

Most of contract metal fabrication serves a local and regional customer base, and that’s one reason small- and medium-sized customer fab shops dominate this business. Aside from upper-tier automotive stampers and similar companies, typical annual revenue ranges in custom fabrication range from $8 million to $10 million, and employees number in the dozens, not hundreds or thousands.

High-mix, low-volume fabrication seems perfectly suited for the small enterprise. Even the smallest of companies may run thousands of part numbers over a single month. How would you scale up an operation of such variability—of different volumes, demand cycles, routings, and product mixes? It all seems overwhelming.

Recently I’ve been calling some of the largest companies that submitted revenue figures for this year’s FAB 40, our annual list of successful custom fabricators, and asking them how scalable they feel this business really is. Very, as it turns out, and much of it boils down to three factors.

The first is no surprise: Location still matters, so if a large fabricator with a regional or even national footprint wants to expand to serve OEMs in different areas of the country, they look at opening plants nearby.

Second, the largest fabricators (and many others) know they have two primary business models operating in one company. Just to assign convenient labels, we’ll call it the “job shop” and the “contract shop” models. Many companies have assigned each to separate value streams, which sometimes includes distinct areas or machinery in the shop.

In the job shop model, the company has a wide variety of low-volume jobs, many of them never to be repeated again, while some will be ordered again down the road, but exactly when is anybody’s guess. Some fabricators assign design-for-manufacturability services and engineered-to-order jobs to this segment.

As the product matures in its lifecycle, it may eventually be transferred over to the contract shop, full of somewhat predicable repeat orders that serve to support OEM production.

The third major factor is what I’ll call “big data.” Data analytics have been a part of high-volume manufacturing for years, and today the technology has progressed enough to take on the highly variable environment of custom fabrication. Some companies purchase off-the-shelf analytical software, but many have developed custom software in-house to suit their needs.

A few use it not only to track jobs and ensure high on-time-delivery rates but also to aid in sales forecasting, mining the accuracy of past sales forecasts to predict future trends. Past events can’t predict the future perfectly, but increasingly powerful analytics software now can recognize subtle patterns, and it actually works better when it has a large database of jobs to draw from. So from this standpoint, being big has its advantages.

So how big can the big players in high-mix, low-volume custom fabrication get? Judging by these current trends, they may be able to grow a lot bigger than most thought possible. Mass customization, here we come.

Look out for the 2014 FAB 40 in the June issue of The FABRICATOR.

Tim Heston

Tim Heston

Senior Editor
FMA Communications Inc.
2135 Point Blvd
Elgin, IL 60123
Phone: 815-381-1314