3 Es are keeping me awake
I monitor economic news and insights very closely. It’s part of my daily media routine and there are a number of people whose opinions I seek out and follow. Based on all that, there are three interconnected E’s that are keeping me awake lately. The situation in Europe, the impending global energy crisis and the economy all have my full attention these days. I’m concerned but I’m also very confident that Algood will remain strong.
Europe’s supply of gas has been cut off by Russia and the effects are rippling through every country. Electricity supplies may not be enough to sustain the winter. In some places, raw material production is being shuttered. Production of everything from manufacturing components to toilet paper is being reduced. Not surprisingly, both unemployment and prices are soaring.
Algood ships worldwide, including to Europe and some of our components are manufactured in Europe. Both of those factors may present a challenge to our business over the coming months. In addition, what happens in Europe definitely does not stay in Europe. There will be global repercussions to the current state of European affairs.
Gasoline and oil prices in North America peaked about six weeks ago but in California, there is a severe energy crisis. The Californian electricity grid can’t keep up with the demand and electricity imported from other states is not enough to close the gap. The state is re-evaluating its decision to mothball nuclear power plants. All of that makes the state more dependent on fossil fuels. While Russian oil represents only three percent of total imports to the U.S., nearly half of Russian oil shipped into the U.S. last year, or close to 100,000 barrels a day, ended up primarily in California, Washington and Hawaii. And California’s economy is the largest in the U.S. and the fifth largest in the world.
California may be the canary in the coal mine. We can expect extreme weather to put demands on energy grids throughout North America. While oil prices have been declining, reductions in global supply will reverse that trend. Rising energy costs will affect every type of production, having an impact on supply chain, employment and the cost of goods.
That brings me to E number three – the economy. The inflation rate is high. While the cost of some goods like steel, wood and paperboard have started to come down the cost of other supplies and components is rising. Central banks in the U.S. and Canada are increasing interest rates with no ceiling in sight. While experts debate about whether the economy is officially in a recession, the economic outlook gets bleaker. Stock markets are losing value. A recent PwC study indicated that 50% of firms in the U.S. are forecasting layoffs. The future is, at best, uncertain.
A number of our suppliers and customers reducing output and laying off employees. We expect that supply chain issues will persist for both manufacturers and consumers. The impact on sales is unclear but it’s unlikely that our revenue will not grow this year.
Our employees have always been our most important asset and we are concerned for them. The cost of food, clothing and other items is increasing rapidly, straining personal budgets. Families are being forced to do more with less which increases stress levels.
We have faced tough situations before and not only did we survive, we thrived. In 2008, we didn’t lay off a single employee and made a decision to reinvest in our business. Over the past two years, we very successfully guided the company through the pandemic and emerged stronger.
Throughout it all, we have grown by being responsive to the needs of our customers. We have innovated by bringing new products to the market and by finding unique solutions to meet customers’ requirements. The quality of every caster and wheel that leaves our plant is guaranteed and our reputation for on-time delivery is unmatched.
Despite my concerns, I am confident that none of that will change. We are moving forward with product development projects and capital equipment acquisition. I am watching these three Es – Europe, energy prices and the economy – very closely. But I’m also ensuring that we will be there for our customers and remain the next generation of Castersmiths.
I’d like to take this opportunity to wish all of our Jewish customers, colleagues and friends a Happy and Healthy New Year.
2 Supply Chain Truths
You can’t read an industry e-newsletter or visit a business website these days without reading something about the supply chain logjam that is gripping the world. But with all that has been written, there are two lesser-known truths that don’t get mentioned. First, the current situation was entirely predictable and as early as last January business and political leaders could have been working to mitigate what was coming. Second, there is a North American bright side to this mess.
In March 2020, the world, and with it the manufacturing industry, shut down. Completely. The only goods that were being produced were related to fighting Covid. Just-in-time manufacturing, which had dominated the industry for decades, stopped dead. Employees were laid off, plants were closed, ships were docked, rail cars and transport trucks sat in yards.
In early 2021, as vaccination campaigns were being planned and implemented, a glimmer of hope emerged. That was the inflection point. That was the time for planning and action. It was clear that restarting the economy was going to be like starting a car that had been sitting for months. It was going to cough and sputter and it was going to need programs and policies to smooth the way.
By the spring of this year, the demand for goods was building. Gearing up to meet that demand didn’t go very well. Plants had to be brought back to life. Raw materials had to be sourced and most importantly, employees had to return. That was particularly difficult with concerns about workplace safety, parents having to be home to support their kids’ online learning and government assistance programs that, for some, made not working affordable and attractive.
Demand quickly outpaced supply and that imbalance has only grown in the past few months. Now, we wait weeks or months for supplies that used to be available in days. Even after goods have been produced, it takes an inordinately long time to receive them. Shipping supplies, like skids and boxes, are scarce and transportation channels are clogged. The economy needed to go from 0 to 100 and the manufacturing engine couldn’t keep up.
The situation is even worse for companies depending on product that is manufactured offshore. China had huge challenges getting workers back into plants and now is contending with power supply issues that are shutting down operations for one or two days a week. In addition, getting materials here from the Far East has been plagued with problems. There is now a worldwide shortage of shipping containers and even when goods are finally on the water, the backlog at North American ports accounts for weeks-long delays.
All of that leads to the second truth – the silver lining. The advantages of North American manufacturing have never been greater. While offshore producers need 16 weeks to supply goods, we can manufacture and ship casters in a quarter of that time. In the time it takes for one of the millions of containers at congested ports to finally be unloaded, North American suppliers, like Algood, are satisfying their customers.
In addition, the quality and accuracy of overseas shipments can’t be taken for granted. So, imagine that you wait four months to receive the supplies you need to finish a project that is delayed and you discover they can’t be used and need to be returned. That’s not a hypothetical situation. It’s happening every day.
The global supply chain shortage may be doing more for reshoring movement than any previous initiatives. North American manufacturers have the capability, expertise, ingenuity and the drive to produce goods of guaranteed superior quality with lead times that are shorter than those of any offshore producer. If that’s not a competitive advantage, nothing is.
Hopefully recognizing these truths will lead to change. On one hand, government and business leaders may be more proactive when faced with a looming global business crisis. And, on the other hand, the trend toward North American production may now have the momentum to rejuvenate the manufacturing sectors in Canada and the U.S.
Betting on R & D
New product development is in some ways a really expensive betting game. It comes with a price tag of $30,000 to $200,000 excluding capital costs. That means we need to be really confident about the decisions we make. Also, when developing a custom caster, customers are looking for aggressive timelines. In many cases, we go from concept to engineering, design and prototyping in three to six weeks. Beyond the cost, that requires a tremendous amount of resources to be dedicated to one project.
So, the question is given the high stakes involved, how do you decide on which products to develop and which are a pass? The answer to that question often has a lot to do with where the product idea is coming from. From my perspective with almost 30 years of experience in caster manufacturing, there are four sources of new product ideas.
- Customer Driven. There are many occasions when customers bring us unique specs and requirements that can only be met by developing a new product. Obviously, in these cases, we need to evaluate whether the development cost will be offset by the sales potential. But you’ve also got to consider the relationship value. We always do our best to support our customers and provide them with the products they need to develop markets and opportunities. Sometimes, the application or environment in which the caster will be used presents a unique opportunity that we want to be a part of. A great example that meets all of these conditions is the Hero caster we developed last year. I’m proud to say it is now being used in the most state of the art healthcare settings. It also helped to cement our relationship with our customer and we believe it is a caster of the future with tremendous sales potential.
- Market Driven. Sometimes all you have to do is listen. I spend a tremendous amount of time on the road meeting with customers and distributor partners. In fact over the next three weeks, I have 15-18 appointments lined up. I’m always asking customers for their opinions and what they’re looking for. When you hear the same thing often enough, it could be a good indication that there is a product that needs to be developed. We made the investment to develop the Freedom – a moldon urethane wheel with an aluminum core – based on many different customers telling us “it would be great to have a crowned tread wheel that was really versatile with lots of capacity.” The orders that have followed validated that decision and we believe there will be even more sales growth in the future.
- Hunches. It’s true. Sometimes you‘ve just got a feeling that new product development is going to pay off. We developed our RollX™ nylon glass filled wheels based on little more than an inkling that the market would respond. We saw a similar material being used in much smaller wheels but this wasn’t just a matter of copying an existing product. I have always maintained that if we can’t make a product better, we’re not going to make it at all. We knew it would take significant resources to dramatically improve the product and develop it into something with the potential for wider use. We committed to experimenting with different materials and the accompanying testing. At the same time, our design and engineering teams worked on innovative moulds that would minimize weight while creating a great looking wheel. In the end, the hunch paid off. We’re getting very positive response to RollX and Lava, its sister high temperature wheel, and as more customers hear about it and see it, the sales potential climbs.
- Natural Growth. There are times when products take on a life of their own and need to be supported with continued development. Last year we developed new sizes for our Protech treaded wheels in response to customer requests and because it was a natural evolution for the product. This year, we have developed a new 3” tread widths for our RollX wheels and will soon be releasing new sizes for the same reasons.
In the final analysis, a huge part of our success over the past 47 years is a result of our commitment to new product development. It’s expensive and time consuming and not every new idea is successful. But it seems to me that to continually meet the needs of customers and respond to the market, you have no choice but to be product driven. Success, on the other hand, is a matter of sensing potential, being smart and just plain listening.
If you have an idea for a new caster or wheel product that will help your business expand or make your operation more productive, I’m ready to listen. Please contact me.
The Secret to Global Success
Over the years we have found ourselves at Algood doing more business in the global marketplace. If you think that our success on other continents is based on some great international strategy, you’re wrong.
Here’s the secret. We treat our global customers with the same care and attention that we provide to everyone that buys our products. In fact, the lessons that we have learned in continuing to meet the needs of local and North American customers is what drives our offshore business. While we’re proud of the trust that has been placed in us by some pretty big European companies, it doesn’t go to our head. We know that we’re only as good as our last sale and while competing globally sounds exotic, it requires the same discipline and principles that we have been using for over 45 years. Here are some of them.
Engineering is everything. The products we sell must be manufactured to stand up to failure rates measured in incidents per million, not thousand. Product failure can happen anywhere in the world and those distances represent significant risk. The solution lies in the integrity of the engineering process and extensive testing – before, during and after production. And that testing has got to match the conditions in which the product is going to be used.
Never trade quality for price. In the global market, as in every market, the pressure to bring prices down is enormous. Procurement specialists and buyers are always looking for a better deal and its tempting to “look the other way” and reduce quality to bring pricing down. But I’ve learned that it’s not worth the risk. I’d rather lose a sale than be forced to provide product that is sub-standard.
Never get comfortable. When your reputation is both domestic and world wide, you have to be incredibly responsive. You have to react quickly and accurately with samples and prototypes. Delivery times can’t be educated guesses but have to be a matter of precision. You have to be accessible 24/7 because you’re dealing in many different time zones and the way you respond to customers is often your biggest competitive edge. That sometimes means arranging a trip on a moment’s notice and traveling to see a customer half way around the world.
Keep your eye on the supply chain. Your suppliers can help you be a great supplier to your customers – but not without diligence. Do your suppliers meet your quality assurance standards? Do they provide a safe working environment? If not, you may find that a fire or some other catastrophe has suddenly cut off your supply chain. On top of that, material specifications differ from country to country. For example, steel standards vary as do plating specifications. To eliminate foul ups, you have to make sure that your communication is in common terms.
It seems to me that what many business people don’t understand is that you can’t have one set of rules for European (or any other) customers and another set for those in North America. Being successfully globally is a matter of being customer driven and quality conscience with every account – no matter where they are. In the end, the big secret is that global success is based on the same principles and way of doing business that we use with every customer.