BY DOUG WOODS
Editor’s note: Launched in 1902, AMT – The Association For Manufacturing Technology supports almost 600 North American metal manufacturers, machine tool builders, and software developers with targeted business assistance; market research; and the industry’s largest North American trade show, the biannual International Manufacturing Technology Show (IMTS).
Looking back on 2020, I don’t dwell on the downside. Instead, I take what I learn to drive our members and the industry forward. The cancellation of the International Manufacturing Technology Show (IMTS) 2020 was, of course, disappointing and had an immediate impact on the entire industry. Exhibitors counted on showcasing their expertise to companies looking to maximize efficiency and productivity with new automation, systems, and equipment. In its absence, our members and the IMTS community looked for leadership and support. AMT responded with new offerings such as IMTS Network and IMTS Spark to fill the gaps.
Uncertainty remains a significant challenge for many businesses re-evaluating their sales and growth strategies, particularly in the short term. Industry forecasts changed multiple times as the impact of COVID-19 on manufacturing became clearer. In the third quarter of 2019, economists at AMT’s fall business conference, MTForecast 2019, projected modest increases in 2020 and 2021 that would have placed the market $1 billion less than the best year in this century.
On March 17, 2020, however, everything changed when our nation shut down for more than two months. In May, the same economists projected the pandemic’s impact would lower 2020 consumption levels to half of what they were in 2019 and about 40% of the 2018 peak levels. Fortunately, the pessimism was overstated. In August, trends in manufacturing data suggested the downturn wouldn’t be as severe as first projected. As of November, experts projected about a 25% decline in 2020 and a 20% increase in 2021. That would leave 2021 orders 10% shy of 2019 levels.
The Pandemic Hit Some Sectors Hard
MTForecast 2020 provided interesting and insightful information on the rise from the current recession. Most AMT – The Association For Manufacturing Technology member businesses were fortunate to be deemed critical to the pandemic relief effort and allowed to remain open. Small businesses were the hardest hit. Even though they have lower overhead, they also typically have the shortest line on liquidity and can’t adjust margins as heavily as larger companies with more extensive inventories.
The aerospace industry was already suffering a terrible year before the pandemic, but COVID-19 set in motion catastrophic losses. Defense is doing well, as are National Aeronautics and Space Administration programs and commercial operations like SpaceX, Astra, and Grumman. Still, that’s not enough to offset the 137% decline in commercial aerospace orders, the largest portion of the aerospace sector based on capital spending. Not all industries will suffer as severe and as lengthy a recession as the commercial aerospace industry is expected to. Projections suggest it may be 2023 before the aerospace industry contributes at 2019 levels of manufacturing output. The industry is likely to find that much of the supply chain has developed new sources of business by the time the industry develops the need for their products.
Manufacturers and distributors dependent on the oil-and-gas industry are also having a challenging year. There are few large-format machines and tooling markets outside the industry, and those markets – like agriculture, mining, and commercial construction – are strong enough to absorb the fall-off in oil and gas. On the other hand, renewable energy investment and development is exploding. Just in Texas, 20 companies from 10 countries have announced $2.7 billion in new investments. The number multiplies when you look at the rest of the nation.
Other durable goods sectors experiencing significant slowdowns include power transmission equipment, fabricated metal parts, and ferrous metal foundries.
Other Sectors Benefited from the Pandemic
On the upside, automation and advanced technology orders held up the best on an order basis relative to the total market. That’s not surprising. Studies show a strong relationship between recessions and sudden bursts of expansion in automation and digital tech investment. Our members’ robotic and automation sales grew by multiples during the pandemic compared to 2019. In other leading-edge technologies, orders are doing a third or better than the total manufacturing technology market. While the goal was to invest in processes to protect labor and reduce the workforce, the result will be a much more productive industrial base and the creation of hundreds of thousands of manufacturing jobs.
Industries such as automotive will rebound significantly in 2021, but are unlikely to get back to 17 million units as the industry begins a non-pandemic-related transition to new drive systems and digitization of vehicles in general. Large orders by automotive OEMs and tier-one suppliers are encouraging. Orders for June through August 2020 outpaced the same period in 2019. The rapid rebound was partly fueled by the drawdown on auto dealers’ inventories during heavily discounted sales in May and June. As of early November, there was a 14-month backlog of unshipped orders for cars and light trucks.
Add to that significant investment announcements and requests for quotations from the sector. New announcements on retooling and expansion projects, like General Motors’ $71-million investment in two manufacturing plants in Ohio, are encouraging. According to GM, the investments, which include $39 million at its Toledo transmission plant and $32 million at its Defiance casting plant, will help retain 240 jobs.
Other sectors that remain strong include the semiconductor, appliance, and firearms industries. Roughly 1.8 million firearms sold in August, which was a slow month relative to May, June, and July. Through August, more firearms sold in 2020 than in all of 2019. Every maker is expanding its capacity by contracting huge portions of job shops’ capacities – and they still can’t catch up.
New and old industries will expand rapidly through the end of 2020 and beyond, such as the production of medical devices and person protective equipment (PPE) with additive manufacturing; the expansion of artificial intelligence’s impact on factory floor productivity; and an explosion in automation represented by robotics, digital twins, and other transformational technologies. Businesses are looking for answers, and these technologies are likely to serve as the ladder for many to climb out of this recession.
New investments from the semiconductors, electronics, and connected consumer products sectors have skyrocketed. Last June, the Taiwan Semiconductor Manufacturing Co. (TSMC) announced a $12-billion plant in Arizona to service North American clients. TSMC isn’t the only company looking to the United States for business opportunities. Dozens of Apple suppliers and electronics and information technology companies in the European Union are investing in capacity in the Southwest and Southeast.
U.S. companies are also bringing business back to the United States. AMT members and their customers are re-evaluating their supply chains and processes and reshoring significant pieces of their supply chains. Consumer products, plastic single-use medical items, plastic packaging, auto components, and other molded components have kept mold-and-die businesses busy. These molds are typically sourced to lowest-cost producers, but orders are being reshored for on-time delivery at basically the same cost when shipping, insurance, duties, and other non-production costs are considered.
America’s manufacturing sector was already screaming for an increase in skilled labor, and reshoring is squeezing the supply even tighter. One primary solution will be working smarter. Automation and organization, both critical elements of Industry 4.0 and the smart factory, will make the transition possible. Yet most companies don’t have a formal technology strategy to gain a competitive edge. Manufacturers will exit this recession with a taste for increased connectivity, a deeper understanding of real-time manufacturing events, and the ability to bring the two to bear on affecting immediate changes in processes.
There Is A Role For Government
A strong manufacturing and industrial base is part of our national identity, but building capacity and capability aren’t enough. Crisis demands agility. That’s not only true for companies, but the government as well.
It’s imperative that the federal government take steps to support America’s wealth and jobs creator: manufacturing. Our elected leaders have a threefold responsibility when it comes to our industry.
First is to provide a stable business environment through fair and balanced tax, trade, and regulatory policies that protect intellectual property, improve cybersecurity, encourage growth, and create jobs. The European Parliament rejected a proposal to consider taxing the work of robots. That rejection didn’t end the discussion, and notable figures such as Bill Gates have taken up the concept as a cause. There are also efforts by our government to restrict the export of emerging and foundational technologies.
Second, strong collaboration between government, schools, and industry is required to address the ever-widening skills gap. There’s a generational imbalance of workers as baby boomers retire and too few young people are seeking a technical education and career. As a nation, we must increase interest in STEM and career and technical education (CTE) careers and change perceptions about skilled careers among the next generations.
Lastly, it’s vital to the nation’s security and prosperity that the government develops initiatives to accelerate the adoption of transformative technologies and the new ways of working that they make possible in our factories. Why? Technologically advanced industries have lower costs, higher profits, and unlock new value streams through innovation.
The Environment Is Right For Innovation
Incremental innovations to existing technologies contribute to continuous growth, but extraordinary innovations and the assimilation of leading-edge technologies often occur in response to discrete events, history-specific problems, and new technological opportunities. Although disruptive and often painful, a crisis like the pandemic can be invigorating and generate rapid advances. This is the perfect time to leverage technology to drive your company’s future business opportunities.
The next seven years will be revolutionary with transformative technologies changing our world. There isn’t one direction for manufacturing from here, but several. Some will provide rebound and growth. Others will begin change that will be as dramatic as personal computers and cellphones. Artificial intelligence and machine learning, advanced and cognitive automation, generative design, augmented reality, additive manufacturing, and the digital twin are already changing the paradigm. The best we can do is help with the transformation. By working with the government and other stakeholders, AMT – The Association For Manufacturing Technology is clearing the way for more companies to follow suit.
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