Commentary on current manufacturing activity
The global economy slipped into a historically deep recession that has left carcasses scattered about in almost every industry. Large and small corporations, family-owned businesses, and small mom and pops have each felt the pinch.
Most manufacturing companies have been forced to reduce payrolls and layoff many workers and re-position their material and product inventory supply chains to align them with reduced sales.
This reduced spending has a domino effect throughout the economy as consumers stop buying in fear of job losses or even company closures.
When did it begin, and how long will it last?
Technically, things started declining during the fourth quarter of 2007, and the financial crisis in September 2008 (lenders stopped lending), may turn out to be the bottom.
The light can be seen at the end of the tunnel
The consumer electronics industry in Taiwan began to rebound in February and which spread to Korea and China, and finally Japan. This spike in business brought about a few new problems for manufacturing companies.
Everyone throughout the distribution pipeline did an outstanding job at reducing inventories, reducing payrolls, and lowering production to keep their balance sheets in line. In fact, they did such a good job that many can’t keep up with the spike in business and now face material, components and even labor shortages. Everyone’s warehouses are almost empty!
Distributors and suppliers can’t feed the manufacturing houses fast enough. Manufacturing companies have secured large orders for products, but materials are back-ordered, and there are not enough workers to accommodate these new sales.
Taiwanese electronics companies are acting quickly to purchase materials and fill vacant positions within their production facilities. Employees axed just a few months ago have returned to work. Taiwanese manufacturing plants responsible for electronics materials and components are operating at full capacity.
Unfortunately, the economic law of supply and demand is rearing its ugly head. Since there is a shortage of materials and components, prices have increased dramatically, and are squeezing manufacturers’ profit margins. This may be a temporary increase until the pipeline is full, and market prices should decrease at that point.
Meanwhile, material and component shortages are a bit more serious for manufacturers in Southern China. A news article from an industrial media publication reported that more than 200 electronics manufacturing services (EMS) companies in this area cannot secure enough materials for production and may have to close their doors.
These electronics assembling companies could purchase materials and components at higher prices (material costs shot up in China, also), but the increases cannot be passed along to customers or end-market buyers, and their margins would be too small to justify paying higher prices.
Japanese labor
The rebound in the Japanese electronics industry began in March, and it too is facing shortages, but not with materials or components, but rather labor shortages.
Japanese companies decreased payrolls significantly last half year and do not have the manpower to keep up with the increased amount of work.
There are plenty of unemployed skilled laborers waiting patiently by the phone for a call to return to work, but Japanese management teams are hesitant to expand payrolls…unsure if this is a temporary spike in business, and their course of action is to offer overtime to current employees which includes nights and weekends.
The information super highway could contribute to some of the problems mentioned above.
Since market information can span the globe in seconds, forecasters can make recommendations to decision-makers daily, hourly, or even by the minute. Market spikes are more prevalent because of knee jerk reactions.
A good example of this is the market price for a barrel of oil…its all over the place. What causes this? Reports on hurricanes, war, short-range missile launches, wild fires, decreases in Memorial Day travelers – the culprit can be almost anything.
Traditional manufacturing companies cannot follow these market movements, and must maintain a steady pace within their facilities.
This is easy to say, and manufacturing activities for most manufacturers is either feast or famine. They pull their hair out during the crazy, busy times as pressures mount, but this aside, surely most would rather experience the ‘too busy’ pressure instead of the ‘phone not ringing’ pressure.
Source: EPT Newsletter, VentureOutsource.com, June 2009
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