What is a custom metal fabricator?

Occasionally researchers give us a call. They could be from investment firms, market research firms, accounting firms, sometimes even the federal government. The conversations vary, but they all tend to go back to a single question: What is a metal fabricator?

I first tell them that a metal fabricator is, well, a person or operation that cuts, forms, and welds metal—usually (at least how we define it) sheet metal, plate, tube and pipe, or structural beams. The next thing I say is that metal fabrication isn’t an industry, but a group of technologies used in various stages of the supply chain in different manufacturing sectors. The technology happens to be concentrated several steps up the supply chain from the end customer, at the custom metal fabricator.

OK, Well, What’s a Custom Metal Fabricator?

Herein lies the complexity. Every time I research, call, and visit a company, I run through a little matrix in my head so I know where the custom fabricator sits in this broad manufacturing sphere: precision (and nonprecision) sheet metal, precision tube, specialty fab (think microwelding, laser cladding, electron beam welding), heavy plate, industrial (skids, process piping, vessels and tanks, associated rolling and head-forming shops), architectural (panels, column covers, artistic elements), and structural (beams and plate).

I like to think of a custom fabricator somewhere inside a seven-sided polygon (a heptagon), with each side representing a “traditional” type of custom fabricator—seven pigeonholes. Where a fabricator sits inside depends on its customer base and local market needs. A structural or industrial fabricator is likely to be close to their respective pigeonholes. A precision sheet metal fabricator might decide to bring in a small beam line to take on some overflow structural work, or invest in a plasma or waterjet and take on more plate work. More fabricators are now like this; they’re difficult to pigeonhole.

People involved in the investment world tend to group fabricators into two business models: one in which a fabricator competes primarily on price and the other in which a fabricator competes on overall value. That is, the company works closely with the customer to take the overall cost out of the broader process. This could be through component design changes (design for manufacturability, or DFM), delivery schedules and methods (stacking this part in such a way in a delivery bin, kanban replenishment), or supply chain management. These services can extend all the way to private-label work, in which a custom fabricator handles all manufacturing and logistics, producing, assembling, and shipping products directly to their customer’s customers.

A custom fabricator may tout its DFM abilities, but it might not offer it for all jobs, because for some customers the red tape associated with any design change is just too costly and takes too much time. Some customers just want a certain level of quality and delivery performance at the right price. Considering this, I don’t see these two business models as an either/or proposition. I see both price and value approaches as complementary, each sitting on opposing sides of a scale. One approach usually dominates, but the other is always there to some extent.

In fact, custom fabrication takes several of these complementary approaches to the business. Consider quick-turnaround work versus complex projects. A quick-turn fabricator turns around relatively simple orders quickly, which is great for cash flow, though the margins may not be out of this world. Meanwhile, a team at a project-based fabricator could spend months planning, coordinating, and fabricating a single job, like one for a large industrial project for a refinery or a nuclear facility. The margins are nice, but projects don’t flow out the door at a steady pace, which isn’t great for cash flow. Again, a custom fabricator can have both, though one usually dominates.

Focus in on the Custom Fabricator

Then you have the narrow versus broad technology focus. Some fabricators focus on just a few processes and do them very well. One could have a quick-turn cutting and bending operation; another could focus just on roll forming and its ancillary processes; while still another could focus solely on high-end prototyping fabrication for aerospace and defense.

Others have broad technology mixes that include not only sheet metal cutting, bending, welding, grinding, and powder coating, but also machining, some stamping, and complete assembly. Some may even venture into other technology sandboxes, like plating or heat treating, or even plastic injection molding and nonmetal (resin) additive processes. Customers want to simplify their supply chains, and custom fabricators are obliging by building companies with some previously unheard-of technology mixes.

M&A activity is driving this trend too. The thinking goes that most metal fabrication technology isn’t proprietary. There’s nothing legally stopping the shop down the street from buying the same machine. It’s the people, processes, and manufacturing technology mix that set a company apart. A custom metal fabricator need not work with only metal.

Service offerings fit into the “broad” approach too. Some custom fabricators have, for instance, done significant work in robotics integration in their own plants—a complex undertaking, considering the high variety of work they process. Their success has led them to offer separate robotics integration services to other companies.

The same could be said of software, such as quoting or scheduling software developed in-house initially, then sold to other operations. Admittedly, this might become more common down the road, but more than a few owners whose shops have developed homegrown systems have told me that they were thinking about selling a version of the software to others.

Custom Metal Fabricator Shop Vs Product Line

One final business model pair: job shop versus product line manufacturer. Product lines in this business can be anything from direct-to-consumer products to highly configurable or customizable product lines designed to serve a range of other businesses—tubular exhaust parts for heavy equipment manufacturers, for instance. It’s a good business if the operation can weather the ups and downs. That’s why product-line manufacturers dip their toes into the job shop business, an arena that’s not tied to the demand variability of a single industry or product. At the other end of the spectrum, custom fabricators launch their own product lines so they can stop chasing work and build an additional revenue stream.

Custom fabricators aren’t stuck with the scales set as they are either. Rebalance the scales—heavier on “value,” lighter on “price”; heavier on the “broad” and lighter on the “narrow” technology focus; and so on—and a fabricator can refocus the business. That’s probably why so many investors and entrepreneurs are looking at this business with such keen interest.