Measuring the manufacturing cycle in metal fabrication

For years many in metal fabrication have dealt with inches per minute (IPM) in cutting and welding, and strokes per minute (SPM) on the press brake for bending. The question has always been: How fast can this machine produce? How many IPMs? How many SPMs? How fast can this machine cut my nest of parts or bend this batch of blanks?

In high-product-mix operations, new technology has helped to give shops the excess capacity they need to be flexible. If a hot job comes in, no problem. The fiber laser cuts at so many IPMS, it can take on more work without pushing other work behind. The same thinking goes with hybrid and electric press brakes, which help a bending department crank out more SPMs, the idea being that they for more parts in less time.

To be flexible, though, more important than speed perhaps is knowing that a machine is available to produce. It’s not tied up in setup, and it’s not down unexpectedly. Today press brakes change over themselves, lasers automate the nozzle change, and shuttle tables ensure punches and lasers spend little time between jobs just sitting. Robotic welding programs are programmed and simulated offline, and fixtures are swapped out within minutes. In other words, there isn’t much time during a day in which machines are unavailable to produce.

This also seems to be why more shops are adopting software that can track that availability, and also track where jobs are in the manufacturing process. It could be software and systems based on standards like MTConnect or OPC, or based on proprietary systems. Machine uptime is important, but fantastic uptime doesn’t necessarily lead to better profits, especially if a machine is producing parts that aren’t needed immediately.

In the "2015 Financial Ratios & Operational Benchmarking Survey,” compiled by the Fabricators & Manufacturers Association, International, I saw an interesting correlation in the appendix, which shows averages of key data points. Over three of the past four years, when the average EBITDA (earnings before interest, taxes, depreciation, and amortization) margin went up, so did inventory turns; and when EBITDA margin went down—you guessed it—so did inventory turns. This year the average EBITDA margin was 9.39 percent, while average inventory turns was 7.87. In 2012 the average EBITDA margin was 10.39 percent, and average inventory turns was 9.68; in 2012 EBITDA margin was 10.49%, and average inventory turnover as 11.77.

Inventory turnover can vary widely in custom fabrication, as it does in every job shop environment, but for this survey respondents calculated inventory turnover by the cost of goods sold divided by the average dollar value of inventory. It’s a rough indicator of overall manufacturing time, or how long it takes for ordered raw material to ship as a finished product.

It’s by no means a perfect correlation. In the 2013 survey, the EBITDA margin fell and inventory turns rose. Profits vary depending on the customer mix, types of products and services, and the local fabrication market. But measuring how long it takes for things to actually ship—and then shortening that order-to-ship cycle—can reveal more available capacity to sell, which can really can make a shop more profitable. Over the long term, the trick is to ensure that increased sales surpass the investments made to shorten that manufacturing cycle.

Greater SPMs and IPMs are probably a piece of the puzzle, but they aren’t the only piece.