Where are we going ..?
An interesting article was published in The Monty, an interview with Marco Baretti from TAV Vacuum Furnaces. His role is as Director of Marketing Strategy. The topic was – why are companies starting to bring heat treatment under their dominance. The term “internalization” is used for this, which is not exactly a Czech word, but so be it.
https://themonty.com/european-smes-are-internalizing-vacuum-heat-treatment-despite-the-costs/
Quote:
“In the heart of Europe’s industrial landscape, a quiet revolution is underway. Small and medium-sized enterprises (SMEs), known for their agility and specialized production, are increasingly opting to internalize their heat treatment processes, specifically through the adoption of vacuum furnaces. This decision, often defying conventional cost-effectiveness analyses, highlights a strategic shift driven by unique operational needs and bolstered by supportive European Union initiatives.
Historically, heat treatment, a crucial process for enhancing the mechanical properties of metals, was outsourced to specialized service providers. However, for many European SMEs, particularly those dealing with high-value components requiring precise control and short lead times, this model presented significant challenges
Specific needs of European SMEs:
Short Lead Times: In today’s fast-paced manufacturing environment, delays can be costly. Outsourcing heat treatment often introduces unpredictable lead times, disrupting production schedules and impacting customer satisfaction. SMEs, especially those operating in niche sectors like aerospace, medical devices, or high-performance automotive, cannot afford such delay
High Quality and Precision: Vacuum furnaces offer superior control over temperature, atmosphere, and cooling rates, resulting in exceptionally high-quality heat treatment. This is critical for components requiring precise metallurgical properties and minimal surface contamination. SMEs producing intricate parts with stringent quality requirements find in-house vacuum heat treatment a compelling solution.
Confidentiality and Intellectual Property: Outsourcing sensitive manufacturing processes raises concerns about intellectual property protection. Internalizing heat treatment allows SMEs to maintain control over their proprietary processes and designs, safeguarding their competitive edge.
Flexibility and Customization: SMEs often deal with diverse product lines and varying production volumes. Having an in-house vacuum furnace provides the flexibility to adapt to changing production needs and customize heat treatment processes to specific requirements
The Role of European Union Incentives: The European Union, recognizing the strategic importance of advanced manufacturing capabilities, has introduced various initiatives to support SMEs in adopting innovative technologies. These incentives, including grants, subsidies, and tax breaks, have significantly lowered the financial barriers associated with investing in vacuum furnaces.
Reduced Capital Expenditure: EU funding programs can offset a substantial portion of the initial investment in vacuum furnace equipment, making it more accessible to SMEs with limited budgets.
Enhanced Competitiveness: By supporting the adoption of advanced manufacturing technologies, the EU aims to strengthen the competitiveness of European SMEs in the global market.
Sustainability and Energy Efficiency: Modern vacuum furnaces are designed with energy efficiency in mind, aligning with the EU’s sustainability goals. Some incentives are specifically geared towards promoting energy-efficient technologies. Furthermore, vacuum furnace processes generate no direct carbon or CO2 emissions.Typical motives for moving from outsourcing to in-house
he Economic Reality: While the upfront cost of a vacuum furnace can be substantial, the long-term benefits often outweigh the initial investment. Without the EU incentives, many of those investments would have been economically unsound.
Reduced Logistics Costs: Internalizing heat treatment eliminates the costs associated with transporting parts to and from external service providers.
Minimized Rework and Scrap Rates: The precise control offered by vacuum furnaces reduces the likelihood of defects, minimizing rework and scrap rates.
Increased Production Efficiency: Shorter lead times and improved process control translate to increased production efficiency and faster time-to-market.
Long term control of quality: By having the process internal, the company can have full control over the quality.
The Future of In-House Heat Treatment: The trend of European SMEs internalizing vacuum heat treatment is expected to continue as technological advancements make these systems even more efficient and affordable. As the demand for high-quality, customized components grows, in-house vacuum furnaces will play an increasingly vital role in maintaining the competitive edge of European SMEs. The support provided by the European Union is a key catalyst, accelerating the adoption of this strategic manufacturing capability and contributing to the long-term prosperity of the European industrial sector.
If I will take it as a description of the situation, I can’t disagree with it. But in terms of spending money, it’s a disaster.
- There are companies that are trying to make real use of real market prices. One of them is Bodycote. When I once mentioned the possibility of subsidies to my boss Jan Elwart, he sent me to hell with them. We are not so poor as to have to enter this bureaucratic battle. Bodycote therefore generates real profits from real costs. It pays taxes on these profits and the EU collects these taxes. It redistributes them to those who do not have ovens, and they buy them for 50% of the price with this money, completely legally generated by its competitor. The result is a steady trend of price destruction that is not based on real costs. It makes a difference whether I have full depreciation or only half of it in the price calculation.
- Pressure is being put on prices due to excess capacity. This strategy goes exactly against the purpose of outsourcing. If I don’t have enough production to allow me to use heat treatment equipment effectively, I have the option of outsourcing. Now, with the new subsidy trend, if I don’t have that much production, then I apply for subsidies, and the EU pays me half. I buy a furnace, but I use it at 20%. Because even an uneducated economist in any factory will quickly understand that the efficiency of this investment is negative, the first thought is to offer remaining capacity to the market. And because I don’t need to make money on this activity, it is enough if it covers fixed and variable costs without profit. The result is not only a total distortion of prices on the market, but also that we do not even meet Marx’s basic precept of simple reproduction. Because I put 50% of real depreciation into the price, and I still allow myself to give up my profit, then I will never earn money for a new furnace again. This circle will therefore end up with the end of the physical life of the furnace, without replacement. What do I have left then? To outsource again and find someone who will do the heat treatment for me at fair prices. But that was 10 years or more ago.
- People are an integral part of heat treatment. The trend of heat treatment market fragmentation is increasing the demand for qualified people. They are not on the market. To get them, we must overpay for them. As a result, what I saved for the furnace is spent on creating a system and on people who would otherwise not have to be employed at all. Another distortion in the market has been created, and it will not only affect those who have bought great furnaces with subsidies, it will also affect those who continue to follow the path of real costs. They will have to overpay their employees so that they do not leave for these newly created competitive positions.
To sum it up, Marco Barreti described it quite accurately. But he no longer suspects, because he has never experienced it, that we are going back to socialism again. Everyone is now arguing how much was built behind Husák. Power plants, factories for everything, etc. But no one is interested in how it was financed. And because at that time I was even studying the economics of innovation processes at the Czech Technical University, just to refresh my memory: the financial source was that they took profit and depreciation away from all businesses without distinction. That is, just everything, the entire cash flow. And so, we’re moving towards that by leaps and bounds.
Jiří Stanislav
4. července 2025
