Consolidation and Relationships


Consolidation and Relationships

One of the five or six largest special machine tool companies in the 1960s and 1970s specialized in piston production machines. The chainsaw example revolutionized small engine piston manufacturing, since several other engine manufacturers followed suit. The company was innovative in piston manufacturing techniques and had supplied hundreds of various piston process manufacturing machines and entire systems to customers around the world.

It was common for each of the companies to have a specialty or two that gave them an edge in that area, although they could still expect a serious challenge every time. That particular company specialized in machine tools for the manufacture of several other components as well, connecting rods and transmission valve bodies as examples. The company was sold by the founding family, then consolidated with another, then finally disappeared with decline of that company and eventual purchase of the remnants by a German company. That invaluable piston and other component machining expertise disappeared in the process. The other companies that disappeared had specialties as well, which were lost or at least diminished in the industry consolidation. You may recall from Chapter 3 that an estimated 80 million engineering hours were expended developing that expertise and were a resource available to exploit for future production advances.

That component-specific expertise was gained over years of competing with other machine tool companies, winning some and losing some, but incrementally advancing the state of the art with each exercise. All the gains made through the lessons of marginal early successes and painful failures and redesigns have lost their meaning. The subtle details of process technique and of the component response to material removal, tooling, and fixturing forces are very narrowly known or understood.

Even so, the loss of the network of companies competing with each other to advance the art is many times greater than just the loss of current levels of expertise. The trend to purchase component parts from suppliers, who in many cases have long-term supply relationships, further retards the rate of advance. Should they be concerned about the competition, which continues to exploit the capability and the ingenuity of multiple competing suppliers and/or special machine tool companies? You bet!

These are distinct losses for engine builders around the world, although it is doubtful that they all recognize it that way and will likely view this discussion as “sour grapes.” The customer’s current management doesn’t seem to understand the special machine tool industry or appreciate it or its obstacles to reasonable success, which is ironic considering its historical impact on their own business. There is more involved and at stake than that auction target price. The current special machine tool purchasing “low price paradigm” blinds those companies to the real impact on their own organizations

In the 1960s and 1970s, auto companies were concerned about special machine tool capacity and would do things like place purchase orders to simply reserve capacity in machine tool schedules. They actually acquired significant equity in some special machine tool companies and made partnership commitments with others. Both were wrong, as the competitive aspect was affected, but it demonstrated their appreciation, at the time, of the importance of the industry to their own businesses. Those purchases and partnerships have since been reversed.