In a recently released annual survey of automotive OEM/supplier relations, the US “Big Three,” combined with Japanese transplants Toyota, Nissan and Honda, received similar scores as last year, “which show no meaningful change except [for] Honda, whose supplier relations continue to slowly drop.”

However, the 2013 results remain considerably lower (ed. note: representing poorer OEM-supplier relations) than the 2004-2007 time period with average scores in the 350-415 point range.

Today, the leaders, Toyota and Honda, have fallen to the 280-300 point range, while General Motors (GM), Ford Motor Company and Chrysler Corp. have moved up to the 250-270 point range.

Lower scores don’t bode well for a number of reasons.

Read more

MetalMiner welcomes guest commentator Trevor Stansbury, President of Supply Dynamics. Supply Dynamics is the leading provider of material consolidation solutions known as “Material Demand Aggregation. We invited Trevor to comment on a piece recently written by Stuart Burns, Aerospace Booming, Supply Chain at Risk.

As always, Stuart has done a great job characterizing the current state of play in the aerospace industry. I would concur with his comments. While much lip service has been paid to how this up-cycle will be handled differently by the Primes, I too have my doubts that much has changed. From my vantage point, this up-cycle may make the supply chain snafus that dogged the A380 and 777/787 programs look like child’s play.

We believe it will take a lot more than mills (like ATI) simply increasing capacity to “fix” the problem. Ironically, 30 to 60 percent of the cost of metal parts that go into OEM products (e.g. an engine, automobile, washing machine, or airframe) has nothing to do with the finished part supplier’s labor rate, overhead, or machine speeds and feeds. Instead, the majority of part cost (and a good portion of delivery risk of those parts) typically relates to the raw materials that go into them – things like bar, sheet, plate, casting, forgings, etc.

Yet, over the last 20 years (partially as a consequence of outsourcing), most OEMs have lost visibility into those costs and exercise little or no control over where raw materials are purchased or what outside part suppliers pay for those parts. The result: OEM raw material supply chains characterized by high fragmentation and dubious (often slow) demand information flows. Those stakeholders with the greatest need for the information — in this case, the mills and distributors — have little or no access to it. This translates into lengthy lead-times, billions of dollars’ worth of speculative inventory, sub-optimized purchasing leverage, expensive raw material and, ultimately, cost overruns and late deliveries.

Ironically, most OEMs have invested vast resources to lean out the “value-added component of finished part cost, while largely ignoring the waste and inefficiency on the raw material side of the equation. Why we don’t see this story reported remains a mystery.

Perhaps the issue creates too much embarrassment because raw material supply chains appear so chaotic and disorganized. Or maybe because no one wants to admit how often a handful of $28 fasteners (with a 48-week lead time) hamstring the shipment of a major sub-assembly. Raw materials, especially some of the high-temperature alloys Stuart mentions, represent some of the most costly items purchased. They also act as the aerospace bottleneck, as they often have the longest-lead times.

If history will not repeat itself, the major Primes will have to take the proverbial bull by the horns and stop abdicating decisions about sources and prices of raw materials to their outside suppliers. They will need to take ownership of the problem by assuming their rightful roles as “supply chain quarterbacks.” By this I mean they need to do a better job of translating Original Equipment-related part demand into aggregate raw material requirements. Once they have done that, they need to rapidly communicate changes to those mills and distributors they have selected to supply those requirements taking responsibility not just for their own direct material requirements, but for raw material demand across their extended supply chains.

While we see plenty of chaotic raw material supply chains out there, we have also seen some notable exceptions. Some of the aerospace Primes we work with (two air framers and a major turbine engine manufacturer) use our Material Demand Aggregation processes and web-based, multi-enterprise, raw material forecasting and fulfillment solution to get ahead of the curve. This “extended enterprise solution OASIS addresses the kinds of concerns Stuart raises in his post.

It essentially connects independent companies in an extended supply chain (OEMs, outside part suppliers, distributors and mills) and enables them to choreograph and synchronize the supply and demand of forgings, castings, fasteners, bar, sheet, plate, bearings and all kinds of other stuff. The impact of such programs can be transformational not just in terms of cost, but in terms of cycle time, the ability to immediately adjust to schedule pull-ins and push-outs, standardization of common materials across multiple users, and reduction of speculative inventory.

In our view, companies need to place a greater emphasis on fixing the raw material part of the supply chain. Supported by the right information management systems and processes, companies can insulate themselves from blame should something go wrong.

–Trevor Stansbury

Companies interested in learning more about demand aggregation can register for a free report here.

Disclaimer: Supply Dynamics is a sponsor of MetalMiner

Apple iPod cases made by Catcher Technology.

If the latest news about Apple is any indication, metals in the consumer technology sphere aren’t going away anytime soon.

Apple recently posted record quarterly profits to the tune of $7 billion as the company continues to experience record success with the iPhone and iPad products. That success has led to folks wondering what Apple will do with its “mountain of cash, around $76 billion. (How about buy a fountain of youth for its magical CEO, Steve Jobs?)

Apple’s profits and market health mean good things for its suppliers, such as Catcher Technology out of Taiwan. Bloomberg BusinessWeek just reported that Catcher’s stock price estimates rose to record levels.

Catcher excels in magnesium die casting, as well as working with aluminum, stainless and zinc to create metal casings and other products for the personal computer industry, such as these:

iPhone cases.

A Macbook frame.

Catcher’s touch panels. Photos: Catcher Technology

“Catcher has demonstrated it is ahead of the competition by 12-16 months, Wei Chen, a Citigroup analyst, said in a report yesterday, as quoted by Bloomberg.

Catcher Technology also traffics in MIM, forging and extrusions, among other things. They also have an integrated system, in which all processes from metal forming to CNC to surface treatment are “under one roof, according to their website.

Catcher has the capability of extruding and casting a variety of tech parts.

This allows them to diversify its client base which also includes Dell and Research in Motion — and be ahead of the game.

Whether for Apple or any of its direct or indirect competitors, Catcher’s market hotness goes to show that metal will remain crucial in our everyday technology.

No wonder the Chinese are exploring the deepest oceans for metals¦

–Taras Berezowsky

My colleague Taras wrote late last month about the booming order books for new aircraft at Boeing and Airbus. In an FT article out this week, Forecast International are quoted as saying they expect production of commercial and military aircraft to jump more than 50 percent to 4,870 units within just five years. Anyone reading the good news that at least some parts of the manufacturing sector are doing well may imagine the supply chain is rubbing its hands in glee, but the reality is both the aircraft makers and their suppliers are worried that some parts of the vast sub-supplier network may not be up to the task.

United Technologies UTC, makers of helicopters, aircraft engines (Pratt & Whitney) and aircraft control systems, is not taking anything on trust. In a Financial Times article, Eileen Drake, vice president of operations at UTC, explains how the firm has developed sophisticated monitoring tools in what should be an example of best practice for the industry. The program has a ten-year forecast for some 2,000 of the most critical suppliers the firm uses, and monitors both the historical performance and future investment plans of each supplier.

The article makes no mention of how far down the suppliers’ tiers of sub-suppliers the analysis drills, but it is likely at least two to three layers to be robust enough to ensure security. According to the article, UTC has already identified four key areas where supply is looking tight and might benefit from closer supervision including bearings, titanium, sand forgings and composite materials.

UTC – Not the Norm

But industry experts are not confident all firms in the supply chain are as well prepared as UTC. Already the supply chain is showing signs of stress with lead times for some components made from titanium and nickel alloys more than doubling in the past year. Rob Stallard of RBC Capital Markets is quoted as saying that despite the efforts to work together, suppliers and their customers are often at odds over when to hire or build up stocks.

“No one wants to be the one left holding the inventory hot potato. You are always trying to keep it with someone else, he said.

Not surprising, when you look at the repeated delays major projects such as Airbus’ A380 and Boeing’s 787 have suffered; any supplier gearing up for takeoff of those projects’ original start dates would have been sitting on investments for the last few years without a return. Finally, though, the 787 seems to be rolling, RBC Capital markets expects Boeing to deliver six 787s this year, with 33 next year and 108 by 2015 that will be a steep ramp-up for many sub-suppliers, especially those in an already tight titanium market (upon which the 787 is highly dependent).

Fortunately the big boys are already ahead of the game. Allegheny Technologies has made heavy investments in metal manufacturing over the past few years, and by the end of 2011 the company will be able to churn out about 47 percent more titanium products compared to the prior peak in 2007 and 13 percent more nickel alloys, while Eaton, makers of hoses and couplings, is confident they can readily ramp up 15 percent with existing facilities.

Not all will be as well prepared though, as Boeing acknowledged it only takes one supplier failure to bring the whole production line to a halt, and with the aircraft makers bringing both an increase in plane build rates and new models online at the same time, the risks are obvious. So too for associated industries that draw on the same supply base; think medical devices that use titanium and cobalt alloy forgings and castings, automotive, nuclear…the list goes on.

A buoyant aerospace order book is certainly a good state of affairs for US and European manufacturers, but it will come at a price and buyers in related industries may be the ones to ultimately pay.

–Stuart Burns

Earlier this week, MetalMiner interviewed Dr. John Henke, President and CEO of Planning Perspectives, the world’s leading authority on buyer-supplier relations, according to their website. The firm conducts an annual in-depth analysis of North American automotive OEMs and their Tier 1 suppliers. This year’s results, released last Monday, are a must read for any metal supplier to the automotive industry. Dr. Henke is also a Professor of Marketing at Oakland University in Rochester Michigan.

About the study: conducted annually, the study tracks supplier perceptions of working relations with their automaker customers, in which suppliers rank the OEMs across the six major purchasing groups, broken down into 14 commodity areas. The results of the study are used to calculate the Working Relations Index (WRI) based on 17 working relations variables. This year, 451 suppliers participated, representing 63% of the six automakers’ annual buy.

Key findings from the study:

  • If all nine automakers are ranked, Mercedes would be in first place, followed by Toyota, BMW, Honda, Ford, VW, Nissan, GM and Chrysler
  • While the US automakers are showing big gains in several areas, the one area in which they are lagging is “OEM Trust
  • Over the years, the study has shown that automakers with a higher WRI realize greater benefits from their suppliers such as higher quality, lower prices and more technology sharing than those automakers with a lower WRI
  • The benefits of “OEM Trust show up in several important areas. For instance, one area where Toyota and Honda still have a meaningful lead over the US Big Three is in their respect for suppliers’ proprietary information and intellectual property such as patents and confidentiality of technical innovations. Another is in the supplier’s willingness to share new technology without assurance of a purchase order.

Overall study rankings appear as follows:

Source: Planning Perspectives Inc.

MetalMiner: From a metals perspective, I think our readers are most interested in the Body in White and exterior results. What are the key takeaways in terms of how metal suppliers view the OEMs?

John Henke: We only look at finished parts and in particular, 15 areas of parts. When we talk about Body in White we include the major metal components – stampings, castings, forgings, etc. With exteriors, it gets a little more complicated, but we essentially survey groups by how the purchasing departments are generally arranged within the OEMs.

The Body in White group within Chrysler has ranked the lowest in the industry for the past three years (in other words, Chrysler has the worst supplier working relations in the industry). For the past five years, Body in White has maintained the lowest rank of all the purchasing areas examined as part of the study. The areas examined include: exterior, interior, power train, electrical and electronics and Body in White.

MM: Why does Body in White consistently rank among the poorest performers?

JH: I don’t know. These suppliers are in a really tough place. There aren’t too many costs to take out and suppliers can be switched out “relatively easily. Switching costs are rather low. It’s a lot easier to switch metal suppliers than to switch power train suppliers, as an example. I suspect the OEMs can threaten metal suppliers more easily because their products are more commoditized. These suppliers need to create a competitive advantage so as not to be treated like a commodity.

MM: What do you think of this theory that commodity volatility has created more pressure for OEMs to manage costs in ongoing programs, therefore relations could be more strained as OEMs more frequently demand price concessions. Did the survey test for this?

JH: For the first time, we asked a question on that topic, specifically, “To what extent does the buyer you work with Ëœrelentlessly’ look for ways to reduce the price of the goods produced by your firm to a lower price? Survey results indicate that at least three OEMs did not score “low against that question. So we don’t see suppliers being hammered this way for Body in White and the same is true for exteriors. There seems to be nothing outstanding that seems to be driving the lower scores in Body in White.

Look for the conclusion of the interview tomorrow on Spend Matters, in which Dr. Henke weighs in on forward-looking approaches and building supplier trust.

–Lisa Reisman

Joe Coleman, commodity manager at Spain-based Acciona Wind Power, spoke with MetalMiner about what he’s seeing in the steel markets, and how to engage American suppliers in a relationship with Acciona’s wind turbine assembly plant in Iowa. (Video: Taras Berezowsky/MetalMiner)

At first blush, attending a supply chain conference may not exactly scream “Metals! but this specific one hosted by IMEC in Chicago last week certainly has a lot of implications for steel plate and aluminum buyers and suppliers. Of particular note was the lineup of industries that IMEC had invited to be represented: wind energy, aerospace and railroad, and health care.

As our sister site Spend Matters prepares to launch Health Care Matters, the third category of the conference seemed rather enticing, but knowing how much aerospace, rail and increasingly, wind, depend on steel, I decided to focus on the latter route. Not only that, but I soon learned that the government and the businesses in these industries might just improve the landscape for American manufacturing jobs. Nearly 100 percent of the federal funds (American Recovery and Reinvestment Act ARRA and others) apportioned through various programs for rail investment have Buy America clauses attached, said Karen Rae, deputy administrator for the Federal Railroad Administration (FRA), during the conference. (Realistically, the percentage may actually end up being between 60 and 90 percent.)

Rae delineated the dollar amounts for broad investment announced by Secretary of Transportation Ray LaHood, and provided a scope of what’s to come for high-speed, commuter and freight rail travel. Rae said four significant pots with $4 billion (originally turned down by Florida Governor Rick Scott) would be redistributed to other regional projects. $800 million will go to significant upgrades in the Northeast corridor, as well as continued investment of $400 million in the Midwest. The FRA is also looking at improving the Detroit and Chicago link, and Rae expects the creation of 1000 construction jobs in Michigan related to that project. The FRA is also continuing with $300 million to invest in California’s high-speed rail system. Lastly, Rae said, a significant commitment to equipment was made $336 million for pooled purchase in the Midwest for locomotives (seven new ones) and rail cars (48 new ones), added on to previous orders.

Recent data show that the rails are a major part of the US commodity exports. The American Association of Railroads saw year-over-year a drop in rail freight carloads this April, for only the second time since the beginning of the recent economic recovery, according to the Financial Times. However, there is a 94 percent correlation between industrial production and rail traffic, and the numbers showed that “there were several bright spots within this measure grains, metallic ores, chemicals and motor vehicles that correspond to buoyancy for those industries and robust export demand. The good news? Perhaps the National Export Initiative doubling exports over five years will actually have a chance of being achieved. The not-so-good news? When the conference’s keynote speaker and founder of the Reshoring Initiative Harry Moser asked how many attendees were familiar with the export initiative, by my count, only 5 or so out of a couple hundred raised their hands.

Looks like we all government, manufacturers and MetalMiner have some more work to do.

–Taras Berezowsky

If any more certain evidence was required that the UK government is finally facing up to the impending disaster that the energy sector has become then last weeks announcement that the UK is taking steps to plug gaps in its nuclear industry supply chain was it.  The country’s foremost forging specialist Sheffield Forgemasters is to get government loan guarantees amounting to £170m (US$255m) to build a 15,000 ton heavy steel forging press required to make the main reactor containment components. The package is to be made up of £35m from the European Investment Bank, £20m from other bank loans and £50m from the American Engineering group Westinghouse as a down payment on parts to be made for nuclear reactor projects the company has won for construction later this decade.

The first point is Britain has left itself woefully under-invested in the energy sector due to government dithering for much of the last decade, a combination of uncertainty about future emissions markets and political short-termism meant the Labour government, first of Tony Blair and then Gordon Brown, put off making crucial decisions about long term energy security. Nothing like an impending blackout by the latter part of this decade if decisions weren’t made to replace at least the country’s nuclear reactors. The authorities are now in a flurry of activity awarding contracts for replacement of Britain’s aging nuclear power stations, most of which will have to be decommissioned by the end of this decade along with older coal fired power stations that fail to meet EU emission standards. The total loss of generating capacity is said to be over 22 GW.

But Britain finds itself in a dilemma, having started the commercial nuclear industry by building the world’s first commercial nuclear reactor in 1956 at Calder Hall, Sellafield (electricity generating fission reactors had been built in the US and Russia prior to this for experimental and military purposes). Britain was one of the first countries to widely adopt nuclear power in the 1960’s and for the next 25 years the US, Britain, France and Japan built sufficient reactors to meet between 20 and 80% of their electricity needs. Although some countries have continued to replace aging reactors and hence maintained an active domestic supply chain, Britain has not built any new reactors or played a part in the admittedly greatly reduced international market for more than 20 years. Consequently the supply chain has not been able to justify the investment to keep up with the industry’s requirements. And now faced with the construction of 8 possibly 10 reactors totaling 16.2 GW, it could have to source up to 50% of the reactor components overseas. The forgings for example can only be made by one mill in the world at the moment, and that is in Japan.

There are some who have criticized support for the nuclear industry in this way, even though the government is largely providing loan guarantees rather than actual loans themselves, meaning the company will have to pay back the £170m at commercial rates to their lenders over the term of the loan. But when these guarantees are compared to the level of funding the renewables market receives, it pales into insignificance. A House of Lords report summarized the UK subsidy situation: Renewable generators currently receive around £1.25 billion per year from increased electricity prices caused by the Renewables Obligation, Emissions Trading Scheme and Climate Change Levy, mostly from consumers. Taxpayers fund the Research Councils’ £30 million a year on renewable energy research. They pay to the Environmental Transformation Fund, about £130 million a year on grants to renewable generators and farmers growing energy crops. The total support for renewable generation from taxpayers and from energy consumers, is now of the order of £1.4 billion a year. Under the Energy Act 2008, the UK system is being modified from 2009 to provide greater incentive to use offshore wind, biomass and emerging technologies. The government agency responsible, Ofgem estimates that in the course of achieving 30% of supply from renewables it will cost consumers £6 billion per year by 2020, and the feed-in tariff for schemes up to 5 MWe will cost them £7.9 billion per year by 2030.

Such sums must prompt the question would Britain not be better advised to push for 50% of electricity generation from nuclear rather than 20% and forget about the renewable energy sources altogether? At least with this new forging capability Britain will be able to meet 80% of the content from home grown sources regardless of whether they opt for French EPR or American Westinghouse AP1000 designs.

–Stuart Burns

Last week we reported on a story involving a legal case brought against a titanium distributor accused of falsely certifying test certificates for having supplied an alternative product that did not comply with a military specification. Ironically, the story broke last year. The only newsworthy aspect involved a trial delay recently reported by American Metal Market. But the fact this story broke last year didn’t stop the controversy.

We actually didn’t have much to say about the supplier in question per se but rather commented on the potential implications of the case from a supply chain perspective. Needless to say, our post prompted some comments from the distributor’s attorney as well as an individual whom “is not and does not work for the distributor or speak on the distributor’s behalf. So we decided to do a little more digging to better understand how aerospace titanium supply chains work and provide our readers with more insight into this case because it has potential ramifications for other metals markets.

MetalMiner has not verified the actual wording from the indictment, however, we have reviewed various news sources and this one from The Sun News confirms our own sources, “At issue is compliance with military specification MIL-T-9046 that supposedly requires a rolled plate process. The indictment charges Western with “substituting a forged bar material and certifying to “Merco Manufacturing Company, Inc., Shuur Metals and other buyers of titanium that the product “met the specification of MIL-T-9046.

Our own contacts in the industry state emphatically that re-certifying material, if that is indeed what occurred, is a “no-no. Plain and simply, re-forged bar does not comply with a rolled plate specification, in this case, MIL T 9046. However, in many steel distribution environments, it is common practice to take larger blocks (plates) of steel and cut them (slice and dice) to make them into a bar size. We have seen this practice within the tool steel industry as an example.

But this practice came to an end in the aerospace industry. As we had explained in some of the comments to the original post, forged parts remain acceptable within the aerospace industry (obviously) but suppliers can not “slice and dice and re-certify the material as conforming to the MIL T 9046 specification as that specification applies specifically to plate and sheet products (and not bar products).

Another practice, involves taking a larger piece of forged block and re-forging it to a bar size (and then re-certifying it). This practice, also considered a no-no, can’t serve as a substitute if the specification specifically called for rolled bar. This all comes down to money. A full line bar supplier would need to invest in more expensive minimum mill runs of specific rolled bar sizes to carry a broad range of sizes needed to effectively serve a customer base.

But as we like to say, supply chains are only as strong as their weakest link. Machine shops who turn out faulty parts can’t lay the blame entirely on raw material suppliers either. They too need to take accountability for ensuring materials meet the proper MIL specification. This example applies to other industries outside aerospace as well. Let’s just hope the finished parts don’t wind up in critical applications.

What do you think? Leave a comment.

–Lisa Reisman

It’s interesting that supply chain scandals tend to only make the headlines when they involve consumer goods, such as Thomas the Train engines or Mattel toys. But when they involve titanium products for critical parts such as engine mounts found on active duty F-22s, F-15s and C-17s, Navy F-18s, and NASA’s Kepler spacecraft, they don’t make a single mainstream news outlet! Last week, American Metal Market published a follow-up story regarding a titanium scandal at Western Titanium Inc, a supplier of parts to Boeing, The Air Force, and other government contractors according to the Military Times. Four Western Titanium executives face up to 64 counts of fraud and conspiracy for falsifying supplier quality test certifications. The trial of these executives faces delay, according to American Metal Market [subscription required].

According to another website reporting on the case,  “The prosecutors say Western made short cuts to its process, by using a press to squash the metal and cut it down to a rolled thickness. For aircraft-grade titanium, the ore should be heated and fed through giant steel rollers to result in directional strength. Other reports suggest the material went through a forging vs. a roll plate process. The shorter process resulted in weaker titanium than what is required for F-15 engine mounts, according to The Air Force.  The Defense Department had initiated an investigation after a Boeing supplier quality audit.

We received the following comment from Greg Chase, President of Windsor, Connecticut based Aerodyne Alloys commenting about the scandal, “The recent indictment of four executives from Western Titanium for allegedly fraudulently selling substandard titanium is a real tragedy for the industry. Over the years there have been isolated cases of tampering with certifications or misrepresenting materials, usually by fly by night operations. But in this case, it was clearly a systematic practice the company had in place for years. Competitors like ourselves have long cautioned customers that not all suppliers are created equal and have refused to follow the lead of companies that compromise quality.  It’s important to be competitive but competition should never be an excuse for cutting corners and putting lives in jeopardy. Buyers that turned a blind eye to the practice may be as guilty as Western, if the allegations are true. Supporting a company that sells product well below market price and has questionable business practices is playing with fire.

The case raises some interesting questions. For example, did the customers, in this case Boeing and Lockheed Martin, among other government contractors, identify the quality issues or did it take the Department of Defense to first identify the problem? We’re not experts in aerospace QA approval processes, however, we’d expect that critical components such as these would have undergone ultrasonic testing or some other rigorous quality test. The other minor detail we should add involves the number of parts in question (7900), according to the Military Times. It’s hard to conceive of that many parts going through the system without some red flag.

What do you think?

–Lisa Reisman

Pun intended. A friend of mine had posted a link on his Facebook page (yes, I admit a presence on it) to an article from Forging Magazine on how Alcoa and the UAW came to a mutually agreeable labor agreement extending the existing contract for another two years. That in and of itself does not make for interesting reading. However, the signed labor agreement served as a prerequisite for Alcoa to obtain funding from state and local governments necessary to aid in the repair of its 50,000 ton forging press called The 50. The repair bill, a hefty $70m will go toward fixing a crack in the forging press foundation discovered last summer, according to the article.

What makes the story all the more interesting, besides the fact that the press makes parts for the Lockheed Martin Joint Strike Fighter Program and that this forging press, built between 1952-1955 represents one of the largest fabrication tools in the world, is the combination of a public-private partnership to get this press back online. The Cleveland City council pledged $550,000 according to this article from the Cleveland Plain Dealer. This dollar amount, part of a larger $20.6b package of loans, tax incentives and local government aid along with the labor agreement represent the community’s effort to bring the press back online and keep 1200 jobs. Repairs could take up to 30 months, according to the article.

Alcoa won the contract to supply $360m of aluminum forgings for the F35-Joint Strike Fighter program. The contract, scheduled to run ten years in length is for large aluminum structural die forgings for 1200 aircraft and 15 large bulkheads, according to the press release. Some of the parts have moved to another Alcoa 35,000 ton press.

These images of the press come from The Library of Congress:

–Lisa Reisman