Precision Machined Products Association

The Precision Machined Products Association (PMPA) is an international trade association which exists to represent the interests of the precision machined products industry.

Founded in 1933 as the National Screw Machine Products Association, the organization expanded to an international reach and is currently celebrating its 75th year.

The association provides programs and services to the precision machining industry.

References

www.pmpa.org

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About PMPA The Precision Machined Products Association (PMPA) is a trade association serving the precision machining industry, NAICS 332721, in North America, particularly Canada and the United States. PMPA does this by providing its members with many opportunities to network, benchmark, learn about and share ideas and technologies, and apprise them of regulations that can affect their businesses.

The PMPA provides many deliverables, including reports on a wide range of topics. Notifications on regulatory developments, and information on markets, technology, and raw materials are one information deliverable. The PMPA provides a number of statistical and financial reports to its membership and to policy hought leaders as a voice of the precision machining industry. Financial reporting available to member companies include market outlooks, business trends, salary and benefits information, as well as several different financial measures and benchmarking compilations.

About the Industry The Precision Machined Products Industry (NAICS 332721) consists of a diversified manufacturing base producing highly engineered machined components to customer specifications using a variety of materials such as steel, stainless steel, aluminum, brass, titanium, and aerospace and specialized alloys. The industry produces high volumes of precision manufactured components on a contract or order basis. Using both mechanical (cam type) automatic bar machines, as well as the latest in computer controlled (CNC) machining equipment, the industry produces complex parts and complete assemblies incorporated into finished goods such as automobiles, aircraft, heavy truck, medical devices appliances, construction equipment, munitions and others. The industry had approximately $10 billion in sales (2006- US Census Annual Survey of Manufactures). The industry is made up of 2,665 companies employing 76,908 employees, with average sales per employee of $135,535.

Perfect Competition and the Precision Machining Industry Perfect competition was defined by Stigler, 1957 as: a competitive system in which a large number of firms produce a homogenous product for a large number of buyers. All the firms share the same product/market knowledge and enjoy free entry/exit to and from the industry. They are price-takers and sell as much of the product as possible at the market price Output is set where marginal cost equals marginal revenue. In the long run, average revenue equals marginal cost and firms enjoy only normal profits. Source: G. Stigler, ‘Perfect Competition, Historically Contemplated’, Journal of Political Economy, vol. LXV (1957), 1-17

In class we learned that in a perfectly competitive market, all firms are price takers and each has a relatively small share of the total market. Agricultural producers were the given example, where all products sell at the market price, and no premium is paid for what are considered to be ommodity goods.

Examining the precision machining industry, we see that it meets many of these criteria.

1) There are a large number of firms in the market, none of which have commanding share (2,665 companies; 10 billion in annual sales; average sales per company $3.75 million)

2) All the firms share the same product /market knowledge (That what is occurring at meetings and on the PMPA Listserves)

3) Same entry and exit to and from the industry. This is also true, many of the firms in the industry and the association were started up by employees of existing shops. The only bars to entry appear to be ability to raise capital and entrepreneurial drive.

4) All firms are price takers. This is a structural feature of this industry. The business model for this industry is for the customer to send an RFQ (Request for Quotation) to a number of shops for bidding. The shops each develop a bid using an engineering method that determines the cost of the raw materials needed, all direct and indirect manufacturing costs, plus any additional charges for special equipment necessary to assure that the product is fully compliant to the customer requirements.

However, many industry insiders would object to the characterization of precision machined components as ommodity goods. Titanium screws for orthopedic implants, anti-lock braking components, and safety critical airbag systems parts are not ommodities even though they are sold in high volumes. This objection can be met when it is examined more closely; what is being sold is not the product itself, per se, but rather it is the value added time of the machining process that is being purchased. The machine hour rate is the ommodity that is widely known and which sets the price of the products whatever they may be. Higher machine hour rates for more complex parts, or more difficult to machine materials or features, lower machine hour rates for less complex parts, and parts from more machinable materials. The large number of potential suppliers in the industry, and quoting on each RFQ, gives the buyers sufficient choice to purchase at the market price. It is the industry wide machine hour rate as applied to the workpiece material, that is the pricing determinant in this industry, not the parts themselves.

Given this perfect competition market structure, the sharing and altruistic behaviors of the PMPA member companies are perfectly aligned to maintain efficient markets, since while they compete, they do not generally compete against each other. All machine hours available to be sold at a market clearing price will be sold if all suppliers are operating at market efficiencies. Sharing technical information and sharing expertise can be seen as behaviors that assure that all firms have the same market knowledge. The companies in the precision machining market can be characterized as erfect competitors, even though they sell individual highly differentiated parts to many different customers. Their products are not commodities, these companies are price takers for what it is that they sell, which is the 3T- the Time of their machines (machine hour rate), at their deployed Technology level, and based on the Talent of their work force.

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