11/22/2010
HEADLINES
Elgin’s Liter: ‘Sales Per Employee’ New Profit Metric
The 21st century is a brave new world for the fastener industry. The rise of China, the constant threat of terrorism, raw material shortages, fluctuating demand — these factors increase risk in a global supply chain, a National Fastener Distributors Association panel concluded in Las Vegas.
Add to those risks the usual factors, such as labor strikes, container availability and exchange rates, and you begin to understand how a supply chain manager could quickly develop an ulcer.
Wrenn: Fastener Margins Shrinking
while risk is increasing, prices are not, leading to lower profitability, according to Mike Wrenn, CEO of Heads & Threads International.
“For the fastener industry, our margins are going to be lower than they’ve ever been, and we need to prepare for it,” Wrenn told attendees of the conference, which was part of the NIFS/West trade show.
As China assumes a more dominate role on the global stage, its workforce is demanding — and getting — higher wagers, reducing the Asian powerhouse’s cost advantage. China’s fastener price “is not going to be competitive as it has in the past,” Wrenn said.
But that doesn’t mean low-cost fastener production will soon move elsewhere. China enjoys natural advantages, including a massive labor pool and geographic conveniences, that will keep fastener production on the mainland for some time to come.
“I don’t believe China will be displaced as major fastener exporter,” Wrenn stated. “They’ll continue to be a major producer of fastener exports, and their price will get higher.”
Wire rod prices in Asia jumped in 2008, collapsed in 2009 and are slowing rising in 2010.
“Almost certainly prices will continue to move up.”
However, the deep recession has put a blanket on commodity pricing, Wrenn noted.
China’s growth to become second-largest manufacturing country in the world has been the driving force on commodity pricing over the past 20 years.
China’s legacy of pegging the yuan to the dollar has given them a significant advantage to exporting products.
As your supply chain stretches you increase your risks. Natural disasters including recent typhoons in Taiwan; political risks; disease (SARS) – at time it “all but halted air traffic”; labor strikes; electricity shortages; raw material shortages; container availability; first half of this year “you could not ship all the product you wanted to ship”; cultural holidays; exchange rates; antidumping duties; cultural misunderstandings.
“Biggest risk of all is changing demand.”
Liter: ‘Sales Per Employee’ New Profit Metric
Elgin Fastener Group President Jeff Liter said the old days of steel being flat as a commodity are long gone. Most contracts now have a steel index attached to them.
But that’s just one problem facing fastener manufacturers.
Consumer demand is also fickle, making orders a riskier endeavor.
Political changes loom as well. Liter said that no one knows how the “wave of red” in the most recent U.S. elections will affect the business climate.
Liter said one thing is certain: “The moderates are gone.”
Political uncertainty in the U.S. is likely to hamper solutions to border issues with Mexico — conditions he said were threatening North American manufacturing.
An even bigger threat to the fastener supply chain is the ongoing “war on terror,” Liter stated. “In terms of the supply chain, it’s the elephant in the room.”
Liter asked what would have happened to the global supply chain if recent carrier packages had not been found overseas before they arrived in the U.S.
All these factors are placing enormous pressure on supply chain managers.
Despite these variables, business is on the uptick, though companies are reluctant to add new employees to meet growing demand, Liter explained.
“‘Sales per employee’ is new metric to examine profitability,” he emphasized.
And speed is what separates the winners from the losers, he advised. Three years ago a 20-day lead time was good, but it’s not enough now.
“We need to continue to reduce and reduce lead times.”
The good news is that growing supply chain risk creates more need for domestic manufacturing, Liter stated.
“Risk is one of the reasons domestic manufacturers will always be needed in the supply chain.”
Fang: EU Tariffs Help Taiwan Manufacturers
Taiwan Fastener Trading Association director Steven Fang told fastener veterans that the perception is that Taiwan exports many fasteners. But Fang said China and Japan are about equal in fastener exports, whereas Taiwan is about one-third of their levels.
Taiwan fastener exports have surged by 63.5 % due to increased orders from the EU in the wake of tariffs on Chinese fasteners. The Asian giant has 10,000 fastener manufacturers, about 95% private owned.
Fang said China exports about $2.36 billion fastener export, while importing has jumped to more than $2.1 billion because “China wants to grow quickly.”
Labor costs in China increase 20-25% per year, but Fang predicts China will increasingly focus on domestic demand at the expense of exports.
“China is no longer stuck in the past. They are building their own future in their own way, no matter what the world thinks.” ©2010 GlobalFastenerNews.com
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Related Links:
• NFDA
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