Manufacturing Outlook for June 2023

HOW MANUFACTURERS OVERCOME SUPPLY CHAIN CHALLENGES

MANUFACTURING TIDBITS: SUSTAINABLE MANUFACTURING PRODUCTIVITY IMPROVEMENT IS A HOLISTIC ENDEAVOR

The Soft Expansion for 2023

Well, we’ve heard from many sources about the economic outlook for the balance of 2023, and the responses bounce between a soft landing and a hard landing. We have a different scenario in mind that seems to be developing: a soft expansion, which means GDP growth that will annualize out to about 1% for the year. Next year, it looks like expansion is around 1.5% for 2024. As any economist will interject, there is always an ‘unless’ in such a forecast: unless the Fed increases rates, unless inflation climbs so the Fed increases rates, unless some country attacks some other country, unless a few bank insolvencies turn into many more bank insolvencies, and so on. But as we complete the first half of 2023, expansion remains low, and recession looms as less likely.

In addition, it depends on what sector of the economy your business operates within. Automotive and aerospace are doing well. Many sectors expanded inventory as they adjusted to the supply chain shock, but now they have too much on the shelf. Compounding that issue is that their customers have too much on their shelves, so new orders are soft. That means a subdued period of purchasing while those inventories are sold into a weakened demand market. So, demand will be soft, but expansion will prevail because consumers still have jobs and purchasing power. Thus, a soft expansion.

The biggest worry looking forward is the federal government’s spend. To stimulate the U.S. economy as the country went through a pandemic, the federal government pumped hundreds of billions of dollars into the economy. The result was an overheated economy. At the same time that the Fed is trying to cool the economy with interest rate hikes, the federal government continues to spend at a pace that creates inflation. Being out-of-sync with one another may become the ‘unless’ scenario that flips low expansion upside down.

Another concern is the number and implementation costs of new regulations that saddle manufacturers with unanticipated outlays. Reallocating money to comply with new regulations means some areas of the business will take a hit. For most manufacturers who have trimmed every cost and expense, the last remaining places for funds are wages and prices. The cost of compliance with new regulations is passed on to purchases at higher prices and may be borne by employees, in part, through reductions in force. Wages are rarely reduced by some percentage across the employee base to reduce wage costs. Instead, a number of employees lose their jobs so the company can pay for regulation implementation. At present, since finding, hiring, and training skilled employees is difficult, employers are reluctant to reduce their labor force.

This is our view of 2023. What is yours? Is your sector under serious stress, seeing some mild expansion or even strong growth? Let us know. Comments from our readers are always welcome because all of manufacturing is in this economy together. And as you may know, in addition to being the Publisher of this free digital ezine, I am the host of the Manufacturing Talk Radio Podcast and the President of All Metals & Forge Group, a manufacturer of open die forgings and seamless rolled rings. We love to talk to other manufacturers and encourage you to comment on conditions in your industry sector.

Whether you contribute an article or send a letter to the editor that we can publish, your experiences and voice are important in the ebb and flow of manufacturing. Share your thoughts with others in this digital, dynamic, and diverse industry through Manufacturing Outlook. We look forward to your input. n

Lewis A. Weiss, Publisher

Contact laweiss@mfgtalkradio.com for comments, suggestions and ideas and guest requests for MFGTALKRADIO.COM podcast or any of our podcasts.

MANUFACTURING OUTLOOK

By Royce Lowe

Soft But Stable

The S&P Global scenario for April shows production up slightly and supply chain pressures easing to the greatest extent in 14 years. The PMI for April was unchanged from March at 49.6 and below the 50 mark for the eighth consecutive month. There was a solid expansion in consumer goods and a marginal increase in investment

goods. The downturn in intermediate goods extended into its tenth month. Production growth accelerated to an eleven-month high in the U.S., and the PMI went into expansion in April at 50.2, up from 49.2 in March. China slipped slightly from 50.0 in March to 49.5 in April, and there were falls in Japan and the Eurozone.

Canada showed improvement from 48.6 to 50.2 in April. India, again, showed a good gain from 56.4 in March to 57.2 in April.

Data from ASIS suggests that manufacturing industrial production will show a very slight overall contraction through 2023, whose second half will

show a recovery after a very similar contraction in the first half of the year. A slight downturn is forecast in Primary Metals and Fabricated Metals from Q3 of 2023 through the end of Q2 in 2024. A healthy scenario is forecast for Aerospace and Miscellaneous Transportation Equipment through 2023 and most of 2024. Motor Vehicles and Parts look good through 2023, with a dip in Q2 of 2024. The automotive sector is still looking healthier in the U.S., China, and Western Europe. Tesla’s recent price cuts may pose some (cost-profit) difficulties for other manufacturers. Diminishing consumer credit may also be a problem. Machinery looks fairly healthy through 2023, with a dip in 2024.

Inventories of the major non-ferrous metals are low. As of mid-May, prices of aluminum, zinc, and nickel are showing a significant downward trend, with nickel falling from $11.20 per lb to $9.60 per lb in the month to mid-May. Copper is holding up better. LME stocks are generally low. Global steel users report a marginal improvement in operating conditions in April, with renewed rises in production, new orders, and employment. There were returns to growth in the U.S. and Asia, whereas in Europe, the rate of decline quickened to the fastest for four months.

Global aluminum-using firms registered rising new orders in April for the second time in the year to date.

Both the U.S. and Asia recorded a renewed increase, while firms in Europe saw a 14th consecutive reduction in demand.

Global copper-using firms registered rising new orders for the third month running in April, with the rate of expansion strengthening to a moderate pace from that seen in March. There was a rise in incoming business in the U.S. for the first time since May 2022, while firms in Asia saw a solid increase. By contrast, European copper users saw a steeper rate of decline.

J.P. Morgan’s global economist, Bennett Parrish, comments: “The April PMI surveys point to the continuation of a gradual growth path for global manufacturing production following a step out of contraction territory at the start of the year. Underlying details of the survey suggest that growth is being held back by softening investment spending and a continued drag from inventories. This dynamic is consistent with the relative weakness in North Asia, where tech sector weakness persists.”

Manufacturing output edged higher for the third successive month at the start of the second quarter, with the expansion in consumer goods being the main reason. Business optimism among manufacturers is at a 14-month high, with manufacturers, on average, looking for production growth over the coming year. The situation in Europe is less optimistic than those in the U.S. and Asia. The outlook for the U.S. in coming months may be termed optimistic, but there again somewhat “wait and see.”

Author profile: Royce Lowe, Manufacturing Talk Radio, UK and EU International Correspondent, Contributing Writer, Manufacturing Outlook. n

How Manufacturers Overcome Supply Chain Challenges

By Dan Burgos

Recent years have been very challenging for manufacturers, especially regarding supply chain management. Supply chain disruptions, inflation, and labor shortage have highlighted vulnerabilities in manufacturers’ supply chains.

As a result, manufacturers see longer lead times, struggling suppliers, and higher costs. These challenges are leading to lower profitability and lower customer satisfaction for manufacturers.

Did you know that:

• More than 6 out of 10 global organizations expect that geopolitical instability may have a detrimental impact on their supply chains in the next three years.

• 71% of global companies highlight raw material costs as their number one supply chain threat for 2023.

• More than 7 out of 10 companies that announced a shift of their manufacturing locations between 2018-2023 moved operations into Asia.

If you are a manufacturer still feeling the effects of these challenges or think you may be at risk of additional supply chain disruptions, read on for some ways to overcome these challenges:

Let’s start with some supply chain evaluation concepts:

1. Supplier Evaluation – The idea behind this concept is that you want to be proactive about understanding your suppliers’ performance. Once

you understand that, you will reward your high-performing suppliers and work with your poor-performing suppliers to make improvements. Some of the categories we recommend you track are Quality, which refers to compliance with the product’s specification. Delivery refers to goods delivered on time per the date promised by the supplier. Reliability refers to the suppliers delivering orders in full and with all required paperwork.

2. Risk Assessment – This should be a mainstay for every manufacturer. The purpose of this tool is to help you be more proactive in identifying where sources of risk exist. In response to these, your team should implement countermeasures to mitigate the risk. When implementing this tool, you’ll want to develop risk evaluation criteria for your suppliers (i.e. financial instability, performance, sole source, capacity constraints, etc.). Some of these you’ll have to research, and others will have to be through collaboration with your team and gathering any intelligence they obtain through their interactions with their suppliers.

3. Value Stream Mapping – This tool is a diagram that shows the entire supply chain flow from customer order to product delivery. The power of having a team put this diagram together and have a 30,000 view is immense. When completing this exercise, you are looking for gaps that prevent the perfect transaction (right quality, right product, right place, right time, right quality, right source, etc.) from happening. You’ll want to identify the lowest percentages of these and implement countermeasures to improve them.

The following concepts fall under supply chain planning:

1. Plan for Every Part – This tool is a spreadsheet or database in which all critical part information is stored and kept updated. How often have you been caught off guard because lead times, prices, and packaging methods have changed? This leads to order delays, lower margins, and product roll-out delays. We recommend you assign an owner to this database and that all changes are tracked and entered by the PFEP owner.

2. Demand Planning – This is a concept in which you use the 80/20 rule to identify your most critical customers and then the highest volume parts for those customers. Once those parts are identified, we recommend you closely track demand behavior (monthly orders, avg. order size, std. deviation, etc.). This will give you an understanding of the demand variability. Once you know that you can develop replenishment strategies, you can present them to your customers (JIT, Kanban, blanket P.O.s, etc.). This will help you create more predictability and, therefore, more stability in your supply chain.

The following concepts fall under supply chain strategies to minimize the effects of supply chain challenges:

1. Supplier Relationships – This is a simple concept but extremely powerful. Identify and invest in the appro -

priate relationships. We recommend you separate your long-term supplier partnerships from your short-term vendors. Some of the criteria we recommend you use to separate them are performance, critical to your business’s success, alignment in values, growth potential, and mitigation of a significant risk to the business.

2. Inventory Control – Within inventory control, we recommend you focus on the inventory replenishment cycle. Having a small safety stock buffer is no longer enough to protect you from stockouts. We recommend you consider (for both your business and your suppliers) special events (such as weather-related, conflicts, natural disasters, etc.), quality (supplier performance or internal yields), process variation (supplier delivery or equipment failures), demand variation (internal usage or customer demand), and cycle time (receiving and running frequency).

These are concepts that can help you avoid further impact on your business by being proactive. I wanted to offer other strategies that you may want to consider:

• Sales, Inventory, and Operations Planning (SIOP)

• Improve first-pass yield (Internal quality defect reduction)

• Reduce lead times (Excess & obsolete)

• Improve inventory accuracy (Physical inventory & cycle counts)

• Implement Visual Management (Negative inventory, inventory accuracy, shipping accuracy, supplier performance) - PDCA

• Protect your core offer and mitigate risk by removing critical time spent managing low-demand items.

• Mitigate transportation challenges (port delays, driver shortages, warehouse understaffing, etc.) by building redundancy (alternate routes)

• Implement warehouse automation in response to workforce shortages

• Boost collaboration by initiating high-level information-sharing between all parties with the help of easy-to-use technologies

• In conclusion, I’ll leave you with a summary of our recommendations for manufacturers:

• Identify areas of risk

• Implement risk mitigation coun termeasures

• Evaluate your most critical value streams

• Identify where the perfect execution breakdowns happen

• Implement improvements

• Practice supplier evaluations

• Have a plan for every part

• Keep parts information updated

• Develop & leverage strategic supplier relationships

• Ensure inventory accuracy

• Improve internal coordination between sales, operations, and finance

• Reduce internal quality defects

• Reduce lead times and increase inventory turns

• Use the 80/20 rule to take care of critical customers

Going forward, manufacturers should have some of these processes implemented to minimize the effect of future supply chain disruptions.

Dan Burgos is the Founder, President & CEO of Alphanova Consulting. Alphanova Consulting is a management consulting firm that helps manufacturers achieve and sustain operational cost reductions of 20%+, improve on-time delivery to 99%+, and reduce defects to improve product quality to 99%+. These changes help their clients grow company profit margins by up to 25%.

Dan and his team have over 15 years of experience helping manufacturers in various industries, including aerospace, injection molding, construction products, chemicals, fiberglass, electronics, consumer goods, oil & gas, and medical devices. Dan’s approach is to partner with manufacturing business leaders to uncover and eliminate business performance problems while coaching leaders to create a high-performing culture. To learn more about Dan Burgos & Alphanova Consulting, you can reach them at:

www.alphanovaconsulting.com

Product Scalability Depends On Design For Manufacturing

By Mark Dohnalek

The days of C-suites supporting new product development without showing specificity on scalability are over.

With the speed that technology advances and rapidly moving consumer trends, scalability has shifted in R&D planning from only a nice-to-have to a critical must-have. Innovations that improve scalability will only be considered when designers, engineers, and strategies can clearly demonstrate scalability and prove how the design can quickly, easily, and affordably be enhanced and integrated to keep up with changes in technology and consumer trends.

But without a crystal ball, how can we predict and prepare for what will come next? That requires approaching product development through the

lens of “Design For Manufacturing,” commonly known as DFM. Here’s what it is, what it does, and why it matters.

What DFM Can Do

Ultimately, the DFM process optimizes production by merging the product’s design requirements with its production method, reducing the cost and time to bring a product to market. DFM considers the most important factors—from material selection to part design and assembly processes to quality control—and creates a framework for the rest of the manufacturing process.

Since effective DFM relies on analysis from various stages, the process takes on a more critical role in ensur-

ing manufacturability and product quality while keeping manufacturing costs in line throughout the product development life cycle.

Why DFM For Scalability Matters

The ability to design scalable products and scale up production quickly is pivotal for efficiently dealing with increased product demand due to sudden sales surges. From idea to execution, it is essential for scalability to enhance performance, quality, and reliability. Without it, a business may struggle to keep up with demand or face high costs and inefficiencies in expanding production. By designing products with scalability in mind, businesses can optimize their production processes, resulting in increased profitability and competitiveness.

DFM has become a vital component in product development. When applied efficiently and cost-effectively, even at high volumes, DFM strategies help products have staying power, durability, and integration potential as consumer demands shift and technology advances. Here are four aspects of DFM to follow:

1. Material Selection

The right (or wrong) materials can significantly impact a product’s scalability. The wrong materials can postpone production for months or even years—a big no-no when trying to streamline manufacturing rates. Difficult or expensive materials introduce limitations to a product’s scalability as they may not be available in the quantities needed to meet increased demand. This is inevitable with the global supply chain issues that have plagued the world over the past few years. Additionally, using materials prone to defects or inconsistent properties can negatively affect a product’s reliability and performance, making it difficult to scale and impacting trust in the brand. DFM identifies and resolves potential issues with the product design that could impact the quality of the final product. Materials that are easy to work with, readily available, and affordable are typically the best choice for scalable products. By choosing the right materials, businesses can ensure that their products can scale without sacrificing quality or performance.

2. Actual Design

How the product is ultimately designed is fundamental in terms of scalability. How each piece works together to create the final product—every minute detail—is key to ease of manufacturing and assembly. A lot can go wrong when designers don’t understand how design impacts manufacturing. This is why designers

need DFM tools to analyze the effects of their design choices on production. Parts that are overly complex or too difficult to manufacture can limit a product’s scalability, as they may be time-consuming or expensive to produce at high volumes. Using DFM, designers can compare design alternatives to understand which has the fewest manufacturability issues and is the least costly to produce, shortening production and distribution timelines.

3. Assembly Ease

Just as the design and number of pieces play a role in ease of manufacturing, ease of assembly is also a major concern. If assembly becomes overly complicated or time-consuming, that reduces efficiency and, as a result, scalability. Products that require human touch to assemble often take valuable minutes to produce and require hiring and paying more staff, increasing overhead production costs. Multiplying these minutes by the number of units produced will extend the time to market by months. The design must be optimized for assembly to reduce manpower and time constraints. Some strong assembly strategies include using modular design, snap-fit components, and incorporating features that enable quick and easy assembly.

4. Quality Control

Last but not least, quality control is a crucial aspect of product development that is often overlooked. As a product scales, maintaining quality control becomes increasingly challenging, as there are more opportunities for defects and errors to occur. DFM sets quality standards for manufacturability early on to ensure better decisions throughout the design process, fewer redesigns and supply chain disruptions, a high-quality product, and significant savings. By designing products with quality control in mind, businesses can implement processes

and procedures that ensure consistent quality even as demand increases.

Products that can scale efficiently are able to meet the demands of their customers and adapt to changing market conditions. With DFM, designers and manufacturers can ensure that products are designed and manufactured in a manner that is time- and cost-efficient, helping businesses bring products to market faster and ensuring their scalability long term. If you don’t have the expertise to use DFM

internally, find a partner who can; because when scalability is achieved, it ensures that a product can grow with demand, making it more successful in the market. Good luck!

Mark Dohnalek is President & CEO of Pivot

International

(www.pivotint.com), an award-winning US-based global manufacturing, engineering, technology, and product development company with 17 offices across three continents. He can be reached at mdohnalek@pivotint.com and on LinkedIn. n

Sustainable Manufacturing Productivity Improvement Is A Holistic Endeavor

By John Abplanalp

Productivity is the key driver of sustainability, but for the last several decades, it has faced unrelenting headwinds. Here are some all-too-sobering data issued on May 4th by the U.S. Bureau of Labor Statistics (BLS) that underscores this chronic problem. According to the BLS, “Nonfarm business sector labor productivity decreased 2.7 percent in the first quarter of 2023, as output increased 0.2 percent and hours worked

increased 3.0 percent. From the same quarter a year ago, nonfarm business sector labor productivity decreased by 0.9 percent, reflecting a 1.3 percent increase in output and a 2.3 percent increase in hours worked. The 0.9-percent productivity decline is the first time the four-quarter change series has remained negative for five consecutive quarters since the bureau first began recording these numbers in 1948.

With numbers like that in mind, sustainable productivity should be a top priority with every manufacturing leader and executive as a perpetual journey, not a destination. It’s a marathon run, and won, one step at a time. And it requires a workforce who are universally focused, motivated and engaged as valued, vital, and key contributors to the process. One noteworthy quote about productivity comes from William E. Simon, former U.S.

Secretary of the Treasury, who said, “Productivity and the growth of productivity must be the first two economic considerations at all times, not the last. It is through those two things that innovation, jobs, and wealth are created.” And this holds true both in a micro sense, the company itself, and, in a macro sense, the overall U.S. economy.

Improving productivity is a realworld, day-to-day effort that is also enabled and empowered by information. Foundational to the data-gathering efforts is instituting a holistic process from the outset that generates the most useful data. In my experience, that data-gathering mechanism can be best served through the contributions of an organization’s

entire workforce. From the c-suite to the production floor, identifying the barriers to a company’s productivity is a real-world endeavor that frequently yields its best results through a unified effort, especially that of a manufacturer’s workforce.

If the goal is to eliminate the non-value-added work that roadblocks manufacturing productivity continuously (then let everything else start falling into place), who better to enlist in the process than the very people who are primarily responsible for that productivity? Their observations and experiences can prove invaluable in designing the same information-gathering systems from which they directly benefit.

But data, no matter how expansive or comprehensive, is still data. It is the human factor that makes the difference in bending the productivity curve. It is people, first and foremost, who evaluate, analyze, and put that data into action. They transform digital information into real-world results. The confluence of the virtual and real world has been well underway for some time now, with a dramatic B2C evolution in focus from customer-first to people-first. Howard Schultz, the former CEO and Chairman of Starbucks, noted, “We are not in the coffee business, serving people, but in the people business, serving coffee.”

In today’s world of B2B, empowering a workforce, from top to bottom, to provide opinions and recommenda-

tions that contribute to success is a core tenet of sustainable productivity. Employees have found their voice, and they express it through their feet, moving towards or away from companies that do not value their roles and contributions. Employees are responsible for products, services, and solutions that attract and retain customers. If employees are not engaged, efficiency, productivity, profitability, competitive position, and revenue, along with enterprise value, all suffer.

In the post-pandemic workplace, the employee value proposition must be a consideration in every strategy and company decision. That requires shifting from an “employee’s work for me” attitude to an “employee’s work with me” mindset. This transformation will inspire membership, not followership. Followers take on “accessory” roles, while membership is about having an “owner’s” mentality and spirit as contributors and co-builders of the vision.

Consistently soliciting employees as engaged contributors is an essential component that drives sustainable productivity. When employees become engaged contributors, the output is increased collaboration, execution, engagement, innovation, production, and revenues. As an example, real-time shop floor data collection enables warehouses to optimize productivity, gathering data from processes so that manufacturers can drive advancements for a broad variety of metrics. These include improving the quality of products, improved traceability and compliance, longer equipment life spans, more rapid cycle times, and highly precise control of inventory.

At the outset, it is important to identify and understand the underlying barriers and challenges to a company’s productivity. This step is critical because acquiring and implementing an organization-wide data collection and analytics platform can be both time-consuming and expensive. By

performing this due diligence first, the process of selection becomes more efficient and effective across all metrics.

So, how do you manage the risks and opportunities in both the short and long term? Here are a few thoughts that I hope will help you as you seek to bend your productivity curve.

1. Establish a robust ecosystem of appropriate and meaningful data collection. Usually the obstacles to productivity, along with overall operating efficiency, give the organization the beginnings of the understanding of its relationship and overall effect on profitability, competitive position, and value creation within your organization and throughout your entire supply chain.

2. Invest in a data collection platform that provides a holistic and robust compilation of information.

3. From the executive offices to

the manufacturing floor, arm your workforce with the type of copious real-time data that drives timely analysis and smart decisions.

4. Train, develop, and empower the people/employee stakeholders throughout your organization to play a meaningful role in your company and its success. Their shared ownership in its growth and achievements will generate a plethora of benefits, from loyalty to efficiency and much, much more.

5. Encourage collaboration and the sharing of findings and insights that drive innovation and efficiencies for all involved.

While many challenges exist and more will inevitably emerge, now is the time to start driving productivity by taking advantage of opportunities whenever and wherever they appear. To capitalize, leaders must apply a purpose-driven process, keeping one eye on current conditions and the other squarely on reimagining their organization for whatever the future holds.

John Abplanalp has spent more than 35 years in manufacturing. He is an experienced, respected industry leader and innovator who

has learned from the bottom up. John began as an assembly mechanic responsible for the setup and maintenance of the aerosol valve assembly lines, most recently serving as CEO and President of Precision Valve Corporation from 2003 to 2013 and Chairman of the Board from 2013 to 2015.

During the time in between, John attended college, receiving an undergraduate degree in mechanical engineering from Manhattan College and an MBA from Fordham University. Returning from college, he was awarded a position in the corporate offices as a business analyst reviewing various business ventures held by Precision. In 1989, he was promoted to Vice President of North American Operations and developed and implemented Total Quality Management programs throughout the Precision Valve Corporation. Through his leadership, the sales of Precision Valve Corporation increased from $250 million in 2003 to $343 million in 2008, a 37% increase in revenue over a brief five-year period.

John’s broad expertise and experience in strategic planning, management, OEE, operational improvement, plant facilities layout/design and international business provides an extensive knowledge base to assist clients in overcoming their challenges.n

THE INSTITUTE FOR SUPPLY MANAGEMENT’S MANUFACTURING REPORT ON BUSINESS®

Economic activity in the manufacturing sector contracted in May for the seventh consecutive month following a 28-month period of growth, say the nation’s supply executives in the latest Manufacturing ISM® Report On Business®

The May Manufacturing PMI® registered 46.9 percent. The New Orders Index remained in contraction territory at 42.6 percent, 3.1 percentage points lower than the figure of 45.7 percent recorded in April. The Production Index reading of 51.1 percent is a 2.2-percentage point increase compared to April’s figure of 48.9 percent. The Prices Index registered 44.2 percent, down 9 percentage points compared to the April figure of 53.2 percent. The Backlog of Orders Index registered 37.5 percent, 5.6 percentage points lower than the April reading of 43.1 percent. The Employment Index indicated another month of expansion, registering 51.4 percent, up 1.2 percentage points from April’s reading of 50.2 percent. The Supplier Deliveries Index figure of 43.5 percent is 1.1 percentage points lower than the 44.6 percent recorded in April; this is the index’s lowest reading since March 2009 (43.2 percent).

Of the six biggest manufacturing industries, only one — Transportation Equipment — registered growth in May. The four manufacturing industries that reported growth in May are: Nonmetallic Mineral Products; Furniture & Related Products; Transportation Equipment; and Fabricated Metal Products. ISM

Analysis by Timothy R. Fiore, CPSM, C.P.M.

Chair of the Institute for Supply Management® Manufacturing Business Survey Committee

PMI® at 46.9% MANUFACTURING

The U.S. manufacturing sector contracted in May, as the Manufacturing PMI® registered 46.9 percent, 0.2 percentage point lower than the reading of 47.1 percent recorded in April. This is the seventh month of contraction and continuation of a downward trend that began in June 2022. That trend is reflected in the Manufacturing PMI®’s 12-month average falling to 49.4 percent.

Manufacturing at a Glance

Commodities Reported

Commodities Up in Price: Aluminum; Copper (6); Electrical Components (7); Electronic Components (4); Labor — Temporary (2); and Steel* (4).

Commodities Down in Price: Corrugate (6); Diesel; Epoxy (2); Freight (7); Pallets; Paper; Plastic Resins (12); Polypropylene; Steel — Hot Rolled; Steel* (2); and Sulphur. Commodities in Short Supply: Electrical Components (32); Electronic Components (30); Semiconductors (30); and Steel Based Products.

Miscellaneous Manufacturing (products such as medical equipment and supplies, jewelry, sporting goods, toys and office supplies).

*Number of months moving in current direction. Manufacturing ISM® Report On Business® data has been seasonally adjusted for the New Orders, Production, Employment and Inventories indexes.

ISM® Report On Business®

New Orders

Analysis by Timothy R. Fiore, CPSM, C.P.M. , Chair of the Institute for Supply Management ® Manufacturing Business Survey Committee

ISM’s New Orders Index contracted for the ninth consecutive month in May, registering 42.6 percent. The three manufacturing industries that reported growth in new orders in May are: Furniture & Related Products; Plastics & Rubber Products; and Miscellaneous Manufacturing‡

The Production Index registered 51.1 percent. The seven industries reporting growth in production during the month of May are, in order: Nonmetallic Mineral Products; Fabricated Metal Products; Computer & Electronic Products; Electrical Equipment, Appliances & Components; Plastics & Rubber Products; Machinery; and Transportation Equipment.

ISM’s Employment Index registered 51.4 percent. Of 18 manufacturing industries, five reported employment growth in May: Nonmetallic Mineral Products; Transportation Equipment; Machinery; Electrical Equipment, Appliances & Components; and Fabricated Metal Products.

Supplier Deliveries

The delivery performance of suppliers to manufacturing organizations was faster for the eighth straight month in May, as the Supplier Deliveries Index registered 43.5 percent. Two of 18 manufacturing industries reported slower supplier deliveries in May: Textile Mills; and Transportation Equipment.

Inventories

The Inventories Index registered 45.8 percent in May, 0.5 percentage point lower than the 46.3 percent reported for April. Of 18 manufacturing industries, the two reporting higher inventories in May are: Textile Mills; and Electrical Equipment, Appliances & Components.

‡Miscellaneous Manufacturing (products such as medical equipment and supplies, jewelry, sporting goods, toys and office supplies).

ISM® Report On Business®

Customers’ Inventories

Analysis by Timothy R. Fiore, CPSM, C.P.M. , Chair of the Institute for Supply Management ® Manufacturing Business Survey Committee

ISM’s Customers’ Inventories Index registered 51.4 percent. The eight industries reporting customers’ inventories as too high in May are, in order: Paper Products; Electrical Equipment, Appliances & Components; Petroleum & Coal Products; Wood Products; Fabricated Metal Products; Computer & Electronic Products; Plastics & Rubber Products; and Transportation Equipment.

Prices

The ISM Prices Index registered 44.2 percent. In May, five industries reported paying increased prices for raw materials: Textile Mills; Nonmetallic Mineral Products; Machinery; Petroleum & Coal Products; and Transportation Equipment.

Backlog of Orders

ISM’s Backlog of Orders Index registered 37.5 percent. No industries reported growth in order backlogs in May. Twelve industries reported lower backlogs in May, in the following order: Paper Products; Wood Products; Plastics & Rubber Products; Electrical Equipment, Appliances & Components; Nonmetallic Mineral Products; Primary Metals; Food, Beverage & Tobacco Products; Computer & Electronic Products; Fabricated Metal Products; Transportation Equipment; Chemical Products; and Machinery.

New Export Orders

ISM’s New Export Orders Index registered 50 percent. Five industries reported growth in new export orders in May: Miscellaneous Manufacturing‡; Paper Products; Plastics & Rubber Products; Fabricated Metal Products; and Transportation Equipment.

Imports

ISM’s Imports Index registered 47.3 percent in May, a decrease of 2.6 percentage points compared to April’s figure of 49.9 percent. The two industries reporting an increase in import volumes in May are: Petroleum & Coal Products; and Food, Beverage & Tobacco Products.

‡Miscellaneous Manufacturing (products such as medical equipment and supplies, jewelry, sporting goods, toys and office supplies).

JUNE 2023

NORTH AMERICA OUTLOOK

By Dr. Chris Kuehl

Shooting the Messenger

It is time for me to do some moaning and groaning. We, economists, are favorite whipping boys (and girls) –right along with meteorologists. There are many jokes that unfortunately hit pretty close to home. “The sole function of economic forecasting is to make astrologers look good.” Then there is the definition of an economist as someone who explains tomorrow why the predictions made yesterday didn’t come true today. The weatherman declares that it will be sunny, and sure enough, the outdoor wedding deals with a deluge. The reality is that economics (and weather) is affected by hundreds of variables. The economist also deals with the reality of human nature – the most volatile and changeable of all. It would be far simpler to simply throw one’s hands in the air and declare that accurate forecasting is next to impossible. Yet, the economist is asked

to do this predicting and forecasting regularly. It is not unusual to be asked to forecast out five and even ten years despite how ludicrous that request is.

It is important to note two important aspects of these forecasts. The first is that most of these are better understood as warnings than predictions. The reality is that too many factors change to accurately estimate the economy in anything but the broadest terms. It is really too much to expect anyone to determine if the GDP will grow by 1.1% or 1.2%. The estimates of recession or inflation, or any other economic malady are better understood as a warning about certain policy directions or economic trends. For example, if the labor shortage is not dealt with, there will be higher levels of wage inflation. If the budget deficit is not dealt with, there will be policy implications. If the supply chain issue remains unsolved, the impact on the overall global trade pattern will alter, and so on.

The second aspect of the economic forecast is best understood by referencing our fellow travelers – the meteorologist. When one is told that there is a 45% chance for rain, it means that 45% of the specific area under investigation will receive rain, and the other 55% will not. The economist will note a recession or inflation or some other economic event, and it means that some sectors will experience it and others will not. An economy the size of that in the U.S. will always have down sectors during a boom and robust sectors during a recession. Some parts of the country will do better than others.

The bottom line is that forecasts are more reliable than they appear once the parameters are understood. The first step is understanding the limitations of any given prediction and then understanding the purpose of that forecast.

Having offered these qualifiers, what is it that economists are warning about? What are the crucial questions for the North American economy over the next several quarters? Four sets of alarms stand out as most pertinent to the overall manufacturing community – in Canada, the U.S., and Mexico.

Number One – Labor

There are many aspects of the labor issue that are causing deep concern for the economy, and they are all related in one way or another to shortages. There are not enough skilled people to take the jobs on offer – it is basically as simple as that. There have been warnings about this for decades, as the shortage was always inevitable. By the end of this decade, ALL of the Baby Boomer generation will have reached retirement age (76 million people in the U.S. alone). This has been an inexorable advance since that generation was born, and nothing much has been done to address it. There has been no federal immigration policy, no significant federal and few state job training programs, and little funding to encourage companies to implement their own.

Today the issue is wage inflation, as the most common approach to hiring is poaching another company’s employees. Add in the drain on the labor supply from the emergence of the “gig economy,” and the situation gets worse. The economic warnings have not been heeded, and now it is nearly too late to find solutions. Extend retirement age? Encourage immigration of skilled workers? These are not practical, and that leaves the expansion of robotics and technology. Canada has the same issue as the U.S. but Mexico has a different challenge as it has a much younger population but an ill-educated one and an economy that is not producing enough jobs for those with limited skills.

Number Two – Inflation

Much of the inflation issue can be laid at the feet of the labor situation at the moment, but the surge started with the collapse of the supply chain. The fact is that inflation was essentially exported when globalization began – companies could keep prices down through production in low-cost environments. The reshoring process has been great for recovering U.S. manufacturing capacity, but it has come with higher costs. Dealing with inflation from the central bank level is like taking a baseball bat to the economy as it is withdrawing money from the system. As bad as inflation is, the cure is almost worse as it pushes the economy toward recession. The economists are warning that a tough position on inflation means a significant downturn but failure to press on higher costs will place millions of people in financial jeopardy. The impact of inflation is most significant on lower-income populations, such as that in Mexico.

Number Three – Recession

The truth is that the U.S. rarely sees a universal recession. It is just too big and diverse, and that means that there is always a sector that does well when others do not (and vice versa). This is not a luxury enjoyed by Canada and Mexico. Canada is still deeply connected to commodity demand, and its industrial sector relies on the U.S. Mexico is highly dependent on U.S. engagement for all four of its economic pillars (manufacturing, oil production, tourism, and remittance from Mexican workers in the U.S.). The sense is that recession will hit the U.S. in the next couple of quarters but is likely to be relatively mild unless there is more aggressive interest rate hiking, and that is what the economic warnings have been about. Manufacturing mostly escaped the 2020 recession as the lockdown was aimed at the service sector. The downturn has now been more general and has affected

manufacturing more. On the other hand, there has been growth in the automotive sector, and that benefits the U.S., Mexico, and Canada.

Number Four – Debt

All three nations are carrying more debt than is acceptable. The U.S. is carrying a debt-to-GDP ratio of 128%, Canada is at 89.7%, and Mexico is near normal levels at 45.5%. If it makes you feel any better, Japan is at 266%, and by some measures China is at 280%.

The U.S. doesn’t suffer the way that other nations do, as there is always a market for U.S. bonds, and that means the U.S. can always access cash when needed. The problem for the U.S. is that debt service is now at nearly $500 billion a year, and that makes this the fifth largest share of the federal budget (behind Social Security, Medicare, Medicaid, and the military). The U.S. also goes through the political antics of the debt ceiling. Other nations contend with spending and revenue decisions through the budget process, and the U.S. waits until there is a budget and appropriations. Then it decides if it is going to honor its commitments. The warnings have been clear for years –carrying this debt is akin to having a chronic disease and doing nothing about it.

Author profile: Dr. Christopher Kuehl (Ph.D.) is a Managing Director of Armada Corporate Intelligence and one of the cofounders of the company in 1999. He has been Armada’s economic analyst and has worked with a wide variety of private clients and professional associations in the last ten years. He is the Chief Economist for the National Association for Credit Management and is on the Board of Advisors for their global division –Finance, Credit and International Business. n

JUNE 2023

AFRICA OUTLOOK

By Royce Lowe

South Africa’s Ongoing Problem

Bloomberg reports that South African factory managers are downbeat as sales orders slump. There is a gauge that measures expected business conditions six months hence, and it rose to 49.8 in early May from 48.1 in March. Despite this improvement, this index failed to edge back above the neutral 50-point mark as business activity and new sales orders worsened relative to March.

The headline PMI would have deteriorated further if not for a significant improvement in the inventories index. The underlying survey results suggest that the manufacturing sector in South Africa experienced another tough month. The major problem, as reported here earlier, is South Africa’s state-owned utility Eskom Holdings SOC Ltd,

which implemented rolling blackouts, locally known as load-shedding, on more than 200 days in 2022, and almost every day so far in 2023. These outages, which are needed to protect the grid from collapse when Eskom cannot meet demand, are curbing activity and demand in Africa’s most industrialized economy.

There is rampant corruption at Eskom. Coal theft to the tune of 1 billion Rand, or $55 million per month, is estimated, together with damage to infrastructure. The president of South Africa has called in the National Defense Force in an effort to limit infrastructure damage.

South Africa’s High Court recently ruled that all government hospitals and clinics, state schools, and the country’s police buildings should be spared from power cuts. Public Enterprises

Minister Pravin Gordhan must “take all reasonable steps within 60 days” to prevent interruption of electricity supply due to rotational blackouts implemented by state-owned utility Eskom, according to a ruling by three judges from the court in Pretoria. It seems that South Africa is in dire need of something much more drastic and effective than rulings. However, the level of corruption within Eskom discourages investment so the utility can be improved. It is a Catch-22 until either the utility cleans house or is taken over by another entity that can clean house. Neither solution appears to be active.

Author profile: Royce Lowe, Manufacturing Talk Radio, UK and EU International Correspondent, Contributing Writer, Manufacturing Outlook. n

THE FLAGSHIP REPORTS

The Flagship Reports with Dr. Chris Kuehl is both an “Officer of the Watch” briefing of economic conditions and an Executive Briefing on specific situations impacting those conditions. Written and presented by the officers of Armada Corporate Intelligence, Dr. Kuehl lightens up the mood of sometimes distressful geoeconomic news with a bit of humor. This monthly podcast includes information from the Flagship Reports issued 3 times and week, and AISI, the Armada Strategic Intelligence System, a tool for durable goods manufacturers that dives deep into the sector each month to provide more than 95% accurate near-term forecasts.

EUROZONE GLOBAL OUTLOOK

By Chris Anderson

Quarter 2 of 2023 started not very well for the manufacturing side of the Eurozone. Apart from Greece, all seven other EU countries had a PMI in contraction.

Greece 52.4 2-month low

Spain 49.0 3-month low

Ireland 48.6 35-month low

Italy 46.8 6-month low

France 45.6 35-month low

Netherlands 44.9 35-month low

Germany 44.5 35-month low

Austria 42.0 35-month low

In France, manufacturing production fell at the sharpest pace in almost three years in April. The demand for goods was down markedly. New orders and production fell at sharp and accelerated rates, and new export orders were down for the 14th month in succession. Germany showed modest production growth in April,

but new orders continued to fall, albeit at a slower rate.

Germany In China

“The Economist’s” correspondent recently accompanied Germany’s foreign minister on her first trip to China. The visit started at Flender, the Mittelstand firm that makes parts for wind turbines in Tianjin, not far from Beijing. Germany - China business is important. China is Germany’s biggest trading partner, thus, an important destination for foreign investments in several industries that are the backbone of the Mittelstand. But as the value of trade increased for the seventh consecutive year in 2022, the bilateral deficit widened. German imports from China increased by one-third compared to 2021 to 192 billion euros, whereas exports to China rose by only 3% to 107 billion euros.

Germany needs China’s business but would also like to strike a balance between boosting the business and reducing Germany’s dependence on

imports of critical raw materials from China. Some of Germany’s largest companies rely greatly on Chinese customers and suppliers. These include its three big auto companies (VW, Mercedes-Benz, and BMW), BASF in chemicals, and Bosch in car parts. BASF is investing 10 billion euros in a new production site, and VW has announced a joint venture with a Chinese firm for self-driving cars, involving an investment of 2.4 billion euros. More and more German companies are producing in China, for China.

Flender’s factory in Tianjin serves only the Chinese market. The survival of its large carmakers and chemicals firms may depend on access to China. China supplies 95% of the solar cells installed in Germany, 80% of laptops, and 58% of the circuit boards in other electronic goods. Not to mention rare earths, antibiotics, and other important medicines.

Germany and

China

are economically joined at the hip. It would take an awful lot to change that. n

JUNE 2023

ASIA OUTLOOK

By Christine Casati

Regional Developments In The Global South Part 1

Where is “The Global South”?

This term has slowly morphed from referring to post-cold War disadvantaged “Third World” countries not aligned to wealthy capitalist powers or former colonial spheres of influence (mainly in Asia, Africa, and Oceania) into a “meta” category of decolonized and/or peripheral, marginalized nation-states, mostly dense-

ly populated, low-income and located south of Europe and North America. Hence, you also hear the term North/ South Divide. It does not just refer to countries in the “hemispheric south.”

The current rise in the use of the term Global South reflects the growing focus on collective economic and geopolitical power rather than local

development and cultural differences. Most of humanity resides in The Global South. The largest Southern nation-states are Brazil, India, Indonesia, China (except Hong Kong), Nigeria, and Mexico. Examples of some other important Global South nations located in Asia besides India and China are Bangladesh, Malaysia, The Philippines, Thailand, and Viet-

nam. The term covers Taiwan as well.

Trends in Trading Relationships

The Stimson Center, in its Security & Strategy Policy Memo December 2022 warns that Western incomprehension of the Global South is dangerous, and the U.S. needs to reimagine a grand strategy to include it. Otherwise, we could lose the Global South. This became painfully obvious when old assumptions that those countries would follow the U.S. lead on the UN resolution against Russia’s annexation of four provinces in Ukraine turned out to be misguided. Although most Latin American countries voted in favor, 24 African nations abstained, opposed, or did not vote, and 52 Global South nations voted against. This did not mean that they were in favor of the Russian invasion. They were far more worried about their trading relationships with China and Russia (the world’s largest exporter of wheat), upon which much of their economic survival is still based. Thus we find nations like India not wanting to “take sides,” and the Prime Minister of Malaysia, Anwar Ibrahim, openly stating “Ukraine has nothing to do with us!” All this despite the fact that both nations are so-called democracies.

As Quincy Institute’s Sarang Shidore notes, the Eurasian nations, including India, China, Mongolia, Pakistan, and all five Central Asian states plus Iran, did not vote for the resolution. Interestingly, he points out that all of these nations belong to the China-created Shanghai Cooperation Organization. Also, many nations in the Global South have not forgotten that they were not a priority when the rest of the world planned for pandemic aid. Additionally, more and more of those nations are facing dire consequences from flooding (onethird of Pakistan was underwater last August), also drought, and famine,

primarily due to consumption patterns and carbon emissions caused by developed countries in the Global North as well as China. The Stimson report recommends we work with Global South “neutrals,” like South Africa, to counter perceptions of a “self-serving” Global North, develop “off ramps for conflict,” and work productively to bring about positive change without expecting to “recreate the Free World.” These nations want to be treated as equals. The fact is the U.S. relies deeply on economic and political partnerships in the Global South to expand its understanding and to counter China’s influence.

APEC Meetings in the U.S.: Chance for Reset of China Trade Policy

Katherine Tai, the first U.S. Asian American to ever serve as U.S. Trade Representative, has stated many times that the U.S. needs more discipline in identifying problems and addressing the challenges in global trade. This year she has an enormous opportunity to steer the Biden Administration along this path. For the first time since 2011, 2023 is the U.S. Host Year for meeting sites for Asia-Pacific Economic Cooperation (APEC) Senior Officials and Ministers’ meetings. The theme is “Creating a Resilient and Sustainable Future for All.” Meetings of the first two clusters have taken place in Honolulu and Palm Springs, with end May meetings scheduled in Detroit and August meetings in Seattle. The APEC Economic Summit week will take place later in the year. She first wants the 21 member countries of APEC to witness the innovative developments and digital transformation in the great automotive city of Detroit.

In her view, how the U.S. and China relate via trade policy as the world’s two largest economies has profound implications for the entire world. Her goal is to “level-set,” not just “reset.”

In her words, she has been tasked with defining a new, more agile trade approach less focused on one-off free trade agreements, one which is worker-centric and provides an enduring platform taking into account U.S. resiliency. In the past, U.S. trade policies have pushed to maximize and incentivize efficiencies. This has led to pooling of supply chains in one general global location for lowest-cost solutions at the expense of U.S. workers. But during a pandemic or major climate event, this has left the U.S. high and dry, especially when China was the first to shut down during Covid-19, for example. She believes the most difficult topic of conversation with Chinese leaders during upcoming meetings will be a more resilient trade policy using new trade approaches and platforms in the Indo-Pacific that hopefully result in better outcomes for the U.S. The focus will be on competition, not confrontation. (PBS Amanpour & Co. Interview with Katherine Tai, May 11, 2023)

MO ASIA JULY: THE GLOBAL SOUTH, PART 2. Manufacturing Relationships and Export Trends

Author profile: Christine is co-founder and President of China Human Resources Group, Inc, a management consulting firm based in Princeton NJ. She has provided U.S. companies with strategic development and project implementation services for projects in China since 1986. n

JUNE 2023

AEROSPACE OUTLOOK

By Royce Lowe Ryanair’s Back

Quite some time ago, when Boeing was going through its troubles with the FAA on the heels of the two 737 Max fatal accidents, Ryanair’s Michael O’Leary, for a long time one of Boeing’s stalwart customers for the 737, was “threatening” to hold off on further purchases from Boeing. But very recently, O’Leary committed to purchasing up to 300 737 Max 10 aircraft from Boeing to be delivered between 2027 and 2033. At the moment, the Max 10 has not been certified for commercial operation but is expected to receive airworthiness certification later this year.

It would be fairly safe to say that the canny Mr. O’Leary, who once “threatened” to charge his passengers for use of his plane’s toilets, and whose aircraft journey all over France without the use of one word of its language from his planes’ staff, engineered a great deal for his up to 300 aircraft. The new order will also apparently resolve a pricing dispute between Boeing and Ryanair, which in 2021 backed out of a reported 250jet contract before it was finalized.

“The Boeing-Ryanair partnership is one of the most productive in

commercial aviation history, enabling both companies to succeed and expand affordable travel to hundreds of millions of people,” stated Boeing President and CEO Dave Calhoun. “Nearly a quarter century after our companies signed our first direct airplane purchase, this landmark deal will further strengthen our partnership. We are committed to delivering for Ryanair and helping the airline group achieve its goals.”

There is a new complication with the delivery of the 737 Max. It is a problem with the installation of

the fittings on some fuselages. The fuselage structures are manufactured by supplier Spirit AeroSystems, which according to Boeing, reported the problem that resulted from Spirit’s use of a “non-standard manufacturing process.” It was reported that Boeing had targeted June for planned increases in 737 Max production from 31 to 38 aircraft per month. Boeing says it has notified the FAA and the FAA has confirmed Boeing’s assessment that the issue represents no immediate safety concern.

The full severity of the fittings problem is not known, though Boeing said that deliveries of a significant number of 737 Max 7 and 8 could now be delayed. This would likely impact customers such as American Airlines, Ryanair, and Southwest Airlines, who are awaiting 737 Max deliveries. There was a similar problem recently with a production defect on the 787 Dreamliner aircraft, an issue that held up the 787 for some months in 2021 and 2022. It seems the basic problem is two fittings made by Spirit that join the aft fuselage to the vertical tail, which were not attached correctly.

Repairs have been initiated to correct the problem, and Spirit AeroSystems

has resumed deliveries of the structures to Boeing. Spirit had been identified by Boeing as the source of the manufacturing defect that halted assembly of its 737 Max during Q1, and thus a new delay in deliveries of those aircraft. Nonetheless, Boeing said the problem would not alter its plan to increase its output of the 737 Max from 31 to 38 per month. Some 500 of the affected 737 Max are in service, and repairs will be carried out during routine maintenance. Spirit is also in trouble, as previously mentioned, on the 787, plus they have problems with the Airbus A220 and A350. These problems will cost Spirit a pile of money and no doubt increase their visibility viz a viz the FAA.

The question has to be posed again; how do such problems get through a quality control system that surely should be, must be, set up for something as critical as a multimillion dollar aircraft?

Author profile:Royce Lowe, Manufacturing Talk Radio, UK and EU International Correspondent, Contributing Writer, Manufacturing Outlook. n

JUNE 2023

ENERGY OUTLOOK

Powering Québec

By Royce Lowe

Québec’s journey to what might be termed hydro-electric self-sufficiency began in the early 1970s in the James Bay Area of northern Québec, where over 42 years, beginning with the groundbreaking on May 3, 1973, more than 100,000 workers and engineers built hundreds of dams and dikes required for the start-up of eleven power plants and thousands of kilometers of high-tension lines, at a cost of $27 billion in current dollars.

There were 1,500 km (almost 1,000 miles) of roads, dozens of bridges, five airports, five camps the size of small towns for workers, five villages for executives, and hundreds of more rudimentary campsites. Tens of thousands of families would see a father or a mother leave for the site for six months and return home for a few weeks before going back to the site.

The three phases of James Bay, built 1973-1984, 1985-1996, and

2002-2013, were overseen by ten provincial governments, either Liberal or Parti-Québécois. Fifty years after its ground-breaking, James Bay still stands out as an avant-garde project. L’actualité (may be translated as News,) a French-language magazine published in Québec, recently took us through the development of the three phases and their upcoming utilization in the province’s industrial future.

Québec’s energy today is 100%

renewable, and this is largely due to this complex that supplies almost half of Hydro-Québec’s hydroelectric power. The enormous plants are far from being the world’s largest, and the Robert-Bourassa plant is merely 14th on the world scale, being dwarfed by the Three-Gorges dam in China. But what is in James Bay lights up and heats half of Hydro-Québec’s customers and a good part of the province’s heavy industry while also feeding 15% of the electricity needs of New Brunswick and New England.

One can’t speak of James Bay without mentioning the effect the project had on relations with the native peoples living in the area. There were difficulties in the interpretation of what was to be developed and where, where the natives would be relocated, and how they would be compensated. In the final analysis, and in spite of occasional hard times, the outcome was favorable. Several natives were employed, and there were nativeowned companies that took contracts. In fact, a Cree trapper came up with the idea of joining two lakes using a three-kilometer tunnel instead of submerging all the territory under a reservoir, as Hydro-Québec normally

did. There was a unique cooperation between native peoples and HydroQuébec, and the Mohawks will be co-owners of the interconnecting line for the contract to supply New York City, expected in 2025.

During the 2022 election campaign in Québec, prime minister Legault said he was looking to build more big dams. Hydro-Québec has calculated that to electrify transport and heavy industry up to 2050, it will need at least 100 terawatt hours of additional electricity or around 50% more than the present capacity. Québec could use a new James Bay. This may tend to nuclear or wind farms.

The water that turns half of HydroQuébec’s turbines is stored in 27 reservoirs that stock the equivalent of a full year, at least, of consumption in Québec. And these immense reservoirs may be considered as making the biggest contribution to the energy transition. It’s sure, too, that hydroelectricity works whether the wind blows or the sun shines or if households are willing to postpone their consumption for a few hours.

With the “hardware” and the expertise already in place, the efficient

production of electricity in Québec looks set for a bright future.

Then there’s Canada’s Climate

The Toronto Globe and Mail Report on Business recently highlighted that Canada’s record here is not the best. Although accounting for only 1.5% of global emissions, it is the worst in the Group of Seven when it comes to emission reduction. There again, in terms of emissions per capita, it is the worst in the world. This isn’t really surprising when we’re looking at the world’s second-biggest country, with a population that approximates that of Tokyo. But it’s easy to point the finger at China, India, and the U.S. China and India’s emissions doubled between 2005 and 2009. The U.S. showed around a 10% reduction. Canada showed a slight increase.

Overall, Canada’s electricity generation is 60% hydro, 15% nuclear, 5% wind, 0.3% solar, 11% natural gas, 7% coal, and 0.6% petroleum. So it isn’t what Canada uses to generate electricity, but what it does with the electricity it’s generated. Namely the production of petroleum products, primary metals, and agricultural products (among others.)

So no more sitting back and pointing the finger Canada. Follow your neighbor to the south, who has recently put aside many billions of dollars to help the climate.

Author profile: Royce Lowe, Manufacturing Talk Radio, UK and EU International Correspondent, Contributing Writer, Manufacturing Outlook n

JUNE 2023

MATERIALS OUTLOOK

Today’s Steel Scene

By Royce Lowe

What might be called “the steel business” is going through not the best of times these days. Just a couple of years ago, the price of hot-rolled coil in the U.S. was headed for $2,000 per ton; today, it’s struggling to reach $1,000. The MEPS International World average hot-rolled coil price exceeded U.S. $1000 per ton in April for the first time since mid-2022, with prices varying across the countries surveyed.

Mills in the U.S. and Europe succeeded in hanging onto further price increases since mid-March. Shortages in domestic supply, together with modest

restocking, supported these increases. But it is the general feeling that prices in both these regions have peaked in the present cycle.

U.S. and EU mills have announced price increases that got a negative reaction from many of their customers, who are looking instead for discounts during upcoming negotiations. Asian hot-rolled coil prices turned downwards in April due to weak demand and oversupply. These suppliers have been looking to push what they can’t sell at home into Western markets, where prices are

considerably higher. The widening price differential between East and West is now making material from third countries increasingly attractive to buyers in North America and the EU, where sales from Asia fell to a low level in the fourth quarter of 2022.

Flat-product exports from Asia to North America remain substantially low, year-on-year, but they are increasing. Shipments from Asia to the EU are growing quickly, particularly for cold-rolled products, following production problems in Europe.

So it’s likely that increased exports to the West will put negative pressure on domestic prices in these markets. But MEPS feels that a crash in global steel prices is not in the cards in the near term due in part to higher raw material costs. In this, they may have some disagreements.

Meanwhile, according to Industry Week, there is something more upbeat coming from Cleveland-Cliffs, by way of its Chairman, President, and CEO, Lourenco Goncalves, an executive who speaks his mind. Cleveland-Cliffs takes in some one-third of its revenues from the U.S. auto industry and is the industry’s largest supplier. Goncalves says that the spot market has been “taken out of the picture in automotive” and that Cleveland-Cliffs and the major OEMs it sells to are now in “a true relationship type of thing.” Goncalves had a hunch late in 2022 that he would have leverage in contract talks with automotive companies. At that time, he said early negotiations suggested the supplier would be able to lift its prices nicely for 2023 as it looked to back away from steel indices and as OEMs look to meet continued strong consumer demand.

First-quarter average contract price increases of $115 per ton showed up as first-quarter direct sales to the auto sector totaling $1.9 billion, up from about $1.7 billion in Q4 of 2022 and $1.6 billion in 2022’s Q1. This helped the company limit its 2022 Q1 loss to $42 million. Cliffs’ CFO Celso Goncalves (the son) says the company’s average selling price should rise $120 per ton from Q1. This would entail higher price increases for cold-rolled and galvanized and would involve the supply of steel that is defect-free and will allow the fabrication of the automotive parts with no problem. The word used to describe supply by Cleveland-Cliffs is partnership. Sounds like a great idea, and makes sure the

supplier knows what he needs to do to make his steel perform as it should. It should be noted that Cleveland-Cliffs was recently named a GM supplier of the year for the sixth straight year. Nucor, meanwhile, the other giant of the U.S. steel industry, is really upbeat, following excellent results in Q1 this year, showing $1.1 billion in profits on sales of $7.7 billion. Nucor’s chairman, President, and CEO, Leon Topalian, attributes his bullishness to the beginnings of a wave of orders for steel and related products to help build factories making semiconductors and EV batteries, as well as transportation and energy infrastructure projects. Topalian said passage of the Inflation Reduction Act, CHIPS and Science Act, and Infrastructure Investment and Jobs Act would require about 8 million tons of steelmaking capacity annually for the next decade. Steel Dynamics Inc. and Alcoa Corp. are in an equally bullish frame of mind.

Things are not that great on the stainless steel side of things. Although April is a traditionally slow month

in Europe, this year saw very little buying for stock, and falling prices. In April, type 304 cold-rolled coil came in at 2707 euros per ton, the lowest for two years, with further decreases forecast. In North America, domestic steelmakers are offering extra discounts to entice orders for additional tonnage.

Orders are being placed reluctantly for the molybdenum-bearing grades through volatility in raw material prices. MEPS’ North American prices for type 316 cold-rolled fell by U.S. $505 per ton in April. Asia sees prices for molybdenum-bearing grades on a downward trend. Demand is down. Although not at the low levels seen a couple of years ago, the global steel market is in a state of uncertain volatility. The major players in the U.S. steel industry, however, are looking to a good year, and maybe several in sequence.

Author profile: Royce Lowe, Manufacturing Talk Radio, UK and EU International Correspondent, Contributing Writer, Manufacturing Outlook. n

JUNE 2023

AUTOMOTIVE OUTLOOK

By Lawrence Makagon

Waiting on Your Lyric

If you’ve got $77,000 to spend on a luxury-type car, then you might want to try the (electric) Cadillac Lyriq.

You may have to wait a while, as people with ready cash have recently been obliged to do. GM is trying its best to get its production ramped

up to put together all the Lyrics its customers put deposits on almost two years ago. A thousand people did this in the space of ten minutes. Problems came to greet GM: a slow start at the Ultium plant in Lordstown and software issues saw a mere 122 deliveries of the SUV emanate from

last year’s Q4 production and fewer than 1,000 in 2023’s Q1.

Frustration set in, so naturally, the news couldn’t be kept off social media, and everybody was complaining in unison. What’s going on? What can we do? Well, some continued

reservations were canceled, while some wannabe Caddy owners just waited and grumbled.

The good news is that 80% of the would-be Lyriq customers have never owned a Cadillac. Those who got theirs extoll its virtues. And it’s not uncommon for automakers to have problems getting new EVs off the ground, viz Tesla, Toyota, and Ford. And GM is reportedly offering financial encouragement to those who will have to wait too long to keep them on board. The executive who owned a Merc GLC-300 said he’d never considered a Cadillac before, but he thinks the Lyriq is more luxurious than the Tesla, and he likes the styling.

Moving down to China, this country’s Geely company has acquired a reputation for fixing up European autos in “need of repair.” The company bought Volvo from Ford in 2010, apparently got a good deal, and had it running better than ever within a few years. It bought Lotus in 2017, 50% of Smart from Daimler in 2020, and is now completely reengineering it. But before most of this, it rescued the maker of London’s black cabs after its parent company went into administration. But this one didn’t turn around quite like the others. Reborn as London Electric Vehicle Company in 2017, Geely put in over £500 million and set up a new global headquarters and the UK’s first dedicated EV manufacturing plant. The facility in Coventry has the ability to produce up to 20,000 vehicles per year, with the potential to boost this by another 80% with minor adjustments.

But LEVC is quite a way from using all this capacity, having produced only its 10,000th car in March, over five years after shipping its first electric taxi. With all that’s happened

in the past five years, the pandemic, Uber, etc., and all the supply-chain problems, the taxi trade didn’t fare well.

But the company’s not lying down. It’s come up with what it calls an all-electric platform that will broaden its product range beyond the black cab. LEVC has been in R&D labs in China, Sweden, the UK, and Germany, developing a range of “people-movers” and delivery vehicles. But after all the ideas that came out of the labs, it’s still not clear where all this will go. Fully electric taxis, for example, will need to wait until the UK has a better charging infrastructure. So LEVC is a long way from rivaling Volvo, Polestar, and Lotus Technology as an example of what Geely can do.

Not an EV, but a lower-priced gasoline-powered SUV, priced at the lower end of the market, China’s Chery is selling a mid-sized

Onoda 5 in Australia for as little as A$32,000 ($22,000) for a base model. Bloomberg’s down-under correspondent drove a high-end version around Sydney for four days, a car full of luxury car extras that cost not much more than A$35,000. The best-selling car in Australia, Ford’s Ranger pickup, can go for double that price. The man in Oz said the car he tried scored well, apart from all-round vision, which he described as “unmemorable.”

Taken all round, the car was “worth a drive.” More Chery models are on the cards for sale in Australia later this year. Sales of China-sourced vehicles in Australia are up 69% this year. Overall, EV sales increased to 8% this year from 1.1% last year. The jury will be out for a while on Chinese automobiles, pending their overall satisfaction rating.

Lawrence Makagon, Staff Writer

CYBER SECURITY OUTLOOK

Confidence is the Key to Recovery After a Cyberattack

By Ken Fanger, MBA, CMMC-RP, President, On Technology Partners

Recovery after a cyberattack can often cause confusion and distress. The process of recovery can encompass a wide range of responses, but I’ve compiled a few main points to get you back on the road after addressing the breach and mitigating the fallout.

First and foremost: Relax. Nothing good is accomplished during a state of fear, panic, or chaos. Many people find themselves in a state of chaos following a cyberattack, making it difficult to stay focused on getting back on their feet. With the

harm that attacks can cause financially, operationally, and emotionally, it is easy to get overwhelmed by feelings of frustration, violation, and helplessness. This is why your immediate reaction to a cybersecurity crisis should be to take a moment to recover yourself first.

Approaching the issue with a calm attitude and preparation will smooth the process and mitigate any rash decisions that end up causing more harm than good.

Talk with Your Legal and Media Professionals.

Make sure that you have addressed any outstanding legal issues and have determined the message that you want to share with the public. It is important to provide honest but positive messaging regarding how your company is addressing the problem, as well as the steps you are taking to ensure that the problem does not happen again. Having a single coherent message and legal statement can make a major difference in how you

are able to recover in the long run, as well as how your business associates, clients, and customers view your business and security practices moving forward.

Keep Your Customers and Employees Informed.

This is a vital step in rebuilding trust. The more you can show that you are being proactive in addressing the events that happened, the more likely that your employees and customers will feel assured that it will not happen again. Transparency in addressing the issue is an essential part of ensuring that customers and employees will trust you in the future.

This is also an opportunity to assess your training policies and renew your employees’ confidence in doing their part in protecting the organization’s data. Security awareness training

of your employees about current security threats, company security policies, and the personal role each plays in keeping your business safe from cyber threats is important and necessary.

Review Your Cyber Security Plan. After you have implemented your recovery plan, take some time to review how the process went. How quickly were you able to find the problem? What was the reason for the problem? And are there better actions or steps you can take next time? Asking the hard questions could help protect you from facing the same disaster again.

There is no doubt that recovering from a cyberattack, large or small, can be unpleasant. Ensuring you are confident, efficient, and transparent in your response can make all the difference.

Author profile: Ken Fanger, MBA has 30 years of industry experience in the fields of technology and cyber security, and is a sought-after CMMC Registered Professional, helping manufacturers and contractors to meet DoD requirements for CMMC compliance. He is passionate about technology deployment, and his MBA in Operations & Logistics has helped him to be an asset in the designing and deployment of networks to enhance the manufacturing experience. Over the past 5 years, he has focused on compliance and security, including working on the SCADA control system for the Cleveland Power Grid. Mr. Fanger works with each client to identify their unique needs, and develops a customized approach to meeting those needs in the most efficient and cost-effective ways, ensuring client success. n

ISSUES OUTLOOK

By Royce Lowe

Indonesia, an “Up and Comer?”

Indonesia is a country that doesn’t just drop from the lip when thinking about the countries of the world. It may be, to quote The Economist, the most important country that people routinely overlook. Where is it? What are its people like? What businesses are they in? Well, the 1990s saw the end of a 32-year dictatorship run by

a man called Suharto. Today, some 25 years later, we can say it’s the world’s largest Muslim-majority state, its third biggest democracy, and its fourth most-populous country. Indonesia is made up of thousands of islands that stretch from the Indian Ocean to the Pacific, with five main islands and some 30 smaller

archipelagoes, totaling some 18,110 islands and islets, of which about 6,000 are inhabited.

It is young, with 26% of the population under 15, something that might attract foreign investors. And for decades, it has been carefully diplomatically neutral, meaning it continued

can well cozy up to both Western and Chinese investment. Over the next 25 years, the country could blossom financially, being the sixth-biggest emerging market by GDP and having grown faster than any other $1 trillion-plus economy except India and China. It’s big in digital services, with over 100 million people collectively spending $80 billion on digital services every year.

Indonesia is the world’s largest producer of nickel, a metal whose star has shone brightly through the advent of the EV battery. It has a fifth of global reserves. It is also the world’s second-largest producer of stainless steel, having recently displaced India. The dark side of all this, of course, is in the mining, the tearing down of trees, and the ocean turning red on the Sulawesi coastline in the southeast of the country. Indonesia has banned the export of nickel and other raw materials to force investors to build factories in Indonesia. Not normal, but the investment is pouring in. Coal-fired power stations are being retired early in an effort to get new industries to run on clean power. CATL, the gigantic Chinese battery manufacturer, is in for a $6

billion project, but the President of CATL, Joko Widodo, also known as Jokowi, is talking to Tesla too. He’s also somewhat of a diplomat and may be the only person to have met presidents Joe Biden, Xi Jinping, Vladimir Putin, and Volodymyr Zelensky in 2022.

If Indonesia stays on its present path for the next ten years, it could end up as one of the world’s ten biggest economies. Although the country is not likely to become a Chinese-style manufacturing miracle, a big middle class could result. A possible future problem for Indonesia is succession. The president’s final term ends in 2024, and the constitution says he must quit at that time. There is, apparently, no obvious successor and some of his supporters want him to get around the constitution to remain in power.

Indonesia was an archetypal Asian Tiger in the 80s and 90s, with booming manufacturing and exports. But manufacturing’s share of GDP has fallen over the past 20 years, owing to both the political and economic turmoil that followed Suharto’s fall and also to the rise of

Guiding

cheap-manufacturing rivals in the area, such as Vietnam. Hence the need for a seat at the EV table. So Indonesia’s future may depend upon who will be its next president (hopefully an ally of Jokowi) and how it gets its hands on more of the manufacturing pie available out there, at the expense of Vietnam, Malaysia, Thailand, the Philippines, and India. The country has much going for it. It needs a push from somewhere.

Author profile: Royce Lowe, Manufacturing Talk Radio, UK and EU International Correspondent, Contributing Writer, Manufacturing Outlook. n

Manufacturers

Through Economic Turmoil

GRAPHENE OUTLOOK

By Tim Grady

Fascinating Graphene

Graphene is a two-dimensional layer of carbon atoms held together by its chemical bonds in a hexagonal structure to form a one-atom-thick sheet. To date, the largest sheet produced is 30 centimeters by 30 centimeters (about 12 inches by 12 inches), although larger sheets are being researched and nearing development. It is one of 25 elements researchers have theorized can be produced as a two-dimensional structure.

Graphene is most easily produced by vapor deposition in a vacuum, where atoms are transferred onto a substrate using a carrier that will evaporate and leave behind the desired deposit. A simple example would be powder coating, where the coating is easily removable from the substrate. It is, however, currently expensive to produce, although less expensive production methods are in development.

Researchers have found that graphene has remarkable properties. It is 200 times stronger than steel at a similar thickness. It is very lightweight and flexible, making it attractive for wearable electronics, including medical devices. It is 98 percent transparent. It is more conductive than other materials and may increase the speed of computer chips by 10-fold. It has been shown to be bulletproof at only two layers thick. It is acid-resistant and holds together at temperatures up to 1300 degrees Fahrenheit. Its ‘state’ can be altered so that it is either permeable or impermeable. Interestingly, the 2-dimensional state of boron, called borophene, is even stronger than graphene, although it is not as far along in research and development.

The National Institute of Justice, a research arm of the Department of Justice, has created standards for ballistic material. Level IIIA is a

material capable of stopping a .357 magnum round or a .44 magnum round fired from a short-barrel weapon at close range, such as a handgun. Just two layers of graphene can stop either round.

Wearable electronics cover a wide range of uses, including clothing that could capture the energy of the sun to charge your cell phone, to electronic patches worn on the skin to monitor your vital signs and various medical conditions and transmit them to a cell phone message that can be sent to your doctor. In its permeable state, it can speed the blood flow across a membrane and decrease the time needed to clear the blood of toxins in hemodialysis. Research into medical uses is in its very early stages.

Graphene’s electrical conductivity makes it a candidate for solar panels to capture and convert sunlight into usable electricity for anything

from solar windows to solarcharged electric cars. A thin layer of graphene on top of the paint color but below the clear finish gloss coat may covert enough solar energy to make charging stations obsolete. In addition, graphene helps batteries charge five times faster, which may help extend driving range.

Imagine the potential amount of fossil fuel burned to heat water to create steam to drive turbines for energy generation that could be replaced by thin graphene solar energy sheets on surfaces of all shapes, from flat to curved. Graphene could be sandwiched between panes of glass, converting sunlight into energy and providing impact-proof, nearly transparent glass. Even the glass on vehicles could convert solar energy to reduce the use of battery power.

One of the more attractive applications of the permeable state of graphene is water desalination.

This could change the use and consumption of water worldwide, especially for human needs and agriculture in arid climates. However, shifting vast quantities of water from sea to land, where evaporation into the atmosphere will occur, may also have unanticipated climate change impacts as water vapor accumulates in the air.

Graphene with molybdenum clusters has been demonstrated to separate hydrogen from oxygen for hydrogen fuel generation. It may become further possible to separate hydrogen from oxygen in H3O - the undesirable heavy water resulting from the cooling of nuclear reactors.

The University of Manchester in the UK is already researching the use of graphene to separate different isotopes of hydrogen from water, as well as separating deuterium for use in fission and fusion reactors.

The applications of graphene are in their research, development, and application infancy. What is known today is but a fraction of what will be known and in use a decade from now. In terms of improvements for humankind, the discovery and development of graphene may be as life-altering as the discovery of fire or electricity itself.

Tim Grady is Editor-in-Chief of Manufacturing Outlook and a host on Manufacturing Talk Radio. He can be reached at timgrady@mfgtalkradio.com. n

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