Dealing with production demands
Production demands have caused thousands of manufacturers to face many big business decisions and any mistakes could be costly ones, according to the Wall Street Journal.
For example, Timken Company stands at a crossroads in trying to decide which orders it can fill without overextending itself, raising anxiety among some customers who might be left out.
"Everyone wants to ramp up," said Mike Arnold, Executive Vice President of Timken's bearings and power transmission group, "but nobody wants to overcapitalize." It's a very tough call.
During the recession, Corning Inc. slashed its inventory. Recently, the company was caught off guard when brisk auto sales fueled demand for its emissions-controlled filters and devices. Normally, this cargo would move via ocean freight; however, in order to satisfy its Asian clients as quickly as possible, Corning has had to pay substantially more to ship the parts via air rather than sea. Crowded ocean carrier capacity has forced many companies to trade up to airfreight service in order to ensure timely deliveries to foreign customers.
Bringing idled capacity back online too quickly can reduce prices, as is beginning to happen in the steel industry. On the other hand, opening the spigot too slowly can lead to shortages, forcing companies to put workers on overtime or otherwise scramble to placate customers. Getting capacity back up and running can be difficult. Rehired employees who have been out of work for an extended period of time typically will need some retraining. Production equipment which had been left idle may also need to be recalibrated and tested.
Companies such as Lubrizol Corporation, for example, plan on breaking ground on a new USD $200 million lubricant additive plant in China in the fourth quarter. Even though they are adding capacity, it will be done so slowly. Production will begin in 2013 and phased in over several years to avoid creating overcapacity.
In April, US manufacturers were operating at 70.1% of their potential capacity, up from 65.1% last June but well below the historical average of 80.8%.
Using Timken Company in another example, the company laid off 20% of its workforce during the recession and now say their customers are asking whether the Canton, Ohio company could deliver enough bearings if the demand doubled.
"It's very easy to answer a specific question from one customer," said Mike Arnold. "When you have 27,000 who are asking the same question, and they might need the same product at the same time, it's a very difficult question to answer."
Timken's solution is to restore production capacity at a deliberate pace, focusing on the customers and markets it considers strongest.
Source: CargoNewsAsia 6/21/2010
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