No matter who or what gets the blame, the outcome remains the same: Manufacturers will spend less on assembly technology next year than they did this year. A lot less.

According to ASSEMBLY magazine?s sixth annual capital equipment spending survey, U.S. assembly plants will spend a total of $2.13 billion on new equipment during 2002. That?s a decrease of 20 percent from the $2.66 billion projected to be spent during 2001. Spending per plant is expected to decrease from a median of $131,125 in 2001 to $100,000 in 2002.

For the first time in the 6-year history of the survey, the number of manufacturers that will spend less on assembly technology is greater than the number that will spend more. Almost 31 percent say they will spend less on assembly technology next year than they did this year. In contrast, only 24 percent of respondents plan to spend more, and 45 percent will spend about the same.

To put these figures in perspective, in the previous 5 years, manufacturers that planned to spend more on assembly technology outnumbered those that planned to spend less by a 2-to-1 margin.

?A 20 percent decrease in equipment spending may be a little pessimistic, but I don?t think it?s way off, especially in terms of investment in equipment to expand production,? says David Huether, an economist with the National Association of Manufacturers (NAM, Washington, DC). ?According to our own data, which includes investments in computers and software, spending will be off by 10 percent in the first half, and then start to recover in the second half.?

ASSEMBLY?s data indicate that smaller spending plans for next year span all industries, regions and company sizes.

For example, 35 percent of transportation equipment manufacturers (SIC 37) will spend more on equipment next year than they did this year. That?s the highest such percentage of any industry this year, but it?s 5 percentage points lower than the transportation equipment industry?s 5-year average.

In the Northeast, only 18 percent of plants will increase their equipment spending next year, while 52 percent will spend less. This is virtually a reversal of last year?s numbers. Last fall, 44 percent of Northeast manufacturers planned to spend more on equipment in 2001 than they did in 2000, and 22 percent expected to spend less. In the West, 38 percent of plants will increase spending on assembly technology in 2002. That?s more than in any other region, but it?s still 5 to 15 percentage points less than historic levels for both that region and the nation as a whole.

Among manufacturers with 100 to 249 employees—the most common plant size in our survey—23 percent will spend more on equipment next year, but twice as many, 47 percent, plan to spend less. Moreover, those figures are virtually identical for plants with more than 500 employees, as well as for plants with less than 50 employees.

?Companies are not going to expand capacity until consumer demand turns around, and that?s a big question mark now, given the uncertainty caused by the war in Afghanistan,? Heuther says. ?And, that uncertainty is going to last a while—for at least three quarters. So people are probably not going to buy cars and other durable equipment soon, which is important to the economy.?

Actual budget figures show the spending decrease more clearly. The percentage of plants with equipment budgets under $100,000 has increased 21 percent, from 38 percent of plants in 2001 to 46 percent of plants in 2002. At the same time, the percentage of plants with budgets between $100,000 and $500,000 has decreased 13 percent, from 37 percent of plants in 2001 to 32 percent of plants in 2002. And, percentage of plants with budgets over $500,000 has decreased 12 percent, from 25 percent of plants in 2001 to 22 percent of plants in 2002.

Not only will budgets decrease next year, but there?s strong evidence that the slowdown in equipment spending began this year. According to our survey, 69 percent of manufacturers spent at least 70 percent of their 2001 equipment budgets. In 2000, however, 77 percent of plants spent at least 70 percent of their equipment budgets, and in 1999, 83 percent of manufacturers did so.

Spending data from other sources match ASSEMBLY?s results. For example, a study conducted by the market research firm Advanced Technology Advisers (Cleveland) found that U.S. sales of automated assembly systems and components in 2001 were down 18 percent compared with last year?s sales. And, according to the Association for Manufacturing Technology and the American Machine Tool Distributors? Association, U.S. sales of machine tools for the first 8 months of 2001 totaled $1.86 billion—31 percent less than sales during the same period in 2000. In fact, sales of machine tools are at their lowest level in 10 years.

Why Plants Are Buying

Since the survey began in 1996, ?reduce costs,? ?increase capacity? and ?assemble a new product? have always been the top three reasons why manufacturers purchase assembly equipment.

This year, cost reduction remains No. 1, but secondary motives have changed. In 2001, 54 percent of manufacturers purchased equipment to assemble an existing product at a higher volume. Next year, only 40 percent will do so. That drops ?increase capacity? from the No. 2 reason for buying equipment, to the No. 4 reason.

In what could be a sign of shortening product life cycles, more manufacturers than ever before (51 percent) are obtaining equipment to build new products. That puts ?assemble a new product? as the No. 2 reason for buying equipment. Coming in at No. 3 is ?reduce cycle time.? Forty-three percent of respondents will buy equipment next year to improve cycle time or eliminate a bottleneck.

?Capacity utilization in manufacturing is really low now. It?s down in the 70 percent range,? Huether points out.

The economic downturn is doing more than change assemblers? motives for buying equipment. It?s also testing their patience. Shrinking product life cycles and tighter profit margins are forcing manufacturers to pay off capital equipment investments faster than ever before. In 1999, 64 percent of manufacturers could wait more than a year before seeing a return on their equipment investments. In 2002, only 56 percent will be able to to wait that long.

?When manufacturers invest in equipment to increase capacity, the payoff is often further down the road,? Huether explains. ?Right now, manufacturers are targeting short-term needs. They can?t afford to invest in expanding capacity. From the first quarter of 2000 to the first quarter of 2001, manufacturers? earnings fell by 40 percent.?

Changing Equipment Needs

Indeed, with one exception—manufacturers of compressors, computers, combines and other machinery (SIC 35)—assemblers in every industry are relying less on new equipment. It?s not surprising that electronics assemblers have increased their spending on used equipment during the past 5 years. Shortened product life cycles, supplier consolidation and slumping demand for electronic products have made high-quality used equipment readily available.

?A lot of electronics manufacturers can?t keep their equipment busy enough right now, so they?re off-loading their equipment at bargain-basement prices,? says Reno Morshead, global sales manager with Northern Electronics Automation Inc. (Londonderry, NH), a dealer of used electronics assembly equipment. ?By investing in used equipment, midlevel manufacturers find that they can afford high-end assembly machines.?

Electronics assemblers are not the only companies jumping on the used equipment bandwagon. Manufacturers of instruments and related products (SIC 38) have increased their spending on used equipment by 61 percent, while manufacturers of fabricated metal products (SIC 34) and transportation equipment (SIC 37) have both increased their spending on used equipment by 80 percent.

One type of equipment that manufacturers are buying ?previously owned? is robots. ?Even though the price of new robots has been dropping, I have been getting more calls from system integrators about used robots,? says Marshall Burke, manager of administration and marketing for Antenen Research (Cincinnati), a dealer of used robots. According to Burke, used robots are most often purchased for heavy-duty material handling applications, such as tending die-casting machines.

Another way that manufacturers might be trying to save capital dollars is by building assembly equipment themselves. During the past 5 years, manufacturers have gradually increased the amount of assembly equipment that they build in-house. In 1997, manufacturers fulfilled 34 percent of their assembly system needs with equipment created by captive machine-building departments. In 2001, manufacturers met 41 percent of their assembly system needs with in-house equipment, a 20 percent increase.

This trend can be seen in most of the industries covered by ASSEMBLY. For example, manufacturers of transportation equipment (SIC 37) have increased their use of in-house equipment by 71 percent, from 23 percent in 1997 to 40 percent in 2001. Machinery manufacturers (SIC 35) have expanded their use of in-house equipment by 37 percent, from 32 percent in 1997 to 44 percent in 2001. And, manufacturers of fabricated metal products (SIC 34) have raised their use of in-house equipment by 20 percent, from 40 percent in 1997 to 48 percent in 2001.

The growing popularity of modular aluminum profile systems may have something to do with this growth, says Loren J. Tieman, president of Advanced Engineering Services (Mukwonago, WI), a distributor for Item MB Kit Systems Ltd. (Akron, OH). ?Modular profile systems have enabled manufacturers to build equipment that they couldn?t build before—and do it a lot faster, with a lot less capital outlay,? he says.

Only one industry hasn?t increased its use of ?home-built? equipment in the past 5 years: electrical and electronic products (SIC 36). This year, manufacturers of switches, stereos and circuit boards fulfilled 32 percent of their assembly system needs with in-house equipment, and that percentage has varied little since 1998.

The amount of equipment that assemblers build in-house varies inversely with company size. During the past 5 years, companies with 1,000 or more employees fulfilled an average of 28 percent of their assembly system needs with equipment created in-house. Conversely, companies with less than 100 employees satisfied, on average, 42 percent of their system needs with equipment built internally.

?Small companies are more flexible than large ones,? says Christoph Hollenstein, president of Robotunits Inc. (Monmouth Junction, NJ), a supplier of modular automation components. Whereas large manufacturers might simply buy the specialized equipment they need, small companies can?t afford to do so and are forced to build it themselves.

Electronics Industry Outlook

In addition, nearly one in three (32 percent) plants in this industry expect to spend less in 2002 than they did this year, and 47 percent plan to spend about the same as they did in 2001.

Overall, manufacturers of transformers, appliances, light fixtures and relays will account for 30 percent of total equipment spending next year. That?s still more than any other industry, but it?s some 17 percent less than what the industry contributed in 2001.

Actual budget figures provide a clearer picture of the decrease in spending in this industry. In 2001, 44 percent of plants had budgets of $250,000 or more. In 2002, only 32 percent of plants will have budgets as large. Conversely, in 2001, 56 percent of plants had budgets less than $250,000. In 2002, 67 percent of plants will have budgets in that size range. In 2001, 41 percent of all U.S. plants with budgets over $1 million were in SIC 36. In 2002, only 27 percent of all plants with budgets that size will be in SIC 36.

Expectations for return on investment (ROI) tell a similar story. Fifty-one percent of manufacturers in SIC 36 expect next year?s equipment investments to pay off in 12 months or less. That?s the highest such percentage of any industry and a 34 percent increase from the number of plants that said so last year.

Given the particularly ephemeral nature of electronic products, it?s no surprise that 60 percent of plants in SIC 36 are buying equipment to assemble new products. That?s more than any other industry. In fact, in 4 of the past 6 years, SIC 36 has posted the highest percentage of plants that are buying equipment to assemble new products.

Moreover, 46 percent of the plants in this industry characterize themselves as ?high variety? assembly operations. That is, they assemble 100 or more product types annually. In comparison, just 18 percent of manufacturers of fabricated metal products (SIC 34) are ?high variety? operations and 34 percent of all U.S. plants are.

This high-mix environment has influenced the methods that electronics manufacturers use to assemble their products. Fifty-five percent of plants

in this industry use programmable automation—flexible automated equipment that runs with minimal operator intervention and that can be reprogrammed and retooled in less than 24 hours. That?s the highest such percentage of any industry, and it marks the sixth straight year that SIC 36 has held that distinction.

Aside from a constant stream of new products, cost cutting is a growing concern in the electronics industry. Some 71 percent of plants are buying equipment primarily to reduce production costs. That?s the highest such percentage of any industry and a 27 percent increase from last year?s figure.

As with every other industry, direct labor costs are the chief target for cost-reduction among electronics manufacturers. However, material costs are an emerging issue. From 1997 to 1999, SIC 36 consistently had the highest number of plants that were targeting material costs for investment. During the next 2 years, those investments appeared to pay off, when the amount of plants investing in equipment to reduce material costs steadily decreased, from 32 percent in 1999 to 21 percent in 2001. This year, the industry could be back behind the eight ball—30 percent of plants are buying equipment to save on materials.

Still, even if the mind is willing, the purse is weak, especially for ?big ticket? items. For example, 37 percent of plants in SIC 36 will purchase printed circuit board (PCB) assembly equipment in 2002. That is, of course, far more than any other industry, but it?s 14 percent less than did so during 2001. Demand for multistation automated assembly systems will decrease 39 percent, while demand for conveyors and parts feeders will decrease 36 percent and 21 percent, respectively.

Trains, Planes and Automobiles

Overall, assemblers of cars, trucks, planes, motorcycles and boats will account for approximately 20 percent of all equipment spending, or a little less than the 23 percent that the industry contributed in 2001.

If there?s cause for concern in SIC 37, it may be that equipment spending is lower than historic levels. In 1999, 29 percent of all plants with budgets over $1 million were transportation equipment manufacturers. That percentage has steadily decreased during the past 4 years, and in 2002, only 20 percent of all plants with budgets over $1 million will be in SIC 37.

Will an increase in defense spending help? The NAM?s Huether doesn?t think so. ?An increase in defense spending won?t produce as big a multiplier effect on the economy as an increase in car sales will,? he predicts. ?You might see some spillover effect in the electronics industry, but as for the rest of the economy, the effect will be fairly muted. The defense industry has been very productive during the past few years, and it doesn?t employ huge numbers of people.?

Given the amount of time needed to assemble a product as complex as a car or plane, the transportation equipment industry is concerned about the costs associated with work in process (WIP). During the past 6 years, an average of 38 percent of plants in SIC 37 have targeted WIP costs. That?s well above the 25 percent average for all U.S. plants.

Quality is another major concern of transportation equipment manufacturers battling overseas competition. Thirty-five percent of plants in SIC 37 are buying equipment to meet more stringent quality standards. That?s the highest percentage of any industry. In fact, in 3 of the past 6 years, SIC 37 has had the highest percentage of plants that are investing in equipment to increase quality.

Quality concerns are reflected in the cost elements that transportation equipment assemblers are targeting for equipment investment. During the past 4 years, more plants in SIC 37 have been trying to reduce scrap costs than in any other industry. And, in 4 of the past 5 years, more plants in SIC 37 have been trying to reduce warranty costs than in any other industry.

These concerns are also seen in shopping lists throughout this industry. The number of plants in SIC 37 that will buy test and inspection equipment will increase 31 percent next year, from 51 percent of plants in 2001 to 67 percent in 2002. In particular, these plants will be buying vision systems, leak detectors and torque measurement equipment. The latter is ironic, in that demand for power tools will decrease by 37 percent, from 68 percent of plants in 2001 to 43 percent in 2002.

Manufacturers in SIC 37 have always been the largest consumer of multistation automated assembly systems, and that won?t change next year. In fact, demand for synchronous and nonsynchronous systems will increase 10 percent next year.

Machinery Manufacturers

Only 23 precent of plants in SIC 35 will spend more on equipment in 2002 than they did in 2001, while 31 percent will spend less. But, actual budget figures tell a mixed story. Plants with budgets of at least $1 million will double, from 6 percent of plants in 2001 to 12 percent in 2002. However, plants with budgets of $250,000 to $999,999 will decrease 61 percent, from 18 percent in 2001 to 7 percent in 2002. And, plants with budgets less than $250,000 will increase 6 percent, from 76 percent in 2001 to 81 percent in 2002.

Indirect labor costs—the costs of setup, maintenance and material handling—continue to be an issue in the machinery industry. Forty-six percent of assemblers in SIC 35 are purchasing equipment to reduce indirect labor costs. That?s the largest such percentage of any industry this year—and it?s the third time in the history of the survey that SIC 35 has ?led? in this issue.

One reason indirect labor costs are an issue may be that annual production volumes in this industry don?t justify automation. In fact, for the past 6 years, companies in SIC 35 have been the least likely of any manufacturer to use semiautomatic, programmable or fixed automation technology. The vast majority of plants in this industry (87 percent) assemble less than 1 million products annually. And, for 6 consecutive years, SIC 35 has led all other industries in the amount of shops that assemble less than 1,000 products annually.

SIC 35 includes producers of turbines, mining equipment, metal cutting tools, and oil and gas field machinery, so it?s not surprising that this industry has traditionally been the leading consumer of brazing equipment. During the past 6 years, an average of 12 percent of plants bought brazing equipment—50 percent more than for all U.S. plants. This industry is also among the leading consumers for soldering equipment and metal welding equipment.

Power tools are another priority item for machinery manufacturers. Sixty-one percent of plants will purchase electric and pneumatic screwdrivers and nutrunners next year. That?s 15 percent more than for all U.S. plants.

Fabricated Metal Products

Companies with equipment budgets over $250,000 will decrease by 25 percent, from 36 percent of plants in 2001 to 27 percent of plants in 2002. At the same time, manufacturers with equipment budgets of $250,000 or less will increase by 14 percent, from 64 percent of plants in 2001 to 73 percent in 2002. Overall, SIC 34 will represent approximately 8 percent of total equipment spending next year, or a little less than what the industry contributed in 2001.

More so than in any other industry, direct labor costs are an issue in SIC 34. During the past 6 years, an average of 90 percent of plants in this industry bought equipment to reduce direct labor costs. That compares with 88 percent for all U.S. plants and 87 percent of plants in SIC 37, the union-heavy transportation equipment industry.

This concern over labor costs is ironic, because SIC 34 traditionally has the greatest number of high-volume manufacturers and is second only to SIC 37 in spending on multistation automated assembly systems. Indeed, 52 percent of plants in this industry will buy synchronous and asynchronous automated assembly machines next year. That?s 44 percent more than bought such systems in 2001 and it?s 67 percent more than for all U.S. plants.

The industry has also been the leading consumer of single-station assembly machines, particularly presses. Two-thirds of the plants in this industry will invest in single-station machines for pressing, riveting and screwdriving next year. That?s 29 percent more than bought such equipment in 2001 and it?s 52 percent more than for all U.S. plants.

If manufacturers in SIC 34 are truly concerned about labor costs, they may want to consider investing in workstations and ergonomic accessories. This industry has ranked last in spending on this technology category in 5 of the past 6 years.

Instruments and Related Products

Twenty-nine percent of plants in SIC 38 will spend more next year than they did this year. That?s 10 percentage points less than the amount of plants that said so last year, but it?s 5 percentage points more than for all U.S. plants.

The number of companies with equipment budgets of at least $1 million has increased by 39 percent, from 18 percent of plants in 2001 to 25 percent in 2002. In fact, 17 percent of all plants with budgets of $1 million or more next year will be in SIC 38. Overall, manufacturers of sonar, cameras, clocks, thermostats, electric meters, pacemakers, syringes and dental drills will account for 15 percent of total equipment spending next year, or 4 percentage points more than the industry contributed in 2001.

Dispensing equipment is high on the wish lists of many manufacturers in the instruments industry. Forty-seven percent of plants will invest in dispensing equipment next year. That?s 14 percent less than the demand in 2001, but it?s till more than any other industry this year. In fact, SIC 38 has been the leading consumer of dispensing equipment for 5 of the past 6 years.

Why dispensing equipment? One reason may be concern over material costs. Some 39 percent of plants are buying equipment to lower their material costs—more than any other industry this year.

?We sell a lot of mechanical dispensers to this industry because they can be used either manually or automatically. That flexibility enables these companies to keep processes consistent as they develop,? says Jere Donohue, sales manager with Fishman Corp. (Hopkinton, MA), a supplier of dispensing equipment. ?Also, manufacturers in this industry have a lot of no-kidding, this-has-got-to-be-right applications.?

Given the critical nature of many of the products made by this industry, electronics test equipment is also a top priority item. Indeed, SIC 38 has been the leading consumer of electronics test equipment since the survey began. This year, 68 percent of plants will invest in this technology category, or some 54 percent more than for all U.S. plants.

Workstations are another technology topping wish lists in this industry. Sixty-two percent of plants will buy workstations and ergonomic accessories next year. In fact, in 4 of the past 6 years, SIC 38 has led all other industries in purchasing workstations.

One reason for this industry?s interest in workstations may be the size of the products it typically assembles, and the volumes at which it produces them. Although most of the industry?s products fit inside a 12-inch cube, most also weigh between 1 and 10 pounds. In addition, more than half the plants in SIC 38 are mid-volume manufacturers that tend to favor semiautomatic and manual assembly methods over fixed and programmable automation.

Survey Method and Demographics

ASSEMBLY magazine is sent to 60,230 assembly professionals in more than 21,000 plants. Questionnaires were mailed July 20, 2001, to manufacturing managers and other professionals in similar positions, who hold the highest degree of equipment purchasing influence in a representative group of 2,500 plants. The cutoff date for returning the surveys was Aug. 27, 2001—2 weeks before the tragic events of Sept. 11.

Some 279 surveys were returned for a response rate of 12 percent. Sixty-four percent of respondents were OEMs, 33 percent were contract manufacturers, and 3 percent were unclassified.

To estimate 2002 spending data, responses were weighted according to the number of plants in each industry served by ASSEMBLY magazine—SICs 25 and 34 to 39. Overall, the survey results have a sampling error of ±5.9 percent.

By industry, 1 percent of respondents were in SIC 25, 13 percent were in SIC 34, 31 percent were in SIC 35, 29 percent were in SIC 36, 8 percent were in SIC 37, 14 percent were in SIC 38, and 4 percent were in SIC 39.

Geographically, 32 percent of respondents were located in the Northeast, 38 percent were in the Midwest, 14 percent were in the Southeast, 11 percent were in the South Central states, 5 percent were in the Pacific region, and less than 1 percent were in the Mountain states.

Sixteen percent of respondents had 25 employees or less, 11 percent had 26 to 50 employees, 24 percent had 51 to 100 employees, 21 percent had 101 to 250 employees, 13 percent had 251 to 500 employees, and 15 percent had more than 500 employees.

Thirty-eight percent of respondents assemble products that can fit inside a 12-inch cube, 17 percent make products that can fit inside a 24-inch cube, 11 percent make products that fit inside a 36-inch cube, 18 percent make products that fit inside a 6-foot cube, and 16 percent make products that are larger than a 6-foot cube.

Some 29 percent of respondents were high-volume manufacturers, 45 percent were mid-volume manufacturers, and 26 percent were low-volume manufacturers. Some 34 percent of respondents were high-variety manufacturers, 43 percent were mid-variety manufacturers, and 23 percent were low-variety manufacturers.¿¿¿¿