Factories grapple with production demand

Timken Company stands at a crossroads, along with thousands of other manufacturers gearing up for recovery, trying to decide which orders it can fill without overextending itself, and raising anxiety among some customers who might be left out, the Wall Street Journal reported.

"Everyone wants to ramp up," said Mike Arnold, executive vice president of the company's bearings and power-transmission group. "But nobody wants to overcapitalise," he said. "It's a very tough call."

Any mistakes could be costly. Bringing idled capacity back online too quickly can damp prices, as is beginning to happen in the steel industry.

Yet opening the spigot too slowly can lead to shortages, forcing companies to put workers on overtime or otherwise scramble to placate customers.

Corning Incorporated, which slashed its inventory during the recession, was caught off guard recently when brisk auto sales fuelled demand for its emissions-control filters and devices. To supply its Asian clients as quickly as possible, Corning has had to pay substantially more to ship the parts by air, rather than sea.

Manufacturers caught in a similar bind have fuelled a boom in FedEx Corporation's premium international air-delivery service. Tight industrial capacity has forced many companies to trade up to the service to ensure timely deliveries to foreign customers.

In April, US manufacturers were operating at just 70.1 percent of their potential capacity, up from a low of 65.1 percent last June, but well below their historical average of 80.8 percent.

Getting capacity back up and running isn't easy. Rehired employees who have been out of work a year or more typically need some retraining. Production equipment may also need to be recalibrated and tested.

Even some companies that are adding capacity are doing it slowly. Lubrizol Corporation, which makes lubricants, plans to break ground on a new US$200 million lubricant additives plant in China in the fourth quarter. Production will begin in 2013 and will be phased in over several years to avoid creating overcapacity.

Timken, which laid off about 20 percent of its work force during the recession, said it has been approached by customers asking whether the Canton, Ohio, company could deliver enough bearings if demand doubled.

"It's very easy to answer a specific question from one customer," said Arnold. "When you have 27,000 who are asking the same question, and they might need the same product at the same time, it's a very difficult question to answer."

Arnold said Timken is restoring production capacity at a deliberate pace, focusing on the customers and markets it considers strongest.
(Source:www.cargonewsasia.com)