Chasing profitability – for the Small to Medium Steel Fabricator

by Danny Steyn, BSC Mech Eng

About Danny Steyn

Danny Steyn is a mechanical engineering graduate from the University of Natal (Durban, South Africa) now living in the USA. Through Ocean Machinery, he and his partner Hunter Fry, have completely re-written the way that small to medium fabricators process steel.

Danny has had the privilege of visiting more than 6 000 steel fabricators around the world and with over 900 Ocean CNC machines installed worldwide, he has a rare insight into the way fabricators around the world are addressing the ever increasing issue of labor productivity.

Background
It was late 2001. The boom was over. NASDAQ and the tech sector had imploded and come crashing down just a few months earlier. The US economy was in a state of turmoil and uncertainty and fear was written on everyone’s faces.

Yet there we were, a very small and relatively unknown machinery company, selling CNC automation into small mom-and-pop steel fabricating shops across the USA at a rate completely unheard of before.

How was it possible that in the midst of this drastic downturn in the economy, that we were selling more machines than in any time in our history?

At the time we were just as surprised by our success as anyone else, but with hindsight and analysis, it became clear to us that there was a strong macro trend emerging in the fabricating arena, and it was now for the first time happening at the level of the small to medium fabricator.

Let’s face it, there’s no way to sugar coat this; life as a small to medium steel fabricator has always been a pretty tough way to make a living. Just getting  started was hard enough. You needed a bottomless pit of money, expensive machinery, a good location, patient vendors, great cash flow, steady paying customers and an expensive skilled, energetic and well-disciplined workforce. No one said it was going to be easy.

And for the most part small steel fabricating shops are either swamped with work or don’t have enough work, and their owners are always too busy with the day to day pressures of satisfying customers, chasing up orders, dealing with uncooperative vendors and employees and the never-ending administration of running a business that they have built painstakingly from scratch. They seldom have the time to give much thought to how they can be making incremental productivity improvements in their operations. For the most part they just keep on doing what they have always done, and for most fabricators, productivity is an often-misunderstood term.

But unless the fabricator gets out from under this cycle, and seriously starts looking at productivity, there will be a lot of hard work, sweat and grind, and very little profit at the end of the day.

And to complicate matters, in countries where fabricators have always had access to an abundant supply of relatively cheap labor, and an ON-OFF approach to labor, they have been able to crew up when we are swamped with work, and trim down when they are short of work.

This ON-OFF approach to labor has had long-term negative effects on our understanding of how to make productivity improvements. In other countries where employees are typically very difficult to terminate, owners take a long hard look at all possible options prior to hiring a new employee who might end up being employed for the next 20 years! Two of the most commonly considered tactics are outsourcing (contracting) the work, or investing in machinery to do the work, as the machine can be paid off in a few years and it will continue to work for free for many more years, while the new employee will require a salary for as long as they are at the company.

Becoming a low cost producer

When commodity mineral prices are going through the roof, no-one cares about productivity. Mines need the steel now and are prepared to pay. But no commodity prices remain elevated indefinitely. They always come back down, and that’s when you know you can’t continue doing it the same old way.

Becoming a low cost producer has to be the single most important goal of any fabricator. And improving productivity is the only way that this goal is achieved – steadily, incrementally, and methodically. One-step at-a-time.

So how do you start going about this process of becoming a low cost producer?

By and large, the costs for all fabricators with respect to their steel costs, wages, overheads, consumables etc, are all very similar. And most have very little ability to control these costs. The only real variable in the mix is how many man/hours he has in each ton of fabricated steel. By extracting man/hours per ton, the fabricator is able to dramatically lower costs, improve the bottom line, and be more competitive in the bidding market.

One of the first areas that should be addressed is any tedious repetitive manual operation that can easily and economically be extracted from the fabricating process. Throwing labor at a problem often appears on the surface to be the quick and easy solution, but experience dictates that this is often the most expensive approach in the long term.

With the ongoing improvements in steel fabricating machinery, many activities that have traditionally been done manually can now be done with some form of automation, and the cost of automating the plant has dropped to very affordable levels. And nowhere is this more apparent than in the approach to beam fabrication.

In the past, the small to medium fabricator had two options; either manually lay out and mag-drill the holes, or he could invest a tremendous amount of capital in a conventional beam drill line. For the average fabricator this was always out of his reach, but nowadays there are several options designed to increase the productivity of the hole drilling process.

But if you just focus on the cost of layout alone, the most expensive person on the shop floor, your layout man (also known as the marker in SA terminology), has to repetitively layout a variety of parts including, beams, base plates, angles, channels etc., and yet, the actual process of laying out adds ZERO value to the steel. It is only the subsequent processes of drilling / punching / welding etc., that actually transform the profile and add value. So here we are with this conundrum – our most expensive man adds no value.

So from purely a cost perspective, layout has to be the area we focus on first. So how do we remove the layout activity from the process of fabricating steel?

Extracting man hours per ton

Today there are fortunately many affordable solutions on the market and all of them embrace some form of automation, essentially CNC fabrication. In the realm of beam fabrication, the proven solution for the small to medium fabricator doing less than 400 tons per month, is the single- spindle beam line like the Ocean Avenger. With more than 600 of these machines installed in 60 countries worldwide, it is this machine that has literally transformed fabrication for steel fabricators that would never otherwise be able to afford larger and more expensive multispindle beam lines.

And the flexibility of the single spindle drill to process the entire spectrum of
profiles including angles, base plates, channels, stair stringers etc. has made it very attractive to even the smallest of fabricators who do miscellaneous metals and just a hint of structural steel. Moreover, the ability to tackle the heaviest jumbo columns, as well as large tonnage projects, has allowed the steel fabricator to cast the net to a far wider range of jobs than he had traditionally gone after, and because of this we have seen many small fabricators with exceptional tonnage and revenue figures for relatively small shops.

Furthermore, with the advent of the 3-D detailing software that has become so
prevalent and more affordable, the ability to import data from the detail drawings, directly to the CNC machine, essentially eliminating the unnecessary costly and potentially inaccurate step of laying out the steel, has made additional improvements in productivity, speed and accuracy.

Workflow and material handling are also two of the most overlooked areas in small fabricating shops. Steel is heavy and it takes expensive labor to move it. Those fabricators who have taken the initiative and studied the material handling aspect of the structural steel business, using standard time and motion studies, are horrified to find out that as much as 50% of their labor costs go into moving the steel out of raw material storage, through the various processes on the shop floor, and finally to finished goods.

Obviously any process that reduces material handling goes a long way to improve profitability. Good overhead cranes, conveyors, beam flippers and other simple-tointroduce systems will greatly reduce the double and triple handling that robs companies of their profits.

The future
Going back to our first ventures into CNC automation back in 2001, our original feelings were that we would expect that around 10% of the small to medium fabricators would adopt some form of CNC fabrication. Today the picture is significantly clearer. Except for the smallest of shops, 100% of ALL small to medium fabricators will HAVE to make the transition to CNC fabrication, in order to remain in business. They have NO option. It’s no different to the way we had to embrace the fax, cell phone, internet and email, despite how much we might have resisted at the beginning.

It is absolutely crystal clear. It is no longer possible to throw labor at this work, and expect to see any profits left at the end of the day. Making an investment in your company, its employees and its future will reward you handsomely. And as we all know, the sooner you do it, the sooner you perfect its use and the sooner you start getting the gains.

They say it’s “the early bird that catches the worm” and this holds true in embracing change. Putting off the inevitable is delusional, and moreover it’s robbing you of precious time to become competitive and highly profitable.

We wish you an enlightening journey on this quest to become more efficient and profitable. Don’t hesitate to contact me if you want to learn more about how we have changes the lives of hundreds of fabricators around the world.

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