Paul Sheerin: Double Benefits of Shortening Tense Supply Chains
At the end of May this year, our team at Scottish Engineering reviewed our member-ready survey results with a keen sense of caution and a trusted calculator to verify the numbers. We recognized at the time that the improvement in business confidence was unfortunately not entirely widespread, but the size and scale of the majority shifting to positive honestly seemed too good to be true.
Such a smart approach was not just because we are optimistic pessimists, but because we had done our homework examining the path of recovery from the impact of the recession on manufacturing engineering in Scotland at the end of the 1980s, and everyone emphasized that however fast the decline begins, recovery is measured in incremental improvements in pace with pedestrians. Yes, to be fair, none of the entry profiles could compare to the overall shutdown that occurred in March 2020, but with the steep slope and scale of the collapse, it seemed reasonable to s’ expect his rehabilitation to follow nothing similar to symmetry. , having dismissed the hope of a desired V-shaped recovery as only a hope. At the end of this month, the survey results we are collecting as we speak will be live, and while the results to come will shape the final picture, I am relieved to say that for now the results look like a continuation of overall improvement.
So I was wrong about the forecast for the pace of the recovery – something else to admit while we’re being honest? Well, the price and availability of materials was and probably remains the biggest drag on any improvement in the outlook, and in June I made a statement about seeing the light at the end of the tunnel, which now looks like to the train coming in the other direction.
The impact of the scarcity and cost of materials has been clearly apparent to us as consumers and businesses alike, as waiting lists for new cars resulting from semiconductor shortages grow longer and the prices of new cars grow. Used cars showed growing demand as well as average price increases of over 17%. . Modern cars can use up to 1,400 semiconductor devices per car. As a result, Peugeot has reverted to installing older tech analog gauges in its Model 308 to help them expand the limited stocks they have.
Considering metals for their obvious importance to fabrication, the limited availability of materials for flat steel has pushed the coil to the highest level ever, with prices more than double in 12 months. Aluminum has increased almost 50% since last September, copper has seen slightly greater increases, and zinc only seems reasonable compared to a 25% increase over the same period.
Industrial coatings are another key component, and here resins for liquid and powder coatings have seen double-digit price growth every month since late 2020, and over 50% during the months of May and June. The list goes on – plastics, corrugated cardboard, packaging lumber, and pallets – and unfortunately current predictions mostly indicate that this pain will continue for months before it gets better, and there are few to none that seem to match that. my early summer. optimism.
In all of these examples I have focused on price, and this is such a key factor to business success that it deserves this attention, but next to that is the other benefit which is availability, and in terms of operational, customer satisfaction, this is just as significant as an impact on prices.
So we’re not really learning much new, other than that Covid has been really unique in the new ways it throws curved balls at us, and again in hindsight, it’s worth reconsidering this profile. in unusual V of a sharp drop followed by a recovery. Demand has been surprisingly elastic in behavior, but for many different reasons a supply scenario in which we turn the floodgates off for months and then try to open them as quickly as possible doesn’t seem like it can keep up. Logic then says that this is a delay and therefore we should expect these drawbacks to improve, but I will leave the timing forecast to others.
The challenges posed by this situation and the associated constraints in international logistics have sparked some interesting conversations about the relocation of local capacities and capacities to strengthen the future supply, and another set of factors could be added to those in order to stimulate demand. The recent release of the IPCC Climate Change Report made for some thought-provoking read that would be hard to avoid even if you tried, and we are now only weeks away from the goal of the. COP26 in our own backyard. In our discussions with companies around their own plans for a roadmap to achieving net zero, the need for accounting principles that add both currency and carbon is important, and what better way to manage the carbon column than shorten supply chains for resilience and reduction.
Paul Sheerin is Managing Director of Scottish Engineering