Quality Management: $4.4 Billion and Growing
As America's economy rebounds from its slump in the early part of this decade, investments in quality continue to boom. This fact can be witnessed in Quality Magazine's Sixth Annual Capital Spending Survey as it examines trends in manufacturing spending on quality-related equipment, software and services into 2006. The survey estimates the spending for equipment, software and services to be nearly $4.4 billion. This is an increase from the nearly $3 billon projected for 2005 and a return to pre-9/11 spending. The survey claims the three biggest motives behind 2006 quality investments are to reduce scrap and rework, to improve productivity and to reduce costs.
Of the nearly $4.4 billion projected to be spent in 2006, nearly 65%, or almost $2.9 billion, is earmarked for test, measurement and inspection equipment, while 10% and 25% are projected to be spent on quality software and services, respectively.
William Strauss, senior economist and economic advisor at the Federal Reserve Board of Chicago, says one reason for this growth is that manufacturing companies are reluctant to expand their capacity by building new plants and facilities. They would rather use technology to streamline their processes to increase productivity and capacity.
According to Strauss, there is a fear of having "too much capacity" even in the quality manufacturing and equipment arena. In 1997, Asia's abundance of manufacturing capacity led to a difficult economic recession there. Asia had to sell its surplus goods overseas and this affected the U.S. trade deficit when Asia's surplus flooded the United States. The U.S trade deficit margin grew from approximately $100 billion to $600 billion.
The almost $2.9 billion earmarked for test, measurement and inspection equipment is up a considerable 56% increase based on what was forecast for this category in 2005 and reflects a powerful growth trend.
This category includes: coordinate measuring machines, $305.3 million; optical inspection and measurement equipment, $285.1 million; color and coatings thickness, $83.5 million; and a catchall, "Other" category, $460.8 million. The Other category includes calibration equipment, data collection devices, laser alignment systems and laser measurement systems. A noticeable surge in equipment expenditures is obvious in the form and surface measurement equipment category, where 2006 estimated spending will be nearly double 2005 expenditures, going from $42.4 million to $83.5 million.
Gages and gaging systems will make up the biggest segment of this test, measurement and inspection equipment segment. At a projected $941.9 million, this segment is up almost 34% vs. what was earmarked for 2005, $703 million. Handheld measuring tools, including calipers, micrometers and indicators, were the top expenditure in this area, projected to reach $311 million during 2006, a 24% increase from 2005.
To improve the accuracy and validity of this year's numbers, the survey broke down the previously combined materials and product testing equipment category into three subsections. These new subsections are now product testing equipment, $265 million; materials test equipment, $233 million; and nondestructive test equipment, $233 million.
The average dollar amount spent on test, measurement and inspection equipment per plant in 2006 is projected to be $70,550, compared to $46,208 in 2005 and $43,212 in 2004. Overall, all major equipment categories are expected to see increases in spending in 2006. This includes most of the subcategories, with the exception of manual and portable coordinate measuring machines, which have projected decreases in spending of 5.4% and 2.7%, respectively.
The software market:
hard or soft?
In 2006, sales of software are projected to reach $455 million. This is a 33% increase of 2005 software expenditures of $342.2 million. A noticeable change is data collection software surpassing calibration software for the lion's share of software expenditures. In 2006, data collection software will jump 24.4% to $63.3 million from 2005's projected $50.9 million. This puts data collection on top with 15% of respondents planning to purchase data collection software in the upcoming year.
A new category has been added to software expenditures in this year's survey. Enterprise quality software is the rookie category commanding a projected 3.3% of all quality software to be purchased in 2006, approximately $14 million. A noticeable decrease in 2006 software expenditures can be seen in QS-9000 software. Falling from a projected 2005 expenditure of $4.6 million to $3.8 million, this decrease in QS-9000 software can be attributed to its phase-out.
Of all respondents, 54% said that they plan on spending less than $2,500 on quality software and the average expenditure will be $10,376 per plant. Only 17% said that they would spend more than $10,000 in 2006.
2006 services spending
After taking a decrease in 2005, overall quality services are forecast to rebound in 2006. Anticipate more than $1.1 billion dollars to be spent in 2006 on these services, a 38.6% increase from estimated 2005 expenditures of $795.9 million. This quality services category is split between two major divisions: consulting and training, 58% of expenditures; and test measurement and inspection services, 42% of expenditures. Percentage usage of projected 2006 expenditures between these two divisions and their subdivisions is almost identical to 2005 percentile expenditures
Thirty-one percent of the survey's respondents forecast spending less than $5,000 at their plant on quality services in 2006. Twenty-four percent forecast that they will be spending more than $25,000. The average that plants will spend in this category in 2006 is $27,030.
An estimated $639 million is projected in the 2006 quality consulting and training services division, up 41% from 2005 expenditures of $453 million. At 23%, the biggest subdivision in this category remains certification/registration with a 2006 forecast of $253 million. This is a 36% increase in spending from 2005 projected spending levels.
In the test measurement and inspection services division, calibration continues to be the top category, significantly out-pacing contract part inspection, lab testing and prototyping/reverse engineering. At a 2006 projection of $316 million, calibration makes up a noticeable 29% of all quality services expenditures. This number is a 44% increase from 2005 expenditures.
But is quality still important?
The answer is yes. When asked, "Compared to three years ago, how would you describe your company's approach to quality today?," 45% of respondents said that there was an increased importance. Another 25% said that it was of highest performance and that they are aggressively pursuing top-quality performance. Only 3% said that quality holds less importance compared to three years ago.
Looking back at their 2005 actual quality spending vs. 2005 projected/budgeted spending, respondents seem to back this sentiment. When asked, "How will your plant's actual 2005 spending for quality assurance and control equipment, systems, software and services compare to the projected/budgeted amount set in 2004?," 72% of respondents said that their numbers were the same as the projected budget. Only 10% said that they were under budget. Sixty-seven percent of respondents believe that there 2006 projected spending for quality assurance will remain the same and 27% believe that this number will increase.
The survey method
Quality Magazine would like to thank all the respondents who participated in the Sixth Annual Capital Spending Survey. Quality Magazine is mailed to more than 64,000 corporate managers, manufacturing engineers, quality and process engineers. Questionnaires were mailed in August 2005 to managers and other professionals who have responsibility for quality and who hold the highest degree of equipment purchasing influence in a representative sample of 5,000 plants. The cutoff date was September 14, 2005. Surveys were returned by 839 professionals for a response rate of 17%. To estimate 2006 spending data, responses were weighted to the number of plants in each industry served. This survey has a ±3.8% margin of error.
Quality Tech tips
• This survey estimates the
spending for equipment, software and services to be nearly
• Nearly 65% of that $4.4 billion, or almost $2.9 billion, is earmarked for test, measurement and inspection equipment, while 10% and 25% are projected to be spent on quality software and services, respectively.
• The average dollar amount spent on test, measurement and inspection equipment per plant in 2006 is projected to be $70,550, compared to $46,208 in 2005, and $43,212 in 2004.