Double-digit recovery for fluid power

William Atkinson -- Purchasing, 2/3/2005

If you talked with people in most manufacturing sectors a scant two years ago, they would likely have said that business was down, with no signs of a recovery imminent. But talk to the same people today, and they will tell you that manufacturing is strong once again and that some segments—fluid power, to name one—are doing extremely well.

"This market just came out of a two-and-a-half year recession and has recently gone through an aggressive recovery," says Eric Armstrong, economic and statistical services manager for the Milwaukee-based National Fluid Power Association (NFPA), which represents manufacturers, distributors, suppliers, and educators in industrial pneumatics, industrial hydraulics, and mobile hydraulics.

Members providing data to the NFPA statistical program report that industrial hydraulic orders through the first five months of 2004 were 20.6% higher than in the same period in 2003, and that shipments were 12.3% higher compared with the same period one year ago. In addition, mobile hydraulic orders skyrocketed by 42.5% in the same timeframe, with shipments up 22.1%. Only industrial pneumatic orders were flat when compared with the same period in 2003, but shipments were 7% higher.

It's a fast-paced recovery that has surprised both market watchers and NFPA, which had anticipated a slow and steady recovery.

Armstrong expects that fluid power sales for 2004 will be about 16% higher than 2003, with the market for hydraulics up about 17%, and the market for pneumatics up about 6%.

Why the different pace of the two recoveries? Pneumatics started its recovery in mid-2003, about two full quarters before hydraulics did, Armstrong explains. "As such, the pneumatics market is not moving along now as fast as hydraulics, which began its recovery in very late 2003 and very early 2004."

Individual manufacturers echo what Armstrong is saying. "We have seen a nice rebound in market demand since early 2004," declares Marwan M. Kashkoush, vice president of worldwide sales and marketing at Parker Hannifin in Cleveland. "We expect this to continue for at least another year, maybe longer." Kashkoush says demand has been in the double-digits and increasing worldwide, not just in the U.S. "The growth is the result of companies replacing older equipment as well as purchasing new equipment as a result of expansions," he adds.

Mike Marino, manager of global marketing for Ingersoll-Rand in Annandale, N.J., agrees. "Our business swings with the manufacturing sector, which was soft for a couple of years. Now all of that demand is coming back, as customers replace existing equipment and start to get into new markets that they couldn't afford to get into the last couple of years. Overall, demand is definitely exceeding our expectations for 2004," he adds.

Norgren, in Littleton, Colo., is another company reaping the benefits of the rebounding economy. "The fluid power market is well into a healthy year, and a lot of companies, including ours," are benefiting from sales increases in the "double-digits," reports Terry Weeber, director, marketing communications. The commercial vehicle industry, one of Norgren's six specific market sectors, is having a "white hot" year, according to Weeber, with the packaging equipment and medical equipment also strong.

While the recovery is obviously good news for the fluid power industry, it is posing some challenges for customers, especially in terms of pricing, leadtimes, and availability. "Everyone in the association is complaining about the rising cost of raw materials, especially steel and aluminum," reports Steve Demster, president and CEO of Ross Controls, adding that those costs are usually passed on to customers. "In addition, the strong recovery is definitely causing lead time and availability to tighten up, especially since manufacturers had reduced inventory so much during the hard times."

Still, says Demster, because many manufacturers have introduced lean manufacturing techniques, they are able to be more responsive to customer demand during this recovery than they would have been 10 years ago.

One such company is Norgren. "Our lean manufacturing program is allowing us to meet demand for leadtime sensitive products," says Weeber.

Another reason for the increases in pricing and leadtimes, and decreases in availability, is the impact of China. However, most manufacturers have plans in place to gear up to meet the challenges associated with China, both as a customer country and a supplier country.

"My personal opinion is that there is a lot of opportunity in China for a lot of our manufacturers," says Armstrong. "However, while labor is cheap, shipping product from China to the U.S. for distribution leads to additional costs, so many people think it's a wash."

Manufacturers are also looking to add new value in a variety of areas in this competitive market. Ross Controls offers its ROSS/

FLEX process, a rapid prototyping service. "If you have an idea for a product, our engineers can design it on CAD, produce it on CAM, and turn around a prototype quickly," explains Demster. "In addition, we provide safety training for customers."

The big service push these days, though, is helping customers with system-wide technical support.

Customers want suppliers that can provide total solutions, not just individual products, asserts Kashkoush. For example, when customers need a new system, they may need the system to be a combination of hydraulic, pneumatic, and electromechanical components.

Parker Hannifin now also provides complete kits that include valves, cylinders, hoses, fittings, and other parts, which can be delivered from one of its service centers or a distributor location right to the customer's manufacturing line. "We can also set up a Parker Service Center in the customer's plant, which stocks all of the component parts on-site via a vendor-managed inventory program," adds Kashkoush.

It's a tack that virtually all companies in the fluid power system have adopted—because of both customer demand and because it makes sense as a business strategy.

"We've seen increasing demand from customers for outsourcing and integrated systems assistance," reports Frank Langro, manager of product management for Festo Corp. in Hauppauge, N.Y., which, in addition to supplying individual components, does turnkey engineering projects and fabrication services for its customers.

Norgren's Weeber puts it most succinctly. "We don't focus on inexpensive commodity sales of individual items," says Weeber. "Rather, we focus on well-engineered components and systems."