Manufacturing Outlook for September 2020

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MANUFACTURING EXTENSION PARTNERSHIP EXTRAORDINARY RESULTS

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MANUFACTURING OUTLOOK PAGE 6

MANUFACTURING TIDBITS PAGE 10

SUPPLY CHAIN LEADERS MUST DEVELOP A CULTURE OF QUALITY PAGE 16

METALS OUTLOOK PAGE 30

AUGUST ISM PMI: 56%

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O U R

Released September 1st -The Full Executive Summary Report On Business - Page 18

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Manufacturing Outlook / September 2020

Grow Your Export Sales

WITH SUPPORT FROM THE U.S. GOVERNMENT "Made in USA" is a mark of quality worldwide, and the sale of American exports

should be booming. Unfortunately, extending credit to buyers and accessing working capital are major barriers to global growth for many manufacturers.

Fortunately, there is a solution.

The Export-Import Bank of the United States (EXIM), is an independent federal agency that enables U.S. companies of all sizes to compete successfully and win sales in more than 180 countries. EXIM financing overcomes the major barriers to global growth for many companies with: EXPORT CREDIT INSURANCE — which enables manufacturers to extend open account credit terms to buyers, protect against buyer nonpayment, and improve their cash flow.

WORKING CAPITAL GUARANTEE — that supports lenders’ credit lines to small and medium-sized U.S. businesses for producing their goods or services.

TERM FINANCING — assists international buyers in obtaining commercial lender loans to purchase U.S. capital goods and related service, typically at competitive rates and longer repayment terms.

Manufacturing is important to EXIM, comprising half of the agency’s customer base in terms of total support. With more than 90 percent of EXIM’s transactions directly supporting small businesses, no deal is too small.

Boost your sales while protecting your cash flow.

Email ExportHelp@exim.gov or call 202.257.4082 to get started today.

exim.gov

Publisher LEWIS A WEISS Editor in Chief TIM GRADY Creative Director CRAIG ROVERE Contributing Writers ROYCE LOWE NORBERT ORE CHRIS KUEHL THOMAS R. CUTLER MICKI VANDELOO AMELIA ROY JEANNE-MARIE LOWRIE CHRIS ANDERSON JOCELYN BRIGHT LAWRENCE MAKAGON NOAH CORBY Production Manager LINDA HOPLER Current Circulation 45,200 Advertising ADVERTISE@MFGTALKRADIO.COM Editorial Office JACKET MEDIA CO. 75 LANE ROAD FAIRFIELD, NJ 07004 (973) 808-8300

TABLE OF CONTENTS

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PUBLISHER’S STATEMENT A word from our publisher

6 MANUFACTURING OUTLOOK A look at manufacturing around the globe

© 2020 Jacket Media Co. No part of this publication may be reproduced or used in any form without the prior written permission of the publisher.

Manufacturing Outlook is a registered trademark of Jacket Media Co.

25 ASIA OUTLOOK China, Japan and India

8 COVER STORY: MANUFACTURING EXTENSION PARTNERSHIP EXTRAORDINARY RESULTS

by NJMEP

MANUFACTURING TIDBITS

Insights from inside manufacturing in action

10 BUSINESS INTELLIGENCE MADE

AFFORDABLE FOR SMALL MANUFACTURERS

by Thomas R. Cutler

12 WHAT WILL THE FEDERAL & STATE

GRANT LANDSCAPE LOOK LIKE POSTCOVID? by Thomas R. Cutler

14 TECH THAT BRIDGES THE MFG. SKILLS GAP & THE CONNECTED WORKER DURING COVID-19 AND BEYOND

by Thomas R. Cutler

16 SUPPLY CHAIN LEADERS MUST DEVELOP A CULTURE OF QUALITY

by Thomas R. Cutler

18 ISM MANUFACTURING REPORT ON BUSINESS

22 NORTH AMERICAN OUTLOOK

Text “RADIO” to 66866 for comments, suggestions and ideas and guest requests for MFGTALKRADIO.COM podcast.

SOUTH AMERICA OUTLOOK Brazil in the spotlight

Manufacturing in the US, Canada & Mexico

26 EUROZONE OUTLOOK A look at Europe

27 GLOBAL PMI OUTLOOK

by Norbert Ore

28 THE CREDIT MANAGER’S OUTLOOK

by Dr. Chris Kuehl

30 METALS OUTLOOK The cost, making and treating of metals

32 AEROSPACE OUTLOOK The aerospace industry

34 ENERGY OUTLOOK Energy and the environment

36 AUTOMOTIVE OUTLOOK Auto industry news

38 ISSUES OUTLOOK Issues around the globe

Open call for...

Contributing Writers for new and existing content. Let’s start a conversation – Contact us at info@jacketmedia.com or visit mfgtalkradio.com/writer for more information.

Note: The Cass Index Report was not available at press time. It will return next month.

PUBLISHERS STATEMENT Publisher’s Statement

The Recovery is Onward and Upward Manufacturing is rebounding after the Great Shutdown in March and April 2020, and cautious reopening in May, as reflected in the ISM Manufacturing and Services reports, the IHS Mark-it survey, and the Strategas Research Partners Survey Insights Report that are discussed in this issue of Manufacturing Outlook. This recovery, by the way, is exactly what should be happening because you cannot simply shut a country down, stop all jobs and paychecks, and rely on government debt instruments for every Jack and Jill to pay their bills for months and months.

Employers with leased office space are evaluating whether or not all that square footage is needed, now that they have some experience with employees working from home. Although many businesses shut down, much of manufacturing did not go to full idle or total shutdown, and many converted some aspect of their production to essential equipment if their existing products were not essential to begin with for another downstream manufacturer. This has aided in the rapid manufacturing recovery.

Other lessons learned were in the supply chain, which was already disrupted by Industry 4.0 and the automation of production and processes in plants across the country. Manufacturers are taking another look at local suppliers, near shore sources, and countries other than China. Listeners to Manufacturing Talk Radio have heard several guests talking about software that provides much better insight into their operations including their supply chain partners, parts, and inventory, to manage their day to day activities, which were surprisingly helpful to manage supply chain shifts and even provide competitive advantages through nimble adaptation to internal actions and marketplace opportunities. However, those who didn’t invest 30 minutes a week listening to Manufacturing Talk Radio might not have learned about affordable SME software without intentionally hunting for it, especially with trade shows shut down across every industry sector. Thus, Manufacturing Talk Radio is contributing to the manufacturing recovery and future competitiveness by putting out relevant, actionable information to the industry. We encourage you to tune in.

So far, the news is good news. Across the country, the infection rate and death rate curves are declining with few exceptions; albeit, we are on the cusp of flu season. Those manufacturers who will be involved in getting a COVID-19 vaccine out to millions of people are gearing up, whether they make vials, seals, caps, labels, storage containers, shipping boxes, needles, alcohol swabs, or sterile packaging for the vaccine. Never before in the history of the world has any country gone from virus to vaccine in less than a year, which has also disrupted the government oversight bodies that previously took years to authorize drug use. The typical path is decades of research followed by years of drug trials and government review.

Economic forecasters are changing their 2020 and 2021 outlook from recession to recovery and ongoing expansion, with manufacturing continuing to see more positive growth. To get ahead of these rapidly occurring events, tune in to our 6 podcasts (JacketMediaCo.com) and read on.

Lewis A. Weiss, Publisher Contact laweiss@mfgtalkradio.com or text “RADIO” to 66866 for comments, suggestions and ideas and guest requests for MFGTALKRADIO.COM podcast.

Manufacturing Outlook / September 2020

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MANUFACTURING OUTLOOK

SEPTEMBER 2020

MANUFACTURING OUTLOOK GLOBAL MANUFACTURING CONTINUES IN GROWTH MODE IN AUGUST. APART FROM JAPAN AND MEXICO ALL MAJOR ECONOMIES ARE IN GROWTH, BUT INTERNATIONAL TRADE IS STILL LAGGING.

by ROYCE LOWE The Bureau of Labor Statistics jobs report for August shows a gain of 1.4 million non-farm payroll jobs, with the unemployment rate falling to 8.4 percent.

Non-farm employment is below its February figure by 11.5 million jobs. Manufacturing gained 29,000 jobs, of which 27,000 were in the nondurable goods component, but they are down by 720,000 since February. Transportation and Warehousing added 78,000 jobs in August, with this figure 381,000 jobs below February’s figure. There was little change in mining and construction employment.

fastest manufacturing expansion since January 2019, with a faster upturn in new orders and new export order growth at a four-year high. The month saw the quickest rise in employment since November 2019.

Coincident with this were the strongest cost pressures since early 2019.

The Bureau of Economic Analysis recently released its ‘second’ estimate for the annual rate of Real GDP growth in the second quarter of 2020, putting it at minus 31.7 percent. The figure for the first quarter of 2020 was minus 5.0 percent.

The ISM PMI figure for U.S. manufacturing again retrieved more ground in August, moving from 54.2 percent in July to 56.0 percent. The overall economy returned to a fourth month of expansion.

IHS Markit’s remarks on the U.S. for August show the

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Manufacturing Outlook / September 2020

August saw the best increase in production since November 2019. Optimism remains regarding the coming twelve months. The PMI for August increased to 53.1 from July’s 50.9.

MANUFACTURING OUTLOOK of world total. Production was 488,000 tons in GCC; 343,000 tons in the rest of Asia; 283,000 tons in Western Europe; 333,000 tons in North America and 349,000 tons in Eastern and Central Europe.

U.S. LIGHT VEHICLE SALES: There is a dearth of information re vehicle sales for the month of August. Most of the major automobile companies are reporting sales quarterly. Any other figures are estimates only. We will await 3rd quarter sales figures to allow reporting of all majors, U.S. included.

GLOBAL STEEL PRODUCTION WAS DOWN BY 2.5 PERCENT YEAR-OVER-YEAR IN THE MONTH OF JULY for the 64 reporting countries – which represent 99 percent of world crude steel production – to 152,694 MT. The only major country that did not show a significant drop was China, whose output rose by 9.1 percent to 93.359 MT. U.S. crude steel production for July was 5.241 MT, down 29.4 percent year-over-year.

Primary Global Aluminum Production in July was reported at 5.452 million tons, with production in China, at 3.131 million tons, representing 57 percent

THE ECONOMIST magazine, in its latest weekly report on world economies, highlights changes in Gross Domestic Product (GDP), Consumer Prices, and Unemployment rates for what it considers the world’s major economies. These data are not necessarily good to the present day, but are mostly applicable to at latest the past two months, and show definite trends in the world economy. The figures are qualified as being the latest available, and with reference to a given quarter or month. The figures for GDP represent the % change on the previous quarter, annual rate. The consumer price increases represent year-over-year changes. The unemployment figures, %, are for the month as noted.

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

Manufacturing Outlook / September 2020

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COVER STORY

MANUFACTURING EXTENSION PARTNERSHIP EXTRAORDINARY RESULTS

by NJMEP

The Hollings Manufacturing Extension Partnership (MEP) is based at the National Institute of Standards and Technology (NIST). For the past 30 years, the MEP National NetworkTM has equipped small and medium-sized manufacturers with the resources needed to grow and thrive. The MEP National Network comprises the National Institute of Standards and Technology’s Manufacturing Extension Partnership (NIST MEP), 51 MEP Centers located in all 50 states and Puerto Rico, and its over 1,400 trusted advisors and experts at approximately 375 MEP service locations, providing any U.S. manufacturer with access to resources they need to succeed.

The leading MEP is located in Cedar Knolls, New Jersey. The New Jersey Manufacturing Extension Program, Inc. (NJMEP) announced that its total

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Manufacturing Outlook / September 2020

impact to manufacturers over the 1st six months of 2020 is $345,920,685.

NJMEP has worked with clients and secured a strong return on investment of 30:1 in the first half of 2020.

Over the first 6 months of 2020, manufacturers reported:

• over $245 million in New & Retained Sales

• over $29 million in Process Savings

• over $70 million in Capital Improvements & Investments

• over 2,100 New and Retained jobs NJMEP was instrumental in helping manufacturers experience a total impact of over $345 million.

The 12-month average impact for NJMEP between 2000-2019 is over $203 million with over 1,780 New and Retained jobs. In 2020, COVID-19 created an

COVER STORY “During the COVID-19 crisis, NJMEP has continued to work very closely with thousands of manufacturers and the Legislative Bipartisan Manufacturing Caucus to support these businesses through this unprecedented time and ensure they can recover and continue to thrive in the post COVID business environment. All New Jersey manufacturers are essential. The employees are unsung heroes.

And manufacturing will continue to push the state and nation forward,” said John W. Kennedy, Ph.D, CEO, NJMEP.

environment where NJMEP had to go above and beyond to keep the industry intact.

NJMEP’s Annual Metrics has scored them in the top 3 (out of 51 MEP Centers) in the country over the past 20-years.

“The economic impact illustrates the importance of supporting programs that help manufacturers become more efficient in terms of production processes, labor utilization and energy consumption.

We can help manufacturers identify growth opportunities, upgrade critical employee skills, improve production efficiencies, cut energy costs, improve supply chain performance and enhance customer satisfaction,” says John W. Kennedy, Ph.D, CEO, NJMEP. NJMEP has an ongoing process to determine its economic impact by surveying companies through a neutral, third-party survey firm after completing a project. Clients quantify the impact NJMEP’s services have had on their companies. These services include assistance and implementation projects where the client realizes significant operational improvements and increases in production capacity, sales opportunity, cost avoidance, and investment opportunities.

And thus, both client satisfaction and impact measurement are essential and critical elements of all MEP projects.

NIST MEP created the Emergency Assistance Program to support U.S. small and medium-sized manufacturers as a response to the COVID-19 pandemic. This program was made possible by the Coronavirus Aid, Relief, and Economic Security Act (CARES Act). NJMEP jumped at the opportunity to secure additional funds for NJ manufacturers. These funds are being used to prevent, prepare, and help businesses respond to the numerous disruptions caused by Coronavirus.

By concentrating on Workforce Development, providing Technical Resources, and Supply Chain Support, NJMEP developed a comprehensive suite of services to support manufacturers’ specific needs during this time.

“NJMEP also created a supply chain database. It comprised of manufacturers that can assist in the production of PPE and identified companies that were experiencing supply chain disruptions. This database was then shared with state and federal delegates and the NJEDA to ensure the nations supply chain didn’t break,” said Robert Stramara, COO, NJMEP. About NJMEP: NJMEP is a private, not-for-profit organization that improves the profitability and competitiveness of New Jersey’s manufacturers. Backed by the National Institute of Standards and Technology (NIST), NJMEP enables organizations to enhance their productivity and efficiencies, reduce costs, and improve employee performance. For more than 20 years, NJMEP has used its extensive network of connections and proven track record of success to help manufacturers adapt to the latest innovative technologies and best practices to realize more than $4.31 billion in value. Services are categorized into the following three areas: Operational Excellence, Innovation and Growth Strategies, and Workforce Development.

Manufacturing Outlook / September 2020

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MANUFACTURING TIDBITS

Business Intelligence Made Affordable for Small Manufacturers

by T.R. CUTLER

Rob Collie examined why so many BI (business intelligence) solutions are overpriced for small and mid-sized manufacturers. He recognized the importance of providing affordable and actionable data.

real-time, actionable insights in response to massive sales spikes for the cleaning product, as well as uncovering millions in working capital from inventory inefficiencies.

Collie suggested business intelligence is suffering a “hangover” during the past three-decades when BI was strictly the domain of large enterprises.

Beyond the steep price tag were equally expensive implementation costs. While there are more affordable BI solutions available to small and mid-sized manufacturers, the platform selected may prohibit smaller companies from accessing meaningful data.

Small manufacturers discover critical data elements Relative sources of revenue often fluctuate more frequently (and sharply) than assumed.

These fluctuations leap off the screen with good dashboards. This information is even more important when something like COVID throws out the old playbook, and each day seems to bring a new set of conditions.

Collie’s company, P3 (Power Pivot Pro) specializes in BI because it is specifically designed to be affordable for the SME market. For $1,000 a month small manufacturers receive the same modern tools as Fortune 500 companies. Clients frequently project positive annual ROI’s in the six figures within even a few weeks after implementation.

The same themes apply when examining costs.

Using a standard cost model usually means data is not updated frequently enough to match the shifting realities of the market. Small manufacturers can least afford lack of real-time data. Indirect cost allocation is also a notoriously difficult problem that rarely receives the ongoing attention required.

SerVaas Labs, manufacturer of Bar Keepers Friend, implemented Power BI a few months prior to the COVID-19 outbreak. The dashboards provided

There are a number of important inputs that should be updated in real-time, without requiring any manual labor. The tools used, capture

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Manufacturing Outlook / September 2020

MANUFACTURING TIDBITS the realities of business calculations and run automatically – every week, every day, and perhaps even every hour.

Having an integrated picture is tremendously valuable; the traditional approaches have always carried a very high price tag. Collie insisted that an integrated view of business in compact dashboards can be accomplished without any infrastructure spend.

Discount-driven margin erosion often a problem for small manufacturers Correcting discount-driven margin erosion is often a problem for small manufacturers often proves to be very difficult. Collie shared, “One of my personal favorite experiences with our clients was implementing a pricing scorecard for their sales organization. ‘What gets measured gets done’ is quite true, and scorecards provide a way to get dozens – or even hundreds – of people pulling in the same direction. It’s a superpower.”

Rob Collie is an entrepreneur, author, and consultant. He was one of the founding engineers behind Power Pivot at Microsoft and operates the world’s leading Power Pivot/Power BI website, PowerPivotPro.com.

Author Profile: Thomas R. Cutler is the President and CEO of Fort Lauderdale, Floridabased, TR Cutler, Inc., celebrating its 21st year. Cutler is the founder of the Manufacturing Media Consortium including more than 8000 journalists, editors, and economists writing about trends in manufacturing, industry, material handling, and process improvement. Cutler authors more than 1000 feature articles annually regarding the manufacturing sector. More than 4600 industry leaders follow Cutler on Twitter daily at @ThomasRCutler. Contact Cutler at trcutler@ trcutlerinc.com.

Manufacturing Outlook / September 2020

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MANUFACTURING TIDBITS

What Will the Federal and State Grant Landscape Look Like Post-COVID?

by MICKI VANDELOO

2020 has definitely gone down as a year to remember, and not necessarily in a good way. However, as a grant professional for the manufacturing community, I lean toward describing the pandemic with adjectives such as “interesting” and “opportune” rather than “scary” and “depressing”.

But what happens when the CARES Act funding is spent and a vaccine is on the market? What happens when we reach the “new normal” that is certain to appear post-COVID? Will all this funding disappear as well? Not only would I answer “no”, but I am also going to predict that funding for the manufacturing community will actually INCREASE post-COVID.

The COVID pandemic has prompted wave after wave of new and intriguing grant and government contract opportunities. First, there were the emergency grants funding badly needed for PPE and ventilator manufacturing. Then came contracting opportunities through organizations like USAID to distribute those goods. As CARES funding flowed from federal to state coffers, COVID funding became available to help manufacturers retool, increase their resiliency, and spur economic recovery.

Why, you might ask? I truly believe a few longstanding manufacturing issues were in the spotlight during COVID. A few of the key ones are listed below:

Today, the conglomeration of COVID funding ranges from federal and corporate grants for pharmaceutical manufacturing to state awards that reimburse manufacturers for retooling costs as well as funding to reimburse businesses for the negative effects that COVID had on their operations. The amounts of money vary greatly as well, with federal grants in the millions of dollars, to state grants with awards in the tens of thousands of dollars.

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Manufacturing Outlook / September 2020

Reshoring - Pre-COVID, there was an ongoing discussion surrounding reshoring. During COVID, however, this became a national conversation. I believe these discussions will not only generate a renewed “Buy America” movement, but will result in funding at the federal and state levels to help companies localize their supply chain. These grants could incentivize supply chain analysis as well as strategy development and execution. They could also fund a portion of the cost to retool American plant equipment or add manufacturing capacity to bring product in-house from overseas.

Workforce - Pre-COVID, the talent skills gap in manufacturing was widely publicized. However, as

MAANUFACTURING MANUFACTURING TIDBITS

companies bring product back to America, medium to high skilled workers will be needed to address additional production requirements quickly. This situation will exacerbate the skills gap and highlight the dire need to quickly train workers through higher education and apprenticeships. I expect both state and federal governments to respond to this crisis with grants and tax credits to incentivize worker training as they have in the past but in increasing amounts. Federal grant programs to innovate career training have recently been announced and require consortiums involving manufacturers, academia, and economic development departments to develop these new career pathways. I expect this trend to continue through new and continuing federal and state funding opportunities, as well.

their homes in rural areas, schools tackle the risk associated with the return of students to the classroom, and older Americans opt for telemedicine services to reduce their exposure to COVID and other infectious diseases at hospitals, clinics or doctors offices. I expect continued additional funding to USDA to address these ongoing challenges.

Broadband - COVID-19 brought a dramatic increase in remote workers, distance learning and telemedicine.

These efforts to keep Americans safe has resulted in recognition by federal government agencies that Internet service in many rural areas is poor or not available. As a result, government officials pumped money into USDA coffers this summer to increase the funding for rural distance learning, telemedicine efforts, and broadband connectivity in rural areas.

The government will need to continue to address these weaknesses as workers stay working from

Author Profile Micki Vandeloo, GPC, is the President of Lakeview Consulting, Inc., a team of five experienced grant professionals who have collectively obtained over $240 million in grant funding for nonprofit and for-profit clients. The Lakeview team provides grant/ incentive research, writing and consulting services to help those in the manufacturing and technology communities fund their growth and success. She may be reached at micki@lakeviewconsulting.net

Summary - While there is no doubt that the pandemic had disastrous consequences for our country, it also brought issues that have long been the subject of backroom and boardroom discussions into the national spotlight. It is my fervent hope that these long standing and important issues will finally be addressed with the support of grants and incentives.

Manufacturing Outlook / September 2020

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MANUFACTURING TIDBITS

Tech that Bridges the Manufacturing Skills Gap and the Connected Worker During COVID-19 and Beyond

by T.R. CUTLER

There has been a lot of talk about the Connected Worker in the manufacturing sector. The Connected Worker converges different technology trends such as Cloud, mobile, web, chat, social, wearables, AI/ML (artificial intelligence/machine learning) to change the entire working life of a companies’ front-line workers. During COVID, it is more important than ever that manufacturers enable workers with important ERP (enterprise resource planning) operational data, as well as empower them with step-by-step guided work instructions that ensure the job is done faster, more accurately, reducing costs, and enhancing safety.

By 2050, the world population is estimated to grow from 7.6 billion to 9.6 billion. This growing population will boost consumer demand across all industries. This growing demand means that investments in production and manufacturing facilities, will create many new jobs and have positive impact on the economy.

Sundeep Ravande, CEO of Innovapptive Inc. believes in a better way of running operations. In most manufacturing enterprises, operations are a set of tedious linear steps – slow, inaccurate, and

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Manufacturing Outlook / September 2020

highly inefficient. Ravande believes field work can be done faster, cheaper, and safer. By digitally and autonomously connecting humans, machines, and workflows in the 21st century economy, a Connected Workforce will be part of the global manufacturing experience.

Ravande identified the four significant challenges that manufacturing operations will face: Digital Natives – The New “Front-Line” Worker – The growth in population translates to new frontline workers born digital natives. They expect everything in their lives to be digitally presented.

These new front-line workers will be expected to perform highly complex jobs and processes with minimal human interactions. This has become abundantly clear during the pandemic. Experts will not be available to handhold these frontline workers, which makes things harder to keep machines running and spare parts available at the right time at the right place.

MAANUFACTURING TIDBITS

Disappearance of Tribal Knowledge The tribal knowledge held by current expert frontline workers will disappear very soon.

The average age of the front-line worker is currently 44.1 years and most of these workers will leave the workplace over the next decade, creating a significant skills gap.

Despite the current unemployment rate due to COVID, there are critical skills and talent gaps impacting the ability of asset-intensive industries to recruit, train, and retain a workforce with suitable competencies.

Shrinking Profit Margins - The growing pressure on profit margins and talent challenges are felt across all aspects of the manufacturing sector. Industries are facing increasing demand from customers to deliver higher value at a lower cost.

Worker Safety - During the pandemic, manufacturers have implemented new safety procedures, risk assessments, and contact tracing.

This new normal has become an integral part of running a manufacturing operation with fewer interruptions. Social distancing requires awareness of workers’ health and physical location within a plant. Both regulatory compliance and litigation mitigation are part of the new Connected Worker model.

Author Profile: Thomas R. Cutler is the President and CEO of Fort Lauderdale, Floridabased, TR Cutler, Inc., celebrating its 21st year. Cutler is the founder of the Manufacturing Media Consortium including more than 8000 journalists, editors, and economists writing about trends in manufacturing, industry, material handling, and process improvement. Cutler authors more than 1000 feature articles annually regarding the manufacturing sector. More than 4600 industry leaders follow Cutler on Twitter daily at @ThomasRCutler. Contact Cutler at trcutler@ trcutlerinc.com.

Manufacturing Outlook / September 2020

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MANUFACTURING TIDBITS

Supply Chain Leaders Must Develop a Culture of Quality

by T.R. CUTLER

According to findings from the Gartner 2020 Culture of Quality During Disruptions Survey, a single disruption in an organization caused an average culture of quality to drop 9%. Organizations experience on average three disruptions per year.

These findings have been corroborated by numerous thought leaders in the manufacturing sector.

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Manufacturing Outlook / September 2020

Even before COVID-19 manufacturers were forced to find new ways of working; manufacturers operating in “crisis management mode” were accustomed to an increasingly disruptive environment. The primary tools lean manufacturing leaders used to maintain a culture of quality during a disruption reinforced tools such as training and knowledge hubs. Gartner’s survey revealed these hackneyed methods had little to no impact.

MANUFACTURING TIDBITS market in the face of a significant cost reductions,” remarked Klein.

Bryan Klein, research director with the Gartner Supply Chain Practice shared, “COVID-19, digital transformation, sudden facility shutdowns, or an expansion into a new market…disrupt supply chain organizations. A strong culture of quality is critical during times of transformation. Quality leaders must find strategies to sustain their quality levels during disruptions.”

Manufacturers face multiple competing priorities during a disruption Klein added, “More than 70% of survey respondents said that messages about the importance of multiple competing priorities all increased during a disruption.

That’s why just reinforcing the importance of quality falls on deaf ears. It’s the same with quality tools.

As priorities and circumstances change during the disruption, employees are unsure whether the tool is still relevant – and stop using it.”

Only 27% of organizations help employees navigate tensions between priorities Manufacturing thought leaders acknowledge the tensions between priorities. Employees must know they are not expected to optimize multiple priorities at the same time. “At times it’s okay to decide between priorities, such as decreasing speed-to-

Quality leaders must offer clear guidance when a certain level of quality is crucial and when it is not.

Establishing categories such as “must have quality,” “should have quality,” and “can have quality” are an easy way to guide employees’ thinking patterns. Finally, employees must be equipped to manage competing tensions when necessary. Less than 25% of survey respondents reported that they seek guidance from quality leaders before making a difficult trade-off decision. Employees (particularly on the plant floor) must be empowered and properly equipped to make those decisions on their own.

“Peer-to-peer consulting or a quality ambassador program can give employees access to the relevant guidance. Discussing tensions between priorities during weekly meetings motivates staff to reflect on their decision-making process and will lead to better informed decisions at later stages,” Klein concluded.

About Gartner: Gartner, Inc. (NYSE: IT) is the world’s leading research and advisory company and a member of the S&P 500. Gartner equips business leaders with indispensable insights, advice, and tools to achieve mission-critical priorities today and build the successful organizations of tomorrow. This unmatched combination of expert-led, practitionersourced, and data-driven research steers clients toward the right decisions on the issues that matter most.

Author Profile: Thomas R. Cutler is the President and CEO of Fort Lauderdale, Floridabased, TR Cutler, Inc., celebrating its 21st year. Cutler is the founder of the Manufacturing Media Consortium including more than 8000 journalists, editors, and economists writing about trends in manufacturing, industry, material handling, and process improvement. Cutler authors more than 1000 feature articles annually regarding the manufacturing sector. More than 4600 industry leaders follow Cutler on Twitter daily at @ThomasRCutler. Contact Cutler at trcutler@ trcutlerinc.com.

Manufacturing Outlook / September 2020

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ISM REPORT OUTLOOK

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

BREAKING NEWS

ISM PMI at 56% for August ISM PMI for the past 5 years

AUGUST 2020 56%

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Manufacturing Outlook / September 2020

ISM REPORT OUTLOOK INSTITUTE FOR SUPPLY MANAGEMENT®

Analysis by

reportonbusiness Economic activity in the manufacturing sector grew in August, with the overall economy notching a fourth consecutive month of growth, say the nation’s supply executives in the latest Manufacturing ISM® Report On Business®.

The August PMI® registered 56 percent. This figure indicates expansion in the overall economy for the fourth month in a row after a contraction in April, which ended a period of 131 consecutive months of growth. The New Orders Index registered 67.6 percent, an increase of 6.1 percentage points from the July reading of 61.5 percent. The Production Index registered 63.3 percent, up 1.2 percentage points compared to the July reading of 62.1 percent.

The Backlog of Orders Index registered 54.6 percent, an increase of 2.8 percentage points compared to the July reading of 51.8 percent.

The Employment Index registered 46.4 percent, an increase of 2.1 percentage points from the July reading of 44.3 percent. The Supplier Deliveries Index registered 58.2 percent, up 2.4 percentage points from the July figure of 55.8 percent. Of the 18 manufacturing industries, 15 reported growth in August, in the following order: Wood Products; Plastics & Rubber Products; Food, Beverage & Tobacco Products; Textile Mills; Chemical Products; Computer & Electronic Products; Primary Metals; Fabricated Metal Products; Machinery; Apparel, Leather & Allied Products; Nonmetallic Mineral Products; Miscellaneous Manufacturing‡; Electrical Equipment, Appliances & Components; Paper Products; and Transportation Equipment. ISM ‡Miscellaneous Manufacturing (products such as medical equipment and supplies, jewelry, sporting goods, toys and office supplies).

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ISMWORLD.ORG

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

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

MANUFACTURING

PMI at 56% ®

PMI

Manufacturing grew in August, as the PMI® 2018 2019 2020 registered 56 percent, 1.8 percentage points 56% higher than the July reading of 54.2 percent.

The PMI® signaled a continued rebuilding of economic activity in August and reached its 50% = Manufacturing Economy highest level of expansion since November Breakeven Line 42.8% = Overall Economy 2018, when the index registered 58.8 percent.

Breakeven Line Five of the big six industry sectors expanded.

The New Orders and Production indexes continued at strong expansion levels. The Supplier Deliveries Index now better reflects supplier’s difficulty in maintaining delivery rates due to factory labor safety issues and transportation difficulties. Eight of the 10 subindexes were positive for the period. A reading above 50 percent indicates that the manufacturing economy is generally expanding; below 50 percent indicates that it is generally contracting.

Manufacturing at a Glance INDEX

Aug Index

Jul Index

% Point Change

Direction

Rate of Change

Trend* (months)

Manufacturing PMI®

56.0

54.2

+1.8

Growing

Faster

3

New Orders

67.6

61.5

+6.1

Growing

Faster

3

Production

63.3

62.1

+1.2

Growing

Faster

3

Employment

46.4

44.3

+2.1

Contracting

Slower

13

Supplier Deliveries

58.2

55.8

+2.4

Slowing

Faster

10

Inventories

44.4

47.0

-2.6

Contracting

Faster

2

Customers’ Inventories

38.1

41.6

-3.5

Too Low

Faster

47

Prices

59.5

53.2

+6.3

Increasing

Faster

3

Backlog of Orders

54.6

51.8

+2.8

Growing

Faster

2

New Export Orders

53.3

50.4

+2.9

Growing

Faster

2

Imports

55.6

53.1

+2.5

Growing

Faster

2

Overall Economy

Growing

Faster

4

Manufacturing Sector

Growing

Faster

3

*Number of months moving in current direction.

Manufacturing ISM® Report On Business® data is seasonally adjusted for the New Orders, Production, Employment and Inventories indexes.

Commodities Reported Commodities Up in Price: Aluminum (3); Copper (3); Crude Oil (4); Freight; High-Density Polyethylene (2); Lumber (2); Natural Gas; Packaging Materials; Polyethylene; Polypropylene (2); Precious Metals (2); Propylene; Steel*; Steel — Scrap; and Steel — Stainless.

Commodities Down in Price: Steel*; and Steel — Hot Rolled (2).

Commodities in Short Supply: Aluminum Cans; Electronic Components; Freight; Lumber; and Personal Protective Equipment (PPE) — Gloves (6).

Note: The number of consecutive months the commodity is listed is indicated after each item.*Reported as both up and down in price.

Manufacturing Outlook / September 2020

19

ISM REPORT OUTLOOK

ISM Report On Business ®

®

Manufacturing PMI® New Orders (Manufacturing) 2018

2019

August 2020 Analysis by Timothy R. Fiore, CPSM, C.P.M., Chair of the Institute for Supply Management ® Manufacturing Business Survey Committee

20

New Orders

2020

ISM’s New Orders Index registered 67.6 percent. Of the 18 manufacturing industries, the 15 that reported growth in new orders in August — in the following order — are: Primary Metals; Plastics & Rubber Products; Wood Products; Computer & Electronic Products; Chemical Products; Nonmetallic Mineral Products; Machinery; Paper Products; Food, Beverage & Tobacco Products; Petroleum & Coal Products; Fabricated Metal Products; Furniture & Related Products; Miscellaneous Manufacturing‡; Transportation Equipment; and Electrical Equipment, Appliances & Components.

67.6%

52.5% = Census Bureau Mfg. Breakeven Line

Production (Manufacturing) 2018

2019

Production

2020

63.3%

70

51.7% = Federal Reserve Board Industrial Production Breakeven Line

The Production Index registered 63.3 percent. The 15 industries reporting growth in production during the month of August — listed in order — are: Wood Products; Primary Metals; Chemical Products; Plastics & Rubber Products; Nonmetallic Mineral Products; Transportation Equipment; Textile Mills; Machinery; Food, Beverage & Tobacco Products; Fabricated Metal Products; Petroleum & Coal Products; Electrical Equipment, Appliances & Components; Miscellaneous Manufacturing‡; Computer & Electronic Products; and Paper Products.

Employment (Manufacturing) 2018

2019

Employment

2020

ISM’s Employment Index registered 46.4 percent. Of the 18 manufacturing industries, the eight industries to report employment growth in August — in the following order — are: Textile Mills; Food, Beverage & Tobacco Products; Nonmetallic Mineral Products; Electrical Equipment, Appliances & Components; Plastics & Rubber Products; Computer & Electronic Products; Fabricated Metal Products; and Miscellaneous Manufacturing‡.

46.4%

50.8% = B.L.S. Mfg. Employment Breakeven Line

20

Supplier Deliveries (Manufacturing) 53.1% 2018

2019

2020 80

58.2%

Supplier Deliveries The delivery performance of suppliers to manufacturing organizations was slower in August, as the Supplier Deliveries Index registered 58.2 percent. Eleven of 18 industries reported slower supplier deliveries in August, listed in the following order: Printing & Related Support Activities; Wood Products; Food, Beverage & Tobacco Products; Fabricated Metal Products; Chemical Products; Textile Mills; Computer & Electronic Products; Nonmetallic Mineral Products; Plastics & Rubber Products; Machinery; and Miscellaneous Manufacturing‡.

Inventories (Manufacturing) 2018

2019

2020

Inventories The Inventories Index registered 44.4 percent. The two industries reporting higher inventories in August are: Apparel, Leather & Allied Products; and Plastics & Rubber Products.

44.3% = B.E.A. Overall Mfg. Inventories Breakeven Line

‡Miscellaneous

44.4%

Manufacturing (products such as medical equipment and

supplies, jewelry, sporting goods, toys and office supplies).

20

Manufacturing Outlook / September 2020

ISM REPORT OUTLOOK

ISM Report On Business ®

®

Manufacturing PMI

®

August 2020 Analysis by Timothy R. Fiore, CPSM, C.P.M., Chair of the Institute for Supply Management ® Manufacturing Business Survey Committee

Customer Inventories (Manufacturing) 2018

2019

2020

Customers’ Inventories ISM’s Customers’ Inventories Index registered 38.1 percent. Of the 18 industries, the two reporting higher customers’ inventories in August are: Nonmetallic Mineral Products; and Miscellaneous Manufacturing‡.

38.1%

Prices (Manufacturing) 2018

2019

2020

59.5%

52.5% = B.L.S. Producer Prices Index for Intermediate Materials Breakeven Line

Backlog of Orders (Manufacturing) 2018

2019

2020

Prices The ISM Prices Index registered 59.5 percent. The 17 industries reporting paying increased prices for raw materials in August — listed in order — are: Textile Mills; Apparel, Leather & Allied Products; Plastics & Rubber Products; Printing & Related Support Activities; Wood Products; Primary Metals; Chemical Products; Petroleum & Coal Products; Furniture & Related Products; Fabricated Metal Products; Computer & Electronic Products; Nonmetallic Mineral Products; Machinery; Miscellaneous Manufacturing‡; Transportation Equipment; Electrical Equipment, Appliances & Components; and Food, Beverage & Tobacco Products.

Backlog of Orders

54.6%

ISM’s Backlog of Orders Index registered 54.6 percent. The nine industries reporting growth in order backlogs in August, in the following order, are: Wood Products; Primary Metals; Fabricated Metal Products; Plastics & Rubber Products; Nonmetallic Mineral Products; Computer & Electronic Products; Food, Beverage & Tobacco Products; Chemical Products; and Machinery.

2020

New Export Orders

53.3%

ISM’s New Export Orders Index registered 53.3 percent. The nine industries reporting growth in new export orders in August — in the following order — are: Furniture & Related Products; Textile Mills; Miscellaneous Manufacturing‡; Plastics & Rubber Products; Chemical Products; Food, Beverage & Tobacco Products; Transportation Equipment; Computer & Electronic Products; and Machinery.

New Export Orders (Manufacturing) 2018

2019

Imports (Manufacturing) 2018

2019

2020

55.6 %

‡Miscellaneous

Imports ISM’s Imports Index registered 55.6 percent. The 14 industries reporting growth in imports in August — in the following order — are: Apparel, Leather & Allied Products; Printing & Related Support Activities; Wood Products; Textile Mills; Plastics & Rubber Products; Miscellaneous Manufacturing‡; Paper Products; Transportation Equipment; Machinery; Chemical Products; Electrical Equipment, Appliances & Components; Food, Beverage & Tobacco Products; Fabricated Metal Products; and Computer & Electronic Products.

Manufacturing (products such as medical equipment and

supplies, jewelry, sporting goods, toys and office supplies).

Manufacturing Outlook / September 2020

21

NORTH AMERICAN OUTLOOK

SEPTEMBER 2020

NORTH AMERICAN OUTLOOK

by AMELIA ROY

The Institute of Supply Management PMI figure continued to gain ground in August, rising from July’s 54.2% to 56%. New orders and production are growing; employment is improving; supplier deliveries are slowing at a faster rate; backlogs are growing; raw materials inventories are contracting; customer inventories are too low; prices are increasing, and exports and imports are growing.

Each of these is a measure of change from monthto-month.

Equipment, Appliances & Components; Paper Products; and Transportation Equipment. The three industries reporting contraction in August are: Printing & Related Support Activities; Petroleum & Coal Products; and Furniture & Related Products.

Of the 18 manufacturing industries, 15 reported growth in August, in the following order: Wood Products; Plastics & Rubber Products; Food, Beverage & Tobacco Products; Textile Mills; Chemical Products; Computer & Electronic Products; Primary Metals; Fabricated Metal Products; Machinery; Apparel, Leather & Allied Products; Nonmetallic Mineral Products; Miscellaneous Manufacturing; Electrical

Commodities Up in Price Aluminum (3); Copper (3); Crude Oil (4); Freight; High-Density Polyethylene (2); Lumber (2); Natural Gas; Packaging Materials; Polyethylene; Polypropylene (2); Precious Metals (2); Propylene; Steel*; Steel — Scrap; and Steel — Stainless.

22

Manufacturing Outlook / September 2020

Comments from the industry are surprisingly positive, with only machinery and those businesses supplying aviation feeling the pinch.

Commodities Down in Price Steel*; and Steel — Hot Rolled (2).

NORTH AMERICAN OUTLOOK Commodities in Short Supply Aluminum Cans; Electronic Components; Freight; Lumber; and Personal Protective Equipment (PPE) — Gloves (6).

Note: The number of consecutive months the commodity is listed is indicated after each item. * means both up and down in price. The complete ISM report on business is included in this monthly issue.

CANADA saw its fastest growth in production and new orders in two years, with job creation also up for the month. Input price inflation was at a 19-month high. The PMI for August rose from July’s 52.9 to 55.1.

Exports were up following a five-month period of falling new export orders, and there was a further lengthening of delivery times; there were transport issues associated with COVID-19. Raw

material costs were up, and selling prices were adjusted accordingly. There is a positive business sentiment.

Estimated Canadian light vehicle sales for August were down 8.9 percent year-over-year and down 27 percent YTD. Canada produced 0.800 MT of crude steel in July, down 24.5 percent year-overyear.

MEXICO’s marked deterioration in business conditions continues, but at the softest pace in five months. Operating conditions declined in August at a slower pace for the fourth consecutive month. There was an easing of production contraction, but the decline in new orders was similar to that seen in July. Export sales continue to fall.

The PMI for August was at 41.3, slightly up from July’s 40.4.

Mexico produced 1.150 MT of crude steel in July, down 22.6 percent year-over-year.

Amelia Roy, Staff Writer

Manufacturing Outlook / September 2020

23

SOUTH AMERICAN OUTLOOK

GLOBAL OUTLOOK

SOUTH AMERICA

by JEANNE-MARIE LOWRIE

BRAZIL saw record increases in production and new orders, with recoveries in jobs and purchases sustained. There are also acute inflationary pressures on the horizon. Jobs were added at the greatest extent for ten-and-a-half years.

There was input cost inflation, disadvantageous exchange rates, higher raw materials prices, stock shortages and thus substantial increases in selling prices. Most demand was domestic.

The PMI rose from 58.2 in July to 64.7 in August, the highest level in the survey’s history, which dates from February 2006. Brazil’s crude steel production for the month of July was 2.592 MT, an increase year-over-year of 3.5 percent.

The JP MORGAN GLOBAL MANUFACTURING

24

Manufacturing Outlook / September 2020

PMI – a composite index produced by JPMorgan and IHS Markit in association with ISM and IFPSM (International Federation of Purchasing and Supply Management) – rose from 50.3 in July to 51.8 in August, with production and new orders growth on the up. Global manufacturing employment was down for the ninth consecutive month. There was growth in all three major categories, consumer goods (16-month high), intermediate goods (30-month high) and investment goods (23-month high.) China, the U.S., Germany, U.K., India and Brazil were among the larger industrial nations to register expansions in production in August.

Jeanne-Marie Lowrie, Staff Writer

ASIA OUTLOOK

GLOBAL OUTLOOK

ASIA OUTLOOK

by CHRIS ANDERSON

CHINA saw a strong expansion in August, with production and new orders up at stronger rates than in July, and the first increase in export sales in 2020 to date.

produced 1.750 MT in July, down 6.8 percent.

There was a slight decrease in employment, but it is moving closer to stability, and further increases in backlogs of work. The August PMI, at 53.1, was up from July’s 52.8.

There was a solid, overall improvement in the health of the manufacturing sector, the most marked since January 2011. Chinese car sales rebounded in July by 7.9 percent year-over-year, with sedans, SUVs, minivans and MPVs selling 1.63 million units. Pure electric, plug-in hybrids and fuelcell autos increase for the first time this year, up 19 percent year-over-year in July, to 98,000 units. Tesla started deliveries from its new Shanghai factory this year, and sold 11,014 cars in July.

CHINA produced 93.359 MT of crude steel in July, up 9.1 percent year-over-year; Japan 6.049 MT, down 27.9 percent year-over-year; India 7.150 MT, down 24.6 percent year-over-year and South Korea 5.526 MT, down 8.3 percent year-over-year. Taiwan

JAPAN’s manufacturing sector moved nearer to stabilization in August, with the slowest drops in production and new orders since the beginning of the year. Exports declined at the weakest rate for seven months. There was a modest drop in employment. The PMI increased from 45.2 in July to 47.2 in August. Business confidence in Japan was up from April’s record low.

INDIA’s manufacturing sector went into growth for the first time in five months. Production and new orders saw renewed growth in August, along with the rate of input inflation seeing a 21-month high. Job shedding continues at a strong rate, partly due to problems finding suitable workers. Demand is increasing, businesses are reopening, and production and new orders expanded at their fastest rates since February. The PMI rose from 46.0 in July to 52.0 in Chris Anderson, August.

Staff Writer

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Manufacturing Outlook / September 2020

25

EUROZONE OUTLOOK

GLOBAL OUTLOOK

EUROZONE

by CHRIS ANDERSON

IHS Markit’s Eurozone Manufacturing Composite Purchasing Managers’ Index (PMI) sustained its modest growth of the manufacturing sector, with the PMI for August effectively unchanged, at 51.7 from July’s 51.8. There were marked gains in production and new orders, but a continuing high rate of job losses. There was improvement in all three market groups, with a solid expansion rate in consumer products, and relatively modest gains in intermediate and investment groups. Gains were mostly at the domestic level, with some relatively modest gains in exports. Business confidence was at its highest for two years.

Car sales in Western Europe were down 35 percent on a YTD basis, with July sales down 2.2 percent year-over-year. French sales were up 3.9% year-overyear; German down 5.4%; Spanish up 1.1%; Italian down 11.0 % and UK, with pent-up demand, up 11.2 %. Forecasts are putting the reduction in sales for the year at 24 percent.

Crude steel production in Germany in July was at 2.423 MT, down 24.7 percent year-over-year; in Italy 1.750 MT, down 11.2 percent year-over-year; in France 0.860 MT, down 34.5 percent year-over-year and in Spain 0.630 MT, down 31.6 percent year-overyear.

Russia’s crude steel production for July was at 5.800 MT, down 5.0 percent year-over-year; Ukraine’s was 1.751 MT, down 1.9 percent year-over-year.

26

Manufacturing Outlook / September 2020

IHS Markit’s PMI for the UK was at 55.2 in August, up from 53.3 in July. Production was up at its fastest since 2014, along with the reopening of the economy, and solid increases in new orders. Input price inflation was at a 20-month high. There were job losses for the seventh consecutive month.

There was good growth in all three sub-sectors, with intermediate the strongest, investment the weakest.

New orders put in their best performance since the end of 2017, and were mostly domestic, but export did show some mild growth for the first time in 10 months.

There is continuing optimism regarding future output.

The UK produced 0.515 MT of crude steel in July, down 18.1 percent year-over-year.

Chris Anderson, Staff Writer

GLOBAL PMI OUTLOOK

GLOBAL PMI OUTLOOK

by NORBERT ORE, DIRECTOR, HEAD OF INDUSTRIAL SURVEYS, STRATEGAS RESEARCH PARTNERS The global recovery took another giant step forward in August as 14 of the 18 surveys we follow grew at an average PMI of 54.2, up from 53.1 in July. The remaining four surveys contracted, averaging 46.6. Mexico’s PMI (41.3, +0.9) was the weakest of the bunch in August.

The positive surveys are typically driven by strong new orders and production. Lagging employment numbers will add significantly to all global indexes when re-openings progress and confidence recovers.

Further improvement, as evidenced by the August PMI™ (56.0, +1.8), will drive manufacturing growth through the balance of the year. New Orders (67.6, +6.1) and Production (63.3, +1.2) made major contributions to the rapid acceleration. The past relationship between the PMI® and the overall economy indicates that the PMI® for August (56.0) corresponds to 3.9-percent annualized GDP growth, according to the press release.

Drivers: In addition to the improvement in New Orders and Production, the PMI® expansion was aided by slower Supplier Deliveries (58.2, +2.4). Inventories (44.4, -2.6) indicated some liquidations are starting to take place and Employment (46.4, +2.1) moved at a slower rate of contraction.

New Orders Minus Inventories: This key measure at +23.2 (67.6 minus 44.4) shows New Orders expanded significantly faster than Inventories in August. Compared to the average gap (+6.8), inventory availability can become an issue and concerns about constraints may become more prominent and a problem to supply chains.

Customers’ Inventories: Two industries reported higher customers’ inventories in August: Nonmetallic Mineral Products; and Miscellaneous Manufacturing. 14 industries reported customers’ inventories as too low: Apparel, Leather & Allied Products; Wood Products; Paper Products; Fabricated Metal Products; Textile Mills; Plastics & Rubber Products; Furniture & Related Products; Machinery; Computer & Electronic Products; Electrical Equipment, Appliances & Components; Chemical Products; Food, Beverage & Tobacco Products; Transportation Equipment; and Primary Metals. With the Customers’ Inventory Index at this level (38.1, -3.5), we have an indication that inventory replenishment will be broad-based.

Prices: The Prices Index (59.5, +6.3) reflects higher raw material prices especially for plastics, lumber, metals, and petroleum.

Norbert Ore, Director, Head Of Industrial Surveys, Strategas Research Partners

Manufacturing Outlook / September 2020

27

CREDIT MANAGER’S OUTLOOK

CREDIT MANAGERS’ OUTLOOK

by DR. CHRISTOPHER KUEHL MANAGING DIRECTOR OF ARMADA CORPORATE INTELLIGENCE THIS REPORT REPRINTED COURTESY OF THE NATIONAL ASSOCIATION OF CREDIT MANAGERS (NACM.ORG) WHERE MORE IN-DEPTH INFORMATION CAN BE FOUND.

Combined Sectors There are doubtless legions of credit managers that are starting to turn blue. They have been watching the data that has been emerging over the last several months of the Credit Managers’ Index (CMI), and they have been waiting for it to turn sour somehow. The general economic news seems to be gloom and doom, but the CMI keeps showing significant progress. “Given that the credit manager tends to think in the future, this is yet another signal that there may well be better times ahead,” said NACM Economist Chris Kuehl, Ph.D. The latest version of Markit’s Purchasing Managers’ Index (flash version) was also up, and that is consistent with what we have noted before as far as the CMI is concerned. “A movement in the CMI often presages movement in the PMI, and now we are seeing a rise that matches the one we have been observing in the CMI since June. Of course, all the economic news is not as rosy as this has been a recession and a recovery that has been highly sector specific.”

The overall score improved for yet another month— moving from 55.6 to 56.5, and that is highest level reached in the last twelve months—very close to January when it reached 56.4. The index of favorable factors also rose to new heights as it hit 62.9. This is back to the numbers we started the year with as the reading was 62.2 in January and again in February. The index of unfavorable factors continued to show stability with a reading of 52.2 after last month’s 51.7. The January number was only slightly better than it is this month as it was at 52.6. “The data is more than encouraging and seems to signal there is considerable confidence building as far as the end of the year,” Kuehl noted.

28

Manufacturing Outlook / September 2020

The readings within the favorable categories are firmly back in expansion territory, and in many cases, they are better than they have been in well over a year. The sales number is at 65.8 and beats every reading in the last few years. The new credit application numbers are at 63.4, another reading better than anything seen in the last year. The dollar collections number was down just slightly from last month but stayed firmly in the 60s with a 61.2 reading as compared to 62.5 the month prior.

The amount of credit extended finally jumped into the 60s, and that means that all of these favorables are in the 60s now. The latest reading is 61.3, and last month it was at 57.3. January and February were slightly higher but not my much so this sector is in clear recovery.

With one exception the unfavorable categories all returned to expansion territory with readings in the 50s. The exception has been filings for bankruptcies as the reading has fallen from 48.8 to 47.7. “This is not unexpected given the surge of businesses that had been forced out by the lockdown and the very slow process of restarting,” said Kuehl. The rejections of credit applications moved up from 50 to 51.5, and that is good news given the fact there have been more credit applications. The highest levels were reached in February with a 53.8 reading, so this month is not all that far off. The accounts placed for collection also registered an improvement with a reading of 51.6 as compared to 50.8 last month. This is the highest reading this year, even better than the 50.6 noted in both January and February. The disputes numbers also improved with a reading of 51.8 as

CREDIT MANAGER’S OUTLOOK compared to the 50.7 in July. The reading for dollar amount beyond terms shifted up very dramatically as it hit 58.2 compared to July’s 57.3. “That makes two months in a row for these very solid readings and suggests that there is a desire to stay very current in terms of credit. That is generally an indicator that more credit is likely to be requested and companies seek to be in good standing when the request is made.” The dollar amount of customer deductions stayed very close to the numbers in July with a reading of 52.2 as compared to July’s 52.4.

Manufacturing Sector There has been very uneven recovery as far as the economy is concerned, and that will be a pattern repeated throughout the remainder of this year and into next. “For the most part, there has been far more progress in manufacturing, construction and even transportation,” noted Kuehl. “The lockdown has not generally had the same impact on these sectors as has been the case with retail and the services in general. There are notable exceptions—oil and gas still deal with per barrel prices that are too low for U.S. producers, and the aerospace sector remains in dire straits as long as business travel is highly restricted.”

The overall score for the manufacturing sector improved substantially as more sectors are doing well than not. The score this month is 56, up from the 55.2 notched in July. This is as high as the index has registered since January. The index of favorable factors slipped a tiny bit but remained in the 60s with a reading of 62 compared to 62.2 in July. The unfavorable factors index improved as it went from 50.6 to 52.1. These are numbers that were last seen in January and February.

The most positive activity has been seen in the favorable numbers, and that has been the case for the last few months. The sales numbers surged even further into the high 60s with a reading of 67.2. In July, it hit 66.3, and that was the highest for the last two years. The new credit applications numbers remained in the 60s, but there was some loss of momentum as the numbers fell from 64.4 to 60.4. The dollar collections data stayed very nearly the same as last month with a reading of 61.3 compared to July’s 61.1. The only category that has not gotten into the 60s has been amount of credit extended, but the levels are heading in the right direction. In July, the reading reached 56.8, and this month it sits at 58.9.

The unfavorables were also very solid with only filings for bankruptcies in the contraction territory with a reading of 47.9—slightly off from the July

reading of 49.4. “This is not a surprise as there have been some in the manufacturing sector that have been badly affected by the issues in sectors such as aerospace as well as the oil patch.” The rejections of credit applications left the contraction zone with a reading of 52.5 after July’s reading of 49.8. This takes the levels back to where they were just as the lockdown was imposed. The accounts placed for collection also entered expansion territory with a reading of 50.9 after one of 49.3 in the prior month.

The disputes category made the same leap and left contraction behind with a reading of 51.7 compared to 49.6 in July. The dollar amount beyond terms category made a nice jump as well as it had been at 53.7 and now sits at a very robust 57.8 as good as that number has been all year. The dollar amount of customer deductions fell back slightly from July’s reading as it went from 52 to 51.9.

The manufacturing data in general has been solid with the notable exceptions of sectors that were squarely in the firing line as far as the lockdowns were concerned.

Author profile

Dr. Christopher Kuehl (PhD) is a Managing Director of Armada Corporate Intelligence and one of the co-founders 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. He prepares NACM’s monthly Credit Managers Index. He is the Economic Analyst for the Fabricators and Manufacturers Association and writes their bi-weekly publication, Fabrinomics, which details the impact of economic trends on the manufacturer.

Chris is the chief editor for the Business Intelligence Briefs, distributed all over the world by business organizations and he is one of the primary writers (with Keith Prather) for the Executive Intelligence Briefs. He also makes close to a hundred presentations each year to business and industry associations in the US and overseas. He is on the Board of the Business Information Industry Association in Hong Kong and serves as a resource for the media and for many trade publications.

Chris has a doctorate in Political Economics and advanced degrees in Soviet Studies and Asian Studies and was a professor of international economics and finance for over 15 years prior to starting Armada.

Manufacturing Outlook / September 2020

29

METALS OUTLOOK

SEPTEMBER 2020

METALS OUTLOOK We talked last month about aluminum and the ridiculous move by the Trump administration to slap tariffs back on the metal coming from Canada. This month we’ll concentrate on where aluminum comes from, how it’s produced, and its future place in the global environment.

To get to aluminum we need to start with Bauxite, a mineral mined from topsoil, which is basically aluminum oxide, but also contains silica, iron oxide and titanium dioxide. Bauxite is found in various tropical and subtropical regions, mostly in Guinea and Australia but with significant deposits in China, Brazil, and India. Reserves are projected to last for centuries. Small amounts exist in Arkansas, Alabama and Georgia, but very little mining is done today in the U.S. It was discovered by a French geologist, Pierre Berthe, near the village of les Baux de Provence in France, hence its name.

In the Bayer Process, invented in 1887 by Carl Josef Bayer, an Austrian chemist, Bauxite is crushed, washed and dried, and dissolved in caustic soda at high temperatures. The mixture is filtered to remove impurities, a “red mud” which is correctly discarded.

The alumina solution is transferred to tall tanks, known as precipitators, where the hot solution cools down and where aluminum hydroxide seeds, very small particles, are added. These seeds stimulate the precipitation of solid aluminum hydroxide crystals,

30

Manufacturing Outlook / September 2020

by ROYCE LOWE

which settle at the bottom of the tanks and are removed. As a final step the aluminum hydroxide is washed to remove any remaining caustic soda and heated to remove excess water. After that process, alumina (aluminum oxide) comes through as a fine white powder that looks like sugar, but is hard enough to scratch glass.

In 1880, at Oberlin College in Ohio, Charles Martin Hall, a 20-year-old, first-year student, began researching the possibility of producing aluminum using electric current to extract aluminum from alumina. He dissolved the alumina in cryolite, or Na3AlF6 - sodium hexafluoroaluminate - and had a first success in 1886 when he precipitated small amounts of aluminum. The Hall-Héroult process was invented independently and almost simultaneously in 1886 by Paul Héroult in France. (This same Paul Héroult developed the first commercially successful electric arc furnace in 1900.) In 1888, Hall opened the first large-scale production plant in Pittsburgh. The Reduction Company of Pittsburgh later became The Aluminum Company of America, then Alcoa.

The Hall-Héroult process involves the dissolution of alumina in a molten cryolite bath in a carbon-lined steel pot. Carbon anodes are inserted in the top of the bath and an electric current is passed through the anode and bath. Oxygen separates from the alumina and combines with the carbon anode, leaving molten aluminum at the bottom of the pot. Molten aluminum

METALS OUTLOOK is periodically siphoned out and placed in a holding furnace, from which it is cast into ingots. This is referred to as primary aluminum.

This is still the basic method of aluminum production, via the Bauxite-alumina route. The process relies heavily on electricity, which is why Québec, with its advantageous hydro-electric rates, is the preferred place in North America to produce primary aluminum. The process also carries a heavy carbon footprint, which is why, starting in 2009, work was started on a process which was to culminate in the founding of the ELYSIS company.

ELYSIS is a joint venture of Alcoa and Rio Tinto Alcan, with a significant public investment from APPLE, together with further financial investment from the Canadian and Québec governments. The technology is presently patent-protected and is being continually researched at a pilot plant in Pittsburgh and an upcoming pilot plant in Québec. The process will be scaled up to industrial size in Québec and a technology package will be offered to the market by 2024.

The process will produce oxygen, while cutting out all those direct greenhouse-gas emissions characteristic of traditional smelting processes. Anode life will be upped 30 times, and operating costs will be cut by 15 percent; productivity increased by the same amount.

The company will employ some 100 people, including R&D, management and sales. Québec-based employees will work on the commercialization of the world’s first zero-carbon aluminum smelting technology. This technology could eliminate 6.5 million tons annually of greenhouse-gas emissions if fully implemented at existing aluminum smelters in Canada, an amount equivalent to taking some 1.8 million light-duty vehicles off the road. All parties involved in this venture will, there is no doubt, do their utmost to bring the process to market. We will follow progress with great interest.

The price of hot-rolled coil in the U.S. rose significantly during the month of August, going from $440 per ton in early August to just over $530 per ton in early September. Cold-rolled went from $610 per ton to just under $700 per ton in the same period.

Non-ferrous metal data show aluminum virtually unchanged at $0.80 per lb in August; copper ranging from $2.94 per lb in early August to $3.01 in early September; nickel from $6.40 to $6.90, and zinc from $1.07 to 1.14.

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

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AEROSPACE OUTLOOK

SEPTEMBER 2020

AEROSPACE OUTLOOK

by ROYCE LOWE

The 737MAX saga continues. Europe’s air-safety regulator said it was sending pilots to Canada to conduct test flights, overcoming Covid-19-related travel restrictions.

The European Union Aviation Safety Agency would carry out the validation flights from Vancouver in the week of Sept. 7, EASA said recently. The tests will be preceded by simulator sessions in the U.K. The U.S. FAA conducted certification flights in late June.

Because the jet is made in the U.S., the FAA is taking the lead in certifying any changes to the MAX. Under international law, other nations have the option of validating the work or even insisting on additional safety measures: the FAA has involved EASA and Canada from the start of the process. Canada’s border is closed to all but essential workers in the U.S., prompting Canadian and European regulators to find a way, through Vancouver, to protect the health of pilots and other staff without lengthy quarantines.

The agencies are taking advantage of the close proximity of Vancouver to Boeing’s flight-test base in Seattle. Transport Canada’s flight-test team have completed hours of flying over eastern

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Manufacturing Outlook / September 2020

Washington. So far, there has been no comment from Boeing on the Canadian or European flights.

When the Canadian, European and U.S. tests are completed a set of collective examinations that relate to training requirements - a Joint Operations Evaluation Board - is scheduled for the week of September 14 at London’s Gatwick Airport.

It is considered feasible that certification from the three bodies could be almost simultaneous, and that a return to service of the 737Max late this year is conceivable.

In addition to the changes to the plane’s computer systems and wiring, the FAA and regulators in the other nations are reviewing revisions to pilot training programs.

Boeing has grounded eight of its 787 Dreamliners for inspection and repair, having found two manufacturing defects that together could adversely affect the structural integrity of the aircraft.

This involves the composite barrel sections at the rear of the plane, which are melded together at a Boeing plant in South Carolina. The barrel sections

AEROSPACE OUTLOOK are made from strands of carbon-composite tape laid down by giant robots. The combined effects of the defects could cause the fuselage sections to fall short of Boeing’s standards for withstanding stress, creating a risk of an in-flight failure. The balance of the 787 fleet meets the standards, but Boeing is analyzing data to determine whether further action is necessary. Boeing has fully briefed the FAA regarding this issue.

Meanwhile, Boeing’s friendly competitor, Airbus, has its own problems with the A380, the doubledecker, 500-seater, superjumbo, that hasn’t been flying very much of late, and many of them are being retired early through the pandemic. Almost half of the 242 A380s produced were delivered to Emirates, who cancelled an order of 39 in early 2019. This prompted Airbus to announce the winding down of production of the plane.

The model’s main attraction for airlines was to relieve congested runways at global hub airports.

There is not much action there at present; hubs are empty. Fewer than one in ten A380s are airborne, and smaller planes are doing much better.

Airlines see the writing on the wall. Air France has nine superjumbos which it says will never fly again; Lufthansa 14, which it has cut by six; Singapore Airlines which has 19, is “reviewing the situation.”

These behemoths were very expensive to buy, but with today’s aviation situation, who would want to pick them up for anything like their original price? It looks like the A380’s days are numbered.

We may be due for a real shakeup in the aviation industry.

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

Manufacturing Outlook / September 2020

33

ENERGY OUTLOOK

SEPTEMBER 2020

ENERGY OUTLOOK

by JOCELYN BRIGHT

Wind and solar power have doubled their share of the global power mix over the past five years.

Sources of renewable energy make up almost 10 percent of power generation in the first half of 2020 according to the UK Environmental Group Ember.

Ember analyzed power generation in 48 countries that represent 83 percent of global electricity.

Data show that wind and solar power were up 14 percent in the first half of 2020 compared to the same period last year, while global demand fell three percent due to the coronavirus impact.

Decarbonization was boosted this year as shutdowns to contain the coronavirus reduced overall demand, leaving renewables to step up and pick up the slack. The wind and solar power contribution has doubled in the past five years.

Coincidentally, coal’s share of the mix has decreased around the world. In some places, mainly Western European countries, coal has been all but eliminated from electricity generation.

(Not too long ago, though, it was reported that Germany was still an important coal user.)

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Manufacturing Outlook / September 2020

ENERGY OUTLOOK Five years ago, China used coal for 68 percent of its power, and that’s now 62 percent. Renewables in China make up 10 percent of all electricity. (Early in the 21st century, it was reported that China was using one tonne of coal per person in the country, or around 1.3/1.4 billion tons, for power generation).

On a global basis, in 2015, renewables made up 4.6 percent of power generation, coal 37.9 percent; today those figures are 9.8 and 33.0 percent respectively. To meet global climate goals, coal consumption needs to fall by some 79 percent, or 13 percent per year, through the coming decade.

Ember says we’re not going fast enough to meet the 1.5 degree target, and data suggest that not enough wind farms will be set up in the next five years, making it difficult to sustain a pace of doubling renewable power every five years.

Since a switch to renewables and gas has dramatically reduced coal generation in Europe and the U.S., China is left with a growing share of the fossil fuel. While it leads the world in new renewable power installations as well as building hydro dams and nuclear power plants, it still relies on coal for most of its growing power needs.

It could be argued that it doesn’t have a choice, which it doesn’t. Without coal, China would shut down. It presently accounts for 54 percent of the world’s coal power generation, up from 44 percent in 2015. What this represents in terms of actual tonnage, the survey does not say. But China is leading the world in renewables, and will doubtless continue to do so. It also leads the world in electric vehicle production and usage.

The rest of the world can take an example from this, together with an occasional glimpse at what is Jocelyn Bright, happening in Scandinavia.

Staff Writer

Manufacturing Outlook / September 2020

35

AUTOMOTIVE OUTLOOK

SEPTEMBER 2020

AUTOMOTIVE OUTLOOK

by LAWRENCE MAKAGON

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Manufacturing Outlook / September 2020

AUTOMOTIVE OUTLOOK Tesla’s again setting about disrupting the automobile industry. This time the company has started making huge die castings on a machine it bought from Italy’s IDRAsrl, the 400 tonne OL6100CS giga press. Tesla is looking to produce unitized auto parts, for production efficiencies and design advantages on this machine, which at 20 meters long by 5 meters high, ranks as the world’s largest die caster.

Tesla plans to use this new press to produce two aluminum parts that will form the rear underbody of its model Y electric crossover vehicle.

The Model Y, in production in Fremont, CA, since January this year, is designed with a rear underbody made up of three parts, and losing one of these three parts will mean fewer production steps, and less space will be required for machinery, materials, storage and handling of parts, plus lower labor costs.

Tesla hopes eventually to cast a single component for the Model Y underbody structure. The Model 3 presently has a rear underbody consisting of 70 parts.

Parts from the behemoth caster will be supplied to Tesla’s factory in Shanghai, and to its factory in Berlin, once these come on stream with Model Y production. (A further Tesla factory is under construction in Austin, Texas, for production of the Cybertruck, and the company is looking to build a further factory elsewhere in the U.S.).

The cast rear-body structure is said to be 30 percent lighter than the stamped rear structure, and crash safety is said to be improved by 20 percent. The casting process will result in almost 100 percent of material utilization, whereas there is considerable waste from the traditional stamping process. There may be a question here of what might happen in the event of a rear-end collision. How would the one-piece rear body be repaired?

To date, insufficient data are available on both the casting process and on the actual assembly and performance of the body parts. This process is another example of the disruption to the automobile and other industries brought about by Mr. Musk.

In late August, Tesla beat back an attempted nasty Russian hacker attack at its battery plant in Nevada, and all thanks to a good and honest employee who had been offered a million dollars to let the hacker in. The would-be hacker is in custody.

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VW recently announced the expansion of its Chattanooga, TN factory into a North American Electric Vehicle Assembly and Research and Development Center. The German automaker plans to add a high-voltage laboratory to the facility to develop and test power sources for electric vehicles to be assembled in the United States. The batteries themselves will be built by VW partner SKI in Georgia.

The lab should be ready by spring 2021 and will feature specialized equipment to test battery performance under adverse conditions, including a custom “multiaxis shaker table,” or MAST, to test how batteries handle intense vibrations.

VW presently has three electric vehicles at various stages of development, the ID.3, ID.4, and ID Buzz. The ID.3 will not be sold in the U.S. The ID.4 is a compact car, the ID Buzz an electric version of a VW van.

Lawrence Makagon, Staff Writer Manufacturing Outlook / September 2020

37

ISSUES OUTLOOK

SEPTEMBER 2020

ISSUES OUTLOOK

by ROYCE LOWE

According to the International Federation of Robotics (IFR,) almost 4 million industrial robots will make up the global robot factory population by the year 2022. The IFR is pushing for education systems to step up to what is a demand for skilled workers. It further states, through its president Milton Guerry, that “Governments and companies around the globe now need to focus on providing the right skills necessary to work with robots and intelligent automation systems.”

A survey of countries around the world shows that very few are seriously adapting education systems to the automation age. The ones that have adapted have been working on the issue for a long time.

The Economist Intelligence Unit (EIU) publishes the automation readiness index, which states that only 4 countries have to date established mature education policies to deal with the challenges of an automated economy. South Korea leads in the category, followed by Estonia, Singapore, and Germany. Countries such as Japan, the U.S., and France are developed, and China is ranked as emerging.

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Manufacturing Outlook / September 2020

The EIU makes suggestions for governments: more study, multi-stakeholder dialogue, and international knowledge sharing. On a company level, as with many disciplines, if experienced people are not available then hiring must be more for potential. Re-training an existing workforce is a short-term measure, and earlier intervention at school and undergraduate levels are necessary to meet future industry workforce demands.

The demand for technical and digital skills is increasing, as is that for cognitive skills such as problem solving and critical thinking. Automation must become an integral part of economies, along with the skills required to profit from it.

Ford Motor Company has FLUFFY, that sits, shakes hands and rolls over. It moves like a dog. It’s leased from Boston Dynamics. Ford’s boffins in the Advanced Manufacturing Center and Research and Engineering team developed an autonomous program that is used for the the autonomous mobile robot Scouter, that helps Fluffy scan facilities.

Ford is running the bright yellow robots at its Van Dyke Transmission Plant. The robots have 5

ISSUES OUTLOOK this job is more tedious, time-consuming and expensive.

The intention, with time, is remote operation of the robots, programming them for plant missions, and receipt of reports from anywhere in the country. At present, programming is to a specific path and operation from 50 meters away via a normal gaming-like device. In other words, Fluffy has its own handler.

cameras, can move at up to 3 m.p.h. on a battery whose charge lasts almost 2 hours, and they will be used to scan the plant floor and assist engineers in updating the original computer assisted design used in preparation for plant retooling.

Fluffy comes into its own when there is a question of knowing where things are in the plant when an update is being planned. Without the yellow robot,

The robots have three operational gaits; a walk on stable ground, an amble for uneven terrain and a special speed for stairs. Fluffy can change position from a crouch to a stretch, allowing deployment to difficult access areas within the plant. If it falls it can right itself. To conserve its energy, its battery power, Fluffy will sometimes hitch a ride on the back of a small, round, Autonomous Mobile Robot, known as Scouter.

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

Manufacturing Outlook / September 2020

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