The Amazon Effect
This is a good-news/bad-news post. The good news is that North American caster manufacturing facilities are busier than they have been in decades with demand far outpacing capacity. In fact, data from the U.S. Bureau of Economic Analysis indicates a 16% in the value of durable manufactured goods from the first quarter of 2016 to first quarter of 2019.
The bad news is that today’s customers have Amazon-induced delivery expectations and are frustrated by the extended lead times resulting from increased production. It may not seem like it, but this is a really good problem for the industry and there are ways we, at Algood are of dealing with it.
Let’s start with what’s behind the reshoring of caster production.
Tariffs are likely the biggest influence. Not only have tariffs on Chinese imports accounted for price increases, volatile trade policies mean that it’s almost impossible to predict what will happen to tariffs in the short to mid term. That means suppliers may have to impose sudden price increases as they did last year. That doesn’t go over well with customers who have already committed to pricing on projects in progress or those with budgets in place.
The U.S. government recently enacted far-reaching tax legislation that is making it financially attractive for producers to bring manufacturing back home. Federal tax rates for companies exporting goods are being reduced dramatically. In addition, many states are offering tax incentives that include credits for adding new jobs.
Beyond the financial benefit to manufacturers, another contributing dynamic is the unpredictability associated with off shore production. There are frequent delays in delivery and the product received isn’t always exactly as ordered or built to the necessary standards. Companies buying casters are working on tight deadlines and tighter budgets. Goods that can’t be used or late deliveries have a cascading impact on production and sales. It’s not surprising then that customers are looking for suppliers that are manufacturing in North America.
The result is that as manufacturers bring new plants online and retool others, they can’t keep up with demand. That in itself is not a new phenomenon. I can remember times before the 2008 downturn when long lead times were simply a reality that customers had to face. But today’s buyers – and, in turn, their customers – don’t have that patience.
Although consumer goods and supply chain products are very different from each other the buying experience of one affects the other. With an Amazon Prime membership you can order today and receive your product tomorrow. And Amazon already has same day delivery in some markets. Against that backdrop, caster customers are asking for increasingly shorter lead and response times. Just a year ago, we bragged about an extraordinary case of going from concept to carton in 60 days. Today that’s a common expectation. While it’s possible to pull that off for one or two customers, it’s impossible to move at that pace for every customer. We understand that‘s not what customers want to hear, but even in a 60,000 square foot integrated manufacturing facility, we are bound by the constraints of capacity and time.
So, what to do? How do we bridge customer expectations with the reality of our capabilities? Here’s what we do:
Be honest. We let customers know exactly what deadlines we can meet and never promise a delivery date we can’t make.
Innovate. We are constantly examining our production systems and processes looking for changes we can make that will impact capacity and lead times. By thinking out of the box, we’ve been able to improve both.
Collaborate. Sometimes making a small change in the spec provided can make a significant change in the timeline required. We work with our customers to see how we can provide the required performance within expected deadlines.
Communicate. We are in touch with customers through every step of the production process. That way, we can inform them in real time of our progress and immediately mitigate the impact of any unanticipated issues. Being kept in the loop provides an important measure of comfort.
Empathize. We are also customers and we know what it’s like when suppliers can’t provide product as quickly as we would like. It’s important to understand and acknowledge the frustrating situation that customers face.
The Amazon Effect is not going away. If anything it will intensify. That’s why it’s more important than ever for us at Algood and for all caster manufactures to give more and more thought to bridging the gap between customer expectations and production capability.