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IN THIS ISSUE                                    PUBLISHERS STATEMENT - p.2 Publisher – Lewis A. Weiss Editor-In-Chief – Tim Grady Design – Rovere Media Contributing Writers: Royce Lowe, UK and EU International Correspondent Tim Grady, Co-Host, Manufacturing Talk Radio Chris Kuehl, PH.D - Chief Economist, FMA Norbert Ore, Senior Correspondent for Global PMI Survey Reports Mike Womack, Social Media Manager, Manufacturing Talk Radio Andrea Olson - MSC - CEO of Prag’madik Advertising Frank Cipolla - fcipolla@mfgtalkradio.com Current Circulation - 43,400 Editorial Office Manufacturing Broadcasting Corp. 75 Lane Road Fairfield, NJ 07004 (973) 808-8300 © 2017 MBC – Manufacturing Broadcasting Corporation. No part of this publication may be reproduced or used in any form without the prior written permission of the publisher. Metals & Manufacturing Outlook is a registered trademark of MBC. © 2017 MBC.


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Metals & Manufacturing Outlook


    BY LEWIS A. WEISS                                   

etting Dystopian D.C. aside Slooks for this month, manufacturing very strong despite

the skills gap. Construction announcements of new factory space is frequent, particularly in the Southeast where the weather is more temperate than the Rust Belt and labor costs are more manageable in the right to work states. Capital outlays for both plant and equipment has been rising steadily since the Great Recession with 2017 looking to be the strongest year yet. Tooling for material cutting is up 5.8% in 2017, one of the strongest years since 2009. Manufacturing is a bellweather industry that looks into the future to determine what it will do in the near term because a manufacturing plant takes several years to create from concept to completion, and most manufactured goods are produced over several months from sourcing of raw materials to finished goods for retail, or components for assemblies at the next stage of manufacturing. Consequently, when manufacturing begins to hedge their bets is when order books are becoming lean because economy looks less strong down the road. However, right now, the | July 2017

economy looks strong and steady. According to the ISM’s PMI Report on Business®, New Orders popped up to 63.5 and Production rose to 62.4 while Inventories only hit 49.0, and 13.5 point spread between New Orders and Inventories that indicates the pipeline is fairly full at the moment. Inflation is pretty quiet unless you factor in the commodity we all use the most – food. Food prices have been climbing year-over-year rather aggressively for several years. The bad news – there really isn’t a lot. Our $18 trillion economy is steadily chugging along and has been for 97 months in manufacturing, the third longest expansion since WWII. It’s not easy to grow $18 trillion by 2-3% year-over-year, much less 3-4% with the Baby Boomers retiring and typically spending less. The generations following them are smaller in size and are generating less annual income even though the U.S. population is growing, so the only way the USA hits 4% GDP will be by reaching the 95% of world consumers who live outside the United States. Demand for U.S. goods overseas continues at a strong pace because the USA maintains its reputation of producing topquality products. Price is less of

a factor in a strengthening global economy for consumers feeling better about their spending power who can afford quality – at the moment. We encourage our readers to become familiar with the Export Import bank to help transact business outside the U.S. with the dollar softening slightly as other economies and currencies strengthen. However, the effectiveness of the ExIm Bank will depend on who heads it up, and as of this writing, Scott Garrett, former Congressman from New Jersey who has criticized the bank as a source of “crony capitalism” has been nominated by President Trump for that role. There is mounting resistance to this nominee from industry groups, business leaders and members of the House. The reality is that the ExIm Bank only finances around $2 billion in transactions a year in an $18 trillion dollar economy, but since 2009 it has contributed $3.8 billion to the U.S. Treasury from operating profit. Manufacturing has heard the deflective whining about crony capitalism regarding the ExIm Bank for years. Those same elected representatives, whether House or Senate, fail to mention the millions of dollars poured into their election coffers by corporations, or the influence of lobbyists on behalf of special interests. Dear Elected Representative: Please explain the difference between crony capitalism via an agency and crony capitalism in your own election campaign war chests! But, the topic at hand is how manufacturing is performing, so let’s get back to that. This month, Metals & Manufacturing Outlook is fairly full of good news on the one hand and less bad news on the other in spite of D.C. And, the eZine is open for advertisers to reach some 40,000 folks in manufacturing from the C-Suite to the loading dock floor, so we trust you will enjoy this issue of Metals & Manufacturing Outlook and consider joining us in the next one. Best Regards, Lewis A. Weiss Publisher

Metals & Manufacturing Outlook



Hoping For Good Things To Continue


he world sees its victories and its defeats, and of late we have seen plenty of both, at least of sorts. Politicians on both sides of the Atlantic and further afield continue to amaze with their antics, attempting, or so they think, to make the world a better place. Their ideas and the outcomes of these ideas will inevitably, to some degree, impact on the manufacturing world as we know it. The general global manufacturing scene still looks good, with continued growth in the U.S. manufacturing sector, as witnessed by the latest ISM figures; strong, continuing growth in Europe; some easing in the UK, but a slight rebound in China. The manufacturing outlook is optimistic. International trade is on the up. SEE ISSUES OUTLOOK. The U.S. plans to start re-negotiating NAFTA with

Canada and Mexico this coming August 16. In the last little while we’ve seen a few CEOs who were in the news not too long ago for all the great things they were doing and were about to do, stand down, be removed, in short it was decided their company might be better off without them. These were not ‘ordinary’ men either; they had all at some time been summoned to the royal court of King Donald, to help him with his dreams of bringing back, keeping or creating manufacturing jobs. Mark Fields of Ford, Jeff Immelt of GE and recently Travis Kalanick of Uber ( although Uber is not directly related to manufacturing) have served their time, leaving the way clear for other executives with different, perhaps more effective ideas. U.S. manufacturing professionals have suggestions for Donald Trump on infrastructure. SEE ISSUES OUTLOOK.

The nonfarm, private sector jobs report for June from the ADP Research Institute and Moody’s Analytics states that 158,000 nonfarm private sector jobs were created in the month. Small business (1-49 employees) created 17,000 jobs; midsized (50-499) created 91,000 jobs; and large business (500+) created 50,000 jobs. All job creation came from the services sector, with education losing 6,000 jobs, natural resources and mining losing 4,000 jobs and construction losing 2,000 jobs. According to the BLS, nonfarm payroll employment in June was up by 222,000 jobs, with 1,000 jobs being added in manufacturing, for a total manufacturing workforce of 12,396,000. U.S. light vehicle sales were off by three percent, y-o-y, in June, with the same number of sales days. | July 2017


Metals & Manufacturing Outlook

The ISM PMI figure for U.S. manufacturing jumped in June from May’s 54.9 percent to 57.8 percent. The overall economy grew for the 97th consecutive month. See NORTH AMERICAN OUTLOOK. IHS Markit reports June’s PMI for the U.S. manufacturing sector as easing back from 52.7 percent in May, to 52.0 percent in June.

U.S. crude steel production for May 2017 was 6.995Mt, down 0.2 percent y-o-y. Primary Global Aluminum Production in May 2017 was reported at 5.145 million tonnes, of which 2.825 million tonnes, 55 percent, were produced in China. The Gulf Corporation Council (GCC) produced 452,000 tonnes, North America 335,000 tonnes, Western Europe 321,000 tonnes, Eastern and Central Europe 338,000 tonnes and Asia, excluding China, 319,000 tonnes. Here are the latest figures for US new car and light truck sales for ‘the big eight’ for June 2017.

Markit reports the slowest rise in production volumes since September 2016, with new order growth easing for the fifth consecutive month. Input prices were mostly unchanged in June. Confidence towards the yearahead and overall optimism are at the strongest level since February. Manufacturers reported a disappointing end to the second quarter, with few signs of growth picking up any time soon. The five ISM components are equally weighted at 20 percent each. The IHS Markit components are weighted: 30 percent New Orders, 25 percent Production, 20 percent Employment, 15 percent Supplier Deliveries and 10 percent Raw Materials Inventories. The Bureau of Economic Analysis, in its ‘third’ estimate for the annual rate of Real GDP growth in the first quarter of 2017, puts it at 1.4 percent. The figure for the fourth quarter of 2016 was 2.1 percent. GALLUP’s U.S. Economic Confidence Index is around the +4 level in mid/late June, the lowest level since November 2016. The coincident Job Creation Index is still approaching the 40 mark. World crude steel production for the 67 reporting countries for the month of May 2017 was 143.3Mt, up 2.0 percent y-o-y. Capacity utilization for the month was 71.8 percent, up 0.5 percent on May 2016 and down 1.8 percent on April 2017. | July 2017

THE ECONOMIST magazine, in its latest weekly report on world economies, highlights changes in Gross Domestic Product (GDP), Industrial Production, Consumer Prices and Unemployment Rates for what it considers the world’s major economies. These data are not necessarily good to the present day, but are mostly applicable to at latest the past two months, and show definite trends in the world economy. The figures are qualified as being the latest available, and with reference to a given quarter or month. The figures for GDP represent the % change on the previous quarter, annual rate. The industrial production figures represent year-on-year changes, as do the consumer prices increases. The unemployment figures, %, are for the month as noted.

Metals & Manufacturing Outlook


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Metals & Manufacturing Outlook


eshoring is a term heard R often throughout the modern manufacturing industry. Bringing

jobs that were once outsourced to other countries back to the United States is the ultimate goal. The modern manufacturing industry calls for a new kind of workforce, highly skilled and educated, a perfect fit for Americans. Increasing foreign labor costs and an increasingly complex supply chain is enticing businesses to bring manufacturing jobs back to the U.S. but understanding how much progress is being made is vital for future success. Made popular by the Reshoring Initiative, their goal is to bring good, well-paying manufacturing jobs back to the United States. They assist companies to more accurately assess their total cost of offshoring and show these businesses the true savings that are possible by utilizing local workforce resources. They are a | July 2017

nonprofit organization and offer free tools for business owners to get started. MFG Talk Radio was lucky enough to speak with the Founder of the Reshoring Initiative, Harry Moser. Listen in to that interview for a deeper look into the organization and what they want to accomplish: http://mfgtalkradio.com/s1-e16/ Let’s take a look at the Reshoring Initiative and how much progress has already been made. When looking at the Reshoring movement over the past five years, five manufacturers stand out. GM, Boeing, Ford, GE, and Caterpillar have made great strides forward in regard to bringing jobs back to the United States. GM is responsible for reshoring 15,450 manufacturing jobs; Boeing ranked second at 5,725; Ford reshored 3,350 jobs; GE came in fourth at 2,566 new American manufacturing jobs and Caterpillar came in fifth with 2,100 jobs reshored. These aren’t the only companies that did their part in

bringing jobs back to the United States. There are many companies from a variety of sectors that have taken it upon themselves to bring back offshored jobs. Bringing these jobs back to the United States is not only a great move for the communities that rely on a thriving manufacturing workforce but the economy as a whole. “With 3 to 4 million manufacturing jobs still offshore, as measured by our $500 billion per year trade deficit, there is potential for much more growth,” Harry Moser stated. http://bit. ly/2eLcLPS With organizations like the Reshoring Initiative, it’s become easier to understand the true cost of offshoring employment. As more manufacturers begin investigating the opportunities the American workforce has to offer, the trend will continue to catch on. It’s not a simple task for a company, especially a manufacturer to uproot their offshored business, however, the benefits could far outweigh any potential disruptions.

Metals & Manufacturing Outlook



The Latest Manufacturing Reports from the United States, Canada and Mexico


he Institute of Supply Management PMI figure jumped from 54.9 percent in May to 57.8 percent in June, representing the tenth consecutive month of growth in manufacturing. There was growth in the overall economy for the 97th consecutive month. Of the 18 manufacturing industries,15 reported growth in June in the following order: Furniture & Related Products; Nonmetallic Mineral Products; Paper Products; Machinery; Electrical Equipment, Appliances & Components; Chemical Products; Transportation Equipment; Computer & Electronic Products; Food, Beverage & Tobacco Products; Plastics & Rubber Products; Printing & Related Support Activities; Fabricated Metal Products; Wood Products; Miscellaneous Manufacturing; and Petroleum & Coal Products. Three

industries reported contraction in June compared to May: Apparel, Leather & Allied Products; Textile Mills; and Primary Metals. Comments from those surveyed continue to indicate good business and optimism. There are some raw material price pressures and supply chain issues, and good things on the export horizon. Following is a summary of the five major indexes, each weighted at 20 percent in calculation of the PMI number for June. May’s readings are in parentheses: New orders

63.5 (59.5)


62.4 (57.1)

Employment 57.2 (53.5) Supplier Deliveries


49.0 (51.5)

The following five components are not instrumental in the PMI calculation, but are an important part of the manufacturing industry: Customer Inventories 50.5 (49.5) Prices

55.0 (60.5)

Backlog of orders

57.0 (55.0)

New export orders 59.5 (57.5) Imports

54.0 (53.5)

Commodities Up in Price in June Acrylates*; Aluminum (8); Animal Protein; Copper; Corrugate (9); Corrugated Boxes (4); Electric Components; Linerboard; Scrap Metal (5); Steel – Alloy; and Steel – Hot Rolled* (7).

57.0 (53.1) | July 2017


Metals & Manufacturing Outlook

Commodities Down in Price Acrylates*; Crude Oil; Distillates; HDPE; Natural Gas; Polyethylene Products; and Steel – Hot Rolled*. Commodities in Short Supply Electric Components; and Electronic Components (4). Note: The number of consecutive months the commodity is listed is indicated after each item. * shows products both up and down in price. CANADA saw its manufacturing recovery slowing in June, with the weakest improvement in business conditions since February. Supply chain pressures continued in June, but input cost inflation was at a six-month low. The PMI fell back slightly from May’s 55.1 reading to 54.7 in June.

Manufacturing companies are optimistic about growth prospects for the next twelve months, with 39 percent expecting production increases and 5 percent a decline. Manufacturing sector business conditions improved in all regions, led by Alberta and B.C. These two latter regions had the sharpest increases in production, new orders and employment. Ontario showed up best for new export sales, but production growth was slight only. Canada produced 1.08Mt of crude steel in May, up 0.8 percent y-o-y. Canada’s light vehicle sales for June broke a record for the month, at 203,500, up 6.5 percent y-o-y. There was a

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| July 2017

strong demand for light trucks accompanied by a decline in passenger car sales. For the first time first-half sales surpassed 1 million, up 5 percent y-o-y, with light trucks up 8.8 percent and passenger car sales down 2 percent. MEXICO showed its strongest manufacturing sector performance since May 2016, with quicker increases in production, new orders and employment in June. The manufacturing PMI rose from May’s 51.2 to 52.3 in June. Input cost inflation is down and business optimism well above January’s 5-year low. Mexico produced 1.63Mt of crude steel in May, down 1.0 percent y-o-y.

Metals & Manufacturing Outlook



    BY ROYCE LOWE                                 


HINA Hongqiao Group Ltd, the nation’s biggest aluminum smelter, is curtailing outdated capacity amid a broader crackdown by the government on illegal production – according to two people declining to be identified. This will mean 250,000 tonnes less in annual capacity in the midst of the country’s total smelting capacity of some 40 million tons. China may possibly cut 12 percent of its capacity. Aluminum’s recent price was $1,892 per ton. Donald Trump has been warned by industry executives to take care regarding antidumping actions on imported aluminum.That used for cans is a very different material than that required in the U.S. defense industry. Prodways Group Unveils Rapid Additive Forging Technology France’s Prodways Group, a

subsidiary of Groupe Gorgé, presented its new rapid additive forging (RAF) technology for the 3D metal printing of large titanium parts. RAF technology uses a distinctive metal deposition technology focusing on the metallurgical quality and repeatability of the process. The first metallurgical tests conducted on different parts revealed an absence of porosity and greater mechanical resistance compared with usual 3D metal-printing techniques using laser or electronbeam sintering. The process, which has been tested on various metals, is used to print titanium. The Ellwood Group Inc. has purchased and will operate Gulfco Forge Co., a manufacturer of open-die forgings and rolled rings in Beaumont, TX. The cost and other details of the acquisition were not announced. Gulfco Forge will be a division

of EGI, a Pennsylvania-based organization with 26 business units that include open- and closed-die forging operations producing engineered parts for capital equipment manufacturers. It also has specialty steelmaking and iron casting operations. Gulfco was established in 1919 as a machine shop and manufacturer of heavy components used in oilfield activities and marine manufacturing. The company purchased Beaumont Forge in 1955. Gulfco is able to supply forgings weighing up to 50,000 lbs., measuring up to 4 ft. long and 13 ft. in diameter. Its rolled rings measure up to 132 in. OD with lengths up to 48 in. Its range of products includes discs, bushings, blocks, and gear blanks, as well as seamless rolled rings.

| July 2017


Metals & Manufacturing Outlook


    BY ROYCE LOWE                                 

Ford Moves Production to China, GM To Lay Off Thousands, Tesla Passes BMW and More...


onald Trump’s recent criticisms of Germany’s trade practices together with his threats in January to impose 35 percent tariffs on imported German cars – that he blames for the large U.S. trade deficit – are causing concern in rural, Republican Alabama, where MercdedesBenz, in Tuscaloosa, has been an economic force for two decades. Some 7,000 people pass through this plant every day, including 3,600 full-time workers. Prior to the opening of the Mercedes factory, almost everybody worked in coal mines: Mercedes gave jobs while the coal mines were shutting down.

and with all due respect to the president, any rhetoric that undermines or insults our economic allies is inappropriate and is not productive in any shape, form or fashion.”

Local officials offered $253 million in subsidies, tax abatements and job-training incentives,all of which is considered money well spent. The Chief Executive of the Chamber of Commerce of West Alabama stated “ Candidly

Ford is to save $1 billion by building its Focus in China, instead of in Mexico, the first major decision made at Ford under new CEO Jim Hackett. Production will start on the nextgeneration Focus in China in

| July 2017

Mercedes recently completed a $1.3 billion expansion of the plant announced in 2015 to build nextgeneration SUVs, bringing its total investment in the state to $5.8 billion. Toyota, Honda, Hyundai-Kia and many automobile suppliers have built plants in the region, accounting for 38,730 jobs in 2016.

the second half of 2019. Ford will still be a net exporter and have a trade surplus with China, even after bringing the Focus in. Mustangs and Lincolns, both popular in China, account for part of the export package. Ford needs to slash $3 billion in costs to allow investment in new technology. It is laying off 20,000 employees world-wide. Meanwhile GM has cut production at four of its U.S. assembly lines and is looking to lay off 4,400 factory workers. Fiat Chrysler has laid off 1,300 workers in Detroit. Auto-related industries are responsible for some 40 percent of all the U.S. manufacturing gains in the past two years. BOSCH GmbH will make the

Metals & Manufacturing Outlook biggest single investment in its history, in Dresden, Germany, when it puts $1.1 billion into a chip plant for self-driving cars. The maker of brakes and engines is preparing for a surge in demand for components used in selfdriving vehicles.The factory will start producing chips required for autonomous vehicles, smart homes and Internet-linked city infrastructure in 2021. Tesla, with a market capitalization of $61.6 billion, recently passed BMW by $280 million, to become the world’s fourth biggest automaker after Toyota Motor Corp, Daimler AG and Volkswagen AG. Tesla’s model 3 will start production on time in July and will be followed by a cheaper crossover, a model Y, scheduled to arrive as soon as late 2019. The model Y will necessitate its own assembly plant. The company is considering the possibility of manufacturing in China and will make a decision on this by the end of the year. And Tesla’a long-awaited Model 3 was due to start production on July 7,


before beginning a rapid ramp-up targetting 20,000 per month in December. The aim is 100 cars in August and 1,500 in September on the way to the year-end goal. The car will sell for around $35,000 and with a federal electric car tax credit could cost $27,500. Tesla’s shares were recently down amid flattening sales and concerns about the company’s ability to meet its production forecasts on the new model 3. BMW is unveiling its revamped X3 SUV in Spartanburg S.C. to celebrate the 25-year anniversary of its U.S. factory, its biggest in the world. President Trump was invited to attend but declined. BMW is America’s biggest car exporter on a net basis, with over $10 billion per year shipped abroad. Their CEO recently lauded free-trade by stating, “it is essential for global businesses and economies around the world to flourish.” Volvo, meanwhile, has stated that all new models will be either hybrid or fully electric by 2019.

Manufacturing Laughs

| July 2017


Metals & Manufacturing Outlook


    BY NORBERT ORE                                   


anufacturing in the Eurozone and the U.S. is growing at a torrid pace based on 1H survey results. For the six-month period, the Eurozone PMI averaged 56.3 and the U.S. PMI averaged 56.4. Furthermore, the 18 surveys that we follow averaged 54.6 for the month. June is the second month in Q2 in which all 18 surveys have been positive. The acceleration was also notable in the NonManufacturing sector as the NMI completed its 90th consecutive month of growth (above 50). The Eurozone PMI (57.4, +0.4) reached its highest level in 74 months. The acceleration was led by Austria (60.7, +2.7) making a 76-month high while Germany (59.6, +0.1) and the Netherlands (58.6, +1.0) set 74-month highs. The UK PMI (54.3, -2.0) fell below the post BREXIT average (55.0). However, a PMI of 54.3 is still a quite positive. China’s Official Report, the CFLP PMI (51.7, +0.5) continued above 51 for the ninth consecutive month. The Caixin China General Manufacturing PMI (50.4, +0.8) returned to expansionary territory after a one-month decline. Realistically, the China data reflects little variability making the measurement of change and the rate of change difficult to assess. In North America, Canada (54.7, -0.4) reported growth for the 16 th consecutive month; with an average of 54.9 for the first six months of 2017. Mexico (52.3, +1.1) recorded its 48 th consecutive month of growth. However, a weaker trend is apparent as the PMI has averaged only 51.1 for the past 12 months. | July 2017

The ISM PMI™ U.S. manufacturing reversed from slower expansion in April & May and posted its highest PMI (57.8, +2.9) since August 2014. After averaging 52.9 for the eight years ending in 2016, the PMI is having a strong patch as the index has averaged 56.4 for the first half of 2017. The bounce in the rate of growth can be attributed to strength in four of the five PMI components. New Orders (63.5, +4.0) and Production (62.4, +5.3) made significant gains with support from Employment (57.2, +3.7) and Supplier Deliveries (57.0, +3.9). At this stage of the cycle, a contracting Inventories Index (49.0, -2.5) is considered positive with the expectation of some inventory liquidation as new orders show a rapid rate of growth.

A key manufacturing measure is New Orders Minus Inventories. In June, New Orders grew 14.5 pp (+6.5) faster than Inventories, marking a potential strain on supply chains as they work to maintain supply-demand balance. In the near term, this is quite positive as the greater velocity can put pressure on available capacity and may encourage capital investment. The gap between New Orders and Inventories averaged 7.1 pp from 2014 to the present. Comparing June’s reading to the short-term average suggests the surge in output will continue into Q3. The Customers’ Inventories Index (50.5, +1.0) shows continuing balance of outputs at the finished goods level. The Prices Index (55.0, -5.5) moderated once again, particularly when compared to the average of the first five months (67.3).

Metals & Manufacturing Outlook



    BY ROYCE LOWE                                 


oeing’s defense business is shedding some 50 executive positions, eliminating a management layer and expanding the operational role of the division’s boss, Leanne Caret. Effective July 1, Boeing Military Aircraft and Network and Space Systems will split into two smaller entities reporting directly to Caret. A third segment is being transferred to Boeing Global Services, a new operation to be launched in the near future. Boeing CEO, Dennis Muilenburg, is trying to reduce costs, while Caret has the added challenge of meeting the CEO’s goal for bolstering profits while losing a lucrative segment to the services unit.

demand, predicting a 4.7 percent increase in orders through 2036, or 41,030 jets over the next two decades, a value of $6.1 trillion. Airbus, for its part, forecasts a 4.4 percent increase in new aircraft demand.

Work sites will be closed or moved. Some 60 defense executives will be transferred to the services operation.

S.Korea quietly halted for some four months in 2016 because of a quality problem with a part. Suspension of production began in August 2016 after a connector failed multiple rounds of testing – according to the U.S. Government

Meanwhile Boeing Commercial Airplanes has increased its 20-year forecast for new aircraft

Terminal High Altitude Area Defense (THAAD), the U.S. missile interceptor, saw its deployment in

Accountability Office (GAO) – as the subcontractor had changed its manufacturing processes with no word to Lockheed Martin, the primary contractor, who could deliver only 21 of 48 interceptors planned for 2016. Lockheed subsequently designed a ‘simpler, more reliable connector.’ Lockheed Martin plans to build F-16s in India, in partnership with Tata Advanced Systems Ltd. They will build the newest and most technologically advanced F16s ever. India, the world’s top defense importer, is undertaking a $100 billion upgrade of its Soviet-era military hardware. India recently agreed to buy 36 Rafale combat planes from France’s Dassault for around $9 billion, and talks are underway for the purchase of 50 more. Local production, however, is a strong argument in favor of the U.S. plane against its rivals, including Dassault, in future purchase decisions. | July 2017


Metals & Manufacturing Outlook


    BY ROYCE LOWE                                   


o tax or not to tax.....Apple Inc. CEO Tim Cook says any new, lower federal tax rate on U.S. companies’ overseas earnings should be mandatory for all companies, and that proceeds should be spent on upgrading U.S. infrastructure. Apple has $257 billion in cash reserves, most of which is outside the U.S. Like many CEOs, Cook has supported Trump’s repatriation push. During his campaign Trump proposed a requirement for companies to pay a one-time 10 percent levy on offshore income, less than one third of the U.S. corporate income tax rate. | July 2017

Unlike most developed nations the U.S. applies its 35 percent corporate income tax to global earnings, not just to U.S. income, but companies can defer tax on overseas profits until they decide to ‘repatriate’ those profits. To delay such bills, companies including Apple, Microsoft Corp and Alphabet Inc. have stockpiled an estimated $2.6 trillion offshore. President Trump, aided by his daughter Ivanka, is set to focus on apprenticeship programs – possibly as a way of diverting attention from the ongoing federal investigation into possible coordination between his presidential campaign and

Russia. He is proposing a U.S. Regulatory Review of present U.S. Apprenticeship policy. President Obama announced $175 million in apprenticeship grants to benefit

34,000 Americans last summer, and has recently pledged $2 million of his personal money to help people in his home town of Chicago. There was an unexpected decline

Metals & Manufacturing Outlook


strongest increase since 2010. Trends in global trade remain strong, especially in Asia where exports are growing at the fastest pace since 2011. The EU and Japan, two regions that make up over a quarter of the world’s economic output, are on the verge of a free-trade agreement.

in factory output in the U.S. in May, following the biggest gain in three years, suggesting U.S. manufacturing is leveling off. Factory output was down 0.4 percent (estimated up 0.1 percent) after a 1.1 percent jump, the sharpest since February 2014. Total Industrial Production, including mines and utilities, was unchanged (estimated up 0.2 percent) following a revised 1.1 percent gain, the strongest for nearly seven years. Capacity utilization was down slightly to 76.6 percent from 76.7 percent. Production of motor vehicles was down 2 percent after a 4.1 percent gain in April and a 3.5 percent drop in March.

percent say roads and bridges; 73 percent say electric grid and renewables; 65 percent say water and wastewater facilities; 35 percent say schools and universities; 28 percent say highspeed railroads; 27 percent say airports and 4 percent say other. Most respondents in this survey don’t see Republicans and Democrats coming together to work on the top priorities. Trump’s ‘America First’ seems to have been ‘trumped’ by international trade’s best performance in years: it shows the

It is predicted that international trade volumes will continue to expand. In concert with this is a recent – May – narrowing of the U.S. trade deficit by 2.3 percent to $46.5 billion from $47.6 billion in April. Foxconn, the world’s largest contract electronics maker, and a major Apple supplier, is looking to invest $10 billion in the U.S., the majority of which will go to a display-making factory in a location yet to be determined. The U.S. currently has no panelmaking industry, but is the world’s number two television market.

Manufacturing Laughs

Manufacturing professionals, when asked about their priorities, suggested to Trump: 47 percent say investment in infrastructure; 26 percent say tax reform; 15 percent say health care reform; 8 percent say immigration policy and 4 percent say the Mexican border wall. The emphasis on infrastructure breaks down as follows : 90 | July 2017


Metals & Manufacturing Outlook


    BY ROYCE LOWE                                   


consortium led by France’s Total is signing a deal worth an estimated $5 billion with Iran to develop the world’s largest natural gas field.

of Baker Hughes Inc, merging it with its own oil and gas equipment and services operations to create the world’s second-largest oilfield service provider by revenue.

The deal is the first major energy deal to be sealed by Tehran since the lifting of U.S. sanctions in 2015. It will be backed by Chinese national oil and gas champion CNPC as well as Total, and illustrates the momentum behind Iran’s rehabilitation into the world economy – and underlines the challenges President Donald Trump faces in stopping that process.

The new company will be called “ Baker Hughes , a GE company,” and will be headquartered in London and Houston. The combined company will have roughly $23 billion in annual revenue and will

Under the deal, Total, CNPC and Petropars, a state-owned Iranian company, will develop part of the South Pars field, which is shared between Iran and Qatar. The field, which holds an estimated 1,800 trillion cubic feet of gas, lies in the waters of the Persian Gulf between the two countries. Total will have just over 50% of the consortium, while CNPC will hold 30% and Petropars the rest. GE recently completed its buyout | July 2017

offer oilfield gear including blowout preventers, pumps, drilling, chemicals, other products and services for oil producers in 120 countries. All of GE’s oil and gas-related businesses will be folded into the new company, which will be 62.5 percent owned by GE. Baker shareholders will own the rest and receive a onetime, $17.50 dividend.

Manufacturing Laughs

Metals & Manufacturing Outlook


    BY ROYCE LOWE                                   


131,797 units. Year-to-date sales forWestern Europe are up 3.7 percent. Russia’s crude steel production for May was at 5.953Mt, down 1.5 percent y-o-y; Ukraine’s was 1.689Mt, down 25.5 percent y-o-y. IHS Markit reports production and new order growth slowing in the UK’s manufacturing sector. At 54.3 the PMI for June was at a three-month low.



IHS Markit’s Eurozone Manufacturing Composite Purchasing Managers’ Index (PMI) increased from May’s 57.0 to 57.4 in June. Production and new orders – to both domestic and export clients - were up in June at the quickest rates since the first half of 2011. There was further pressure on capacity as exemplified by order backlogs. There were high degrees of positive sentiment, with business confidence at a record high in

France, and close to peaks in Germany, the Netherlands and Austria. Crude steel production in Germany in May was at 3.801Mt, down 1.4 percent y-o-y; in Italy 2.109Mt, down 4.1 percent y-o-y; in France 1.425Mt, up 21.5 percent y-o-y and in Spain 1.232Mt, down 3.7 percent y-o-y. Car sales in Western Europe were up 1.7 percent in June at 1,411,711 units, with France up 1.6 percent at 230,940 units; Germany down 3.5 percent at 327,693 units; Italy up 12.9 percent at5 187,642 units and Spain up 6.5 percent at

There was a further expansion of both production and new orders, but the rates of increase slowed. New business was slower in both domestic and export markets. There was an overall slowdown, and in spite of weak sterling new export orders were at a 5-month low. Jobs growth was registered at small, medium-sized and large companies. But manufacturers stayed optimistic, with some 48 percent forecasting higher production in a year, 7 percent lower. It is reported that UK factories marked the Brexit Birthday – June 23 – with orders at a 30-year high, growth across most sectors and increased export demand. A CBI (Confederation of British Industries) survey is calling for faster inflation and a reduction in consumer spending. The economy is forecast to grow only modestly from 0.2 percent in the first quarter to 0.3 percent in the second (quarter.) UK car registrations fell for the third month in June, by 4.8 percent y-o-y, according to the Society of Motor Manufacturers and Traders (SMMT). A total of 243,454 vehicles were sold in the month. The UK produced 0.628Mt of crude steel in May, down 16.1percent y-o-y. | July 2017


Metals & Manufacturing Outlook


    BY ROYCE LOWE                                   

Korea 5.665Mt, down 2.7 percent y-o-y. Taiwan produced 1.900Mt in May, up 1.3 percent y-o-y. Chinese passenger vehicle sales were up 1.2 percent in May, with SUV sales up 17 percent to 718,532 units, sedans down 4.7 percent to 878,679 units and multipurpose-minivans down 16 percent to 143,945 units.



HINA saw a slight expansion in operating conditions in its manufacturing sector in June, with the PMI moving back into positive territory, to 50.4 in June from May’s 49.6 reading. There were marginal increases in new orders and production, together with a slight drop in employment, although the rate of job cutting was the weakest since March. Coincident with this, however,

Manufacturing Laughs

was the lowest level of business optimism to date in 2017. There was a modest increase in average input costs during June, following a slight reduction in May. Backlogs continue to rise as staff numbers are once more reduced. CHINA produced 72.259Mt of crude steel in May, up 1.8 percent y-o-y; Japan 8.951Mt, up 0.1 percent y-o-y; India 8.500Mt, up 6.4 percent y-o-y and South

Growth continued in JAPAN’s manufacturing sector in June, but the PMI was down slightly due to weaker increases in both production and new orders, coming in at 52.4 in June from May’s 53.1 reading. There was a boom in export orders to S.E.Asia, the best gain since February. This increased global demand put pressure on Japan’s supply chains. Consumer goods showed the best production and new orders, and there was a positive turnaround in capital goods. There is continuing optimism for the near future. INDIAN manufacturing production grew at the weakest pace since February in June. New order growth was at a 4-month low, and there were marginal increases in employment and buying levels. June’s PMI, at 50.9 was down from May’s 51.6 reading. But new orders from consumer goods firms continued strong increases, while capital goods producers saw a turnaround from May’s contraction. A GST (goods and services tax) will shortly be implemented in India, and this has been reported as stifling growth. Through all this new export orders grew at the quickest pace since October 2016, and there is optimism for the next twelve months in India’s manufacturing sector.

| July 2017

Metals & Manufacturing Outlook



    BY ROYCE LOWE                                   



n Brazil, manufacturing production growth and new orders were up for the third consecutive month in June, but at a slower rate than in May. There was also a quicker reduction in employment numbers. The June PMI came in at 50.5, down from May’s 52.0 reading. There is spare production capacity. Manufacturers are still optimistic that production will grow in the coming years. Brazil’s crude steel production for

the month of May was 2.931Mt, an increase y-o-y of 13.2 percent. The JP MORGAN GLOBAL MANUFACTURING PMI – a composite index produced by JPMorgan and IHS Markit in association with ISM and IFPSM (International Federation of Purchasing and Supply Management) – was unchanged from 52.6 in May. The PMI has been over 50 in each of the past 16 months. Manufacturing growth showed solid, steady progress through the second quarter. ISO9001:2008 and AS9100C

| July 2017


Metals & Manufacturing Outlook


    BY CHRIS KUEHL                                   

The following information is condensed from the NACM.org Credit Manager’s Index report issued June 30, 2017. For the full report, please visit CMI Credit Managers’ Index under News at NACM.org.


s it appropriate to say “wheee” when talking about economic data? It seems that this may be the only response that makes any sense over the last few months as the Credit Managers’ Index (CMI) looks like a roller coaster. It is up one month and plunges down the next—only to rise again the following month. “The variability would be more problematic were it not for the fact that this behavior has been mirrored in all kinds of other data streams,” said NACM Economist Chris Kuehl, Ph.D. “The fact is that there are contradictory waves coursing through the economy as the wild enthusiasm that greeted the start of the year has come face to face with reality. As with the data over | July 2017

the last few months, the majority of the shift this month was due to the same two categories: dollar collections and accounts beyond terms.”

over last month when it was 49.3. The unfavorable numbers have been hugging the border between expansion and contraction for the last few years.

The combined CMI score returned to solid growth territory with a reading of 56.1 after slumping to 53.6 in May. The June reading is as good as it has been in well over a year. The highest level that had been reached this year was 55.8 in April, followed by a decline to 53.6 in May. The overall score for the favorable factors also surged with a reading of 63.9, following a 60 mark the month before. In April and February, the indicator was almost the equal of what it is today—63.6—but June’s number is still the highest seen this year and for several years prior to that. The indicator for the unfavorable factors also looked healthier with a reading of 50.9, but healthy is a relative term here. The data remains perilously close to contraction (under 50), but at least this is an improvement

In the favorable categories, there were some big gains and some minor ones. The category of sales went from 60.6 to 66.5, the best reading for the last several years—better than the previous high of 63.8 set in April. There was minor movement in the new credit applications data (59.3 to 59.8). As mentioned earlier, the mover this month was dollar collections once again. It went from 56.7 to 62.5 and continues the pattern of the last several months (56.4, 61.2, 56.7 and 62.5). There was also an improvement in the category of amount of credit extended as it went from 63.6 to 66.8; again, the best performance in the last few years. The activity in the unfavorable factors was more subtle but important nonetheless. The

Metals & Manufacturing Outlook category of rejections of credit applications improved from 52.4 to 52.6—not a major move, but getting more solid and comfortable in 50s. This matches well with the new credit application numbers. There was a slight improvement in the accounts placed for collection, but it remains in the contraction zone with a number of 49.3, as opposed to last month’s 48.5. The category of disputes climbed out of contraction with a reading of 50.4 compared to last month’s 47.9. The big mover this month was as it has been in the previous months: dollar amount beyond terms. Last month it was 45.9 and this month it is back in the expansion zone with a reading of 50.4. “This echoes the dollar collection data to suggest that companies are struggling to keep current with their creditors, but they have not entered into a crisis situation just yet,” said Kuehl. The category of dollar amount of customer deductions improved a little from 48.7 to 49.1, but is still in contraction territory. The filings for bankruptcies reading also changed a bit (52.7 to 53.4). This was not a major shift as both numbers are comfortably in the 50s. This month there are only two categories remaining in contraction territory and just last month there were four. Manufacturing Sector: The same amusement park experience exists in the manufacturing sector. “This has been a volatile area of the economy thus far this year— by almost any measure,” said Kuehl. “There has been extensive variability in everything from factory orders to durable goods orders, capacity utilization and within the various categories of the Purchasing Managers’ Index. The CMI data has been just as volatile.”

number is not quite as high as it was in April when it hit 56.2, but it is close. The combined score for the favorable factors is back in the 60s with a reading of 63.8 (compared to 59.7 last month). The combined score for the unfavorable factors was 50.7, a slight improvement over the 50 reading in May. As with the combined CMI, the unfavorable readings are hugging the zone between contraction and expansion as they have been for the last few years. NACM CMI — 3 — June 2017. The details are similar to the combined index. The category of sales jumped dramatically from 59.5 to 66.9, by far the highest reading seen in the last several years, eclipsing the previous high of 64.7 set in April. The new credit applications number shifted up, but only slightly (58.6 to 59.8). Once again, there was a big recovery as far as the dollar collection data was concerned. It went from 57.3 to 61, repeating the bouncing ball behavior that has manifested in the last few months. The amount of credit extended reading changed a little, improving from 63.4 to 67.4. This is only slightly off the pace that


was set in April when the reading was at 67.8. The rejections of credit applications moved up a little, matching the performance of the new credit applications reading. It was 52.6 last month and is now sitting at 53.3. The category of accounts placed for collection improved also, but stayed in contraction territory (49.5 to 49.8). “There is still a lot of financial damage to work through and many companies have been forcing collection activity,” explained Kuehl. The disputes category improved a bit, but remained in contraction territory with a reading of 49.6 after a reading of 48 last month. There was an improvement in dollar amount beyond terms, but not quite as dramatic a shift as was noted in the overall scores. The reading went from 48.1 to 49.3; a decent gain, but not one that takes the data out of the contraction zone. The category of dollar amount of customer deductions also showed just the slightest improvement from 48.6 to 48.7. That still leaves the category in the contraction zone. Bankruptcies showed a minor improvement in the filings going from 53.1 to 53.6.

Manufacturing Laughs

The combined score for manufacturing trended back up from May and is now at 55.9 after last month’s dip to 53.9. June’s | July 2017


Metals & Manufacturing Outlook

THE 10 HIDDEN THREATS TO Parts #1 and #2 of a MANUFACTURERS 10-Part Series

  BY ANDREA OLSON                                   

#1 - The Fulfillment Threat When we think of managing logistics and fulfillment in midmarket manufacturing, we think about the challenges of coordinating shipping, managing the communication process (order status, customer follow up, etc.), maintaining dealer and distribution networks, and keeping the customer service process top notch. We often measure the performance of the process through metrics including “ontime shipments”, “number of returns”, and “orders processed per day”. The bigger challenge is that the business of fulfillment | July 2017

has changed, and this impacts manufacturing more than many companies realize. Fulfillment is a big business - just take a look at Amazon. com. They don’t make products. They don’t own any products. They simply do fulfillment, and they do it amazingly well. They have miles of warehouse space, and have shipping processes down to a science. Orders can be fulfilled and delivered often within 48 hours. This level of responsiveness and performance is the new standard. It provides businesses a way to differentiate from others that fulfill their orders in 2-6 weeks or more.

The business of fulfillment is about responsiveness and consistency - who can get a product to the customer when they need it. Fast fulfillment lands more sales. Fast fulfillment commands a higher price point. Fast fulfillment builds brand loyalty. Yet most manufacturers aren’t in the business of fulfillment - it’s simply a “part of doing business”. The big question is how will the advancement of the fulfillment business impact manufacturers, distributors and dealers? The Fulfillment Threat will ultimately disrupt how

Metals & Manufacturing Outlook


dealer and distribution channels will need to focus on shifting their purpose from accessibility to service and technical acumen to survive as a viable business model.

manufacturers engage with customers today, both from an ordering perspective, and a sales channel perspective. There are 5 primary impacts of the Fulfillment Threat: 1) Customer service & tech support will be the new differentiator. Mid-market manufacturers won’t be able to provide a standard 2-week delivery timeframe on products that competitors can deliver within a day through a fulfillment services company. Companies that spend more of their resources on trying to maintain their “98% on-time shipping” will find customers seeking alternative fulfillment sources that can turnaround an order in minutes versus hours, and coming back to the company for real-time technical and warranty support. If you don’t have stellar customer service and support, coupled with old-school fulfillment processes, you’ll soon be out of business. 2) Online visibility and usability of fulfillment channels like Amazon. com will impact the value and viability of individual company eCommerce sites. Users continually are seeking a simpler,

easier, and smarter online experience - most manufactures will not have the capacity or ability to develop and maintain an online platform to compete with sites like Amazon, where many manufactured products are already sold. In addition, companies like Amazon have immense SEO, App presence and interconnectivity across multiple sites and channels. Manufacturers without a strong market presence and persistent awareness building efforts will struggle to gain visibility and users for their online platforms. 3) Dealer and distribution channels will have to examine more value-added services, including in-field support in remote locations to remain viable. Simply having the product on the shelf won’t be a key differentiator, if customers can order a product online and have it delivered in a day to their doorstep from a massive distribution center. Dealers and distributors are also competing with online sales channels, and being so far downstream in the pricing hierarchy, margins will become tighter and tighter, making profitability a struggle. Traditional

4) Shipping costs are continually a challenge to control, and more customers are expecting shipping costs to be free or included in the price of the product. Full Truckloads and LTL withstanding, mid-market manufacturers can spend an inordinate amount of time trying to manage and coordinate small, individual shipments. Companies like Amazon have immense quantity leverage on pricing with UPS, FedEx, and USPS. Manufacturers, even with negotiation, will have a hard time competing on shipping rates in the long term. If these companies choose to absorb shipping costs, they will have a hard time being price competitive and potentially lose money in the long run. 5) Distribution centers and warehouses strategically located are costly to establish and maintain for those companies seeking to have products more readily available across key regions of the country saying nothing for international sales. Professional fulfillment organizations already have these infrastructures in place, and have the capacity to scale quickly. Leveraging distribution centers like Amazon.com are fast becoming more cost effective across the board, leaving traditional satellite warehouse locations an expensive endeavor, lacking value-added services and revenue streams. To compete effectively in a fulfillment-driven world, manufacturers will need to examine how they look at fulfillment from a strategic perspective. Is it a way to differentiate and create new value | July 2017


Metals & Manufacturing Outlook

for customers? Or is it an expense that can be reduced through outsourcing? Is there a new way to approach fulfillment that maximizes the best assets of your organization and eliminating nonprofitable activities? What is your long-term fulfillment strategy? If you haven’t examined this part of your business recently, you may be missing out on new revenue streams, and spending more than necessary on your fulfillment processes.

outside a target cost point? There can be many long discussions on product differentiation and the user experience, but there’s another way to differentiate in the industrial marketplace that’s severely underutilized, and have long-term ramifications to the health and profitability of your business - the customer experience, or UX. When we talk about UX (user experience), we’re talking about the customer. The entire

chat, etc.), automate reordering, see and manage past orders, invoices, and more. This customer experience has not transcended fully into the B2B industrial world, where many transactions are still done by phone, email, in-person or even fax machine. It’s not just customers that are demanding more autonomy and control - OEMs are starting to get into the game, eliminating the traditional sales or purchasing person out of the equation, using EDI (electronic data interchange) systems to by-pass people and streamline the purchasing process. If your organization is still abiding by antiquated, heavily paper-laden, non-intuitive communication processes, you’ll continually find it hard to effectively compete in the marketplace. The UX Threat will ultimately disrupt how manufacturers engage with customers and suppliers - and will require a huge shift in the adoption of front-ofthe-house technology to manage communications and engage customers. There are 4 primary impacts of the UX Threat:

#2 - The UX Threat When manufacturers think of UX (user experience), they immediately jump to product features and benefits. How do we compare to the competition? Are we safer? Cheaper? Perform better? It can be a strong point of differentiation, and can add value for the customer, and command a higher price point. But what if you make what a company might consider a commodity? Or you can’t add any additional features to a product without moving | July 2017

customer engagement from the first touchpoint to the subsequent follow-ups, technical support, customer support, up-selling, and more. Controlling and shaping this customer experience will set apart those manufacturers that will thrive in a digitally-driven world. The UX Threat is real - just take a look at the B2C (business to consumer) marketplace. Customers have the ability to order products in one-click, handle product issues virtually (whether online chat or video

1) Transparency of Information will become a value-added service. Manufacturers that can provide customers information about their purchase history, invoice history, billing information, and more, without the need for a phone call or email, will have a leg-up on their competition. Utilizing digital platforms to provide remote access to information (via website or app) and connecting with customers’ existing purchasing systems is just the start. Access to dynamic, interactive part schematics, troubleshooting videos with embedded livechat, and one-click, in-field part

Metals & Manufacturing Outlook

ordering all create a platform to help a customer be more productive and profitable. This communication shift will move a manufacturer from being a vendor to a strategic business partner. 2) Customer Service becomes a key differentiator when price and performance are virtually equivalent. This equates to a higher level of responsiveness through multiple media channels including phone, email, video chat, live chat, and Twitter. Responsiveness goes beyond simple accessibility, but also issue resolution time. The days of calling a switchboard, getting shuffled through multiple service personnel, and waiting for a callback from a manager are over for those manufacturers that want to compete on a different level. 3) Technical Support will be a competitive differentiator. With the advent of IoT (Internet of Things), technology has raised the expectation of customers in regards to issue response and resolution. A great example of this is Internet Service Providers - with the ability to troubleshoot and correct an issue remotely by patching into your network and making modifications without dispatching a technician. Even major OEMs are getting in on the game. John Deere has launched a

remote monitoring program for their equipment, enabling them to view and access the location and individual performance of a piece of equipment, enabling simpler, faster, and quicker technical troubleshooting. Downtime is lost money, and those manufacturers that minimize downtime through better support will win the market share game. <https://www.deere. com/en_US/products/equipment/ ag_management_solutions/ information_management/jdlink/ jdlink.page> 4) Intuitive Selling systems will help manufacturers not only increase revenues, but provide a way to serve their customers better by reducing their downtime. Predictive intelligence systems, utilizing current and past part performance data, can enable manufacturers to automatically alert a customer when a component has reached its wear life, and generate a prompt for an automatic reorder. This type of predictive modeling will allow suppliers to sustain and grow their wear parts business, while providing customers with more reliable product performance. Manufacturers looking to be more profitable and compete more effectively will need to understand how technology can impact, shape, and influence the customer experience - and how to implement that technology in


a way that increases customer satisfaction, brand differentiation, and profitability. Do you have a UX strategy in place? If not, you might already be woefully behind the times, and the learning curve can be pretty steep. New technologies shouldn’t be about keeping up with the latest trends or chasing the next shiny new object, but rather strategically embedded within your organization, to be utilized as a communications and customer experience differentiator. In the August issue of Metals & Manufacturing Oulook: The Culture Threat (#3) and The Data Insight Threat (#4). Andrea Olson is CEO and Founder of Prag’madik and the author of No Disruptions: The New Future For Mid-Market Manufacturing. A 4-time ADDY® award-winner, she began her career at a tech start-up and led the strategic marketing efforts at two global industrial manufacturers. In addition to writing, consulting and coaching, Andrea speaks to leaders and industry organizations around the world on how to craft an effective marketing and communications programs to discover new sources of revenues and savings. She can be reached via www.pragmadik.com. | July 2017






ISO9001: 2008 AND AS9100C

Profile for Manufacturing Outlook

Metals & Manufacturing Outlook - July 2017  

The July 2017 issue of Metals & Manufacturing Outlook

Metals & Manufacturing Outlook - July 2017  

The July 2017 issue of Metals & Manufacturing Outlook