2004 Summit III  

  2003 Summit II  

  2002 Summit I  
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Most manufacturing in Indiana is carried out by small companies. Those companies are critical to the health of Indiana’s economy. Unlike large companies, these companies do not have large and well-equipped research and development organizations - yet they must supply state-of-the-art products competitively. The training, medical insurance, environmental requirements and regulatory impacts offer challenges to these companies. This session has leaders from three successful companies who will discuss their concerns. Notes from parallel session. Attendance: about 50 Moderator Del Schuh opened the session by introducing the three panelists and explaining the session format. Pre-selected issues were presented for comment by the panel, one at a time. Then there was a question-and-answer session on that issue. Panelists were: Rick Ahaus, Ahaus Tool and Engineering Ted Fiock, Anderson Tool and Engineering Mike Lunsford, Dart Controls Issue: Supplying the automotive sector Ahaus: 75 percent of our business is for the automotive sector. Three years ago our employment was 140, today it is 100. Our peak sales were in 1999. It is hard to make a large profit in the automotive sector. There are many bidders for jobs. A target price is often set 20 percent below the lowest bid. There are annual mandated price reductions. Auto companies require supplier so to get low price suppliers for tooling (off shore). We lose business to foreign competitors. The luncheon talk by Bill Guggina of Delphi was encouraging. Fiock: Our business was 40 percent to 60 percent automotive in 1997. Now it is 20 percent to 25 percent. Automotive business has non-existent margins. There is much cost cutting, we must develop a niche or be driven out. Delphi has taken 30 key suppliers through a lean program to reduce their supplier costs. So, you should clean up your house and then help your suppliers. Lunsford: Stay out of automotive. We have no business there, however, some of our customers are making automotive-type requirements, such as annual price reductions. Issue: Trends in making products vs. providing turn-key services Fiock: We are supplying ancillary engineering services to customers who have reduced their development staff. In 1997 design and build was 15 percent of our business. Now it is 50 percent. There is much more turn-key because customers have reduced their engineering staffs. Ahaus: In the 1980s we know more turn-key would be coming so we have built up our engineering capacity to support this type of business. Now we have a core competency of providing turn-key solutions. Building our products is just an extension of our core competency. We may outsource components. We will maintain the ability to engineer. We have a program to train toolmakers, and then train selected ones to be designers. Fiock: We have eight engineering staff. One is a degreed engineer; the others have been promoted from within from the shop floor. We picked those with creativity and innovative skills. Lunsford: We hire EETs and run them through the company. Ahaus: Tool design can be taught but we do not have good programs, we should be more creative in how we teach them. Fiock: You must consider the risk in design and build. It is higher. Turn-key has production start-up issues and costs. Lunsford: We make electric drives for DC motors. We have a disclaimer that says the product application is the buyer’s responsibility. Question: What differences do you see in supplying the big three automotive companies? Ahaus: Cost is critical to all. We recently participated in a reverse auction for a $5 mil project and bid below our cost. We did not get the business. Fiock: Most or our business is with the tier one and two suppliers, who are much more flexible and easy to deal with than the auto companies themselves. Question: How can Purdue help teach creativity and competitiveness? Ahaus: Teach a realistic view of manufacturing. Get students real experience. Fiock: Purdue’s technical and theoretical teaching is well done. Students need shop experience. They must know how to design from a blank piece of paper. Lunsford: Engineers need basis business and economics and good writing skills. Verbal communication skills are very important. Issue: Business financing Ahaus: We have a good bank. It is difficult for us to make money and invest in important new technology. Fiock: We have been in survival mode for the past three years. Now we are up 80 percent. So, our bankers, looking backwards, say we are blemished and refinancing is difficult. We are having trouble getting our bankers to look forward. Lunsford: We have had some downturn but have been diversified. We are OK on financing. Question: What are your plans to get out of the automotive sector and how much will it cost for you to do this? Ahaus: 30 percent of tool and die companies went under in the past three years, hopefully this is good for those of us who survived. All of us are trying to diversify, so it is challenging. Our business plan includes improving our marketing. Fiock: We have gone from 60 percent automotive to 25 percent. We have been diversifying for several years. This has enabled our survival. It takes time to change. A 2003 IMA survey says · 68 percent of Indiana companies said health insurance was a major problem · 43 percent say it threatens their business · Our health care costs $4/per labor hour Ahaus: Our payroll is $5 million. Our health care is $1 million. There are no solutions in sight. Lunsford: Something has to change. Tort control is needed. Issue: Liability Ahaus: Liability costs are up about 10 percent per year Fiock: Ours is up 4 percent. It appears that more liability insurance competition may be coming, benefiting us. Lunsford: Two years ago we were dropped by our insurer, who got out of liability insurance for our sector. It was difficult to find another one. It is hard for them to understand what we do. Issue: Future trends for your business Ahaus: Business as usual is gone. Foreign competition is up. We will become stronger in engineering. Fiock: We are looking at how to do more value-added and making our company different from our competitors. We are trying to learn how to offer more and market better. We consider marketing and sales as distinct functions, with marketing looking out three to five years. Lunsford: Price is the prime motivator; it used to be relationships. We deal with purchasing people who only look at price. Question: How do you handle research? Do you use outside help? Ahaus: 90 percent of our work is unique; we start with a blank sheet of paper. We do limited research to get in new market niches. Fiock: Our situation is similar to Ahaus’. We partner with engineering companies, sometimes for joint product development. We also use the Purdue TAP program often. Lunsford: We have a research department and have research as part of our strategic plan. We have tried some licensing. We also use customer ideas. Some customers have paid us to do research. Question: Looking back a few years, how would you have managed technology better? Fiock: We have been in the survival mode. Now we have catching up to do. We need to upgrade work centers, integrate some with secondary operations, implement lean manufacturing, and carefully plan. Lunsford: We would have brought different products to the market. We would have selected supplier partners better. For example, we have had Motorola drop a processor, causing us an expensive redesign. Our biggest R&D issue is implementing a new system to manage our projects. Fiock: We would have made changes faster such as implementing e-mail, Web access, etc. Ahaus: We put a capital spending freeze on a few years ago, except for IT, where we have invested $125K to $150K per year on software, servers, a T1 line, etc. to enable a core competency in design. We have no regrets on this. We are behind in our machining technology, an area where we were once at leading edge. Rick mentioned the need to plug into Purdue research such as the project on modeling machining chatter. Comment: Companies should look at new technologies Ahaus: We are continually looking at new technologies and we must get people involved in them. Fiock: Three years ago we did not have integration between our engineering and production systems. Now we have seamless integration from CAD to process optimization to generating machining code. We e-mail it to the machine. This has been a major breakthrough for us. Question: How could community colleges better serve small businesses? Ahaus: We have used IvyTech, IU, and Purdue Statewide Technology for 20 years. It works well and will continue to be important to us. Fiock: We are well connected. IvyTech will be teaching a lean manufacturing session in our plant this week. Lunsford: We already have a mix of four-year degrees and associate degrees. It is working well for us right now.

Moderator Del Schuh BMT Panelists Mike Lunsford Dart Controls, Inc. Ted Fiock Anderson Tool and Engineering Co., Inc. Rick Ahaus Ahaus Tool and Engineering, Inc.