When it comes to global manufacturing and sourcing strategies, the coronavirus pandemic has amplified and accelerated a number of trends that were already well underway before it began.
Original equipment manufacturers (OEMs) have been reconsidering their heavy reliance on production in China and other Asian countries with low-cost labor for several years now. The initial impetus was purely economic in nature: wage rates in Chinese factories were on the rise, as turnover rates soared and it became increasingly difficult to maintain a stable labor force.
Then came a serious of natural disasters that shattered supply lines and awakened buyers to the risks that come with siting production so far from the ultimate consumer. Manufacturers, distributors and retailers found themselves at least partly reversing the trend toward minimizing safety stock in order to ensure an uninterrupted flow of product. Stopgap solutions such as expediting orders with air freight were no replacement for a more stable and diversified supply base.
Companies that chose to ignore those early lessons received a rude reminder when the pandemic struck early this year. Factory shutdowns in China and elsewhere brought a temporary halt to the shipment of goods, many of a critical nature. The underlying weaknesses of low-inventory, “just-in-time” supply strategies were laid bare for all to see.
Also undergoing radical change over the past decade was the very nature of product development and fulfillment. In a desperate bid to cater to changing consumer tastes, manufacturers and retailers began shrinking product lifecycles and offering exhaustive variations on name-brand favorites. SKU proliferation, both in physical stores and online, was rampant. The name of the game was customization, but it couldn’t be played with old-line factories that were designed to churn out product in bulk and located thousands of miles from end markets.
“For the last five to 10 years, we’ve seen more demand volatility, customization and the need for flexibility in supply chains,” says Rob Bodor, vice president and general manager for the Americas with Protolabs, a specialist in 3-D printing and digital manufacturing techniques. “Now layer in a global shock like this pandemic, and it magnifies the amplitude of that. It makes it all the more urgent for OEMs to find supply bases that can be nimble and adapt to this volatility.”
For modern-day manufacturers trying to keep pace with market demands, the pain begins with forecasting — or, to be more accurate, the failure of it. Demand in the age of COVID-19 is sharply different than just six months again, and Bodor says some of his customers have had to completely revamp their supply chains in response.
It’s not a question of abandoning just-in-time strategies, but tweaking them in line with current manufacturing technologies. Digital manufacturing can turn out custom parts in as little as a day, Bodor notes, obviating the need for heavy safety stocks. “We can transform raw materials very quickly into finished goods,” he adds. “We don’t have to draw on inventories of semi-finished items to produce the final result.”
As a result, Protolabs has been able to pivot to the making of critical items such as face shields, molecular test kits, ventilators and respirators. Order quantities can range from millions to a single item.
That said, the pandemic has affected sourcing strategies, possibly leaning toward greater production in the U.S. “We’ve heard from a number of our customers that they’re going more toward reshoring,” Bodor says. But that’s not just because of COVID-19; the trade war between the U.S. and resulting high tariffs on imports from China have also contributed to the decision to bring at least some manufacturing back home.
Digitization allows Protolabs to fulfill orders entirely on an intra-regional basis. It runs eight factories in the U.S. for American customers, representing about 75% of its business, and does the same for accounts in Europe and Japan. It also aids OEMs manufacturing in China with prototyping; bridge tooling; line-down issues; maintenance, repair and operations (MRO), and end-of-life applications.
3-D printing is already playing a major role in helping manufacturers become more responsive to consumer markets while keeping production inventories low. Bodor says the use of that technique has been growing by double digits, alongside such tasks as modeling, machining and sheet-metal fabrication.
In time, the coronavirus pandemic will fade, but many of the changes that it wrought in manufacturing and sourcing strategies will likely be permanent. Not all employees who were forced to work from home will be returning to shared workplaces, making domestic staffing more viable for at least some tasks. (In any event, automation in the factory promises to continue chipping away at the size of human workforces, regardless of location.) Flexibility in labor deployment will be essential, Bodor says, as manufacturers continuously tweak the balance between humans and machines throughout the supply chain.
In the short term, it becomes a matter of ensuring the safety of those employees who remain on the production line. Requirements of multiple regulatory agencies must be met, and training in good health and safety practices is equally essential. For its part, Protolabs has been able to maintain production levels while observing rules for social distancing, use of protective equipment, constant cleaning of areas of high traffic, and allowing hundreds of office staffers to work from home. In factories, whether offshore or domestic, the requirements of the post-pandemic era will be no less challenging to meet.
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