Manufacturing

The COVID-related product shortages that just won’t go away.

Phillip Nones Business, Economics, Manufacturing, Sales, Social Media, Uncategorized , , , , ,
(Photo: CNS)

This past February I ordered an 18,000 BTU window air conditioning unit through the local GE dealer in the town where I live. It’s the largest such window unit you can buy, and there aren’t very many alternative options available from competitors.

Not surprisingly, the particular unit I ordered is manufactured in China (I am not aware of any similar models that are made in the United States). At the time I placed my order, I was informed that due to COVID-related disruptions of global deliveries, the earliest I could expect my unit to be received and installed was in April.

I wasn’t very surprised at this news, and figured that the delay would be perfectly fine for getting the AC unit installed and working in our home before the onset of the notoriously hot and humid summer months where we live here on Maryland’s Eastern Shore.

Since then, we’ve had several more pushbacks in the anticipated product delivery – first June … then August. And now the latest schedule I’m being told is for an October delivery – and even that date is “iffy.”

I think my situation isn’t unusual in these COVID-crazy times. Considering that the pandemic began towards the end of 2020, we are now 20 months later and the ripple effects are still being felt all throughout the global movement of products.

In fact, the recent coronavirus outbreaks that have occurred in Chinese port cities just this past month have caused even greater shipping delays than what had been encountered during 2020; they’re actually the worst shipping delays seen in 20 years. It means that the impacts will likely be felt all the way to the holiday shopping season at the end of this year — at a minimum.

As a related consequence of the COVID pandemic, the demand for shipping containers and shipping boxes has never been higher, even as some containers have been marooned on ships attempting to travel through the Suez Canal (which was shut down for a period of weeks earlier this year) as well as bottlenecks in certain port cities where labor shortages have been particularly acute.

Among the myriad of products and supplies that have been seriously affected are:

  • Appliances
  • Batteries
  • Food products
  • Furniture
  • Hospital, dental and surgical equipment/supplies
  • Measuring instruments
  • Plastic materials
  • Printed circuit boards
  • Semiconductor processing equipment

… and these are just some of the most notable examples.

With the Delta variant apparently causing a COVID-pandemic redux, it’s pretty impossible to gauge just how long it will take to work through the product shortages that have with us for so long already.

But what’s quite clear is that all of the initial estimates were woefully off the mark … so why would we expect anything different now?

What sort of product shortages have you experienced in the past few months, “thanks” to COVID – either in your business or at home?  Please share your experiences (surprisingly good or unsurprisingly bad) with other readers here.

The predictable — and unexpected — economic consequences of COVID.

Phillip Nones Economics, Government, Manufacturing , , , , ,

As the United States emerges from the COVID crisis, the shape of the American economy is coming into clearer view.  Part of that picture is the growing realization that lockdown policies, vaccination rollouts and government stimulus actions have created imbalances in many sectors — imbalances that will time to return to equilibrium.

Everyone knows the business sectors that have been hammered “thanks” to COVID:  hospitality and foodservice, travel and tourism, the performing arts, sports and recreation, commercial real estate. 

At the same time, other corners of the economy have blossomed — home remodeling, consumer electronics … and the public sector.  This last one isn’t a function of any kind of increased demand, but rather pandemic-long guaranteed continuing income to workers on the public payroll.

As we emerge, factories and the building trades are finding it difficult to ramp up their operations to meet growing demand, hampered in part by supply chain issues and shortages of raw materials and parts sourced from offshore suppliers.  As of now, most economists believe that such shortages won’t turn out to be long-term problems — but we shall see over time if this is actually the case.

Another imbalance is what’s been happening to the labor force.  Government stimulus checks and unemployment benefits have been sufficiently robust so as to depress the number of workers seeking a return to employment in certain sectors — particularly in the service industries.  As just one example, restaurants everywhere are finding it more than a little difficult to staff their reopened locations.

The latest forecasts are for the U.S. economy to grow at a blistering pace during the balance of 2021 — perhaps as high as an 8% or 9% seasonally adjusted rate of growth.  That would be historic.  But not everyone is going to benefit.

In a recent Wall Street Journal article, David Lefkowitz of UBS Global Wealth Management points out that “the very sudden stop to the economy and then the very quick restart has created a lot of havoc — a lot of businesses have gotten caught flat-footed.”  But beyond this is the very real likelihood that inflation will emerge as a key factor in the economy, for the first time in more than 40 years. 

Viewed holistically, the situation in which we find ourselves is one where many new and unusual “ingredients” have gone into the economy over the past year, resulting in an economic brew that is just as unusual — and perhaps even unique in our history. 

An artificially depressed economy due to government fiat … followed by massive economic stimulus paid for by expanding the money supply … coupled with sudden demand propelling certain industries over others due to government-driven dictates: for sure it’s a new mix of factors.  Considering this, I’m not at all sure that very many people inside or outside of government have a clear handle on what the next 18 months will actually bring.

But that doesn’t mean we can’t speculate about it, right?  In the comment section below, please share your perspectives on what’s in store for the U.S. economy.  I’m sure others will be interested in reading your thoughts.

Have we finally reached “peak oil”?

Phillip Nones Business, Economics, Manufacturing, Security, Social Commentary , , , , ,

Likely not in crude oil consumption, but the IEA is now projecting that demand for gasoline will never return to its pre-COVID level.

This past week the International Energy Agency (IEA) issued an intriguing forecast about future of gasoline consumption.  If true, it means that the world will have reached its peak demand for gasoline back in 2019, and won’t ever again return to that level.

Of course, with the advent of electric vehicles, the day when gasoline demand would begin to decline was bound to come sooner or later.  But the COVID-19 pandemic has hastened the event. 

During the widespread restrictions on work and travel imposed by most governments in 2020, daily gasoline demand dropped by more than 10%. Some of that demand is expected to return, but the global shift towards electric vehicles — not to mention continuing improvements in fuel efficiency in conventional gasoline-powered vehicles themselves — means that any growth in demand for gasoline within developing countries will be more than offset by these other forces.

In 2019, only around 7 million electric vehicles were sold worldwide, but that number is expected to grow steadily, reaching 60 million annually just five years from now.  Several major car manufacturers have committed to selling electric vehicles exclusively in future years, including Volvo (committed to all-electric vehicle sales by 2030) and GM (by 2035).

As for the demand for crude oil, it is expected to rebound from 2020’s dip to reach as much as 104 million barrels per day by 2026, which would be around 4% higher than the usage that was recorded in 2019.  Asian countries – particularly China and India – will be responsible for all of that increase and more, even as some developed nations are expected to see a drop in their demand for crude.

The implications of these forecasts are far-reaching – as are the questions they raise.  How well will the legacy car companies perform in comparison to the new all-electric car company upstarts?  Can they remake themselves quickly enough to preserve their market position vitality? 

What will the effects of lower demand for gasoline – and a lower pace of growth in demand for crude – be on global climate change?  Dramatic? … or only minimal?

What do the prospects of lessening demand for crude do to the economies (and politics) of countries like Saudi Arabia, Iran, Venezuela and other key OPEC nations?  Will lowered demand lessen geopolitical tensions? … or contribute to even bigger ones?

If you have thoughts or perspectives on these points, please share them in the comment section below.

Tissue issue: Explaining the curious connection between the coronavirus pandemic and toilet paper shortages.

Phillip Nones Manufacturing, Media Consumption, Social Commentary, Social Media , , , , , ,

How did the pandemic drive consumers to purchase reams and reams of toilet paper?

Just after coronavirus cases started appearing in Europe and North America, two things began to happen.  One was restrictions on people’s movements — soon leading to lockdowns nearly everywhere.

The other was a run on toilet paper that seemed to go on for months and months.

While other necessities suffered temporary product shortages as well, toilet paper in particular seemed to be affected the most. And as its disappearance from the store shelves became widely reported, the shortage began to take on near mythic proportions.

Photos of barren shelves were plastered all over the news and shared on social media – even giving the rise to a flourishing resale market in which the price of TP skyrocketed.  

It’s little wonder that at the same time, thefts of toilet paper began to be reported across the globe.

Surveys conducted among consumers in North America and Europe found more than a few people admitting that they had begun hoarding toilet paper – more than 17% of North Americans and nearly 14% of Europeans acknowledging so.

Just what is the correlation between a health crisis like COVID-19 and the sudden unavailability of a product like TP, of all things?

It’s the kind of question that no doubt intrigues researchers in the field of consumer behavior.  In January, a team of five analysts in Spain published a review of the available research on the topic.  Their reporting suggests that several factors were likely at work – some more significant than others.  Here is a synopsis of what they reported:

Potential Factor #1:  Diarrhea

As coronavirus cases began to rise, more people were experiencing increased gastrointestinal symptoms and diarrhea — either induced by stress or by the COVID-19 itself.  However, medical studies suggest that only about 13% of people who contract COVID have significant diarrhea as one of the symptoms or side effects.  That 13% is actually a relatively low proportion of COVID patients, and therefore can’t explain much of the global surge in toilet paper purchases.  Verdict:  Unlikely factor.

Potential Factor #2:  Actual Product Shortages

A more likely explanation for the run on toilet paper is that the product was merely one of numerous necessities that consumers went out to purchase in abundance as lockdowns began to take effect around the world.  But whereas items like canned foods were able to be more readily restocked, toilet paper wasn’t.  In this scenario, supply chains weren’t prepared for the sudden the shift in demand from commercial-quality to residential-quality toilet paper, paper towels and such.  As a result, it took longer for production to retool and meet the increased demand.  Verdict:  Somewhat more likely factor.

Potential Factor #3:  Fear — Magnified by the Media

As the news media began to report on empty shelves, toilet paper buying patterns that had initially been in line with those seen for other sought-after goods now reached frenzied proportions.  The “FOMO factor” (fear of missing out) increased bulk buying and hoarding behaviors even more.

Adding to the fevered environment was an additional factor, as explained by Dr. Brian Cook, who is a member of the Disaster Risk Reduction initiative at Australia’s University of Melbourne:

“Stocking up on toilet paper is … a relatively cheap action, and people like to think that they are ‘doing something’ when they feel at risk.”

The TP buying craze has been seen before.  Toilet paper shortages were recorded during the political crisis in Venezuela in 2013 … following the terror attacks on the Twin Towers in New York City 2001 … and even as far back as the 1973 OPEC oil crisis.

I guess the bottom line is this: When the sh*t hits the fan, it’s the toilet paper that wipes out …

Tesla gets taken to task by Consumer Reports.

Phillip Nones Branding, Business, Manufacturing, Marketing Research, Sales , , , ,
The Tesla Model Y SUV

Getting decent ratings from Consumer Reports is an important achievement for any product – particularly high ticket-items such as large home appliances and motor vehicles.

Many consumers consider CR to be the Holy Grail when it comes to its product evaluations. Indeed, weak comparative ratings is why so many American car makers have suffered greatly when attempting to compete with their Asian and some European counterparts.

And then we have Tesla.  This American car (and solar panel technology) company is different in that the Tesla product line doesn’t include any traditional gasoline-fueled vehicles.  The company has suffered for that in Consumer Reports’ reliability rankings, as its electric car technology isn’t fully mature – and hence subject to some rather gnarly quality control issues.

Actually, the company had been making some pretty steady progress on the product quality front – until the new Model Y mid-size SUV model hit the market earlier this year. Some of the common complaints about that new Tesla model have been eyebrow-raising to say the least – including some very basic and distinctly lo-tech problems like misaligned body panels and mismatched paint colors. 

As it turns out, the knocks on the Model Y have sent Tesla’s brand reputation plummeting in the CR reliability ratings.  The company now ranks an abysmal 25th out of 26 auto brands.  Ouch!

The Model Y has garnered Consumer Reports’ embarrassing designation “much worse than average.”  But Tesla’s more established vehicle models aren’t perceived to be that much better, actually.  CR rates both the Model S sedan and the Model X SUV as “worse than average,” meaning that only Tesla’s Model 3 is currently holding an “average” rating and the commensurate “recommended” status from CR.

Clearly, this company has substantial work left to do to convince a skeptical public of the quality of its automotive lineup.  Considering how quickly electric cars are being adopted now, it looks like the company will need to clean up its act within the next 24 to 36 months, or risk becoming one of those early pioneers that flamed out — just like happened to many of the early entrant motorcar companies a century ago.

What are your own thoughts about the promise – and pitfalls — of Tesla and its products?  Please share your perspectives with other readers here.

Closed-loop manufacturing: Practicality or pipedream?

Phillip Nones Business, Economics, Manufacturing, Social Commentary , , , , , , , ,

Some of today’s more “socially aware” companies like to talk about becoming a closed-loop manufacturer. The topic seems particularly prevalent in the electronics industry, where generally higher profit margins may make it easier to actually accomplish such a challenging goal.

The most recent example of this is Apple. One of its key strategic objectives is to bypass the mining industry as much as possible by “mining” instead the innards of its customers’ discarded electronic devices.

Apple does quite a bit of this activity already, as it turns out. In 2018, the company reported that it refurbished nearly 8 million of its devices — thereby helping to divert nearly 50,000 metric tons of electronic waste from landfills.

But now it’s doing even more. Apple has developed a robot that is engineered to disassemble electronics. The robot, dubbed “Daisy,” is able to disassemble 1.2 million devices per year, retrieving 14 types of minerals for reuse. There are now multiple locations in the United States which can receive discarded Apple iPhones for disassembly and closed-loop manufacturing.

Of course, Apple’s lofty objective isn’t without its critics. Some note that Apple eschews the idea of manufacturing devices that can be repaired, rather than merely recycled. Others rebut the idea, noting that advancements in electronics make it unrealistic that the life of any single Apple device would ever extend longer than single-digit years.

Still others doubt that Apple will ever succeed in becoming a true closed-loop manufacturer. Kyle Wiens, who heads up iFixit, a firm that advocates for electronics repair versus replacement, is one such detractor. Says Wiens, “There’s this ego that believes they can get all their minerals back — and it’s not possible.”

What are your thoughts about the potential of closed-loop manufacturing and the Apple experience? Feel free to share your observations with other readers here.

Why aren’t wages moving in lockstep with the improved employment picture?

Phillip Nones Business, Economics, Employment, Human Resources, Manufacturing , , , , , , , , , , ,

If you’ve taken a look at September’s U.S. unemployment figure – 3.5% — you’re seeing the lowest level of unemployment in over 50 years. And for particular subgroups of the population, they’re enjoying their lowest employment percentages ever — at least since records have been kept.

It’s definitely something to cheer about. But at the same time, it’s become increasingly evident that wage growth isn’t happening in tandem with lower unemployment.  And that includes industrial wages as well.

In fact, September results show the first dip in wages – albeit slight – in the past two years.

What gives?

According to Zheng Liu and Sylvain Leduc, two economics researchers at the Federal Reserve Bank of San Francisco, the cause of stagnating wages in an otherwise robust economy can be laid at the doorstep of automation.

According to Liu and Leduc, as certain tasks move more toward automation, employees are losing bargaining power within their organizations. When people fear that they could lose their jobs to a robot or a machine, there’s a hesitation to ask for higher wages as that might hasten the eventuality.

The net result is a widening gap between productivity and pay.

But does this situation apply across all of industry? Perhaps not. Last year, manufacturing expert and Forbes magazine contributing writer Jim Vinoski noted that “huge swaths of industry remain decidedly low-tech and heavily manual.”

The reason? Complexity, volume and margins are often barriers to the implementation of automation in many applications.  Just because something can be automated doesn’t mean that there’s a compelling economic argument to do so – particularly if the production volumes aren’t in the league of “mass manufacturing.”

Jobs in engineering and R&D are even less likely to become automated. After all, probably the single most important attribute of employees in these positions is the ability to “think outside the box” – something artificial intelligence hasn’t come anywhere close to replicating (at least not yet).

What are your thoughts about automation and how it will affect employment and wage growth? Please share your perspectives with other readers.

The unintended “open book” company … opens a can of worms.

Phillip Nones Business, Manufacturing, Security , , , , , ,

Transparency is usually considered a good thing. But when it means your company is an open book, it’s gone too far.

Unfortunately, some companies are making far too much of their information visible to the world without realizing it. Clean laundry, dirty laundry – the works.

One of these instances came to light recently when vpnMentor, a firm that bills itself as an “ethical hacking group,” discovered an alarming lack of e-mail protection and encryption during a web-mapping project regarding an international piping, valve and fitting manufacturing organization.

I’m going to shield the name of the company in the interest of “discretion being the better part of valor,” but the company’s data that was found to be visible is amazingly broad and deep. Reportedly it included:

  • Project bids
  • Product prices and price quotations
  • Discussions concerning suppliers, clients, projects and internal matters
  • Names of employees and clients
  • Internal e-mail addresses from various branch offices
  • Employee IDs
  • External/client e-mail addresses, full names and phone numbers
  • Information on company operations
  • Travel arrangements
  • Private conversations
  • Personal e-mails received via company e-mail addresses

Basically, this company’s entire business activities are laid out for the world to see.

The vpnMentor research team was able to view the firm’s “confidential” e-mail communications. Amusingly, the team saw its own e-mails it had sent to the firm warning about the security breach (that the company never answered).

“The most absurd part is that we not only know that they received an e-mail from one of the journalists we work with, alerting them to the leak in this report, but we [also] know they trashed it,” as one of the team members noted.

The company in question isn’t some small, inconsequential entity. It operates in 18 countries including the biggies like Germany, France, Germany, the United States, Canada and Brazil.  So the implications are wide-ranging, not just for the company in question but also for everyone with which they do business.

The inevitable advice from vpnMentor to other companies out there:

“Review your security protocols internally and those of any third-party apps and contractors you use. Make sure that any online platform you integrate into your operations follows the strictest data security guidelines.”

Are you aware of any security breaches that have happened with other companies that are as potentially far-reaching as this one? It may be hard to top this particular example, but if you have examples that are worth sharing, I’m sure we’d all find them interesting to to hear.

The promise — and peril? — of microchip implants for people.

Phillip Nones Business, Manufacturing, Security, Social Commentary , , , , , , , , , ,

In 2017, when employee volunteers at Three Square Market, a Wisconsin-based technology company, agreed to have microchips implanted in their wrists so that they could access the company’s lunchroom vending machines without exchanging money, some people tittered.

At best, it was viewed as a publicity effort to draw attention to the firm and its work in the microchip industry.

So where are we with human microchip implants two years later? Well … not so far along in some ways, and yet things may be poised for a sea change in the not-too-distant future.

And actually, it has less to do with human microchip implants as a convenience as it does with their potential to revolutionize health monitoring and medical diagnoses.

Biohax International, a Swedish-based company founded more than five years ago, is further along on the development curve than most other developers in the field. According to a report from Thomas Industry Insights, thousands of Swedes now have microchip implants, and the number is expected to continue growing at a robust pace.

At present, Biohax chip implants can house anything from emergency contact information to FOB and other access capabilities for cars, homes and even public transportation.

But the next frontier looks to be in healthcare. At present, prototype microchips are being developed that will enable continual monitoring of a person’s vital signs – things like glucose monitoring and blood pressure monitoring.

It isn’t difficult to imagine a day when certain patients are prescribed potentially lifesaving microchip implants that will serve as “early warnings” to nascent health emergencies.

Is this the future?

There could be a downside, of course – there nearly always is with these sorts of things, it seems. What does a world look like where physicians, insurance companies, employers or credit card companies make implants a mandatory condition for service or employment?

How far of a line is it to go from that to being part of a “surveillance state”?

And even if the situation never came to that, would people who demur from participating voluntarily in the “microchip revolution” be somehow walled off from the benefits microchips could deliver – thereby becoming “second-class citizens”?

The ethical questions about human microchip implants are likely to be with us for some time to come — and it’s certainly going to be interesting to see how it all plays out.

Do you have particular opinions about the “promise and peril” of microchip implants? Please share your thoughts with other readers here.

What’s the “long-game” in the U.S.-China trade conflict?

Phillip Nones Business, Economics, Government, Manufacturing , , , , , ,

The efforts to craft a new trade agreement with the People’s Republic of China have run into some pretty major roadblocks in recent weeks and months.

Things came to another inflection point this week when President Trump announced that new tariffs would be imposed on more Chinese goods imported into the United States. As of September 1, pretty much all categories of Chinese imports will now be subject to tariffs.

If we look at the impact the protracted impasse has had on markets, the repercussions are plain to see. One result we’ve seen is that China has dipped from making up the largest portion of trade with the United States to being in third place now, behind Mexico and Canada:

But what’s the long-term prognosis for a trade deal with China? Recent world (and USA) statistics point to softening of the economy, which could have negative consequences across the board.

When it comes to perspectives on economic and business matters involving China and the Pacific Rim, I like to check in with my brother, Nelson Nones, who has lived and worked in the Far East for more than 20 years.  He has first-hand experience working in the Chinese market and is keenly aware of the issues of intellectual property protection, which is a major bone of contention between the United States and China and is one of the factors in the trade negotiations.  (Nelson runs a software company which has chosen to forego the Chinese market because of regulations requiring software firms that set up a joint ventures with Chinese companies to disclose their source code — something his firm will never do.)

I asked Nelson to share his thoughts about what he sees happening in the coming months.  Here are his observations:

Chinese President Xi has a lot on his plate right now. It isn’t just the U.S. trade war but also the Hong Kong disturbances, U.S. arms sales to Taiwan, the U.S. sending warships through the Taiwan Strait and the South China Sea, and China’s domestic banking sector weakness, to name just some. Trump has also put President Xi in a tight spot by demanding (or getting) Xi’s assurances that China will buy more U.S. agricultural products and will enact legislation protecting foreign intellectual property.  

In spite of his very substantial power, I predict that Xi will have a very tough time ramming Trump’s conditions down the throats of his countrymen. 

I should mention that the biggest issue here is intellectual property protection. The draft agreement that China “almost” signed had assurances that IP protection laws will be enacted, but Xi apparently nixed that draft whereupon the Chinese government stated that no government can promise, when negotiating a treaty with a foreign country, to change its domestic laws.

Technically, they’re right. For example, President Trump can’t commit to changing U.S. laws because only the Congress can do that under the constitutional separation of powers. Similarly, on paper, only China’s National People’s Congress (the national legislature) can change Chinese laws, and President Xi is not a member of the National People’s Congress. (Of course, this explanation conveniently overlooks the fact that both the Presidency and the National People’s Congress are subservient to the Communist Party of China, and that Xi is the General Secretary of the Communist Party, but still it’s technically correct.)

In view of all this, the natural Chinese instinct is to wait … and in this case, wait until the 2020 U.S. election and see what happens. If Trump is defeated for re-election, then perhaps many of Xi’s problems will disappear magically. On the other hand, if Trump stays in office maybe the pain that Trump’s China trade policy is inflicting on U.S. businesses and consumers will force Trump to lighten up a bit.  

In other words, President Xi has much to gain and relatively little to lose by playing the waiting game for a while. 

As for U.S. tariffs, those are causing Chinese businesses to adapt their supply chains by routing them through other East and Southeast Asian countries which are not subject to the tariffs. For instance, instead of sending products straight to the U.S., Chinese manufacturers are sending products to Vietnam or Thailand where a tiny bit of additional work is done – just enough to qualify for a “Made in Vietnam” or “Made in Thailand” label. (This adaptation partially explains Thailand’s large trade surplus which has made the Thai Baht one of the world’s best-performing currencies this year.)  

These maneuvers actually provide a safety valve for both Xi and Trump. For Xi, it cushions the reduction in demand for Chinese exports. At the same time it puts some additional pressure on Trump because this type of safety valve does not really exist for U.S. exporters trying to evade reciprocal Chinese tariffs.  But on the plus side for Trump, it tends to dampen the impact of higher tariffs pushing up U.S. producer and consumer prices.

If you ask me to bottom-line this, the trade problems look more like a protracted siege than an episode of brinksmanship.

How the siege is resolved depends on how strong Trump’s position will be after the 2020 election. If the Democrats continue with their leftward lurch, then Xi will eventually have to cave because Trump’s position will be strong (I’d say a 65% probability of re-election). But if the Democrats come to their senses and Trump continues shooting himself in the foot, then he’s in real danger of losing the election and Xi will come up the big winner (I’d give this a 35% probability as of today). 

So there you have it: the prognosis from someone who is “on the ground” in East Asia.  What are your thoughts?  Are you in broad agreement or do you see things differently?  Please share your observations with other readers here.