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Manufacturing Evolution Over Last Five Years

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The manufacturing industry has undergone significant transformation over the past five years, marked by technological advancements, shifting global dynamics, and evolving consumer preferences. From the rise of Industry 4.0 to the challenges posed by geopolitical uncertainties and the COVID-19 pandemic, manufacturers have navigated a rapidly changing landscape. In this blog, we delve into key trends and developments that have shaped the manufacturing sector over the last half-decade, highlighting both challenges and opportunities that have emerged.

Embrace of Industry 4.0 Technologies

Industry 4.0 Technologies

The past five years have witnessed a widespread adoption of Industry 4.0 technologies across the manufacturing sector. From advanced robotics and automation to Internet of Things (IoT) devices and artificial intelligence (AI), manufacturers have embraced digital transformation to enhance efficiency, productivity, and flexibility. Smart factories equipped with interconnected systems and data analytics capabilities have revolutionized production processes, enabling real-time monitoring, predictive maintenance, and agile manufacturing.

Reshoring and Supply Chain Resilience

Reshoring and Supply Chain Resilience

The COVID-19 pandemic exposed vulnerabilities in global supply chains, prompting many manufacturers to reconsider their sourcing strategies. Over the last five years, there has been a trend towards reshoring and nearshoring as companies seek to mitigate risks associated with disruptions and strengthen post-pandemic supply chains. Building resilience into supply chains through diversification, localization, and closer collaboration with suppliers has become a priority for manufacturers looking to enhance agility and responsiveness to market fluctuations.

Sustainability and Circular Economy

Environmental sustainability has emerged as a key focus area for the manufacturing industry in recent years. With increasing awareness of climate change and resource scarcity, manufacturers are embracing sustainable practices to minimize environmental impact and meet regulatory requirements. The concept of the circular economy, which aims to reduce waste and maximize resource efficiency through recycling and reuse, has gained traction within the manufacturing sector. Companies are investing in eco-friendly technologies such as heat induction bending services, renewable energy sources, and closed-loop systems to minimize waste generation and carbon emissions.

Resilience Amidst Disruptions

Resilience Amidst Disruptions

The manufacturing industry has faced numerous disruptions over the past five years, including trade tensions, natural disasters, and the COVID-19 pandemic. These disruptions have underscored the importance of resilience and adaptability in manufacturing operations. Heavy steel fabrication companies that have invested in digitalization, supply chain visibility, and risk management have been better equipped to weather the storm and pivot swiftly in response to changing market conditions. The ability to anticipate and mitigate risks will continue to be critical for manufacturers in the years ahead.

Skills Gap and Workforce Development

As manufacturing becomes increasingly digitized and automated, there is a growing need for a skilled workforce capable of leveraging advanced technologies. However, a widening skills gap has been a challenge facing the metal fabrication industry, with shortages of workers trained in STEM (science, technology, engineering, and mathematics) disciplines and digital skills. Over the last five years, manufacturers have ramped up efforts to address this challenge through investments in workforce training, apprenticeship programs, and partnerships with educational institutions. Building a talent pipeline equipped for the demands of modern manufacturing will be essential for future growth and innovation.

Closing Comments

The past five years have been transformative for the manufacturing industry, characterized by technological innovation, supply chain disruptions, and a heightened focus on sustainability and resilience. As manufacturers navigate the challenges and opportunities of a rapidly evolving landscape, adaptability, agility, and forward-thinking will be key to driving success in the years to come. By embracing digitalization, prioritizing sustainability, and investing in talent development, manufacturers can position themselves for continued growth and competitiveness in an ever-changing global marketplace.

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Post-Pandemic Fabrication Supply Chain

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The COVID-19 pandemic had led to the disruption of the fabrication and manufacturing supply chain. First came the supply shock, where many fabricators dealt with canceled orders not from lack of demand but because manufacturers could not get other needed parts for the final product. Then came the second punch, this time on the demand side, as unemployment spiked dramatically. manufacturers reacted by reducing or halting orders altogether. Now that the severity of the pandemic has considerably diminished, there is expected to be an evolution of the metal fabrication supply chain. There may be new trends and factors coming up in this regard, and this blog will look to deep-dive into this topic.

Transparency

Supplier management and optimization is a critical requirement in supply chain management since one would want the plumbing set up for multiple supply chains so that one can turn on the faucet here or there, depending on the timing. To do that in some cases, manufacturers reduced the number of faucets (suppliers) to just a few large, highly reliable ones. This in part has helped make some of the largest heavy steel manufacturing companies even larger. The COVID-19 crisis might spur more dual sourcing. If the disease reemerges in a certain locale and everyone at a certain plant needs to go home, will another supplier elsewhere be able to pick up the slack? Such dual sourcing might add a bit of supply chain complexity which is a challenge facing the metal fabrication industry. It goes back again to supply chain transparency, not just between a fabricator and its customer, but also wherever value is added within the entire supply chain. Manufacturers might accomplish this in various ways, one of them being by contracting directly with the lower-tiered suppliers, including metal fabricators. Fabricators might still send welded components to an assembler, which then sends them on to the manufacturer. But the assembler might act simply as a toll processor. In this sense, the supply chain would evolve into a kind of network.

Reshoring and Tracking Financial Health

Overseas work has been coming back from Asia for years, and the steel tariffs of 2018 and the COVID-19 pandemic have accelerated those efforts. According to a survey, 64% of manufacturing and industrial companies are likely to nearshore or reshore because of pandemic-related concerns. In that same survey, 53% of businesses reported difficulty receiving COVID-related supply chain information from their Chinese suppliers. A change in geography does change the risk level, however, supplier location is only a piece of the puzzle. Transparency is still the name of the game. An opaque supplier relationship can have negative consequences, whether that supplier is down the street or an ocean away.

Transparency will include information related not only to where components are in the supply chain, but also the financial health of suppliers. An audit might give a snapshot of a supplier’s liquidity, leverage, efficiency, savings due to process automation, and access to cash. But how will this financial situation change over time? Again, demand for such transparency has been building for years, especially in certain industries.

Make vs. Buy

The COVID-19 pandemic is likely to enable more make-versus-buy analyses and evaluations. The variables in the make-versus-buy decision will remain the same, including available suppliers, shipping logistics, and the nature and mix of products being manufactured. But the potential of disease outbreaks or other external shocks around the globe will lead more companies to further scrutinize their decisions. It is likely that the pandemic will not lead to some massive vertical-integration movement. Bringing in a process that is too far outside a manufacturer’s wheelhouse still will not be practical in many cases. This will be particularly true with processes that require certain expertise, like high-end welding and other specialty fabrication processes such as development of pressure vessels.

The Last Chapter

COVID-19 has tested the agility of industrial supply chains. As the economy picks up in a post-pandemic world, it is essential to ensure that the lessons learnt during those hard times are not lost, but used to drive innovations in supply chains going forward. As the saying goes, a chain is only as strong as its weakest link and supply chains need to iron out their shortfalls to emerge stronger in the long run!

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Drilling In South America Set To Peak During 2022

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Drilling and completion activity in South America is expected to peak this year after a significant slowdown in 2020 due to the destruction in global demand brought on by the COVID-19 pandemic, Rystad Energy claimed. According to Rystad, the rebound is more pronounced for offshore wells, primarily driven by an uptick in activity in Brazil and Guyana. With the overall recovery in drilling, South America is also winning back a global market share of new wells drilled, with offshore proving the standout sector.

New wells drilled with the support of steel fabrication in South America in 2014 contributed to 8 percent of new wells globally in the offshore sector and 4 percent in the onshore. Activity has been on a downward trend since then following the slump in oil prices in late 2014 and the following year. Onshore drilling activity had witnessed a steep drop in 2016 before stabilizing, while offshore drilling activity saw a relatively smoother decline. The number of new wells drilled in the region was hit again in 2020 with a 50 percent decrease recorded compared to the previous year, as the outbreak of Covid early in the year wreaked havoc on global markets. Drilling activity in South America in 2020 constituted only 2 percent of global onshore activity and 3 percent of offshore.

The number of new wells has since increased due to the return of demand and increase in prices of oil and gas. Activity is expected to peak this year before going on another downward trend towards the end of the decade, partially due to Brazil having very low discovered onshore volumes in the last six years, making it difficult to support long-term growth. Offshore drilling activity in the region will remain at around 6 percent of global activity over the coming years, while onshore drilling will remain at around 3 percent. It should be noted that, while the offshore well count in the region is significantly lower than that of onshore, offshore production makes up nearly half of South America’s current output and is expected to exceed onshore production by 2024 due to increases in Brazil and Guyana. Advancements in drilling technologies are also expected to boost South America’s oil production in the years ahead.

Another region in South America that is seeing all-time high activity is Argentina’s Vaca Muerta. The country recorded further production growth records, as operators step up fracking in the prolific Vaca Muerta shale formation in Neuquén. While activity is at an all-time high, persistent supply chain bottlenecks suggest there is not a lot of room for incremental put-on production activity in the next few quarters. Yet, with base decline remaining low given the basin’s early phase of development and the improving type curves, oil output is still poised for significant growth in the coming years. Rystad Energy research claims that the region’s production could exceed 300,000 barrels per day early next year, expanding further to 400,000 bpd in 2024, helping the country’s total rebound to levels not seen in nearly 20 years.

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Petronas Is Not Acquiring Sapura Energy

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Malaysia’s national oil company Petronas is not going to be acquiring its cash-strapped compatriot contractor Sapura Energy, which would have brought Sapura under the same group as rival contractor Malaysia Marine & Heavy Engineering (MMHE) and shipping giant MISC.

Malaysia’s national oil company

Responding to news reports, comments in the media and recent speculation on its purported “talks with the government on a proposal to take a significant stake” in Sapura Energy, Petronas stated that it “wishes to categorically deny these reports and speculation”. “We have always been and will continue to be strictly guided by an established framework for any investment or divestment consideration,” said Petronas.

A notable call to protect Sapura from bankruptcy had come last week from former Malaysian prime minister Najib Razak – who mentioned that if the offshore and marine giant were to go to the wall, it would take with it 10,000 “high-paying jobs” and 4500 vendors and suppliers would also be impacted. “This was how Petronas saved MISC (now an indirect subsidiary of the energy giant) in 1998. Upon recovery, Petronas… can resell part of Sapura’s shares to the local market just as Petronas resold MISC’s shares to make a profit,” said Najib. Sapura Energy posted an 8.9 billion ringgit (US$2.11 billion) net loss for its 2021 financial year — reportedly the largest-ever loss for any Malaysian government-linked company.

etronas not acquiring Sapura Energy

Other alternatives proposed by Mr. Razak included the government providing loans to Sapura or for the contractor to be taken over by Khazanah Nasional — the Malaysian government’s sovereign wealth fund which is entrusted with growing the nation’s long-term wealth via distinct commercial and strategic objectives. Sapura today is 40% owned by Permodalan Nasional (PNB), and Mr. Razak criticised the state-controlled unit trust company for being unable to pump more money into the oilfield services giant, given its financial woes were exacerbated by the fallout of the COVID-19 pandemic.

Sapura's current poor financial condition

Sapura’s financial woes have been widely documented. The contractor has been more adversely hit than its competitors by the repercussions from the coronavirus crisis, primarily due to its order book’s large exposure to the transportation and installation (T&I) sector. Offshore T&I projects can require hundreds of workers on location. At the height of the pandemic, these workers each required numerous very costly PCR tests on top of long quarantine periods in hotels before and after jobs. A single such crew mobilisation can cost hundreds of thousands of dollars, if not more. These were amounts that were never envisaged by Sapura during pre-Covid times, and the logistical challenges of mining plant and equipment (and corresponding costs) quickly escalated if just one worker tested positive for the coronavirus. Against this backdrop, Sapura did not secure work it had hoped as operators deferred taking the final investment decision on projects, itself another knock-on from the pandemic.

© K999 Engineering & Construction Co. Ltd. 2023