Before January gets too much older I wanted to offer one more post on predictions for 2014. Our last commentary offered a variety of insights on the impact of omnichannel fulfillment. This one goes a few links back in the supply chain and looks at the forces driving manufacturing trends.
Bobby Bono, the U.S. industrial manufacturing leader at PwC, the business consulting and analyst firm, says some of the key challenges industrial manufacturers may face include a plateau in demand and customers taking longer to make decisions on new orders. This will be particularly painful for manufacturers with global supply chains because investment levels in India and China are especially weak. Bono believes delayed projects will be accompanied by cost overruns. There’s an environmental component to his predictions, too, in that he thinks more stringent emissions rules will cause higher capital expenditures.
He says industrial manufacturers will focus on three initiatives this year:
- Programs to lower manufacturing costs and raise productivity;
- Reduce debt and better manage capital deployment;
- Focus on R&D and product line expansion.
I wondered how these initiatives might affect logistics decisions in the U.S., like possibly reshoring globally outsourced manufacturing operations. He believes that will increase.
“Changes like rising labor costs in China and the shale gas boom in the U.S. are leading companies to rethink their manufacturing and sourcing strategies,” he said. “The main benefits of manufacturers getting closer to their customers are reduced transportation costs and being able to respond more quickly to their needs. The logistics implications are likely to be less ocean shipping of final goods and potentially, over time, some increased volumes moving to rail and trucking.”
But while the gas boom could result in more manufacturers taking advantage of transportation efficiencies this year, that could also result in transportation challenges, owing to the sorry state of the U.S. transportation infrastructure. Ron Giuntini, one of MH&L’s editorial advisory board members, believes that infrastructure is woefully inadequate to meet the transportation needs of the expanding U.S. energy industry.
“From natural gas pipeline expansion, to fracking water pipelines, to LNG storage, to coal exports and much more, this industry will need a major infrastructure expansion, including the physical movement of these resources.”
In other words, the growing demand in rail and truck transportation that Bonia expects could be stymied by the slower pace of rail and road development that Giuntini fears. And according to a story that appeared in yesterday’s Wall Street Journal, Giuntini’s fears could be justified. A story titled “Cities Grapple with Oil Train Safety” reports that there have been three explosions on trains carrying Bakken crude in the past seven months, and there are fears that local officials aren’t prepared to deal with the consequences.
One of the other trends Bono mentioned is a focus on R&D and product line expansion. This has particular resonance in the material handling industry because these manufacturers are putting resources into helping the industrial manufacturers Bonia studied to raise productivity.
For example, makers of automated guided vehicles (AGVs) are offering their input to a standard (ANSI/ITSDF B56.5) being updated to include new test methods for measuring bumper force and reduced vehicle energy for when an obstacle suddenly appears in front of the AGV. The new AGV Performance Standard will include ways to test AGV system capabilities where AGV developers and users can understand task-supporting needs, make trade-off decisions, inspire innovation, measure incremental improvements, highlight break-through capabilities and harden new approaches.
Having an apples-to-apples standard that makes it easier for users to understand and specify their needs for this equipment and for OEMs to respond to bids will also help everyone understand the task-supporting capabilities of AGVs, according to Roger Bostelman. He’s another MH&L advisory board member and also happens to be an engineering project manager at The National Institute of Standards and Technology (NIST), which is hammering out this standard. Bostelman has a prediction for 2014 too:
“Users will make better trade-off decisions when purchasing AGVs, and OEMs will be better able to measure incremental innovations and improvements, identify break-through capabilities and confirm new approaches,” he told me.
If all of the above initiatives are successful, life could start getting a lot better for manufacturers both inside and outside their plant walls by the end of 2014 and beyond.
[Ed. Note: For a thorough analysis of trends that will affect supply chain and logistics professionals in the next 25 years, take a look at MHI's Material Handling and Logistics Roadmap, which can be downloaded here.]