ASSEMBLY Capital Spending Report: Capital Spending to Increase
In September, Swedish automaker Volvo broke ground on its first U.S. assembly plant. Located in Ridgeville, SC, the $500 million facility will build the company’s new S-60 sedan, which is under development in Sweden. At full capacity, the factory will be capable of making 100,000 cars per year. The first car is expected to roll of the line in 2018.
Volvo estimates that the factory will employ up to 2,000 people over the next decade and up to 4,000 people in the longer term. An economic impact analysis compiled by the College of Charleston estimates that, for an initial 2,000 direct jobs, more than 8,000 total jobs will be created as a result. The plant will contribute approximately $4.8 billion in total economic output on an annual basis.
As welcome as that news is, it was hardly the only attention-getting headline for U.S. manufacturing in 2015:
Airbus opened its first U.S. assembly plant in Mobile, AL. The $600-million factory will produce 50 jetliners per year, while sustaining the equivalent of some 3,700 full-time jobs in the region.
Haier America plans to spend $72 million to expand its refrigerator assembly plant in Camden, SC. The project will add 410 new jobs.
Solar cell manufacturer Suniva Inc. will invest nearly $100 million to expand its manufacturing operation in Norcross, GA, creating up to 500 jobs. The project will triple capacity at the facility.
All in all, 2015 was a banner year for U.S. manufacturing. Through October 2015, U.S. manufacturing employment stood at 12,317,000, according to the Bureau of Labor Statistics. That’s a 7.5 percent increase from March 2010, the manufacturing employment low point of the Great Recession. Overall, U.S. employers have added nearly 2.1 million jobs through the first 10 months of this year, and the unemployment rate stood at 5 percent, the lowest since April 2008.
U.S. manufacturing output rose in October for the first time in three months as factories cranked out more steel, cars and computers. According to the Federal Reserve, manufacturing output increased 0.4 percent in October, as the output of durable goods advanced 0.5 percent and the production of nondurable goods rose 0.3 percent. Nearly all major categories of durable goods industries moved up, and gains of 1 percent or more were recorded by nonmetallic mineral products; wood products; electrical equipment, appliances, and components; and primary metals.
From October 2014 to October 2015, manufacturing output is up 1.9 percent.
Data from the Institute for Supply Management also point to growth in U.S. manufacturing. According to the institute’s latest purchasing managers’ index (PMI), economic activity in the manufacturing sector expanded in October for the 34th consecutive month, and the overall economy grew for the 77th consecutive month.
The October PMI registered 50.1 percent, a decrease of 0.1 percentage point from the September reading of 50.2 percent. However, five of the 10 components of the index—including new orders, production, backlogs and exports—were up by a percentage point or more. Any reading above 50 signals expansion, and the index has averaged 52.7 from November 2014 through October 2015.
Of the 18 manufacturing industries covered by the index, seven reported growth in October: printing and related support activities; furniture and related products; miscellaneous manufacturing; food, beverage and tobacco products; chemical products; paper products; and fabricated metal products.
Optimism in 2016
With the economy humming, manufacturers should continue investing in capital equipment next year, and the results of our 20th annual Capital Equipment Spending Survey indicate that manufacturers will increase spending on assembly technology in 2016.
Specifically, U.S. assembly plants will spend $3.5 billion on new equipment in 2016, an increase of 4 percent from the $3.35 billion projected to be spent in 2015.
Some 37 percent of respondents will spend more on assembly technology next year than they did this year. That’s the most since 2001, and it marks the sixth straight year that the “we’ll spend more” percentage has been above 30 percent. Forty-two percent will spend the same as they did in 2015, and only 21 percent of respondents will spend less in 2016 than they did in 2015.
On average, manufacturers will spend $298,630 on assembly technology in 2016, and that is lower than the $737,935 average budget for 2015.
However, we received a disproportionately larger number of responses from smaller facilities this year than in previous years. For example, 46 percent of respondents to this year’s survey employ 20 or fewer people. Ordinarily, that percentage is around 33 percent. Conversely, only 11 percent of respondents represent factories with more than 200 workers, and 12 percent employ between 100 and 200 people. Normally, those ratios are 20 percent and 17 percent, respectively.
That disparity is important, because the average 2016 budget for factories with 20 or fewer people is just $40,775, while the average budget for plants with more than 200 employees exceeds $1.5 million.
Nevertheless, looking at the budget data in aggregate would still seem to indicate at least a modest increase in spending for 2016. For example, the amount of factories with budgets of $500,000 or more ticks up a few notches, from 10 percent in 2015 to 12 percent in 2016. At the same time, 16 percent of plants will spend between $100,000 and $500,000 next year, compared with 28 percent in 2015. And, on the low end, 72 percent of plants will spend less than $100,000 next year, compared with 62 percent in 2015.
In short, a few plants with midsized budgets in 2015 might cut back next year, while facilities with the deepest pockets will hold the line or increase spending.
Regardless of how much they spend on capital equipment next year, assemblers continue to expect a quick return on investment (ROI). Next year, only 33 percent of plants have an ROI period of at least two years. That marks the sixth straight year in which that percentage has been below 35 percent. This may be due to shorter product life cycles, Wall Street pressure, or tax law issues.
According to latest figures from the Federal Reserve, U.S. manufacturing operations were running at 76.4 percent of capacity in October. That compares with 75.8 percent in October 2014 and the 10-year low of 63.9 percent in 2009.
As a result, it’s no surprise that more and more facilities are looking to increase output. Forty-three percent of plants will buy equipment next year to increase capacity or assemble higher volumes of existing products. That ratio has gradually increased over the past four years, and it’s the highest percentage since 2009.
Replacing old equipment continues to be a priority for ASSEMBLY’s readers. For only the third time in the history of our survey, replacing old or worn out equipment is the No. 1 reason for investing in assembly technology. Some 44 percent of respondents plan to replace old tools and machines in 2016, marking the fifth straight year that ratio has been over 40 percent. Perhaps manufacturers postponed replacing capital equipment during the Great Recession and are now in dire need of new stuff.
Here’s another encouraging number from this year’s data: 26 percent of plants will buy equipment next year to assemble a new product. That figure had been declining steadily since 2009, bottoming out at 23 percent in 2014 and 2015.
Safety seems to be a growing concern of late. Twenty-four percent of plants will buy equipment next year to increase safety or improve ergonomics. That compares with 22 percent in 2015 and 19 percent in 2014, and it’s the highest percentage in the history of our survey.
There’s no question U.S. workplaces have become safer during the past 40 years. Employee deaths at all U.S. workplaces are down, from an average of 38 per day in 1970 to just 12 per day in 2014, according to the Occupational Safety and Health Administration. Workplace injuries and illnesses are down as well, from 10.9 incidents per 100 workers in 1972 to 3.3 per 100 in 2013.
However, in the industries covered by ASSEMBLY magazine, there’s room for improvement. From 2011 to 2013, the number of reportable workplace injuries decreased among manufacturers of machinery (-2 percent); computers and electronic products (-9 percent); electrical equipment and appliances (-4 percent); medical devices (-6 percent); and furniture (-6 percent).
Conversely, workplace injuries increased by 3 percent among transportation equipment manufacturers and 0.1 percent in the fabricated metal products industry. Even worse, there were 32 workplace fatalities in each of those industries in 2014.
Not surprisingly, then, 36 percent of transportation equipment manufacturers and 30 percent of fabricated metal product manufacturers plan to buy equipment to improve safety and ergonomics next year.
The desire for better safety and ergonomics will translate to increased sales for suppliers of workstations, lift-assist devices and other products next year. Forty-one percent of assembly plants will buy workstations and ergonomic accessories next year—the same percentage as 2015. However, spending on workstations is expected to increase 4 percent, from $108.1 million in 2015 to $112.4 million in 2016.
If safety and quality are increasing in importance to assemblers, lean manufacturing seems to be decreasing. Only 18 percent of plants will buy equipment next year to implement lean manufacturing. That compares with 23 percent in 2015, and it’s an all-time low for our survey. Of course, after taking the manufacturing world by storm back in the ’90s, lean is standard operating procedure for most assemblers today. Manufacturers may not have to get lean—they already are.
On the other hand, quality—the roof of the house of lean—may be increasing in importance. Seventeen percent of assembly plants will invest in technology to improve product quality next year. That compares with 12 percent in 2015, and it’s a six-year high.
Given the recall disasters in the automotive industry during the past few years, it’s not surprising to note that 25 percent of transportation equipment manufacturers—more than any other industry—will be buying equipment to improve product quality. In fact, transportation equipment manufacturers have led all industries in quality investments for the past three years.
Other motives for buying equipment include:
cost reduction, 39 percent.
reduce cycle time or eliminate a bottleneck, 31 percent.
For the sixth straight year, the top three targets for cost reduction are direct labor (74 percent), indirect labor (39 percent) and scrap (32 percent).
As manufacturers increase their consumption of exotic materials, such as composites and titanium, a growing number are concerned over the cost of those materials. Some 27 percent of assembly plants are looking to lower their material costs next year. It’s the fourth straight year in which that percentage has been above 25 percent.
Material costs are particularly concerning to manufacturers of transportation equipment (34 percent) and medical devices (32 percent). In fact, the latter ratio has exceeded 30 percent for three straight years.
Sixteen of plants are hoping to reduce work-in-process (WIP) inventory next year, about the same as this year. Unlike 2015, however, that need should translate into higher sales of conveyors and material handling equipment. Some 23 percent of plants expect to purchase pallet-transfer conveyors, roller conveyors and other material handling technology next year, compared with 18 percent in 2015.
On average, assemblers will dedicate 3 percent of their 2016 budgets to conveyors, the same ratio as 2015. All totaled, assemblers will spend $105 million on material handling technology next year, a 4 percent increase from 2015.
Only 12 percent of plants are looking to lower their warranty and field-service costs next year. That compares with 8 percent in 2014 and 11 percent in 2015.
However, that figure varies widely by industry. For example, 22 percent of transportation equipment manufacturers want to lower their warranty costs next year. That’s more than any other industry, and it marks the second straight year that this ratio has exceeded 20 percent.
The need to increase quality and reduce warranty costs will mean higher sales of test equipment next year. Some 42 percent of plants will buy leak testers, functional testers, electrical testers and other equipment in 2016—the same ratio as this year. However, they will spend more on the technology. Sales of test equipment will increase 17 percent, from $210 million in 2015 to $245 million in 2016.
Sixty-two percent of transportation equipment manufacturers will buy test equipment next year, more than any other industry. Medical device manufacturers and electronics assemblers are a close second. Almost half the plants (45 percent) in these two industries will buy test equipment in 2016.
Ironically, suppliers of vision systems and other inspection technologies may not enjoy a similar boost. Forty-eight percent of plants are expected to buy inspection equipment in 2016. That’s still good enough to make it the second most popular item on manufacturers’ wish lists next year, but it’s down from 51 percent in 2015. All totaled, sales of inspection equipment will decrease 21 percent, from $268.4 million in 2015 to $212 million in 2016.
The biggest markets for inspection technology next year will be machinery manufacturing, fabricated metal products, and electronics manufacturing.
ASSEMBLY’s data are somewhat at odds with that of the AIA, the trade group representing suppliers, integrators and users of machine vision systems. According to the AIA, North American sales of machine vision systems and components totaled $1.2 billion in the first half of 2015, a 16 percent increase compared with the same period in 2014.
“We’re happy to see the machine vision market continue its expansion in 2015,” says AIA president Jeff Burnstein. “We’re seeing a wide variety of companies in all industries realize the benefits of implementing machine vision in their operations.”
“Industry experts are optimistic for growth in machine vision cameras, software and imaging boards in the next six months,” adds Alex Shikany, AIA’s director of market analysis. “However, experts expect machine vision systems to remain flat in the next two quarters.”
New vs. Used
Assemblers continue to stretch their capital budgets with used or rebuilt equipment. Next year, manufacturers will meet, on average, 37 percent of their assembly technology needs with used or rebuilt equipment. That’s the same percentage as 2015. Indeed, the average for used or rebuilt equipment has been at or above 37 percent for six of the past seven years.
It wasn’t always that way. From 1997 to 2000, for example, manufacturers met, on average, less than 25 percent of their assembly technology needs with used machinery. But, recessions and outsourcing have certainly taken their toll on domestic manufacturers, and plenty of quality used equipment—robots, welders, indexers, crimping presses, and all manner of machine tools—is available at bargain prices.
Historically, manufacturers of fabricated metal products and computers and electronics are more likely to purchase used or rebuilt equipment, while manufacturers of medical devices and appliances and electrical equipment are less likely.
Not surprisingly, small companies are more likely than large ones to purchase new equipment. For example, companies with 20 employees or less will meet, on average, 41 percent of their technology needs with used or rebuilt equipment next year. In contrast, companies with 200 or more employees will meet, on average, 24 percent of their technology needs with “previously owned” equipment.
Oddly, manufacturers of midsized products are more likely purchased used equipment than manufacturers of larger or smaller products. Next year, 40 percent of the capital equipment purchased by manufacturers of products that fit inside a 36-inch cube will be used. In fact, that percentage has been 40 percent or more for the past three years.
Last October’s ASSEMBLY Show featured numerous suppliers of modular machine components and framing systems, including Bosch Rexroth, Creform, Item and Flex Craft. And why not? Next year, assemblers will meet 41 percent of their assembly technology needs with equipment built in-house. In fact, that percentage has been over 40 percent for three of the past four years.
Many assemblers are doing more than just building part racks and workstations, too. Twenty or thirty years ago, designing and building an automated assembly system required time, resources and a certain amount of arcane knowledge. Today, creating simple automated assembly cells is well within the capability of even the most harried engineering department. Robots have become less expensive and easier to use. Prepackaged XYZ motion control systems and servo-driven indexers are now widely available from many suppliers.
Historically, manufacturers of cars, planes and other transportation equipment are more likely than other industries to build in-house equipment. In 2016, transportation equipment makers will meet, on average, 45 percent of their technology needs with in-house equipment. In contrast, electronics assemblers are the least likely to go the DIY route. Next year, manufacturers of computers and electronics will meet, on average, 37 percent of their technology needs with in-house equipment.
Ironically, large manufacturers are much less likely to build in-house equipment than smaller ones, despite the greater number of personnel. Companies with 200 or more employees will meet, on average, just 31 percent of their technology needs with in-house equipment. In fact, companies with at least 200 employees have been below the national average in terms how much of their equipment is built in-house for at least the past six years.
As with used equipment, it’s the smallest manufacturers that have the greatest inclination toward DIY. Next year, companies with 20 employees or less will meet, on average, 45 percent of their technology needs with in-house equipment. These companies have been above the national average in terms how much of their equipment is built in-house for the past six years.
Manufacturers of midsized products are more likely to build their own assembly equipment than manufacturers of larger or smaller products. Next year, manufacturers of products that fit inside a 36-inch cube will meet, on average, 44 percent of their technology needs with in-house equipment.
That makes sense. Products in that size range are more likely to be assembled with a mix of manual and automated processes. Very small products—say, syringes—tend to be assembled in high volumes, requiring full automation and a high degree of precision. Very large assemblies—say, trucks—require a much more systemic approach to automated production.
Automating to Compete
Manual assembly remains the most popular way to put together a product. Some 88 percent of respondents employ at least some manual operations to assemble their products. That figure has remained constant for the past 20 years, and it’s not all that surprising. After all, people are the most flexible assembly machines.
That said, automation is increasing. In 2013, 22 percent of assembly plants had programmable assembly systems. Two years later, that ratio has increased to 31 percent. For the purposes of our survey, we defined “programmable assembly system” as flexible automated equipment, synchronous or nonsynchronous, that runs with minimal operator intervention. This is equipment
can typically be reprogrammed and retooled in less than 24 hours to accommodate product variation.
The use of fixed automation has also increased in the past three years. Our survey defines “fixed automation” as traditional dedicated “hard” automation. These are relatively inflexible systems, typically synchronous, that run with minimal operator intervention. These systems generally require substantial modification or alteration to accommodate product variation.
In 2013, 12 percent of assembly plants were running fixed automation. Two years later, that ratio has increased to 20 percent.
The move to automation is evident in factory staffing levels. Automation is enabling manufacturers to produce more with less. In 2008, 33 percent of assembly plants employed more than 100 people. This year, only 23 percent of plants employ that many.
The move to automation is also evident in buying plans. Twenty-one percent of plants will buy multistation automated assembly systems next year. That compares with 16 percent in 2015, and it’s the highest percentage since 2012.
Some of that demand is being driven by the need to assemble slightly larger products than would ordinarily be produced on fully automated lines. Some 32 percent of manufacturers of products 12 to 24 inches long will purchase automated assembly systems in 2016—up from 17 percent in 2015 and 9 percent in 2016.
Much of the demand for automated assembly systems is coming from manufacturers of computers and electronic products. Some 37 percent of electronics manufacturers will invest in multistation automated assembly systems next year, up from 33 percent in 2015 and 19 percent in 2014.
Transportation equipment manufacturers—most likely auto parts suppliers—will be investing in assembly systems, as well. Fourteen percent of manufacturers in this industry will buy assembly systems next year, up from 10 percent in 2015.
One industry that might decrease its need for automated assembly systems is medical device manufacturing. Only 14 percent of plants in this industry will invest in automated assembly systems next year, down from 28 percent in 2015.
All totaled, manufacturers will spend $700 million on multistation automated assembly systems in 2016, up 28 percent from 2015.
The increased demand for automated assembly systems will spark sales of related technologies, as well. For example, 19 percent of plants will buy bowl feeders, tray feeders and other parts feeding technologies next year, up from 12 percent in 2015. Similarly, 19 percent of plants will invest in indexers, linear actuators and other motion control technology in 2016. That compares with 14 percent in 2015, and it’s the highest percentage since 2011.
In all, manufacturers will spend $60 million on part feeders next year (a 19 percent increase) and $87.1 million motion control technology (a 4 percent increase).
Of course, automation can encompass more than multistation assembly lines. Demand for single-station assembly systems should also increase next year. Forty-four percent of plants will invest in automatic screwdrivers, riveting machines and assembly presses next year. That compares with 40 percent in 2015, and it’s the highest percentage since 2011. Demand will be particularly strong for riveters, especially among manufacturers of transportation equipment, fabricated metal products and electrical equipment. Twelve percent of plants will invest in that technology in 2016, compared with 7 percent in 2015.
What Assemblers Want
For the seventh time in the past nine years, power tools will be the No. 1 item on assemblers’ shopping lists next year, though demand will be less than in previous years. Some 62 percent of assembly plants will purchase impact wrenches, cordless screwdrivers, DC electric nutrunners, handheld riveters and other power tools in 2016, compared with 68 percent in 2015.
For the third straight year, manufacturers of tractors, compressors, lawn-mowers and other machinery will lead all industries in demand for tools. Two-thirds of machinery manufacturers will purchase tools next year. Demand will also be strong among manufacturers of medical devices and transportation equipment.
On average, assemblers will dedicate 9 percent of their 2016 budgets to electric and pneumatic tools. That compares with 12 percent in 2015, and it’s the lowest percentage since 2012. All totaled, assemblers will spend $195.6 million on tools next year, or 17 percent less than they spent in 2015.
The biggest decrease in demand will be for welding, brazing and soldering technology. Thirty-five percent of factories plan to buy such equipment next year. That compares with 46 percent in 2015, and it’s the lowest percentage since 2013.
On average, assemblers will dedicate 6 percent of their 2016 budgets to laser welders, resistance welders, soldering stations and other equipment next year, the smallest percentage since 2009. All totaled, assemblers will spend $22.5 million on welding, brazing and soldering equipment next year, 25 percent less than in 2015.
On the other hand, the market for robots continues to soar. From 2010 to 2014, robot sales in North America have doubled both in terms of units and dollar value, according to the Robotics Industries Association. The U.S. is second only to Japan in terms of the total number of robots in service.
Through the first nine months of 2015, 22,427 robots valued at $1.3 billion were ordered from North American suppliers, an increase of 6 percent in units and 9 percent in dollars over the same period in 2014.
Sales activity continued to be strong in both automotive and nonautomotive industries. Automotive related orders were up 6 percent through September, while orders to nonautomotive industries—such as electronics, consumer goods and metals—increased 5 percent over 2014.
Such investment will likely continue next year. While only 14 percent of plants will buy SCARAs, grippers, tool changers and other robotic technologies in 2016—down from 21 percent in 2015—they are budgeting more for the technology. On average, assemblers will allocate 4 percent of next year’s capital budget to robots, up from 3 percent in 2015.
That might seem like a small boost, but it will translate into a healthy 34 percent increase in total spending on robotics, from $117.4 million in 2015 to $157 million in 2016.
Demand for robots will be especially strong among manufacturers of machinery, transportation equipment and fabricated metal products.
Computers and software also rank high on assemblers’ shopping lists for next year. Sixty-two percent of plants will buy design analysis software, manufacturing execution systems, statistical process control software and other information technology next year, the same percentage as in 2015.
However, assemblers will dedicate 13 percent of their 2016 budgets to computers and software, up from 11 percent in 2015—the most in four years. All totaled, assemblers will spend $356.7 million on IT next year, 23 percent more than in 2015.
Demand for computers and software will be particularly good in the machinery and medical device manufacturing industries.
As usual, the country’s largest assembly plants have the deepest pockets and the rosiest outlook for capital spending.
Only 18 percent of plants with more than 200 employees and 14 percent of plants with 101 to 200 employees expect to spend less next year. In contrast, 24 percent of factories with 21 to 100 workers plan to spend less next year, as will 23 percent of companies with fewer than 20 employees.
Compared with smaller facilities, plants with more than 200 employees are more likely to buy equipment to:
Increase capacity (65 percent vs. 43 percent for all U.S. plants).
Increase safety (44 percent vs. 24 percent for all U.S. plants).
Reduce cycle time (51 percent vs. 31 percent for all U.S. plants).
Assemble a new product (41 percent vs. 26 percent for all U.S. plants).
On average, plants with more than 200 employees will spend $1.56 million on assembly technology next year—38 times the average budget of plants with fewer than 20 workers. Indeed, 75 percent of all plants with million-dollar capital budgets have more than 200 employees.
Together, the nation’s largest factories will spend more than $2.9 billion next year. That’s 85 percent of total spending and 58 percent more than this group spent in 2015.
Smaller facilities won’t spend nearly that much. In fact, factories with 21 to 100 workers will account for just 4 percent of total spending, while companies with fewer than 20 employees will contribute just 1 percent of total spending. Both figures are five-year lows.
Compared with larger facilities, plants with 20 or fewer employees are less likely to buy equipment to:
Increase capacity (27 percent vs. 43 percent for all U.S. plants).
Reduce cycle time (19 percent vs. 31 percent for all U.S. plants).
Increase safety (8 percent vs. 24 percent for all U.S. plants).
Implement lean manufacturing (10 percent vs. 18 percent for all U.S. plants).
On average, plants with 20 or fewer employees will spend $40,775 on assembly technology next year, and factories with 21 to 100 workers will spend $113,093.