Supply-Chain Strategies for the 2020s
Across the continent, the American Foundry Society has 39 regional chapters, whose programming ranges from technical or management lectures to student scholarship nights to golf tournaments. These member-led chapters help the dynamic metalcasting society implement its program of advocacy, education, and innovation at the local level. September is the traditional start to the chapter season and over a 10-to-12-month period, there will be several hundred chapter events. Some of those events focus on foundry-industry management challenges such as supply-chain matters.
To kick off the new 2023-2024 season for chapter activity, AFS Past President Mike Lenahan (Badger Mining) offered an idea: To hold an all-chapter virtual meeting, featuring a speaker on a topic of broad interest to women and men in the foundry industry. The date selected for the kick-off event was September 13, and the speaker was supply-chain expert Dennis Unkovic of Pittsburgh.
In addition to practicing law, Unkovic is an internationally known authority on supply-chain challenges who has traveled to 67 countries and has been going to Asia since 1985. He has appeared so often as an expert on the topic on CNBC that Tyler Mathiesen’s producer keeps him on speed dial. Unkovic authored the 2021 book, “Transforming the Global Supply Chain: Cyber Warfare, Technology and Politics.” He is also a friend of AFS, having previously spoken at the organization’s 2022 Aluminum Conference in St. Louis.
Unkovic framed his remarks around two broad themes. The first theme is that the supply-chain system is broken and, importantly, even with the worst of the pandemic presumably behind us, it’s not going to get better anytime soon. More happily, he also outlined his second theme—that there are principles that can help manufacturers, including the approximately 1,000 Corporate Members of AFS, anticipate and in some cases reduce the negative impacts of the broken supply chain.
Until the pandemic arrived, little attention was paid to the global supply chain vulnerabilities. Many manufacturers in the early 2000s were focused on sourcing products at the lowest possible cost, without concern for delivery issues. Several high-level government and think-tank reports were issued on the topic of U.S. vulnerability, but little action followed.
The pandemic alerted millions of North Americans of our vulnerabilities for access to key products and materials in alarming ways. Citizens came to realize that vaccine and pharmaceutical ingredients, face masks, and medical equipment parts were no longer made in North America. Suddenly, there were delays in accessing many of the goods that society most needed, just as the cost of critical minerals and ocean shipping surged.
Although ocean shipping rates have moderated, just 10 ocean carriers control 85% of global ships. With diminished international trade, Unkovic stated, they are taking ships offline, which affects delivery timelines. Another factor, he noted, is that China has a severe debt crisis, rising labor costs, and a small labor pool relative to the size of its population due to the old one-child policy. China, as a major producer of goods, is still committed to exporting, but it’s going to put its own population’s needs first.
Unkovic discussed five key trends: (1) Just-in-time manufacturing was over-adopted by companies, which has contributed to today’s supply-chain challenges. He said the practice is not yet dead, but it’s “on life-support.” (2) Deflation is occurring in China, along with the higher labor costs, making it a less attractive location for manufacturing. (3) Reshoring will inevitably grow because of political factors, as well as business leaders understanding that China is a less attractive manufacturing destination than it was even 15 years ago. (4) Localized sourcing is growing, and metalcasters should be aware not only of where they are sourcing products but where their suppliers are sourcing their components. Some supply relationships may not be as secure as manufacturers think, which is another argument for localized sourcing across the economy. (5) C-suite executives are now devoting more attention to the details of their supply-chain plans and contingency planning.
Unkovic has also trademarked the term Maxtrends, which describes external factors that affect how businesses operate. The six Maxtrends that he has identified are:
- Rising labor costs. China’s labor costs have increased 10-fold in 15 years. Even if it’s cheaper to make something in China than in North America, it could take 60 days to get it to a city like Milwaukee. Many manufacturers have moved operations from China to alternate low-cost locales.
- Foreign investment. Since 2010, the Chinese government has made it difficult, he said, to do business there. This includes partnership requirements, risks to intellectual property, and other red tape.
- Cyber-attacks. If you’re sourcing outside of North America, he said, be aware that cyber-thieves are shutting down small overseas suppliers who have limited access to capital. While larger companies often have secured the cyber-protection they need, these smaller companies are extremely vulnerable and sometimes wind up going out of business. This problem is bad and will continue to get worse, he said.
- Additive manufacturing. The advantage to North American companies is that it can be more efficient and reliable to source certain parts through additive. (AFS’s Additive Manufacturing Division is helping foundries leverage the technology.) Companies should look for opportunities with this trend.
- Robotics. The growing robotics revolution has positive implications for increasing safety, reducing labor needs, and controlling the costs of production. The U.S. saw 34,987 industrial robots installed in 2021 but is not the global leader. According to the 2022 report from the International Federation of Robotics, the highest concentrations of industrial robotics per 10,000 employees are South Korea, Singapore, Japan, Germany, and China. The U.S. ranked ninth and Canada placed 17th.
- Politics. In contrast to the globalization of past years, nationalism has increased around the world, and both U.S. political parties have supported this trend, based on national security and economic considerations. This MaxTrend supports the argument that just-in-time manufacturing will become increasingly less relevant, he explained.
North American foundries have been the beneficiary of some of the transferred metalcasting work. In fact, in a December 2022 AFS survey, 82% of responding foundries said they expected to see reshoring work as part of their business mix in 2023.
Unkovic has written a new book about China’s impact on the economy, trade, and supply chains. The book, which will be published in early 2024, will be of great interest to members of the metalcasting community. For Modern Casting readers interested in learning more about the solutions that Unkovic prescribes, a video recording of the All-Chapter Meeting is available to AFS members in the “Archived Video” section at afsinc.org, from the “Communications & Magazines” drop-down menu. Moreover, Unkovic’s supply-chain book is available wherever books are sold. Companies seeking legal counsel on supply-chain challenges may reach Unkovic at his Meyer, Unkovic & Scott law office by calling 412-456-2800. CS