Comment from Don Brunell: Manufacturers are going back to the build stock

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By Don C. Brunell

Before the COVID-19 pandemic shook the world, factory workers were humming and assembling products shortly after the components were delivered. It was called “just-in-time” production. It was efficient, predictable and cost-effective.

Businesses today are just struggling to find parts, lock in purchases (and hopefully prices), and work around projected delivery schedules. It’s a whole different world.

For example, three years ago, visitors who toured the Boeing 737 factory in Renton saw 737 aircraft crawling down long assembly lines where wings, engines and tailplanes were assembled on fuselages. Parts came from all over the world and were systematically added at the right time.

The hulls were manufactured in Kansas, shipped to Washington by rail, and other components arrived in containers by ship, rail, and truck. Because every 737 was different, custom parts were added as the plane rolled down the factory floor.

The success of “just-in-time” production depends on on-time deliveries. The benefit was that companies didn’t have to carry large inventories, which is cumbersome and costly.

COVID has put a huge hole in this supply chain concept, and manufacturers are still struggling to find parts where and when they can. They build up inventory again, and that increases production costs and product prices.

Tightness is 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 port management, is now a commonplace story on the evening news telling us about bottlenecks,” said Mike Ennis of the Association of Washington Business.

It all really translates into higher prices at all levels.

Component shortages hit small manufacturers hard.

Rankin Equipment, a fifth-generation family business in Union Gap, not only sells agricultural equipment, but also manufactures them at its manufacturing subsidiary Northstar. It is a custom manufacturer of special equipment designed primarily for tractors and loaders – equipment used in fields, orchards, riding arenas and hop farms.

Dave Rankin, owner, said the steel used to implement frames and supports has increased three to five times over the past two years and competition is fierce.

Some hard-to-find parts are hydraulic pumps that operate Northstar equipment. Shipping costs have also skyrocketed. The cost of a container from Italy has tripled to as much as $25,000.

Manufacturers depend on trucks. The price of heavy-duty truck fuel has risen by more than $2 a gallon since January, and in many areas diesel has risen to over $6, according to the US Energy Information Administration. In California, the average price is $6.46. Many truckers charge fuel surcharges to stay solvent.

In addition to the costs, manufacturers like Rankin also have to contend with a shortage of skilled workers. For example, many welders are approaching retirement and fewer replacements are joining the workforce. The American Welding Society projects a deficit of 400,000 welders by 2024.

Controlling inflation, avoiding labor shortages and restoring predictability to manufacturers large and small requires the immediate attention of our elected officials. For example, they now have to deal with the stabilization of gas and diesel prices.

“Many industry observers are questioning the old just-in-time concept of buying parts exactly when they’re needed and keeping inventory low,” Rankin told Washington Business Magazine. “But now that all these lead times are extended, in many cases you have to go ahead and commit and get it locked, buy it so the price doesn’t go up and you can get the fan shop.”

Will we return to the just-in-time production system? Not in the foreseeable future. However, much needs to be done to keep our Made in America products competitive.

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Don C. Brunell is a business analyst, author, and columnist. He retired as President of the Association of Washington Business, the state’s oldest and largest business organization, and now resides in Vancouver. He can be contacted at [email protected]

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