November 2021 Volume 3

EQUIPMENT & TECHNOLOGY

Your Machine Shop as a Path to Vertical Integration By Dean M. Peters

Many forges operate machine shops to accommodate their tooling needs. For some companies, it has become a lucrative growth strategy to take their machining operations beyond their tool rooms, and into rough- or finish-machining, adding value to the products they produce. Some have accepted independent customers for their machining capacity, adding new revenue streams to their operations.

tooling needs, also captively machine product from their production floors, turning intermediate products into finished forgings. Still others, having met all their internal machining needs, have turned their machining capacity into an independent revenue stream. The Vertically Integrated Factory Michael Porter, in his classic 1985 book, "Competitive Advantage: Creating and Sustaining Superior Performance," was the first to describe the concept of a value chain. This concept describes the set of activities performed by a specific factory or other business unit to bring goods and services to market. It is typically applied at the business unit level, not at corporate or divisional levels, and it includes value-added functions such as raw material and finished goods logistics, manufacturing operations, management functions, marketing and sales, and service functions. It reasonably follows that the more investment a business makes in its value chain, the more control it has over its manufacturing destiny. Every factory is part of a value chain, which takes its place in the value-added continuum between a completely raw material and a fully finished product. In support of value chain development is the strategy of vertical integration, which deals more precisely with manufacturing operations. Vertical integration occurs when a company takes control of its operations beyond its core manufacturing competencies. In a challenging and competitive environment, some forges have opted toward a more vertically integrated operation as a long-term growth strategy. Every manufacturer has its core competencies. Any time the manufacturer takes control of downstream (forward integration) and upstream (backward integration) products or services, it becomes more vertically integrated. If it looks upstream, the operation becomes closer to its suppliers; downstream brings it closer to its customers. According to forging consultant Terry Chilson, whose decades- long career in forging has given him considerable insight on this subject, “Forges find value in vertical integration to do as much of their process through to the finished product as possible. When companies control more of their manufacturing process, they not only gain a cost-saving benefit, but also gain more control over the design aspects of their finished product.”

A forged hook is chucked up on a lathe. Image courtesy of The Ulven Companies. The forging industry, like other metalworking sectors, is highly competitive and continually seeks ways to improve its competitiveness and versatility. If metal feedstock can be metaphorically considered the lifeblood of a commercial forge, then the tooling and forming dies used by the industry in its presses and mills, from which billets and preformed workpieces are forged, can be considered the heart of the operation. This article looks at the machining operations characteristic of forge shops. Many forges operate their own machine shops to produce their tooling. If a forge’s product requires coarse or finishmachining, many outsource these services to a commercial machine shop. For some operations, market conditions are such that this is a viable and competitive option. Other shops, in addition to supporting their

FIA MAGAZINE | NOVEMBER 2021 16