Q&A with Cullen Morrison, Regional Sales Manager at YG-1
From the beginning of the COVID-19 pandemic, companies have been grappling with supply chain disruption. The virus started in China, where a lot of global companies have anchored their supply chains. Right away, companies started seeing longer lead times and suppliers failing to deliver on contracts.
There's been a lot of speculation that as a result, American companies are going to bring more of their supply chains on shore or near shore to North America:
“Using China as a hub...that model died this week, I think,” says Vladimir Signorelli, head of Bretton Woods Research, a macro investment research firm (Forbes).
Jason Premo, CEO of Acclaim Aerospace, a machine shop specializing in Swiss machining and aerospace components said, in a LinkedIn post, that he believes Mexico will be the biggest beneficiary.
Q: What do you think is going to be the result of the supply chain disruption brought on by COVID-19?
A: At the end of the day, cash is king. So American consumers and consumers around the world are obviously going to want to pay the lowest cost for the same or better quality. Being the lowest cost manufacturer is still important because a lot of people can't afford to pay up for something made in a certain area.
On the other hand, some of these customers can't wait. China was shut down due to the COVID-19 crisis. That reduced the number of castings coming in, putting pressure on manufacturers to get those parts elsewhere. They've had to make changes at least short-term. I think the question is, will that be the future?
I do think that Mexico and Latin America will be beneficiaries here. I have toured some very large manufacturing facilities in Mexico that operate just like any other high-end manufacturing plant.
Mexico also seems to be very open to foreign investment, with favorable tax rates, land prices and lower operating costs. And of course the logistics coming into the U.S. is quite a bit easier than trying to bring in goods from overseas. It's really hard to see where things will end up but I think that's a definite possibility.
Q: What are some other countries where high tech manufacturing is on the rise?
A: Brazil and India are places where we see a trend of manufacturing coming on very strong. People are eager, they want to learn, and they want to do it. My company hosted some training webinars two weeks ago, and one third of the registrants were from India and from Brazil. They're not getting the training that they want locally yet, but they're eager to consume it because they have every other opportunity. My company and others are trying to bring more high technology to those markets.
Another location that hasn’t been mentioned as much is Eastern Europe. We're starting to see a lot more manufacturing move there as well because of costs. There's still a large pool of talent and high technology that's coming there. Overall, China is getting a lot more competition.
Q: What does all of this mean for U.S. manufacturing?
A: U.S. manufacturing is still doing very well, and automation could become an advantage for North American manufacturers. Especially when it comes to high production components – parts that are made by the millions – automation makes a huge difference. The cost of running a robot in the U.S. versus the cost of running a robot in China is similar. So now you're getting into all the other logistics costs, which can be lower for North American manufacturers than for overseas suppliers.
If major manufacturers diversify their supply chains away from China as a result of COVID-19, it will represent a continuation of a trend that was already underway in 2019. According to data published by Modern Machine Shop, global consumption of machine tools declined in 2019 to the lowest levels observed since 2010. However, amidst that decline, the U.S. and Mexico both grew their share of global machine tool consumption. Meanwhile, China’s consumption of machine tools declined by over 25% last year.