Shipping, Covid-19 and inflation challenges rival supply chain issues when securing capital equipment.
When I made my 2022 capital investment plan, I never thought it would be my 2023 capital investment plan. However, with a couple minor exceptions, equipment will be put in service during 2023, not this year as originally planned.
I thought I was the exception, but in conversations with colleagues, I realize I am the current norm. A trio of events had the combined impact of making what should be simple investments in machinery and equipment anything but.
The most talked about, problematic event has been the strained supply chain. I am not sure exactly how much of the problem getting machinery and equipment is directly attributable to the supply chain, but it has indeed had an impact. When obtaining lead-time quotations, availability of parts, chips, etc., are always the culprit cited for the long length of time to build the equipment, whether a complex custom-built item or simply a copier for the office.
Will it be able to handle unforeseen events better than its predecessor?
Many are excited and working diligently toward enabling Factory (Industry or Tech) 4.0 to dramatically change their manufacturing and business environment, but maybe we should focus instead on Supply Chain 4.0, as that may change the manufacturing and business environment more – and not in a good way!
Businesses are currently operating within Supply Chain 3.0. Supply Chain 3.0 has taken decades to refine into a highly efficient, cost-effective, global supply chain. We know how we got here. Companies sought lower-cost skilled labor and a cost-friendly operating environment in which to build manufacturing facilities. As manufacturing shifted to these lower-cost areas, governments invested in infrastructure and education to attract ancillary businesses to invest there as well. Shipping and logistics improved thanks to the advent of containerships, larger aircraft, better roads and rail, and countries opening their borders to trade. The result was a global supply chain in which components and parts are made almost everywhere and transported “just in time” to assembly sites, before finished products are shipped to customers.
As impressive is how product development now occurs globally with teams from different countries collaborating 24/7 to develop the next great product. This efficient, cost-effective collaboration is again made possible thanks to the development and refinement of communication. Supply Chain 3.0 is robust – a winner for all companies and countries involved. After decades making Supply Chain 3.0 nearly perfect, what could go wrong?
As it turns out, a lot.
It started with tariffs. Government economic saber rattling in the form of tariffs levied on certain goods incented manufacturers to reallocate resources to reduce the financial impact. A single tariff levied on a single item, in a single place, ricochets across the globe, negatively impacting the entire supply chain. No one saw these coming. Tariffs were viewed as highly improbable in the contemporary world, where all economies are connected through a global supply chain. Supply Chain 3.0 suddenly caused considerable stress, especially on logistics and transportation.
The next unforeseen event was a pandemic. Covid put a tremendous burden on all aspects of society. Daily disruptions have been roiling global economies for over two years. The result has been component and product shortages. Some of these shortages have been local. Others have impacted entire industries. Some governments have resorted to shutting down entire cities, leaving manufacturing facilities idle. Working remotely became the norm. Too many were infected with Covid, were too sick to work, or decided to retire early to avoid contracting the virus at their workplace. With everyone hunkered down, travel ground to a halt, further disrupting global transportation and logistics, compounding the problem. The pandemic sucker-punched Supply Chain 3.0, and it is still reeling.
A third unforeseen event was war. Wars have taken place during the evolution of Supply Chain 3.0. Most, however, have been in relatively obscure locations or between countries whose only strategic export is oil. This time the battles are on the border of Europe and between two countries with significant minerals and natural resources, which are – or were – exported globally. With 90% of the world’s helium exported by one of the countries and a significant percentage of palladium from the other, the impact on our industry in particular could be dramatic. A lack of helium negatively affects the already stressed chip manufacturing sector. Palladium shortages will further drive up the cost of some surface finishes used in electronics. The war is affecting scores of items. Equally, air and sea transportation have been impacted with no-fly zones in place. “Risk” of a cascading effect on other materials, minerals and resources used in the global supply chain is real. As recently as six months ago, most could not have predicted such an event taking place so close to Western Europe. Once again, an unforeseen event is challenging the robustness of Supply Chain 3.0.
Which brings us to Supply Chain 4.0. What will it look like? While many believe recent events mark the end of a global supply chain undoing, something so complex and bedded in so much infrastructure most likely will not happen, at least not anytime soon. Rather, Supply Chain 4.0 may be a much more bloated, much less efficient, and less cost-effective version of Supply Chain 3.0.
"Just in time" parts distribution may now be a thing of the past. Expect increased inventories and expense at all levels. Geographic investment in factories will shift. All players regardless of nationality will likely diversify and build facilities, probably smaller ones, in a variety of countries to hedge geopolitical and logistics risk. All this will take time, especially as all involved will look at “risk” very differently in a world with less global economic dependency. We are entering a period when supply-chain disruptions will be more the norm than not, and prudent businesspeople will be forced to add cost and time within supply-chain calculations.
So, as we deal with unforeseen events of the past half-decade, we’ll have to adapt to a “new” supply chain. Hopefully the next one will be more efficient for a world filled with unanticipated events.
The pandemic taught us the importance of AI is not on the shop floor but in the ability of people to communicate.
For roughly half a decade, pundits have been waxing poetic about revolutionary changes about to take place in manufacturing – and in society at large – made available by advances in sensor technology that can be driven and manipulated by sophisticated software. Artificial intelligence (AI) and Factory (or Tech) 4.0 often best represent these revolutionary advances. Both have been touted to promise improving productivity, efficiency and speed, resulting in reduced costs and the need for fewer human employees where implemented.
I have never been a fan of any technology that replaces “human employees” but prefer technology that helps people achieve more. Based on the past couple years, that appears to be exactly what these revolutionary advances have actually achieved: using AI to enhance what people can achieve, rather than replacing them. How this has occurred, however, is different from originally imagined.
Many viewed AI and Factory 4.0 as enabling radically new products or game-changing process improvements throughout the manufacturing plant that would result in significant new products. In at least one way this came true, but in so many other ways, the game-changing has been subtler. Possibly the best example of this is in the area of communication.
Technologies that have the power to change how we communicate with each other individually or in groups have existed for almost a decade. Yet Skype, FaceTime, WebEx, Zoom, etc., were used sparingly. It took a pandemic to force a mass switch to cutting-edge communications technology. The promise of Factory 4.0 took a quantum leap forward both in performance and acceptance. However, it did so far from the factory floor.
Similar to Factory 4.0, AI has taken a significant step forward. Most were touting how the application of AI might enable large items such as automobiles to be produced in a fraction of the time with higher quality – or in our industry, maintaining process parameters over all processes on an ongoing, real-time basis, etc.
Indeed, AI has proved to be useful in a very different application. With the world stricken by a pandemic, the medical and pharmaceutical community harnessed AI and put it to work. Searching through vast databases in the cloud and thousands of global servers and computers, scientists developed a vaccine against Covid, a process that historically took years. Thanks to AI, data could be reviewed, sliced, diced and compared to real-time data from those stricken with Covid to develop and rapidly refine vaccinations that proved highly effective. In a short half-year, a monumental task resulting in a revolutionary solution was completed in a fraction of the time vaccinations and medications have been developed and approved in recorded history.
As communication technology has revolutionized and changed business communication, reducing the frequency of needed business travel and broadening locations where employees can work, has it really revolutionized the shop floor? Ditto as new vaccines were rapidly developed and immunization made available to millions of people, little or none of AI and Factory 4.0 has made it onto most manufacturing shop floors.
Maybe these two examples should make us redefine what a revolutionary change really is. Having a factory floor where every piece of equipment is connected, as Factory 4.0 pundits would have it, and software crunching data generated by scores of sophisticated sensors to run a lights-out factory floor, as those who prophesize AI would have it, should not be the goal.
Maybe the goal of investing in and implementing advanced technology should be measured in another way. The ability to increase the number of people who solve problems, implement new processes, or tweak something that is working well but could be better should be utilized 24/7 within the manufacturing environment, so the best solution can be derived more quickly. All the equipment need not be connected on one database, but all people required from all locations – supplier to operator to customer – to improve a product, process or outcome should use the technologies available to best communicate and contribute.
Developing new products or taking a bleeding-edge concept and making it reality should require all parties involved to share data, cloud-based or local, and we should invest in software and people who can slice and dice the extensive and complex data quickly to cut years, not weeks, off the product development process. Keeping people connected by advanced communication technologies and having the tools to assimilate, analyze and leverage immense and rapidly developing data has made a far greater contribution to economic and personal success than assuring all things are connected on the shop floor.
The global challenges for people are never-ending. Harnessing technology to effectively achieve the basics of communication and involvement is success enough, even if not the poster child of Factory 4.0. The need to dream big has never been more apparent. Focusing AI on those large tasks, rather than squandering it on simply moving inventory from A to B a little faster, should be the goal. And after all, it will be people who must manage the revolutionary advanced technology to achieve what is in the best interest of the challenges and the times.
As governments realize the importance of investing in domestic manufacturing, opportunities are coming for EMS firms and PCB fabricators.
It takes time to gain perspective, especially perspective on the industry you are immersed in. In my case, it’s been 30 years since I entered the printed circuit board market. During the first six or seven years, it was heady, upbeat times in North America. Growth was a bounty supporting hundreds of domestic fabricators. Materials, supplies and capital equipment were made “locally” in North America. Then, around the new millennium, everything changed.
Suddenly, work headed to Asia, and fabricators contracted at an unprecedented scale to fewer than 200 within a few short years. The collateral damage was a collapse of materials, supplies and capital equipment companies that supported the industry. Even worse was the exodus of skilled talent who sought careers in more promising industries and never looked back. The relatively few companies that survived did so by hunkering down, focusing on a niche, and investing in only the equipment they needed to support their business base, in some cases taking draconian steps that worked short term but eventually led to their demise. Over the first decade-plus of the new millennium, it was depressing to be a North American circuit board fabricator.
However, times change, and with that change, opportunities emerge – finally!