U.S. machine shops face both rising labor costs and stiff competition from low-labor-cost countries. Here’s how they can grind it out:

As the owner and operator of the Genesis Mold tool and die shop in San Diego, Barry Dorrity knows that labor costs are a heavy burden for small businesses, reports this article in The San Diego Union Tribune.

In fact, his machine shop employs only two people: him and his son.”If you’re a small business, you have to do that,” Dorrity says. “You have to learn to cut corners, or you’ll go out of business. I can’t really afford to have employees.”

And his machine shop is not alone. Many small businesses are having difficulty contending with the soaring cost of employee benefits, according to a new survey by the Small Business Administration. The study also points out that small businesses find it hard to compete with larger companies that can offer more comprehensive benefits packages for less cost per employee. Even a basic benefit such as health insurance can be a difficult proposition for the smallest companies, Dorrity tells The San Diego Union Tribune.

This does not bode well for the recruitment of skilled workers as economists expect a shortage of workers in the second half of this decade.

And while U.S. machine shops face issues with attracting skilled labor at home, they must also continue to contend with fierce international competition from countries using low-wage labor.

This recent Modern Machine Shop article points out that going head-to-head with lower-wage countries in the years ahead will be tricky because the “cost of new equipment is essentially the same no matter where it is purchased.”

Fortunately, John Lenz, president of CMS Research, Inc. (Oshkosh, Wisconsin) provides a few tips that are outlined in this Modern Machine Shop article, all of them geared toward making more efficient use of both labor and machine tools.

1) Better manage flexible capacity. Machines that produce one or two part numbers are passe, say Dr. Lenz, who has specialized in the design and operation of machine cells for 25 years. Machine shops have been building the capability to run a wide variety of part numbers across the same set of machine tools–a move that has yet to deliver the cost savings it’s capable of due to ineffective management. To maximize this flexible capacity, Lenz recommends the use of automated handling, performance monitoring and measurements, and scheduling software.

2) Compute machine hours per worker per year. Calculating spindle uptime is not enough, says Dr. Lenz, because this figure is not always a good indicator of efficiency. He prefers a calculation that takes into account the efficiency of both machine and labor: machine hours per worker per year (MHPWPY). This calculation reveals what each worker is actually producing. Dr. Lenz says shops should achieve a minimum of 2,500 MHPWPY to be able to aggressively compete with a similar shop in a low-wage country, and this would entail workers tending multiple machines.

3) Quote new work based on future efficiency levels. By doing so, shops will be compelled to make bigger improvements in their overall efficiency. To estimate future performance levels based on increases in process efficiency, shops can use the MHPWPY calculation. And to actually reach these higher levels, Dr. Lenz recommends lean manufacturing, quick-change tooling, DNC and scheduling software. Additionally, machine shops can increase efficiency by evaluating and rating each individual process, rather than considering all manufacturing processes together, which does not reveal the least efficient processes. Also effective is the use of an actual costing method, as opposed to standard costing, which passes along a shop’s past mistakes and inefficiencies to its customers.

In short, in the battle against rising labor costs and low-labor-cost countries, machine shops can rely on some powerful tools in their arsenal.