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Powder Metallurgy Parts DIRAN APELIAN JOHN J. MEALY P. ULF GUMMESON CHICKERY J. KASOUF Worcester Polytechnic Institute THE INDUSTRY AND THE TECHNOLOGY Net shape processing involves metalworking in which the output from the first formation is very close to the final required tolerance and specifications, requiring little additional machining. This manufacturing can be very attractive because of its efficiency, conservative energy use, and relatively minor environ- mental impact. Net shapes, originating as metal powders, date back thousands of years (e.g., gold, copper, iron), but modern powder metallurgy (P/M) had its be- ginning in the 1920s with the use of porous self-lubricating bearings in home appliances. This development was followed in the U.S. auto industry by attempts to make structural components from easy-to-handle copper-based powders. These parts are attractive because P/M is a cost-effective metal processing technology with little or no scrap. In Germany, during World War II, iron powder was used to make porous rotating bands for artillery shells to replace scarce guilding metal. P/M is now the fastest growing net shape metal manufacturing industry in the United States. With the exception of the large captive P/M operations of the auto companies in the early years (1930s-1960s), the balance of the industry has traditionally consisted of relatively small entrepreneurial firms. These firms are squeezed in the supply chain between the large raw material suppliers and big automobile customers, with their heavy pressure on parts prices. Thus, P/M parts manufacturing is a small industry with a history of secrecy, price competition, and margins too narrow to permit any meaningful research. R&D is largely left to raw material and equipment suppliers and to a few universities. The lack of critical technology mass inhibited R&D among part producers because of the limited resources of any individual firm. It is often the case that 103

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04 U.S. INDUSTRYIN2000 the larger firms in the industry can engage in development programs while the smaller firms lag in technology development or rely on their suppliers (e.g., ma- terial or equipment producers) for R&D. The dynamics of the external forces affecting the level of innovation and technology commercialization in fragmented manufacturing industries, and in particular the P/M parts industry, is the focus of this chapter. The basic steps of conventional P/M technology are: 1) manufacturing of powders, predominantly by melting followed by atom zation with high-pressure water or gas; cants); 1_ 21 mixing and blending the powders and additives (carbon, alloys, lubn , C7 C7 ~ 3) feeding the mix into a die and consolidating (compacting) the mix, apply- ing pressures of about 50 tons per square inch, resulting in "green" shapes, and 4) sintering the green compacts at about 2100 Fahrenheit, causing solid state diffusion and bonding. These processing steps result in distinct industry sectors powder produc- ers, equipment manufacturers, and parts producers. Part producers can be further divided into conventional iron and copper-based P/M and production that uses more specialized materials or production processes such as tungsten or metal injection molding (MIM), a technology similar to injection molding of plastics and ceramics. P/M has a number of advantages over competing technologies: . Many metal powders are manufactured from recycled metals or scrap, notably iron/steel and copper, while others are made from virgin ores (tungsten, nickel). Net shapes are mass produced to close tolerances over long production runs without scrap residue (machining chips, grinding residue, casting risers, etc.~. P/M is the lowest energy consumer of all comparable metal working pro- cesses and is environmentally benign, producing a minimum of fumes and toxic waste (Bocchini, 1983~. P/M makes possible otherwise impossible alloys and metal/non-metal combinations of materials or self-lubricating bearings, metal filters, and metal/ matrix composites. . . . . P/M design solutions are often remarkably cost effective. There are many other applications for metal powders, but this chapter will be restricted to the parts industry, i.e., companies manufacturing structural compo- nents, self-lubricating bearings, and friction materials by "compacting and sinter- ing" metal powders, predominantly iron, steel, alloy steel, copper, and copper- based alloys. From a modest beginning of about 2000 tons per year in the mid

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POWDER METALLURGY PARTS 105 1940s this industry has grown to about 12,000 tons in 1950 and 350,000 tons annually today. This evolution is discussed in more detail later in the chapter, and is illustrated in Figure 3 (p. 113~. P/M INDUSTRY STRUCTURE AND STRATEGY The $1.8 billion North American powder metallurgy parts industry currently includes approximately 213 companies competing at venous levels in the manu- facture of P/M structural parts, powder forging, beanngs, friction matenals, and metal injection molded products. More than two-thirds of part sales are automo- tive applications, the most significant growth segment since 1980 (see Table 1~. The industry has responded to several years of real growth that, while currently moderating, is expected to continue. While some managers and analysts have suggested less reliance on automotive parts, these parts continue to exhibit strong growth as auto producers continue to use new P/M applications at the same rate as the industry diversifies into new applications (Roll, 1985~. They are attractive for parts producers because of the large volumes that come with a successful contract. Automotive applications have increased from 15 pounds per U.S.-made auto/light truck in 1988 to 29.5 pounds in 1996. Recent forecasts suggest that this volume will increase to 32.5 pounds in 1998 (Winter, 1996, 1997~. Auto company captive P/M plants became the first large-scale P/M opera- tions, but they began to increase their outsourcing during the 1970s, and many of the P/M divisions were divested during the 1980s. This did not change the P/M industry's dependence on the automobile, but it caused major changes in the sup- ply chain and in the industry's pattern of technological innovation and economic performance during the early 1970s. This period saw the auto industry, and thereby the P/M industry, struggle through the energy crisis and the onslaught of TABLE 1 P/M Markets 1980 1996 Market % of Market % ofMarket Market short tons Market short tons Marketgrowth (%) Auto and truck 72,300 44.9 220,400 69.0205 Recreation and tools 22,200 13.8 36,400 11.464 Appliance 13,200 8.2 19,500 6.148 Hardware 10,900 6.8 7,300 2.3(33-0) Industrial equipment 8,800 5.5 11,800 3.734 Business machines 7,800 4.8 3,800 1.2(51.3) All other 25,900 16.1 20,200 6.3(22.0) TOTAL 161,100 100.0 319,400 100.098 Source: White (1996b).

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06 U.S. INDUSTRYIN2000 foreign competition, "auto transplants" (domestic production facilities of foreign owned auto producers), and auto imports. Earlier strong demands and tight pow- der supply were followed during this period by falling P/M part sales and even auto industry restrictions on new P/M parts developments. Current P/M industry prosperity is based on the success of auto industry restructuring. Longer production runs, lower cost energy and labor, and cost reduction programs initiated by suppliers in response to automotive customers, have made the North American P/M industry the most competitive in the world, with a cost advantage in 1996 of about 20-30 percent over Japanese parts produc- ers. Strengthening of the dollar since then has reduced this advantage, but com- petition with overseas firms has yet to become a major issue in the North Ameri- can P/M industry. Powder metallurgy has thus played a very substantial role in re-engineering powertrain components and has successfully converted other engine parts. This success, in turn, continues to drive P/M growth for automotive and other custom- ers. Much technical innovation in applications originates in the U.S. auto indus- try with its ongoing acceptance of P/M as a solution in their search for more cost effective net shape manufacturing technologies. A number of factors have recently contributed to setting the P/M industry apart: A healthy economy has led to a surge in demand. P/M has been able to meet this demand from latent capacity brought forth with relatively inexpensive productivity improvements. . P/M still has untapped, latent competitive potential or, expressed differ- ently, has yet to reach that level of commercial maturity, when long-term growth rate levels off and price competition and excess capacity may call for restructur- ing of individual firms or consolidations within the industry. The advent of just in time inventory (JIT), the desire for fewer suppliers, and total quality becoming the condition for doing business at any price led to a need for closer relationships, often partnerships, in the supply chain. These require- ments frequently span three links in the chain raw material and equipment sup- pliers, parts manufacturers, and their customers (i.e., original equipment manu- facturers or OEMs). These factors have favored firms with more sophisticated financial, managerial, and technical resources, which sometimes, but not always, translates into size. P/M part producers face difficult conflicts. Customers are demanding more engineering services, price concessions, and, in some cases, global supply capa- bilities (Kasouf and George, 1994; Kasouf et al., 1996~. Consistent with Lorange (1988), this often leads to a situation in which new business requires investments that part producers may be reluctant to make because of the risk of losing the business downstream after developing it (Kasouf, 1998~. Also, the sharing of information to improve quality and reduce cost, desired by the customer, may be

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POWDER METALLURGY PARTS 107 at risk, since part producers are sometimes reluctant to share developments when they are unsure about the long-term potential of the relationship with a customer. Although part producers generally find relationships with their suppliers valu- able, few horizontal relationships were observed in the industry and these are generally limited to areas such as training and trade missions. l here is evidence of interfirm cooperation whereby one manufacturer sources some unfavorable product mix (usually a product with a short production run) to a smaller manufac- turer who is set up to deal with that type of production profile, thus allowing the larger manufacturer to maximize his capacity. This is not uncommon in western Pennsylvania where 46 of the 213 P/M companies in the United States are located within a thirty-five mile radius of each other and have established mutually ben- eficial relationships. Among part producers, the attractiveness of relationships was negatively re- lated to firm size, i.e., smaller firms found alliances more attractive than larger firms (Kasouf and Celuch, 1997~. Moreover, firms that found relationships at- tractive tended to be optimistic about the future growth of the industry and thought that the technology was changing more rapidly than firms that did not find alli- ances attractive. This may suggest that relationships seem to be attractive for firms willing to share information to deal with growth opportunities that might be difficult to address with limited R&D funds. Thus, the challenge for the supplier in this situation is to develop a satisfied customer yet increase its power vis-a-vis the customer by raising switching costs. This might involve working with its own suppliers to develop a competitive advantage or vertical integration in the case of larger companies. Like firms in any industry that is greatly dependent on a dominating cus- tomer base, such as automotive, P/M part producers have always considered di- versifying their risk by developing other markets and applications. While these markets are important and substantial, some of them (e.g., hardware and business machines) have either moved offshore or moved to other materials with more favorable price-performance tradeoffs in those applications (Noted in Table 1~. The net result is that these other markets have failed to encroach on the auto- motive market share. Their comparatively slow growth of only 11.5 percent since 1980, versus 204 percent for the auto and truck market, dramatically illus- trates how closely linked the future of the P/M industry is to the fortunes (and misfortunes) of the auto industry. Automotive applications may eventually account for close to 80 percent of the market. While approximately 70 percent of the P/M part volume is sold to the auto industry, the mean percentage of automotive sales is under 40 percent (Kasouf, 1997~. This suggests a "tiering" of the industry, i.e., some firms have little or no automotive sales, while other firms focus mainly on automotive applications. As the auto industry continues its supplier rationalization, many P/M part producers will have to find other markets or means of dealing with other tier one or two suppliers. Strategic redirection will then be critical for some of these firms.

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108 U.S. INDUSTRYIN2000 In spite of long-standing predictions of industry consolidation (e.g., Roll, 1987), there are more companies today in P/M parts manufacturing than at any time in the past. In general terms we can identify three different types of compa- nies: Job Shop/Specialty Manufacturers. These are the small firms who com- prise the largest group in the industry. They typically generate less than $10 million per year in revenue and operate with lower press tonnage, up to about 200 tons and under. They produce more complicated, short-run parts, respond quickly to change and have low overheads in terms of organization structure. We esti- mate that there are about 165 companies in this category (including the metal injection molders), accounting for 77 percent of firms in the industry. . Repetitive Process Manufacturers. An estimated 36 companies (17 per- cent of the firms in the industry) comprise this group, each generating $10 million to $50 million in annual sales. These firms typically focus on low to medium press tonnage (up to about 500 tons), provide high customer service, and perform many secondary operations. They have the capacity to innovate effectively and generate medium profit margins. However, their limited size makes them vulner- able to supplier rationalization. Large Process Manufacturers. This group of firms includes the largest producers in the industry. They have large presses from 200 to 1000+ tons and low manufacturing costs due to high volume. They have the most sophisticated quality management systems, a high level of technical support and service, and the lowest prices. We estimate that there are 11 firms in this category, represent- ing 5 percent of the total. They account for approximately one-half of the industry's production (Table 2~. Though the number of parts manufacturing companies has increased from 156 in 1980 to 213 companies in 1997, an increase of 37 percent, the concentra- tion of market share among the largest firms in the industry is increasing, as demonstrated by Table 3. The predicted industry shakeout has not occurred, but the industry may be evolving away from fragmentation. Porter (1980) defines a fragmented industry as one in which no single firm has significant market share TABLE 2 Number of Firms with Combined 50 Percent Market Share Year Number of firms Combined market share (%) 1982 1 1 50.5 1987 1 1 50.5 1991 12 52.1 1996 1 1 51.8 Source: PMRC.

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POWDER METALLURGY PARTS TABLE 3 Total Market Share of Largest Firms (%) 109 Year 3 largest firms 4 largest firms 5 largest firms 1982 19 24 29 1987 21 26 31 1991 26 33 38 1996 30 34 38 Source: PMRC. and can strongly affect industry outcome. He suggests that an industry is frag- mented when the four largest competitors have less than 40 percent market share. Thus, the increasing concentration of market share among the largest competitors is an important industry trend (Table 3~. Given the rationalization of the automo- tive supply base, and the increasing sophistication required by the auto industry, we may be observing the emerging importance of size and skill requirements for P/M part producers. These may evolve into entry barriers, which have histori- cally been very low in this industry. This industry is still fragmented by any standard, but the most recent mergers and acquisitions among the largest firms (e.g., the growth of Sinter Metals, recently acquired by the British firm GKN) may signal the emergence of several relatively large global firms that do have the capacity to affect the structure of the industry. A longer history of the market share data is provided in Figure 1, which illustrates the market share of the eight largest part producers from 1967 to 1996. The industry exhibited substantial concentration among the four largest firms in 30 a 25 cn 20 15 10 5 \ jest P/M firm Second largest firm Third largest firm tic _ ~ ~ ~:~ are 0010B 83 101001 83 83 10~001 83 N3gl0000B 83 N3g,0000~100100~101~00~0000~000~00800~1001~100001 O 1967 1972 1977 1982 Year 1987 1991 1996 FIGURE 1 Market share of the top eight P/M part producers 1967-1996. Source: PMRC.

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0 U.S. INDUSTRYIN2000 1967. It experienced greater fragmentation in the early 1970s and the 1980s as the auto companies divested their captive P/M units. The 1996 data suggests a trend toward renewed consolidation. Viewed from a global perspective, P/M part producers as stand-alone metal processing companies are a largely American phenomenon. In Europe, and even more so in Japan, parts fabricators often are captive operations in very large firms that are consumers of P/M parts, without any substantial number of second- and third-tier smaller producers that are independent of the large parts consumers. They therefore remain captives of the existing market, without the ability to influ- ence the growth and acceptance of new P/M applications outside the large estab- lished firms, automotive or otherwise, and without the resources or fertile mar- kets needed to test the strengths and opportunities of their own P/M initiatives. There appears to be no "new application pull" to the extent that exists in the North American market. The U.S. auto companies' struggle to restructure and become competitive set the stage for the recent unprecedented success and growth of the P/M industry, a development that has not been repeated in Europe, Japan, or other foreign mar- kets. For more than fifty years the U.S. P/M industry has remained as large as the rest of the world combined, and the U.S. car and light truck content of 30-35 pounds of P/M parts remains more than twice the weight in any foreign car. One German observer (Huppmann, 1991) comments on the difference between the U.S. and European P/M industries: "While the U.S. industry early on sought cooperation with customers and conscientiously focused on developing parts, e.g. for the auto industry, the European industry all too long fought a battle about properties aimed against wrought steel." North America has remained the market of P/M acceptance, causing foreign competitors to seek a presence in the U.S. by acquisitions (e.g., European compa- nies) or by establishing transplants here (e.g., Japanese companies, including one powder producer and three parts producers). The P/M industry's ability to re- spond to the auto industry challenge is in no small measure due to its own success in advancing the technology, stepwise and incrementally, rather than in major breakthroughs. One of the keys to continued inroads against competing tech- nologies is higher physical properties at acceptable cost. This requires bringing together technological advancements in raw materials, process equipment, and parts production for higher density P/M components. Higher density translates directly to higher physical properties. The traditional and relatively costly method to reach higher densities, "double press/double sinter," is giving way to less costly single press warm compaction with much improved properties, notably fatigue life, the key to high stress applications in engines and transmissions. The search for other process innovations continues. To illustrate accomplishments, the industry has now concluded ten years of manufacturing powder-forged connecting rods for North American vehicles (White, 1996a), and one estimate concluded that over 75 million connecting rods

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POWDER METALLURGY PARTS 111 have been produced (White, 1996b). Other innovative product applications in- clude bearing caps and warm formed torque converter turbine hubs. A useful tool to analyze the competitive success of North American P/M part producers is Porter's (1990) "Diamond of National Advantage." He argues that constantly innovating industries can be explained by four factors characterizing the competitive environment of the home country (Figure 2~. Factor conditions. In addition to the traditional factors of production land, labor, capital Porter suggests that specialized resources that support the indus- try affect the competitive position of a nation or region's firms. In P/M part production, U.S. firms enjoy a skilled work force, especially in the western Penn- sylvania area. Moreover, American P/M metallurgists and engineers have be- come adept at developing conversion applications for the auto industry. This has helped develop an entrepreneurial spins in the industry; these firms are constantly seeking new applications for the technology. Demand conditions. Porter suggests that, while many opportunities are glo- bal, the characteristics of the home market affect the perception of buyer needs and the development of appropriate responses to those needs. It is a great advan Factor Conditions Firm Strategy, Structure, and Rivalry + \4 Related and Supporting Industries FIGURE 2 The determinants of national competitive advantage. Source: Porter (1990). Demand Conditions

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2 U.S. INDUSTRYIN2000 tage when need in the home market mirrors future global demand. As noted above, American P/M fabricators have been responsive to a large customer base pushing them to develop new applications. American-made vehicles contain the largest volume of P/M parts in the world. These applications are a foundation for application development in other parts of the world. If future worldwide demand for P/M parts parallels American part development, then these firms are well positioned for global competition. Related and supporting industries. Powder and equipment suppliers are largely global competitors. However, the relationships that American part fabri- cators develop with their suppliers are critical because in many cases upstream R&D or inventory management are essential elements in developing new prod- ucts. The large, more sophisticated firms in the industry have learned to leverage suppliers effectively to create value with limited resources (Kasouf, 1998~. Firm strategy, structure, and rivalry. The strategies used by firms to re- spond to customer requirements and the nature of competition among firms also affect the global competitiveness of a nation's industry. As noted, the indepen- dent part producers have generated customer-focused, entrepreneurial strategies to generate new developments. This customer focus has served the industry well in conversions. Moreover, the intense rivalry among firms has forced the indus- try to maintain a cost-effective orientation while adding engineering expertise (Kasouf and George, 1994~. In summary, American part producers feel the dual pressures of providing more expertise at a lower price. This conflict is difficult to resolve, but the de- manding U.S. customers in the auto industry have forced these part fabricators to take advantage of factor advantages to develop cost-effective solutions that will serve them well when expanding into global markets. The competitiveness of the 1990s has resulted in an efficient industry ready for global opportunity. INDUSTRY PERFORMANCE This section is the first attempt to look at the small but rapidly growing P/M parts industry from the standpoint of economic and competitive performance, and the factors, technical and non-technical, that have caused or forced changes in the industry in the last thirty to forty years. However, few if any statistics are in the public domain. What is available is limited to raw material tonnage, generalized reports, and private sources. Production and Market Share Table 4 compares North American and world shipments of metal powder. "Iron & steel," "copper base," and to some extent "nickel" are indicative of the

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POWDER METALLURGY PARTS TABLE 4 Metal Powder Shipments, North America and the World 113 Metal powders North America World 1000 short tons 1997199619951990 19961990 Iron and Steel 375351347219 639600 Copper and Cu base 24232319 48 Aluminum 40343736 100 Molybdenum (est.) 332 Tungsten, Hz-reduced 113 30 Tungsten carbide 11115 incl.above Nickel 121010 22 Tin 111 Stainless steel 243 15 Estimated total 438434298 825 Source: MPIF. U.S. tonnage share of the world market for steel P/M components (about 50+ percent). This share has not changed in any meaningful way the last forty years. Only modest quantities are importedlexported, either of components or the corresponding raw matenals, which if considered, would not change the market share estimate in this report. Figure 3 shows the historical trends of steel powder consumption in North Amenca. 1,000 ski. Tons 400 350 300 250 200 150 100 50 Us o Us o Us o us us ~(D Cal FIGURE 3 North American steel powder shipments. Source: MPIF. 1 1 1 1 1 _ - 1 1 1 1 1 - : 1 1 1 1 1 ~ = == ~ Total all Uses t - \ ~ 7 - I~' . == 1 1 = = r I <' ~ ~ = ~ At-- _ l 1 l Jet/ /~1 - ~r = t ~ . l P/M Components it . ~ All other uses . ~ ~ 1 _ T I o Us o ~o a: co ~ ~O ~CD o

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4 U.S. INDUSTRYIN2000 Histoncally, U.S. and world steel powder supply has exceeded consumption by a wide margin in all but a few brief periods of shortages. Even in those periods foreign powder capacity never translated into continuous U.S. imports because of high shipping costs, cost of warehousing, JIT, and the difficulty of providing rapid and professional service. The U.S. oversupply has historically made for a competitive powder market with downward pressure on steel powder prices (see Figure 4~. Equipment suppliers have not had import/export constraints and foreign P/M press and furnace manufacturers have long been successful in selling and servic- ing their products in the United States. Their U.S. counterparts also have sub- stantial exports. Recent growth of the industry has been substantial but concentrated (Table 5~. The increase in iron shipments between 1991 and 1996 a cumulative 75 percent was primarily shared among the 20 percent of companies that account for 80.6 percent of sales. 100 10 Index and Cents per lb. ~, . ~ . . . . . rConsurner Price Inde' c, CPI-W . ~ _ fly , ~ ~ ~ ~ 'rice, cents/ t ~ . . _ . Price in Constant Dollars, cents/lb l l l l l l 1945 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 FIGURE 4 North American steel powder prices: primary unalloyed P/M grade; index 1953= 100. Source: Private source.

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POWDER METALLURGY PARTS TABLE 5 Steel Powder Shipments in North America 115 Tons Annual Cumulative Charge Year (thousands) change, (%) from 1991, (%) 1992 215 18 1993 255 18.6 40 1994 303 18.9 67 1995 313 3.2 72 1996 319 1.9 75 Source: MPIF. Total steel powder shipments for all uses for the period 1991-1996 for Japan, Europe, and North Amenca, are shown in Figure 5. One can note that the Amen- can industry has grown significantly vis-a-vis Japan and Europe. Moreover, the U.S. P/M industry has succeeded in increasing its share of the structural compo- nent market through innovation and new applications over other metal working industries (Table 6~. A desire to be close to customers has often led to clustering of parts manufac- tunng firms near major markets, notably Michigan. Just as often this clustering has been the result of an entrepreneurial and skill tradition, such as the concentra- tion of parts plants in northwestern Pennsylvania and New England. Recently, some manufacturing has been developed in the south because of lower labor and energy costs. In the absence of specific industry data by SIC code or a sufficient number of public companies, it is difficult to evaluate the financial health of the indus- try. Given this void, the Powder Metallurgy Research Center conducted a fi Sh. Tons 400,000 350,000 30O,OOO 250,000 - 200,000 - 150,000 - 1 00,000 - 50,000 O - ~f _ L _ _ _ ~ _ ,- ~ _ ~ C _ - 1 1 1 ~1 1 ~1 1 - 1 1 - 1 1 _ T T A< dW := 1 ~Up FIGURE 5 Steel powder shipments, all uses. Source: MPIF. | North America | 11 Japan | urope I

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6 U.S. INDUSTRYIN2000 TABLE 6 Weight of Materials in Pounds in a Typical U.S. Family Vehicle % change Matenal1997199619941990198019781978-1997 Reg steel sheet Stnp, bar, rod1411.01409.01389.01405.01737.01913.0-26 High arid medium Strength steel296.0287.0263.0238.0175.0133.0123 Stainless steel47.546.545.034.027.526.083 Other steels36.038.542.539.554.065.9-45 hon387.0389.0408.0454.0484.0511.0-26 Plastic and plastic composites242.0245.0246.0229.0195.0180.035 Aluminum206.0196.0182.0159.0130.0112.083 Copper and brass46.545.042.048.535.037.026 P/M Parts31.029.527.024.017.015.6101 Zinc die casting14.015.516.018.520.030.9-55 Magnesium cast.6.05.55.03.01.51.1445 Fluids/lubricants198.0198.0190.0182.0178.0198.0-15 Rubber139.0139.0134.0137.0131.0146.0-5 Glass96.594.089.086.583.586.412 Other materials102,0100.094.084.095.0120.0-15 Total3248.03236.03171.03141.03363.03576.0-9 Source: American Metal Market, quoted in the International Journal of Powder Metallurgy. nancial benchmarking study at Worcester Polytechnic Institute (Healy, 1997~ This study developed average values for key financial indicators by using a cross section of parts producers. These producers represent firms of all sizes, allow- ing us to develop a "composite P/M parts producer" representing an estimate on the industry average over a span of ten years. We have also made use of infor- mation and statistics culled from published data or made available by private sources (Table 7~. Raw Materials. The raw material share of total manufacturing costs, despite more costly premixes and larger parts, for which raw material costs are a larger share of manufacturing costs, has fallen in the last ten years from about 30 per- cent to 26 percent. The raw material share of net sales on the other hand contin- ues to be slightly less than 22 percent of net sales for eight of the last ten years. Direct Labor. While raw materials as a percent of net sales fell modestly over the last ten years, it fared better than direct labor costs, which have remained a constant percentage of net sales, in single batch or average job shop/specialty firms. Barring some immediate manufacturing breakthrough, direct labor costs do appear to continue at slightly less than 10 percent of net sales and seem to remain fixed in relation to volume despite the substantial increase in volume.

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POWDER METALLURGY PARTS TABLE 7 The Composite P/M Parts Firm ($1,000) 117 % change from 1986 1986 % 1991 % 1996 % 1991 1996 Net sales$8284 100$10,514 100$13,402 100 27 62 Raw materials2,013 242,239 212,882 22 11 43 Direct labor944 111,041 101,327 10 10 41 Other mfg costs3819 465~405 516~827 51 41 79 Total mfg costs6776 828,685 8311,035 82 28 63 Gross margin$1508 18$1,829 17$2,367 18 21 57 Note: Values are in constant 1986 dollars, as reported by the U.S. Bureau of Labor statistics for "Bars, Cold formed, Carbon." Productivity. We earlier pointed to the apparent lack of variability of labor costs with volume. This also related to the age of existing production equipment. Despite the design advances in new equipment, most of the existing equipment in the P/M parts industry, though often rebuilt, is very old, which has a direct effect on productivity (Table 8~. Approximately 70 percent of the press equipment currently in use is over 10 years old, and over 30 percent is over 20 years old. Maintenance costs in P/M at 5.6 percent of net sales are twice the National Association of Manufacturers aver- age of 2.3 percent for standard industry cost. In 1997, the total P/M parts industry equipment purchases are approaching $100 million for the first time, or approxi- mately 5 percent of the parts industry's sales. The P/M industry is very close to the National Association of Manufacturers' net sales per employee, which reflects the minimal spending on activities outside the production area by P/M companies (Table 9~. As can be seen, the productiv- ity reflects a 7 percent drop in real dollars adjusted for the Bureau of Labor Statis- tics producer price index for corresponding metal products (e.g., cold finished bars, carbon) during this period. TABLE 8 Age of P/M Equipment Equipment Age Distribution (%) % Years old 20 >10+ Presses Mechanical 15 16 36 33 69 Hydraulic 12 16 44 28 72 Sizing 13 18 39 30 69 Furnaces 23 24 30 23 53 Source: MPIF/PMPA.

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118 TABLE 9 Productivity Indices (Constant 1986 Dollars) U.S. INDUSTRYIN2000 Year Pounds per employee Net sales per employee Price per pound 1986 30,900 $73,900 $2.39 1989 27,500 $79,062 $2.88 1991 28,400 $83,183 $2.93 1995 41,200 $91,913 $2.23 (%) Change +33 +24 -7 Research, Intellectual Property, and Technology Diffusion The industry trade association, Metal Powder Industries Federation (MPIF), and the P/M professional organization, the American Powder Metallurgy Insti- tute (APMI International) have been major catalysts in fostering professional de- velopment and technology advancements in the P/M industry. The annual Inter- national P/M Technical Conference and Exhibits has been a good forum for cross-fertilization and development of ideas, a precursor for technology develop- ment. This is clearly manifested in the growing number of technical presenta- tions made at the conferences (Table 10~. In the recent past, MPIF has also been active in arranging trade missions to Japan and China. As reported earlier, R&D have traditionally been nominal at best in the P/M parts industry, and we have not seen any significant increase in the last five to ten years. The industry has concentrated on gradual process refinements relying heavily on raw material and equipment manufacturers to carry out whatever ma- terial and equipment improvements would be most conducive to increasing the market for P/M parts. Cognizance of the importance of intellectual property pro- tection is noticeable in the number of patents issued. Table 11 illustrates this growth. Research and development in the P/M industry, essentially only material and process development, was until very recently directly focused on perfecting ex- isting processes and products and metal powders and P/M parts. Little funda- mental research has been performed in or by the industry over the years. Funda- mental research on new atomization techniques, alloying during atomization TABLE 10 Growth of APMI Conference Presentations No. of technical No. of pages in Year presentations proceedings 1982 39 571 1987 55 895 1991 146 1888 1995 192 2443

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POWDER METALLURGY PARTS TABLE 11 Patent Activity 119 No. patents % change % change from Penod issued 1981-1985 prior year 1981-1985 159 1986-1990 180 +13 +13 1991-1995 219 +37 +21 1996- 1997a 260 +64 + 19 aAnnualize for a five-year period based on the number of patents issued through October 1997. process via gaseous reactions, new composite P/M materials, and novel compac- tion processing methodologies, among other areas, has not been pursued. As a result, the basic science of P/M technology has taken a back seat to developmen- tal projects. Globally and in the United States, the academic community has not been engaged in R&D and teaching in the fields relevant to P/M parts manufacturing. There is clearly a need for more research. The recent increase in industry consor- tia and scattered university-based cooperative research in the United States is an encouraging sign. Government funding for research, with one exception, has been nonexistent. At CTC in Johnstown, Pennsylvania, the Navy Manufacturing Program has financed a multi-year program to develop P/M industry standards, an effort unlikely to have been supported by the industry on its own. On the other hand, in Europe, Japan and Russia, government investments in P/M research have been consistent and substantial. Yet the return on these investments has been poor compared to the much greater success of the U.S. industry. This raises the question of focus and timing of government support of technology. CONCLUSIONS AND RECOMMENDATIONS Although this chapter has focused on the P/M industry, within the spectrum of metals processing industries there are several industry clusters with similar characteristics. The gap between firms with R&D capabilities and smaller firms with limited resources can result in a tiered industry, in which the smaller firms are unable to compete effectively for contracts with demanding OEMs. In P/M, most of the new applications and increases in market share have occurred be- cause of innovations and technology commercialization driven by the customer, principally the automotive industry, and not due to major investments by P/M parts producers. Suppliers, or powder producers, have invested in R&D to assist the parts producers. There is a symbiotic relationship between suppliers and parts producers. P/M industry investments in R&D, taken as a whole, are minimal and are not evenly distributed across the industry. Facilitating the development of R&D ca- pabilities in smaller firms is important for the growth of the P/M parts industry.

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20 U.S. INDUSTRYIN2000 The Metal Powder Industries Federation and the trade associations have played an important role in establishing forums for "cross-fertilization," informa- tion dissemination, and professional development programs; but these efforts are not sufficient. Innovation and technology commercialization require investments in knowledge of workers and in research and development The metals processing industry in general, and the powder metallurgy indus- try in particular, are in transition. To strengthen their supply drain, the OEMs have been seeking a smaller base of more sophisticated suppliers (e.g., Sage et al., 1991; Bertodo, 1991; Helper, 1991; Lyon et al., 1990~. To avoid being squeezed out, smaller firms need to recognize the value of investment in technol- ogy development and commercialization. One reason for optimism is the consid- erable enthusiasm for solving the technical problems of the industry within alli- ances of multiple firms centered in universities (Table 12~. Interestingly, there is TABLE 12 Attractiveness of R&D Alliance Options for P/M Part Producers FF FUFFU General Research and Development Effects of trace impurities on properties 5 1222 Detection of green cracks 10 623 Effects on side wall lamellar sheer 8 1319 Advanced process automation capabilities 12 1114 New joining techniques 7 1516 High temperature sintering 10 1319 Improved powder delivery systems 20 911 Corrosion resistance 6 1323 Further process developments 12 1118 Improved material properties 5 1424 Computer Software Applications Cost/Investment alternative analysis 12 916 Applications database to assist designers 11 620 Automatic tool design generation 13 1512 Process plan generation 10 188 On line standards database 12 221 Expert systems to help design parts 6 821 Process models end analyses 4 1319 Process Models and Analyses Sintering simulation 3 1122 Compaction simulation 5 1418 Tool and press deflection analysis 11 1414 Part dimensional analysis 13 1210 Process cost analysis 14 119 Powder flow analysis 4 1020 Note: FF = interfirm cooperation; FU = single firm and university; FFU = multiple firm and univer- sity. Source: Kasouf et al. (1994).

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POWDER METALLURGY PARTS 121 an inverse relationship between size and the relationship onentation, with smaller firms seeing more value in developing alliances (Kasouf and Celuch, 1997~. REFERENCES Bertodo, R. (1991). "Alignment of Automotive Suppliers to a Strategic Vision," International Jour- nal of Vehicle Design 12(3):255-267. Bocchini, G.F. (1983). "Energy Requirements of Structural Components: Powder Metallurgy vs. Other Production Processes," Powder Metallurgy 26(2):101-113. Drucker, P. (1998). Managing in a Time of Great Change. New York: Truman Talley/Plume. Frame, P. (1995). "GM Exec seeks Suppliers with Global Savvy," Automotive News (May 1). Healy, J. (1997). "Financial Benchmarking of the P/M Parts Industry," work in progress, Worcester, MA: Powder Metallurgy Research Center. Helper, S. (1991). "How Much Has Really Changed Between U.S. Automakers and Their Suppliers?" Sloan Management Review 32(Summer): 15-28 Huppman, W. J. (1991). "Wettbewerbschancen derPulvenmetallurale," P/MInternational 24(2):124 Kasouf, C. (1997). "Interfirm Relationships in the Powder Metallurgy Parts Industry," testimony to the Federal Trade Commission Joint Venture Project, June 24, 1997. Kasouf, C. (1998). "Interfirm Relationships in the P/M Value Stream: Case Studies," working paper, Worcester, MA: Powder Metallurgy Research Institute. Kasouf, C., and K. George (1994). "Interfirm Relationships in the P/M Industry," research report, Worcester, MA: Powder Metallurgy Research Institute. Kasouf, C. and K. Celuch. (1997). "Interfirm Relationships in the Supply Chain: the Small Supplier's View," Industrial Marketing Management, 26(6):475-486. Kasouf, C., D. Zenger, P. Ulf Gummeson, and D. Apelian. (1994). The P/M Industry Study: A Final Report. Princeton, NJ: Metal Powder Industries Federation. Kasouf, C., S. Nigam, and K. Celuch. (1996). "Globalization in the P/M Parts Industry," working paper, Worcester, MA: Powder Metallurgy Research Center. Lorange, P. (1988). "New Strategic Challenges for the Materials Oriented Firm: Requirements of Management to Steer Towards the Year 2000," Materials Research Society:139-146. Lyon, T., A. Krachenberg, and J. Henke, Jr. (1990). "Mixed Motive Marriages: What's Next for Buyer-Supplier Relations?" Sloan Management Review (Spring):29-36. Monts, R. (1995). "Ford Wants Suppliers as World Partners," Automotive News (April 17). National Association of Manufacturers. (1996). "Benchmarks for U.S. Manufacturing Productivity," Schaumburg, IL: McGladrey & Pullen. Porter, M. (1980). "Competitive Strategy," New York Free Press. Porter, M. (1990). "The Competitive Advantage of Nations," Harvard Business Review (March April):73-93. Price, B. (1995). "Extended Enterprises," presented at Creating and Managing Corporate Technol- ogy Supply Chains, Cambridge, MA: Massachusetts Institute of Technology, May 10, 1995. Roll, K. (1985). "The State of the P/M Industry," 1985 Annual Powder Metallurgy Conference Pro- ceedings, Princeton, NJ: Metal Powder Industries Federation. Roll, K. (1987). "Powder Metallurgy at the Turn of the New Century," 1987 Annual Powder Metal- lurgy Conference Proceedings, C. Freeby and H. Hjort, eds. Princeton, NJ: Metal Powder In- dustries Federation. Sage, L., T. Ozan, D. Cole, and M. Flynn (1991). The Car Company of the Future: A Study of People and Change, A Joint Research Project of Ernst & Young and The University of Michigan. Ernst & Young and The University of Michigan.

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22 U.S. INDUSTRYIN2000 White, D. (1996a). "Review of P/M in North America," Advances in P/M and Particulate Materials: Proceedings of the 1996 PM2TEC Meeting, Princeton, NJ: Metal Powder Industries Federation, A-3 to A-13. White, D. (1996b). "P/M Technology Trends," International Journal of Powder Metallurgy 32(3):225-228. Winter, D. (1996). "Materials '96 - Powder Metal: '96 Best Yet for Powder Metal," Wards Auto World, Detroit, MI, Sept. 95, 31(9):56-57. Winter, D. (1997). "Brisk Growth for Powder Metals," Wards Auto World, Detroit, MI, Sept. 97, 39(9):78-81. Winter, D. (1998). "Powder Metals Take a Breather," Wards Auto World, Detroit, MI, Sept. 96, 32(9):63-64.