I’ll be presenting on “Global Trends in the Medical Device Industry and the Supply Chain” at the MPO Summit in Colorado later this week, Thursday October 11 at 9am. If you’re attending, please say hello.
News
ThomasNet reports CNC machining sourcing through their online service has grown by over 33% in last five weeks. The scramble to find qualified machinists pervades every corner of American manufacturing. Options remain fixed at either hire, buy a company with machinists, or take the long view with apprentice and training programs. To learn more about what supply chain companies are doing please feel free to contact Tony Freeman at tfreeman@asfreeman.com.
Recent news stories on the possibility of tariffs on Chinese products imported to the United States have focused on industries tangential to medical devices. However, on April 6th the New York Times published a thought-provoking piece on the impact of these kinds of tariffs on medical device pricing. The article suggests that tariffs will likely raise the price of devices in the U.S., although few details or specifics are given. At A.S. Freeman Advisors, our take is more nuanced. Because of its competitive nature, the North American market would be able to absorb much of the fabrication side of the tariff impact, ultimately leaving prices only modestly higher, if at all. More work would flow to non-Chinese facilities, including those in the United States. This will mean that demand for the work of supply chain companies is likely to increase sharply. Of greater concern to domestic manufacturers should be the effect of tariffs on the cost of raw materials sourced from China. It may prove difficult to switch to domestic steel and aluminum, forcing U.S. manufacturers to deal with higher materials prices. Please contact Tony Freeman at tfreeman@asfreeman.com with comments and questions.
On January 16, 2018 Boeing announced a joint venture with automotive seat manufacturer Adient to supply aircraft seats to Boeing customers. The new company, Adient Aerospace, will be based near Frankfurt, Germany. The action places Boeing in direct competition with suppliers Zodiac and Rockwell Collins. Given Boeing’s historic role in outsourcing key systems of aircraft to Tier 1 manufacturers it seems surprising that it would reverse its strategy during an aerospace supercycle. Boeing lists multiple reasons for the action but one stands out as more immediate than any other – plane sales are being held up by lack of seats. Aircraft seats, particularly profit-generating first and business class seats, are complex, precision assemblies. Recent aircraft deliveries have been held up for lack of seats, and the impact on Boeing’s revenues are significant to say nothing of the stress for its customers. By venturing with Adient, Boeing is taking a half step back on a multi-decade outsourcing strategy. With its supply chain unable to keep pace, Boeing has elected to essentially “in-source” seat manufacturing. For more information on the Boeing-Adient joint venture please visit: https://www.bloomberg.com/news/articles/2018-01-16/boeing-creates-seat-making-venture-to-cope-with-tardy-suppliers
Manufacturers commonly claim that “our employees are our greatest asset,” but when it comes to corporate strategy, they treat recruiting and retention as tactical issues. Recent data, however, suggest that a long-term staffing strategy and supporting investment are absolutely critical to future success. Last week’s headline of 4.1% U.S. unemployment obscured a number that many precision manufacturers are only vaguely aware of — manufacturing unemployment is at 2.6%[1]. According to classic economic theory, 5% unemployment is considered full employment. Full employment spurs growth, but it also leads to labor shortages, particularly in skilled fields. Labor shortages, of course, drive up wages. Today, the average American manufacturing job pays $21.60 per hour[2]. Federal Reserve Economic Data (FRED) In the precision manufacturing fields the Great Recession tested the ability of executives to control expenses and rebuild order books. Today’s economy presents a different challenge: hiring the right employees to ensure future growth. Traditional hiring, the core of most manufacturers’ staff development program, is increasingly inadequate for those who must hire skilled staff quickly. Manufacturers are seeking solutions in a number of new, long-term strategies. The first method looks back in time. Firms are reviving, expanding, or initiating apprenticeship programs. With the image of American factory jobs shifting from unskilled work in dirty plants to highly skilled positions in NASA-like cleanrooms, it is becoming easier to recruit talented younger workers for training programs. Additionally, some firms have looked at programs aimed not only at training new hires, but at retraining their entire workforce to improve productivity. While the results of these programs are often impressive, they can be slow to flower and costly. An alternative increasingly under consideration is to acquire smaller competitors for their skilled staff. While it can be a challenge to find the right fit of location, market focus, and…