By Don C. Brunell
Before the COVID-19 pandemic shook the world, factory workers were buzzing about assembling products right after components were delivered. This was called “just in time” production. It was efficient, predictable and profitable.
Today, companies are scrambling just to find parts, lock in purchases (and hopefully prices), and circumvent estimated delivery times. It’s a very different world.
For example, three years ago, people visiting the Boeing 737 factory in Renton saw 737s crawling along long assembly lines where wings, engines and tails were mounted on fuselages. Parts came from all over the world and were added consistently at the right time.
Airframes were fabricated in Kansas, railroaded to Washington, and other components arrived in containers by sea, rail, and truck. Since every 737 was different, custom parts were added as the plane moved through the factory.
The success of just-in-time production relied on on-time deliveries. The advantage was that companies did not have to keep large inventories which are cumbersome and expensive.
COVID has put a big hole in this supply chain concept and manufacturers are still scrambling to find parts where and when they can. They begin to build up inventory again, which increases production costs and product prices.
Shortages drive prices up further and in April our inflation rate was 8.3%.
“The U.S. supply chain, once the focus of highly skilled professionals in logistics, shipping, trucking and port management, is now a common story on the evening news where we are told of shortages” , said Mike Ennis, of the Association of Washington Business, said.
All of this really translates into higher prices across the board.
Component shortages have hit small manufacturers hard.
Rankin Equipment, a fifth-generation family business in Union Gap, not only distributes farm tools, but its manufacturing subsidiary, Northstar, manufactures them. It is a bespoke manufacturer of specialist equipment designed primarily for tractors and loaders – equipment used in fields, orchards, riding arenas and hop farms.
Dave Rankin, owner, said the steel used for implementing frames and supports has increased three to five times over the past two years and competition is fierce.
Some hard-to-obtain parts are the hydraulic pumps that power equipment manufactured by Northstar. Shipping costs have also skyrocketed. Costs for a container from Italy tripled to $25,000.
Manufacturers depend on trucks. The price of heavy-duty fuel has risen more than $2 a gallon since January and in many areas diesel has topped $6, according to the US Energy Information Administration. In California, the average price is $6.46. Many truckers add fuel surcharges to stay solvent.
In addition to costs, manufacturers such as Rankin face a shortage of skilled workers. For example, many welders are approaching retirement and fewer replacements are entering the workforce. The American Welding Society projects a deficit of 400,000 welders by 2024.
Getting inflation under control, avoiding labor shortages and restoring predictability to manufacturers large and small require the immediate attention of our elected officials. For example, stabilizing gasoline and diesel prices are things they have to deal with now.
“Many industry watchers are questioning the old just-in-time concept of buying parts when they’re needed and keeping inventory low,” Rankin told Washington Business Magazine. “But now with all these extended deadlines, in many cases you have to (to) go ahead and commit and lock it in, get it bought, so the price doesn’t go up and you can get the merchandise.”
Will we return to the just-in-time production system? Not in the foreseeable future. However, much remains to be done to maintain the competitiveness of our “Made in America” products.
Don C. Brunell is a business analyst, writer and columnist. He retired as president of the Association of Washington Business, the state’s oldest and largest business organization, and now lives in Vancouver. He can be reached at [email protected]