Can US Precision Machine Manufacturing Survive? – Part 2

business developmentThe US precision machining industry has changed structurally; at the same time it has become somewhat mature. A big part of the structural change has been brought about by globalization. Most high volume jobs are now outsourced to offshore suppliers in China, Korea, Mexico, or numerous others. Other structural changes have been forced by the cost and limited availability of capital. The companies that have survived the Great Recession have had to deal with a whole new business paradigm.

Many precision machining companies have adopted ‘Lean’ process techniques to improve the efficiency and the throughput rates of their internal processes. Operational efficiency has become a requirement for US companies rather than a differential advantage. The onset of globalization means that US precision machining companies are faced with a shrunk (and shrinking) Served Available Market (SAM).

The situation means that US companies are competing in a market with fewer dollars, for customers who are seeking the lowest cost, with predefined quality, and service. And given the difficulty in obtaining capital, and or generating cash, it is very hard for a US company to broaden its address to the “Served” portion of SAM. The risk – return dilemma weighs heavily on them in that equation.

Given all of these factors (maturing industry, globalization, a shrinking market, tough capital availability, and numerous competitors) the US precision machine manufacturer is facing a situation they have never seen before. Just regularly making payroll is a tough task for most of them. To win in this environment, companies and government need new analytical rigor and foresight, new capabilities, and the conviction to act. – – – (McKinsey & Company 2013)