It is often said that the only thing that is constant is change. That could not be truer as we look back at the evolution of circumstances in the Manufacturing sector over the past 24 months. Recall back to October 2019 and the prospects for continued strength for manufacturing as we headed into 2020. Enter, the global pandemic and its stranglehold on every aspect of our lives. But by 3Q 2020, we were beginning to see indications of a return to some sense of normalcy, or some version of a new normal. There was a growing sense of optimism as to getting back to work and getting things back on track to resume a robust manufacturing outlook. That has certainly played out year to date in 2021, as we have experienced escalating demand for manufactured products.
Looking back to the Pre Covid world, the overall macroeconomic indicators suggested a strong foundation for manufacturing industry optimism. As the Covid effect gripped the country and the world, uncertainty grew as traditional indicators were diluted in light of the new pandemic threat. But given the benefit of hindsight, the manufacturing sector has awoken in 2021 to see that many of those pre Covid indicators are still a driving force for underlying demand for many manufactured products. So, pivoting back from contraction to expansion in a relatively short time frame has become a primary challenge of 2021.
I suspect that most manufacturing companies would agree that the output challenges that most of us face in 2021 can be summed up in 2 words.......... Material and Staffing.
Beginning in 4Q 2020, steel pricing began to escalate at a pace not previously seen. Rolling into 2021, the perfect storm of strong domestic and global demand and finite output drove early 2021 pricing upward to more than 2x. That trend has continued into the 2nd half of 2021, with published steel indices tracking 3x-4x where they were just 12 months earlier. As consumers begin to experience product price escalation, there is no doubt that this comes as no surprise to the manufacturing sector as we grapple with rapidly escalating material costs.
Taking price out of the equation for a moment, the availability of raw materials has also become a primary limiting factor for many manufacturers. We are all challenged to capitalize on strong demand for our products. This availability issue has forced a planning horizon for the securing of required materials that is significantly earlier than most have ever experienced. For some materials, 2022 firm commitments were being required as early as early 3Q 2021 to secure the necessary support from the raw material producers. Cost control remains a critical factor contributing to the success of any manufacturer. But a new priority has supplanted the price discussion in many situations. Many are waking up to a shifted paradigm with regards to sourcing strategies. While understanding and managing the cost of raw materials remains a critical success factor, in these times, that is being tempered by a more pressing question.......... what is the cost of not having material?
When it comes to staffing challenges, there are an array of contributing factors that have most manufacturers struggling to staff appropriately. The Covid effect most certainly drove austerity measures in 2020 as a stark but necessary reality of plunging demand. Coming out of that contraction in a relatively quick timeframe and pivoting to an expansion mode has put unprecedented stress on staffing. Hard to identify a more frustrating scenario for a manufacturer than having executed a successful capital equipment and facilities strategy only to experience idle manufacturing capacity due to lack of staffing. This is a challenge that we all must recognize as an ongoing risk to the entire supply chain. Creative staffing solutions are the theme of the day and will likely be another distinguishing factor as companies adapt to meet the evolving HR landscape.
But let us not lose sight of the fact that the underlying demand for high quality manufactured goods is upon us. The global pandemic has fueled a new focus on reshoring and aligning domestic manufacturing capability and expertise to meet the demands of today’s market. Optimism should be the mood as we remind ourselves and our stakeholders that a strong Manufacturing sector is the backbone of a strong, sustainable economy.
Sko-Die embraces our role in promoting and supporting a strong manufacturing economy. We have continued our commitment to investing in our business. We are wrapping up our latest physical plant expansion and continuing to add equipment and resources to support and expand our capabilities and commitments to our customers. We are proud to roll into our 75th year in business as a manufacturer. We remain ever thankful to our customers and to our suppliers that continue to favor us with the support that we need to improve and expand our business with you.
We wish everyone the best of health as we navigate through the current circumstances and work together to capitalize on the opportunities before us.
At Sko-Die we remain -