Before the COVID-19 pandemic rocked the world, factory workers were humming along assembling products just after components were delivered. It was called “just-in-time” production. It was efficient, predictable and cost effective.
Today, companies are scrambling just to find parts, lock in purchases (and hopefully prices) and work around estimated delivery schedules. It is a vastly different world.
For example, three years ago people touring the Boeing 737 plant in Renton saw 737s creeping down long assembly lines where wings, engines and tail were mounted on fuselages. Parts came from around the world and were added systematically at the right time.
The fuselages were fabricated in Kansas, transported by rail to Washington and other components arrived in containers by sea, rail and truck. Since each 737 was different, custom parts were added as the aircraft moved down the factory floor.
Success of “just-in-time” production hinged on timely deliveries. The benefit was companies didn’t have to keep large inventories which are cumbersome and costly.
COVID blew a big hole in that supply chain concept and manufacturers are still scrambling to find parts where and when they can. They’re back to building inventory and it is adding to the costs of production and to product prices.
Shortages are driving prices even higher and in April our inflation rate was 8.3%.
“America’s supply chain, once the focus of highly specialized professionals in logistics, shipping, trucking and ports management, is now a common story on the nightly news where we’re told of shortages,” Mike Ennis, with the Association of Washington Business, said.
It all really translates into higher prices at every level.
Components shortages hit small manufacturers hard.
Rankin Equipment, a fifth generation family business in Union Gap, not only distributes farm implements, but its manufacturing subsidiary, Northstar, makes them. It is a custom manufacturer of specialized equipment designed primarily for tractors and loaders — equipment used in fields, orchards, horse arenas and on hop farms.
Dave Rankin, owner, said steel used for implementing frames and supports has increased by three-to-five times in the last two years and competition is fierce.
Some hard to get parts are hydraulic pumps which operate equipment Northstar manufactures. Shipping costs have skyrocketed as well. Costs for a container from Italy have jumped three-fold to as much $25,000.
Manufacturers depend on trucks. The price of fuel for heavy-duty trucks increased by more than $2 per gallon since January and in many areas, diesel has surged past $6, according to the U.S. Energy Information Administration. In California, the average price is $6.46. Many truckers are adding fuel surcharges to stay solvent.
On top of costs, manufacturers such as Rankin face a shortage of skilled workers. For example, many welders are approaching retirement with fewer replacements entering the workforce. The American Welding Society predicts a deficit of 400,000 welders by 2024.
Bringing inflation under control, avoiding worker shortages, and returning predictability for manufacturers, large and small, requires immediate attention of our elected officials. For example, stabilizing gas and diesel prices are things they need to address now.
“Many industry observers are questioning the old just-in-time concept of buying parts right when they’re needed and keeping inventories low,” Rankin told Washington Business Magazine. “But now with all of these lead times extended out, in many cases, you have (to) go ahead and commit and get it locked in, get it bought, so the price won’t go up, and so you can get the merchandise.”
Will we return to the just-in-time production system? Not in the foreseeable future. However, lots must be done to keep our “Made in America” products competitive.
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 contacted at theBrunells@msn.com.