Automation Determines The Industry's Future

These are times of great change in the precision machining industry. High-volume parts are being commoditized. CNC equipment is displacing traditional machinery. Customers driven by global competition are offshoring production to low labor-cost countries. A changing political landscape impacts the pace of the offshoring phenomenon, but it is modern communication and transportation technologies that made large-scale offshoring feasible in the first place. Over the long term, technology is the primary force that shapes industries.

The agriculture industry is a perfect example. In 1929, 21 percent of the U.S. workforce worked on farms. My parents grew up on family farms in the 1930s, plowing with mules and picking cotton by hand. I, too, was raised on a farm. But in the 1960s, our 100-acre farm was not much more than a hobby. By 2003, a mere 2.3 percent of Americans worked on farms, yet the industry produces even higher yields.

Automation drove the huge productivity increase in agriculture; not sophisticated, computer-controlled equipment—just machines with lots of horsepower that can do the work of many manual laborers. The equipment eventually became so big and expensive that only large farms could use it efficiently. Small farms could no longer compete, which changed the face of the industry. However, no one worries about U.S. agriculture losing out to China. Labor cost is not a major factor.

Manufacturing in North America is going through a similar transition. In 1950, the manufacturing sector employed about 25 percent of the U.S. workforce. Manufacturing output has increased at an average annual rate of 3.6 percent since the mid 20th century. Yet, manufacturing employment has been flat, while the total workforce has grown. Only 12 percent of the workforce was employed in the manufacturing sector in 2003.

Again, the reason has to do with automation technology. Manufacturers have done a fine job of applying new technologies, and the result is productivity growth almost double that of non-manufacturing businesses. This is the hallmark of a healthy industry, not a dying one. Economists agree that when the labor cost content in a product falls below about 20 percent of its total cost, the home court advantages of low transportation costs, fast delivery times and easy access to customers outweigh the labor cost issues.

Machine automation technology will soon be taking another leap forward. Advances in power transistors, digital signal processors and network technology have combined to create the so-called "intelligent motor," which is a servomotor packaged with all of the electronics needed for a complete single-axis motion control system. Large multi-axis systems can be created by simply networking together the desired number of intelligent motors. Better yet, trouble-prone electrical connections can be reduced by half, and repairing a system involves not much more than mechanically replacing a motor. Intelligent motor technology is already price-competitive with conventional CNC controls, and substantial cost advantages are expected as volumes increase. AMT Machine Systems' new full-CNC UltraTurn upgrade for Brown & Sharpes uses an intelligent motor network, and it has proven to be more reliable than conventional CNC technology. Expandable to up to 100 axes per machine, the technology is ideally suited for affordable multi-spindle and rotary-transfer machine controls.

So what does all this mean? Simply put, it means that industrial history will repeat itself. Automation technology will continue to drive productivity increases in the precision machining industry. Fewer skilled workers will be needed to manufacture ever-increasing volumes of parts. Offshore labor costs will become all but irrelevant. In Darwinian competition, manufacturers that focus on productivity will thrive, and those that don't will die.

With capital remaining as a primary basis of competition, companies that get the greatest return on their capital investments will win. For machinery investments, consider that the mechanical technology hasn't changed much lately: A spindle is still a spindle. However, the control technology is what has changed. Modern controls automate not only the production, but most of the machine setup as well. If you need a new machine to achieve very high tolerances or to make complex parts, then by all means, buy one. However, if what you really need are modern controls, keep your eye on the bottom line. Upgrading your existing machines may be much more cost-effective. The long-term winners in the industry will be those who make parts at the lowest total cost—capital and labor combined.