It's going to be another solid year
Hand tool producers are designing in more capacity so that end users can use the tools for a wider range of jobs. An example is this adjustable wrench that opens up to 25% wider.
By Elena E Murphy -- Purchasing, 1/15/1998 2:00:00 AM
Demand for hand tools is growing moderately and will keep expanding at a similar pace through the rest of 1998. As a result, prices aren't expected to spike anytime soon. Short leadtimes will be trimmed where possible due to advancements in improvements in distribution management and competition among integrated suppliers.
The steady increase in demand isn't pumping up prices but neither is it throwing them into a tailspin. One producer characterizes prices as quiet, adding that right now industry players are focused on improving internal efficiency and productivity. Inflation is keeping a low profile as well, easing producer cost pressures on raw materials and labor costs to a lesser extent.
Raw material tags also are steady with no strong surges expected which bodes well for hand tool cost structure. Steel for this industry is readily available and producers say they can turn to a worldwide market if supply starts to tighten in the U.S. Tags for resins that are used in molded grips also are holding steady. Stable oil and petroleum prices currently may account for part of the steady resin tags, says Timothy Miller, vice president sales & marketing, CooperTools, Raleigh, N.C. Plastic rubber molded grips' popularity stems from their greater comfort and the fact that they stay warmer if used outside in cold temperatures.
Prices for ergonomic hand tools will remain higher than tags for other hand tools. Orders for this segment of the hand tool market are expanding at a much faster rate due to end-user interest in preventing injury, as well as reducing downtime costs. These tools are designed to cause less fatigue, says Peter Renwick, president, Sandvik Saws and Tools, Scranton, Pa. For example, the tool may feature a larger handle or the handle may be better aligned to the palm.
Whither demand?
Demand is being driven by certain active industries, offsetting sluggish demand in other markets. Joe Spry, marketing manager at distributor Sears Industrial Sales, Evanston, Ill., expects industry-wide growth between 2%-4% this year with pockets of high orders. These factors add up to moderate net growth which will most likely continue through the end of the century.
Several hand tool market segments are experiencing an upswing in demand. Renwick says that those producers serving the aerospace industry are managing to keep up as orders leap forward. In addition, he notes that demand for hand tools in the electronics and computer-producing industries is "robust." That may be due in part to the availability for application- and worker-specific tools.
However, there are markets whose activity appears to be a little less rosy. For example, automotive demand is stagnant or declining right now confirm hand tool producers. This counters the steady growth and will contribute to stable tags through 1998.
Supply integrates
With demand growing moderately, producers say they're filling orders on time. However, being on time is only one part of higher customer satisfaction standards. Orders need to be traceable at all times and be supplied faster than ever. As a result, producers and their distributors are integrating through closer communication and transportation.
Currently, supply is readily available, which has allowed the industry to shore up its distribution systems and technology. Industry sources say there is enough capacity. Since not much expansion is planned over the next few years, producers are focusing on their warehouse management systems and communication with distributors. Improving supply channels is a critical step in speeding up time-to-market for the hand tool industry.
Distribution and its offshoot transportation, are experiencing a shake-up which started a few years ago and will continue into the next century. End users want fewer suppliers and to achieve that will sign contracts with one supplier that can handle the broadest range of MRO (maintenance, repair, and operation) needs. The number and reach of these integrated suppliers are growing and hand tool producers are aligning themselves with organizations that offer the best market position.
Renwick notes that desire for more services is driving up end-user expectations of distributors. End users already want their products faster and accompanied by technical support if needed. They want to know where their orders are at all times and require a streamlined ordering process that eliminates unnecessary paperwork. As a result, distributors are revamping their transportation and communication systems. Strategic distributors are investing in electronic data interchange (EDI) in order to provide advanced shipping notices (ASN) and other information to ensure efficient supply flow.
In addition, hand tool distributors are consolidating to broaden product lines and secure more customers. The consolidation may yield integrated suppliers or distributor consortiums that can serve a range of MRO requirements. Suppliers may hold inventory for the customer as well as provide a wider range of hand tools and other products.
In addition to traditional hand tool distributors merging to compete more effectively, non-traditional players also are getting into the act. One producer notes that electronics distributors, for example, may start carrying hand tools in order to gain larger marketshare. Some distribution/retailers that serve the consumer market also are testing the waters to jump into the industrial market.
On the surface, these distributors don't look like they have a lot in common but Renwick says they do. What they share are the skills critical for success as an integrated supplier. Those skills emerge from deploying state-of-the-art communications systems, warehouse management, and transportation services.
Hand tool producers say that end users are benefiting from the move to integrated supply and higher expectations for distributors. The most immediate area of improvement is reduced leadtimes. Miller says that strategic hand tool producers have pared leadtimes down from ten days to around three. This can be attributed to the closer communication between end users and distributors as well as the more advanced technology that links distributors to the producers and end users.
Add value
Hand tool suppliers aren't just relying on supply channels to differentiate themselves. Value-added products can make or break a relationship with an end user. This industry is known for its high level of new product introductions to boost demand, and this year is no exception.
The changes are in the tools themselves and how they're made. Miller notes that for many tools, such as a wrench, new features such as added capacity to handle larger jobs is one way to generate demand. On the process side, Sears' Spry notes that "in producing sockets, improved cold-stamping is replacing slower, costlier drop-forging."
Another tool feature that has undergone change is tool finish. Natural finish achieved through polishing is gaining in popularity over chrome-plated finish. That shift goes hand-in-hand with the environmental hazards associated with the chrome-plating process. Though customers want the rust protection that chrome offers, Miller says that oil or polymer based finishes are doing the job for certain tools while the polishing achieves comparable results for others. An example of a successful move to polymer-based finishes is for tape rules that used to be chrome. Miller says that more polymer-finished tape rules sell every year.
For their part, distributors also assert that they can add value. For example, Spry says Sears assembles custom tool sets with just one item number to reduce paperwork. Distributors use EDI to "monitor supply."
Market at a glance
Demand - is expanding at a moderate pace. Aerospace, computers, and electronics are driving the growth, while declining automotive sales are tempering the strength of hand tool demand.
Prices - are staying at current levels through the year. Demand is growing but not enough to tighten supply. Ergonomic tools, however, will continue to command higher tags due to perceived value in preventing injuries and increasing productivity.
Supply - is plentiful through 1998. Though no capacity increases are expected, hand tool producers say they're working on internal efficiencies. Integrated supply is increasing the competition among distributors to carry the products that end users want. The competition is heightened by the entrance of non-traditional players from other industries or markets.
Leadtimes - are down to three days and some may see even quicker turnarounds. Distribution has had to work closely with producers and end users through EDI and other techniques in order to meet varying customer demand levels.
U.S. supply & demand for power & hand tools
(millions$)
%annual growth
1995 2000 00/95
Power & hand tool sales 7,713 9,290 3.8
+exports 1,156 2,000 11.6
-imports 1,694 2,630 9.2
Power tools 4,168 5,220 4.6
Hand tool shipments 3,007 3,440 2.7
SOURCE: FREEDONIA GROUP
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