By Roger Landman, Head of Product Management at SYSPRO
The fabricated metals industry inherently runs on very slim margins due to factors like fluctuating material costs, direct and indirect labour and overhead expenses.
Global raw material costs are often dictated by the London Metal Exchange (LME), the largest exchange for options and futures contracts for base metals, which includes steel, aluminium, zinc, lead, copper and nickel.
Besides the volatility of external global factors, the industry is also expected to meet specific, made-to-order, customer demands. With all these factors at play, it comes as no surprise that the industry is so heavily reliant on specific raw materials suppliers, manufacturing processes, labour and outbound logistics requirements.
With ongoing supply chain disruptions, competitive advantage is being lost. According to the recent SYSPRO survey entitled ‘Realigning the links of the disconnected supply chain’, 82 percent of fabricated metal businesses have experienced supply chain and material handling disruptions, further eroding diminishing margins and ultimately customer service.
Despite these challenges, only 12 percent of businesses have systems that support in servicing external customers. To build resiliency, metal fabricators should consider the right technology solutions to improve operational efficiencies, enhance external collaboration and meet unique customer demands.
- Maintaining a consistent supply of raw materials
For decades, China has been a leading supplier of raw materials to the fabricated metals industry, partly due to its competitive pricing to match low industry margins. Russia has also been a top producer of materials such as aluminium, steel and nickel. But raw materials don’t just stop at metals. Gasses like Oxygen and Argon are essential in the welding of carbon steel and some high alloy steels.
With ongoing challenges like global lockdowns, sanctions and other unavoidable disasters, distribution of these materials has also been severely delayed. Last year, several countries experienced a shortage in Carbon Dioxide due the global surge in natural gas prices and this year, the war in Ukraine has resulted in argon and other metal shortages.
To overcome these challenges and instil a proactive approach to changing customer demands, end-to-end visibility across the supply chain combined with data insights is key. The challenge though, may lie in the slow adoption of data analytics tools.
According to the SYSPRO research survey, in response to ongoing disruptions, only 12 percent of metal fabrication manufacturers invested in data analytics to interpret the data that they were collecting and identify any real-time shifts. This will need to change if the industry wishes to remain agile.
- Remaining competitive with rapid quotes
The fabricated metals industry is so competitive and focused on custom requirements, that a key business differentiator is the speed and accuracy at which quotes are produced. Here, attention to detail and collaboration is key. Without a proper understanding of raw material delays or inbound costs, the quote will not be so accurate and businesses could risk making a loss.
Costs should be tracked throughout the manufacturing process with a centralised ERP system. While disparate systems are fine to use, they should be integrated into the ERP system or there may be a real risk of inaccurate information, resulting in misalignment and inaccurate costs.
- Building efficiencies with the right skills
The skills deficit is a challenge faced across the manufacturing sector, but the fabricated metals industry particularly, requires very specialised skills from welding to engineering estimation. The role of Human Resources (HR) is to ensure that this knowledge is captured digitally so it is never lost, and while Industry 4.0 is introducing a new wave of automated technologies, the requirement for these skills is still vital.
For instance, you can program a CAD drawing into a CNC machine to ensure a high precision, custom metal fabrication order; however, the job still requires human experience in cutting speed or the coolant’s flow rate.
Besides the development and preservation of the right skills, it is also vital that businesses manage its talent effectively. For example, a production facility would want the most skilled workers to focus on the highest valued and most critical jobs, rather than focus on looking for parts. Once again, the newer technologies can also be used to monitor labour efficiencies to ensure maximum output and balance resource workload against skill set.
The same applies for any of the resources like plant for example, specialised cutting equipment or factory machines like forklifts. Any of the resources can become a bottleneck and affect production throughput. MOM (Manufacturing Operations Management) as part of an ERP solution is a useful set of software tools for viewing end-to-end manufacturing processes including quality, labour and machine productivity. With MOM, a manufacturer can monitor the allocation of any of the key resources and adjust workload accordingly.
- Construct custom capabilities
From design to delivery, the modern-day end customer requires value, quality and customisation. For metal fabricators, this may entail custom welding and assembly techniques along with a digitalised quality control program. To allow for personalised customer orders, a product configurator integrated with the ERP solution is required.
With a product configurator, manufacturers can gain competitive advantage by giving the customer the ability to design the exact customised product they require.
As the product is not mass produced in China and the ability for on-the-fly configuration of complex products for estimates, quotations, orders, bill of materials, and jobs.
Metal fabricators are aware of the ability for an ERP system to make their businesses more agile, efficient and profitable. An ERP system ensures easy integration to the CAD design package to maximise design to quote/estimation times as well as delivery time.
Additionally, ERP provides a systematic and automated process to predict and control stock levels, based on desired customer service levels and a cost optimisation calculation. All the while providing real-time data insights across the supply chain to identify and respond to changes. The consequence is competitive advantage and improved margins and of course, long term sustainability.