We see the expansion plans of companies related to the heat treat industry, and we are with you: How? Why? At this time?
Heat Treat Today’s Original Content article seeks to illuminate some of these questions and frame industry expansion in real terms, as well as share reasons to be hopeful for the future. Featured in this article are Industrial Heating Equipment Association (IHEA) Economic Specialist Dr. Chris Kuehl, Managing Director at Armanda Corporate Intelligence, and Jason Orosz, President of Nitrex Heat Treating Services (HTS).
“COVID-19 may own the spotlight today, but manufacturing’s tomorrow is getting some big-dollar investments.“
– Jill Jusko, “Looking for Good News in US Manufacturing? Major Expansion Plans Add Some Sizzle,” Industry Week
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It is safe to say that manufacturers have taken encouragement from news of industry giants in the manufacturing industry announcing the status of their expansion plans. Last month, Industry Week covered several of these changes: Navistar International Corp. broke ground for a plant in San Antonio, TX; Canpack Group, based in Krakow, Poland, will build an aluminum beverage can plant in Pennsylvania; Tesla had already begun its Gigafactory located near Austin, Texas which is set to be operational by the end of 2021; and Nikola Corp. also broke ground on its 1 million-square-foot manufacturing facility in Coolidge, Arizona.
(photo source: Peters’ Heat Treating, Inc.)
In the heat treat world, we’ve seen companies, like Peters’ Heat Treating and Nitrex, celebrating plant expansions, opening new facilities and breaking ground to expand existing ones. Jason Orosz, president of Nitrex Heat Treating Services (HTS), illuminates that there is a backstory to the titillating headlines: “[many] recently announced expansion plans… were being formulated well before COVID-19 hit, and are based on assumptions about future business levels for 2021, 2022, 2023, and so on.” He goes on to recognize that, “for many industries, this year’s contraction will be seen as more of a temporary, but severe, loss of business than a permanent reduction.”
Still, what does this trend of expansion in the automotive industry in North America mean?
IHEA Correspondent
Managing Director at Armanda Corporate Intelligence
Dr. Chris Kuehl, managing director at Armada Corporate Intelligence and IHEA’s executive economic summaries author, indicates that one must consider existing circumstances before one can understand the transition. For instance, setting up production sites abroad, Kuehl notes, typically has lower production costs, more than simply lower wages. In certain locations, one does not adhere to the same magnitude of regulations and restrictions that are implemented in the U.S. Additionally, access to raw materials is priority, and “setting up shop” closer to those foreign resources has helped to diminish production costs in the past. Lastly, Kuehl points out that thoughtful location of production centers abroad can open up new market opportunities for companies.
Looking at the current rise in production centers in the U.S. may mean three things, says Kuehl. First, the role of technology in capital distribution: “Technology and robotics [have] reduced the importance of cheap labor. The company using machines can worry about other factors. Now, they can think more about transportation costs and access to their market.”
Second, “working overseas is harder now than it was,” Kuehl comments. In previous years, more countries have engaged in protectionism, and the trade wars of last year did not make life any easier. Now, COVID-19 is just another blow to international supply chains, having “stranded some 40% of global cargo and basically crushed the whole concept of JIT [just-in-time production system].”
President
Nitrex Heat Treating Services
This current disruption in the economy cannot be minimized. Orosz states that the current economic climate has impacted how capital is deployed, and can occur in construction being delayed, or perhaps firms holding their cash for any future, COVID-19-related disturbances.
And third: the new trend of “mass customization.” Instead of needing mass quantities of products being made cheaply — which drove the practice of “distance sourcing” — Kuehl highlights that the present “consumer wants infinite variety and specialization,” which, as it were “requires manufacturers be close to that market to understand what is needed and when.”
This trend of bringing supply-chains closer to home is cause for hope, though. “[I] think companies,” comments Orosz, “are optimistic that, going forward, an increasing portion of the supply chain for American multinationals will be U.S.-based vs. what may have been seen over the past few decades. If this trend proves true, it will certainly trickle down into the local industrial heating sector.”
[blockquote author=”Jason Orosz, President of Nitrex Heat Treating Systems” style=”1″]”Over the long term, expansion plans for stable, forward thinking manufacturing companies will proceed mostly unchanged. Of course, there are notable exceptions… but I think situations like that are the exception, not the rule.”[/blockquote]
Considering present events, Orosz notes that “over the long term, expansion plans for stable, forward thinking manufacturing companies will proceed mostly unchanged. Of course, there are notable exceptions like the passenger aerospace industry whose supply chain will be impacted for a number of years, but I think situations like that are the exception, not the rule.”
“Our expansion in Aurora is on track,” Orosz continues, as an anecdote to his point, “and we expect it to be operational mid-2021. Our main goals are to increase our overall production capacity and install the latest in new technology to ensure that the services we can offer our customers are on the leading edge of what’s possible metallurgically.”
Hope is the often idealized maxim of many societies: “Hope is the thing with feathers,” “we hope in the things unseen,” “our greatest glory is not in never falling, but in rising every time we fall.” But in times of crisis, how many of us choose to do the hard and essential thing: hope?
