When the most recent commercial aviation downturn hit the aerospace manufacturing industry following 9/11, Western companies responded to the need to cut costs and enter new markets by transferring production to lower-cost economies. For many, this involved balancing the advantages of transferring production or setting up new facilities in true low-cost economies such as China or India against the disadvantages of complicated bureaucracy, managing subsidiaries at arm's length and overcoming language barriers.
For many, "nearshoring" to east European countries proved a good compromise, offering a significant reduction in costs such as labour rates, while throwing up fewer practical problems.
Smiths is an example of a company that has pursued both strategies, starting shipments from its engine components facility in Suzhou, China in 2004, the same year it took control of what is now its engine component factory in Dzierzoniów, near Wrocław in the Lower Silesia region of southern Poland as part of its purchase of DGT. In both cases, the strategic decision behind the move includes much more than the desire for lower-cost production.
It has taken Smiths two years to complete the overhaul of the Polish facility, implementing quality standards and lean manufacturing processes.
General manager Dave Farmery has been involved since the beginning, co-ordinating the transfer of production of a line of components destined for Pratt & Whitney Canada from Smiths' site in Orillia, Canada. Smiths Poland produces about 120,000 components a year and employs 132 staff at the facility. Farmery says the site is now ready for growth and for expansion of its customer base. The Polish facility has three main customers - P&WC accounts for 60% of its output, Poland's WSK-Rzeszów for 25%, and Goodrich - which has its own facility in Krosno, Poland - for the final 15%.
It is Smiths' existing link with P&WC that has allowed the Polish site to become strategically important for the group. Major customer P&WC was keen to complement its own strong presence in Poland with the presence of a major supplier such as Smiths, and in return provide growth at the facility in Orillia, Canada, which was the original home of the work now done in Poland.
"We are seen to be supporting P&WC's strategic objectives and that furthers our growth opportunities," says Farmery. As Smiths undertook the project of developing the site to meet its standards, it was confident of being able to build on its relationship with P&WC and extend it to the Canadian company's strategic supplier, UTC-owned WSK-Rzeszów.
"We did not set up either facility arbitrarily, just because of the low-cost economies - that is not an attractive approach for our company," says vice-president business development Alan Fenwick. "They cannot be dependent on existing sites as offload facilities."
The strategy of linking with the objectives of a major customer is also the key driver behind Smiths' activities in China, which enabled it to fit in with GE's strategy.
In both China and Poland, Smiths has been careful in its policy on existing jobs in its US and UK facilities. "The strategy within components is only to bring product lines to the Polish facility if work can be backfilled at its US or UK locations," says Farmery.
The facility benefits from the proximity of Poland's aerospace cluster - Aviation Valley. "Geographically we're out of the cluster group of companies, but we're seen as part of it," says Farmery. "In reality we're seen as part of the Aviation Valley team." There is dialogue between Smiths and Aviation Valley, he adds. "We will be joining within the next 12 months - the process has begun."
Smiths' Polish base had its fair share of complementary skills in machining and engineering, because of its history as the centre for machined tools manufacturing for all the former Communist bloc.
There are no plans on the horizon for a similar approach with other customers, says Fenwick. "We have not discussed setting up other low-cost facilities."
In the meantime, there is plenty of opportunity for growth in markets in which Smiths already has a presence. And there may be other opportunities in Poland, says Farmery. "We are always looking for opportunities for growth - that is what Smiths is about." He adds that the company could look at opportunities near its existing site or closer to the Aviation Valley hub. "There are advantages and disadvantages to both."
There is room for growth at the existing site, says Farmery. "We've had the support from a large group to invest. We have room to grow here at this site - there are already plans pencilled in, but not approved, to grow capacity by another 30,000ft2 [2,800m2], basically doubling the floor space." And the facility is likely to grow in importance within the context of Smiths, he adds. "Poland is strategically important to the aerospace sector. Aviation Valley is drawing in Ukraine, Slovakia and others - Poland is the central hub."
Source: Flight International
