The new rules of inventory

Dr. Chris Kuehl, the Fabricators & Manufacturers Association's economist, had this nugget of wisdom in his "Business Intelligence Brief" for Sept. 2: "The role of the manufacturing sector in this recession and subsequent recovery is going to be studied for a long time. Thus far the rules of economic rebound are consistently being broken, and it is not altogether clear what is going on. Then again, almost everything about this economic collapse has been a bit odd."

So the thinkers continue to think, and the metal fabricators of the world move forward, looking for ways to deliver products faster and always searching for more customers. They don't need to know the reasons for the slow recovery; they just need to know when the recovery will pick up steam. Unfortunately, no one knows the answer to that.

What do we know? Factory orders increased 0.1 percent in July, held down by declining orders for computers and machinery, according to the U.S. Commerce Department. The Purchasing Managers Index for the U.S. rose from 55.5 in July to 56.3 in August, which indicates expansion in the manufacturing sector. It's not a robust expansion, but manufacturing is doing more than its part to keep the economy from taking another dip.

Even with the creeping expansion, manufacturing companies aren't hiring. They are laying off fewer workers, which is sort of good news, according to those that work in air-conditioned offices and research these types of things.

Like the economists, manufacturers just don't know what they are dealing with. Metal fabricators that I have spoken with in recent weeks describe their shops as busier than last year, but they don't have any reason to believe it will continue. "Nothing's in the pipeline," many of them told me. That makes it hard to forecast a robust picture for the future.

Look closely and you'll see that perhaps we've entered the days when everyone is forced to operate lean, whether they want to or not. Simply put, no one wants inventory. With the chaotic nature of the economy, where the market is up one day and down the next, no company wants to get stuck with the cost associated with unwanted inventory.

If those companies don't want excess inventory, they aren't placing orders for new products until they absolutely have to. As a result, metal fabricators don't have as many orders in the pipeline. When the orders come, customers need the metal fabrications as soon as possible.

A sales representative for a machine tool company told me this week that his company had to wait eight weeks for a part for its bending machines that used to be available in a matter of days only three years ago. The lack of inventory can be a pain for the customer, but most will have to deal with it.

Luckily, many metal fabricators will be able to exploit the situation. They have invested in shop floor practices, capital equipment, and software that have allowed them to squeeze that time between receiving the order and delivering the parts, and these fabricators may be able to step up and meet the increased customer demands while others can't.

I believe the order pipeline eventually will fill again, but it may not be like the good ol' days. The pressure to deliver quality parts just-in-time may be a value-added service that some OEM customers never want to give up.