Estimated reading time: 4 minutes

X-Rayted Files: ’23 and Me?

I’ll start this year’s X-Rayted Files as so many of us do at the start of a new year, whether in a column like this or in our conference rooms—with a look forward for 2023. Just like that, I’m struck by what a daunting task it is to forecast some of the simplest things in these uncertain times. With the disruption we’ve seen already seen these last couple years in the 2020s, ’23 is likely to be the hardest of recent years to predict. I’m both curious and cautious as we embark on a new year and, like most of you, I find myself trying to identify opportunities among all the noise. 

In many ways, we’re aquaplaning into the new year on the back of an exceptional 2022, and while I see some reshoring/friend shoring and mitigation of any downturn as technology becomes even more ubiquitous, I would caution against collective optimism and any kind of reliance on big government to have an impact. Globalization is a slow ship to turn, and the waves likely reflect a correction in global supply chains rather than a paradigm shift. Some reshoring is going to occur for sure, and it will be healthy, but by and large my gut tells me it will be more of a temporary backlash than sustained movement. 

Will we or won’t we, or are we or have we already experienced a recession? Even this is harder than usual to define and, for some, it depends on what segment of the economy your prospects are tied to. Those serving the consumer products sector, where there was so much over-purchasing during the pandemic, may feel a recession. Others supporting military and aerospace customers will likely see some growth. For most, regardless of who your customers are, we will all feel the sting of increased borrowing costs and the increased difficult in accessing capital. With limited tools at hand to control inflation, pulling hard on the interest rate lever will impact most segments of the economy. Complicating things, of course, is the uneven nature of the supply chain recovery. For some items, months-long lead-times have turned into overstock with immediate availability, while other product deliveries may remain painfully slow. If you need both to complete a product of your own, it can become a real struggle as you wait to deliver and take revenue.  

Like many of you, while I’m feeling good about the buffer provided by an order backlog and the increase in availability of components to allow us to fulfill that backlog, I am concerned about the validity of both the order-books and the inventory. Many orders have been placed to ensure a spot in the manufacturing queue; how many forecasts are masquerading as purchase orders?  As demand profiles change, some of those orders could evaporate. Meanwhile, do we really know how much risk exists in our inventory? 2023 could be the year it all unravels. That’s not to say, “Be afraid,” but rather, “Be vigilant,” and prepared with contingencies.  

Challenges also continue to persist in the availability of talent. The upside-down nature of the labor market means that if you’re in need of high-skilled tech workers, you’re in luck! On the other hand, if you’re looking for an entry-level assembler, if you’re lucky enough to find someone to fill the role, their compensation is likely to be far higher that what you’re accustomed to. One predication I’m pretty comfortable making for 2023 is that this problem is going to persist through this year and well beyond.  

So often over the years we’ve looked to automation and digital transformation as the future of manufacturing. With labor constrained in the way it is currently, automation that serves as a substitution for labor can be extremely appealing. In inspection, for example, automation can replace inspectors making pass/fail decisions, and in many cases automation can perform such work more accurately. Data collection and analysis, at least that which actually helps inform decision making, can be transformational, but can also be costly to implement. But again, in an environment of tightening access to capital at increasing cost, I’m not optimistic that we will see much acceleration in either data collection or analysis for ’23, at least not across manufacturing broadly.  

Looking further out—and perhaps this is among the opportunities on the horizon—one has to weigh the demographic shifts in Asia, with China’s population contracting for the first time and India overtaking them as the world’s most populous country. It’s a little early to tell what this will mean for China, both in terms their manufacturing economy (might it contract for a lack of labor?) and as a consumer economy (will their middle class stagnate and consumer demand contract with that?). Should we be anticipating further growth in India in both manufacturing and middle-income consumer spending? Getting this one right early could certainly pay dividends. 

Whew. 2023 is likely to be a year for a lot of deep breaths. Don’t be afraid to revisit your business model as you look for opportunities among all this uncertainty. The agile among us are going to have a pretty good year, while others might find themselves grinding this one out. 

Dr. Bill Cardoso is CEO of Creative Electron.