Can The News Just Lighten Up?
With all less-than-good news out there, it would be nice for a change to have a more lightly entertaining edition of ‘Manufacturing – The News’. Perhaps we could chuckle about the latest Elon Musk publicity stunt, such as ‘Tesla Deploys Swimming Pool At Supercharger Station’ – and giggle about how the pool looks like a peeled-back tin of sardines.
But unfortunately, there’s too much bad news involving real people…
“Annette Dolan, managing director of Bath Aqua Glass, said the bill to keep her glass-making furnaces running was scheduled to increase in October from £14,000 to £131,000 a year,” according to ‘UK Manufacturing Sector Insolvencies Rise By 63% Since Last Year’.
“Dolan said she was carrying out ‘drastic planning’ every night to try to make sure her 17 staff still had a place to work in a year’s time.”
“The uncertainty is the terrible thing.”
“If you said to me during Covid that after Covid you are going to have an energy bill £100,000 more than you are paying now I would say don’t be silly, that will never happen,” says Dolan. “The uncertainty is the terrible thing, and the uncertainty for the country.”
All Those Long, Hot Summers…
The news out of China also reflects much uncertainty: ‘China’s Factories Are Shutting Down Again – But Not Because Of Covid’.
“Water levels behind dams are depleting, curbing electricity generation at hydropower plants, just as air conditioning demand is spiking. To prevent power outages, authorities in Sichuan province – which relies on hydropower for about 80% of its energy needs – have ordered factories to halt operations.”
“Critical raw material companies have been hit too, and the effects will ripple through the supply chain. For example, Tongwei, the world’s largest supplier of polysilicon – a key raw material for solar panels – has suspended production, as has lithium producer Yahua Industrial.”
Meanwhile… “In Germany, the hot and dry summer has brought water levels on the Rhine – a key shipping route for Europe – to critically low levels, disrupting trade as the river becomes too shallow for many ships carrying commodities and fuels to pass.”
Indeed, the lines between climate change and supply chain issues continues to blur…
Onshoring / Reshoring / Nearshoring
“There has been a sense in financial circles that the fever among American executives to shorten supply lines and bring production back home would prove short-lived. As soon as the pandemic started to fade, so too would the fad, the thinking went,” according to ‘American Factories Heat Up as CEOs Take Production Out of China’.
But the trend seems to be accelerating. According to one survey, over 90% of C-suite executives are aiming to move production out of China.
“They all point to the same thing – a major re-assessment of supply chains in the wake of port bottlenecks, parts shortages and skyrocketing shipping costs that have wreaked havoc on corporate budgets in the U.S. and across the globe.”
“The key, he determined, was to wring maximum efficiency out of the factory floor to keep those labor costs down.”
Meanwhile, some executives like GE Appliances CEO Kevin Nolan, already brought home their productions years ago. “Around 2008, he came to realize that on large items – like, say, dishwasher size and up – the savings earned by eliminating overseas shipping could outweigh the extra money spent on labor here. The key, he determined, was to wring maximum efficiency out of the factory floor to keep those labor costs down.”
“It’s all been such a success for the company — which is now, ironically, owned by China’s Haier Smart Home – that Nolan has been waiting for other CEOs to follow his move. It took a pandemic to convince them to do it.”
(Incidentally, the idea of maximizing efficiency is central to two recent McKinsey reports: ‘Something’s Coming: How US Companies Can Build Resilience, Survive A Downturn, And Thrive In The Next Cycle’ and ‘Delivering The US Manufacturing Renaissance’.)
Do All Roads Lead Back To China?
But not everyone is convinced that reshoring is the answer: “It is harder than you think to move supply chains from one country to another. That’s why there’s still no real alternative to Beijing’s might,” according to ‘Good Luck Taking Away China’s Manufacturing Mojo’.
As it turns out: “Constructing highways and production lines that work like clockwork, with tightly-knit networks of suppliers, is a gargantuan task.”
“It’s not surprising, then, that foreign businesses have continued to invest in China this year.”
In addition, while countries like the US, Vietnam and Indonesia present themselves as viable alternatives, they have a serious limiting factor: these countries still largely rely on China for basic intermediate industrial products such as chemicals and plastic that are needed to manufacture final products.
“It’s not surprising, then, that foreign businesses have continued to invest in China this year. Are the dangers of depending on China rising? Certainly, but such risks also exist in other replacements like Vietnam, Turkey or Malaysia. That’s just the cost of business.”
Indeed, all this global interconnectivity is enough to make one’s head spin, especially in these fractured times.
Perhaps a revitalizing swim in a Tesla pool is not such a ridiculous idea after all. It could clear one’s mind to focus on what really matters: continually exploring new solutions.
To learn more about how Augury’s full-stack Machine and Process Health Solutions offer manufacturers certainty, get in touch today.