Global Fastener News

1999 FIN – O’Brien: OEM Zero Defect Requirements Present Challenge to the Fastener Industry

September 19
00:00 2011


June 4, 1999 FIN – North American fastener manufacturers are enjoying booming sales and rising profit margins, but face zero defect quality requirements, manufacturer John O’Brienof Federal Screw Works said in analyzing the fastener industry.
Speaking at an International Fastener & Precision Formed Parts Manufacturing Exposition roundtable on the state of the industry, O’Brien proclaimed, “for the most part, financial sheets are quite good.”

O’Brien, who also is 1999-2000 chairman of the Industrial Fasteners Institute, noted, “stock prices are up. We have a stronger currency for acquisition. The cost side is stable to even a slightly lower cost scenario.”

“Automation has been on a tremendous ride,” O’Brien declared. “It is the longest extended expansion.”

• North American auto sales topped 15 million for the past four years and automakers are hopeful of 16.5 million sales in 1999, he noted.

• The aerospace market overall has been strong with the exception of “some recent inventory adjustments,” O’Brien said. Prospects look positive because “there is a lot of older equipment in use,” he explained.

• Construction has been strong but the number of housing starts this year may drop. “The party may be slowing down,” O’Brien reported.

O’Brien noted that no single fastener company dominates the industry in North America or elsewhere.

O’Brien reported that the IFI, which represents North American fastener manufacturers, has been monitoring fastener manufacturer profits since 1994 and found margins “are steadily improving.”

In 1994, the IFI report showed an average 3.5% after tax profit and by 1997-the most recent results available- the figure rose to 5%.

The IFI benchmark studies also show fastener manufacturer investments per employee are rising. Starting at $10,000 per employee in the initial survey, the figure is now up to $15,000 and is expected to climb to $20,000. “Companies are investing tremendously,” O’Brien observed.

Upcoming Changes

Though steel prices have dropped, finishes and plating have dramatically risen, O’Brien noted. Dip spin and organic processes have jumped as much as 15 to 20 cents per pound.

Finished can be 2% to 5% of the cost of a fastener, O’Brien noted. “In most cased we’re able to pass the costs along,” he added.

Labor costs have been stable and “even declining with new technology,” However, labor costs could start heading up, O’Brien forewarned. “We are finding it very, very difficult to get good people coming out of college,” he observed.

And labor union contracts in related segments of the industry could set in motion wage increases. “This is a UAW year,” O’Brien said in pointing out that the Big Three North American automakers have labor contracts expiring in 1999.

Technological and productivity advances could help off set higher labor costs.

However, though there are technological leaps such as Formax advances where “everybody leaps up but then there is a flattening.”

In order to meet OEM cost reduction plans, the fastener industry needs to encourage more standardization of parts. Traditionally automotive suppliers may have had to produce up to 250 separate part numbers when three or four may do, O’Brien said. Fewer part numbers would mean greater volume for “their purchasing people to take advantage of.”

Quality demands “are accelerating faster than we expected. Defect rates are no longer measured in parts per million. We are shifting to a zero defect environment.”

The zero defect rate “is difficult for an industry with high volume and furnaces,” O’Brien observed.

Nevertheless the fastener industry will meet the zero defect goal because customers are demanding it.

Buyers are threatening to pull contracts over quality issues. Fastener suppliers are being asked to share warranty and quality costs.

“That’s how tough the environment is,” O’Brien remarked.

Customers also are driving consolidation in the industry so they can “truly have one stop shopping and full service capabilities.”

Federal Screw, with $110 million in annual revenue and 500 employees “used to be relatively big,” O’Brien recalled.

Though the industry has been very fragmented with no company reaching a 10% position, a “fairly steep pyramid” is developing, O’Brien observed. Textron, Illinois Tool Works, SPS Technologies and Lake Erie are among the leaders.

Automotive OEM’s are moving toward increased modularization to the point that suppliers may “bring in entire rolling chassis to the assembly line.”  ©1999/2011 Fastener Industry News

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