SO IS THIS THE NEW NORMAL? AND HOW DO WE NAVIGATE THE FUTURE?
By Richard Darling, Ricoh Europe
Although lockdown was a difficult time, it was possibly one of the most certain times ever. The whole world’s population faced the same problem at the same time and controlling the coronavirus had most people working from home. This gave us all a high level of certainty: Whilst our freedom was greatly restricted, there was a clear understanding of why and what needed to be done to protect health and stability. We were aligned and synchronised.
Richard Darling asks ‘In this the new normal’?
Since lockdown has (mostly) eased, it seems we’ve had no chance to even breathe a sigh of relief! The world seems to have gone straight from social distancing to conflict, from masks to military helmets, with resulting stresses and inflation. There has been too little time to adjust and adapt… to what?
In this article, Richard Darling looks at change factors with insight and inputs from three experts with different perspectives - behavioural economist Roger Martin-Fagg, IT Strategies co-founder Mark Hanley and Liselotte Lyngso, the Future Navigator, a futurist and expert in future trends. The question asked is whether we know the shape of the new normal and what we might expect. What does it mean for industrial print technology and production and how are we to steer our businesses successfully into the future?
Post-pandemic, with increased freedom, comes increased change and uncertainty albeit with reasons to be positive and optimistic about the future. Here we lay out some of the macro factors impacting our world. Then we focus on inkjet and how we see the new normal helping or hindering the potential commercial growth of this technology within industrial markets.
Challenges
Shortages, Inflation, Discontinuity
The COVID crisis led to change in various ways, Was this change elastic or inelastic? What will change back and what won’t? Change will continue - that’s certain. The nature and extent of what might evolve are not so clear.
We should try to understand what has caused or is causing the current problems with supply chain and demand? Is it shortage of supply or increased demand?
Governments injected money to our economies as COVID support which boosted consumer demand overall. Roger Martin-Fagg says with some authority, “there’s basically a backlog of demand caused by the biggest ever consumer electronics boom. Last year, in the USA alone, $600 billion was spent on laptops, tablets and smartphones. Such a global surge has contributed to creating a backlog of the parts and materials required to manufacture this smart technology. Manufacturers are even offering to buy back old smartphones and indeed cars, to provide parts so they can manufacture new ones, and on occasions, to sell on as their value is now so much higher.
“We’re in the midst of this boom now. It features full employment, inflation, high house prices, high demand for travel and holidays and consumer goods etc., in part because, after limitations on freedom, people want to get away and spoil themselves.”
Whilst enforced COVID closures hurt traditional bricks-and-mortar retail, consumption grew with a shift to online buying. A fight for materials, components and supply of previously abundant resources developed and supply chains buckled. Transcontinental manufacturing models have not proved entirely fit for purpose. Lately, producers’ focus has switched from cost-efficiency and lowest sourcing cost toward the security of supply. A mass of factors affects global sourcing, from hugely inflated costs for container and shipping to geopolitical economic shifts and tariff wars.
Stability and continuity of supply are firmly high priorities. For many producers, digital manufacturing suddenly appeared more interesting and viable, more so than ever before. The idea of shortening the reins, taking tighter control of supply, and manufacturing closer to the target consumers became incredibly appealing. Industrial producers faced new and serious challenges. They also have had an abnormal opportunity to rethink.
We all talk of these unique circumstances but there is a precedent. Martin-Fagg refers to a striking similarity of circumstances in comparison to the 1920s. “After dealing with the stress of war then the issue of the world influenza pandemic which killed 50 million people, people wanted to party which is what we refer to as the ‘Roaring ‘20’s’ This also correlated well with the fact that innovation in household technology had begun to liberate people from menial tasks, so a larger portion of populations began to spend their growing disposable income - the start of the consumer economy. All the extra spending inevitably led to inflation, and then to a big reset. I personally think that the world economy needs a reset - we need to calm everything down.”
Boom is always associated with a coming bust. Martin-Fagg goes on to say that a “bust is part of an economic cycle. Overall, economies go through four stages in a cyclical pattern: expansion, peak, contraction, and trough. Assessing factors such as GDP, interest rates, total employment, and consumer spending, can help us determine the current stage of the economic cycle.
“Recession is caused by monetary disequilibrium when consumers notice their bank balances are well below the level they’re comfortable with. To restore the balance they immediately cut back on non-essential spending, like entertainment, eating out and travel. As an example, currently, UK households have liquid funds averaging £6,500. Assuming they draw on their savings (historically they always have) then they will maintain their spending this year despite much higher bills. Households do this in anticipation that their wages and bonuses will increase over the next year. But if inflation runs well ahead of earnings i.e. at 10% when earnings are 6% then next year households effectively have run out of purchasing power and consumer demand collapses.
“So the outlook for the next 18 months depends on the relationship between earnings and inflation. If they diverge with inflation a good deal higher we can expect a sharp slow down second half of 2022, and if the divergence continues into 2024 then a recession. Assuming money supply only grows at 5% over the next 18 months then something has to give. There is only enough new money to finance 3% real growth and just 2% inflation.”
Major events such as pandemics and wars always accelerate change. So which has had the biggest effect on inflation? In Martin’s view “Before the invasion of Ukraine, global inflation had already begun. Current prices and activity are the results of money creation over the past two years. Think of it like this: Imagine that the economic might of another China has just entered the world economy. $17 trillion has been added to the world economy through various COVID salary support schemes. Incidentally, 64% of the global increase in money supply is down to the USA and the EU. This money is in the hands of people who want to spend and go on holidays” back to the roaring 20s again. Inflation is the result.
“It will take some time to level out, but level out it will. If we observe the latest money supply data we see growth at pre-pandemic levels at 5%. This is insufficient to finance nominal GDP growth at 10% which is the current average figure for the Western economies, that 10% being roughly 3% real growth and 7% price growth. While the current buoyancy will last some time longer - it is possible that governments will cut income tax to effectively increase after-tax incomes - income increases are, nevertheless, unlikely to keep up with the inflation.
“Mr Putin has further turbocharged commodity prices. Added scarcity of fuel and staple foods such as wheat causes prices to increase and inflation, regardless of whether these products can be sourced elsewhere. Scarcity simply puts prices up which places strain on consumers.
To summarise - Prices took off due to excess money. They remain elevated due to shortage in supply.
Demand for digital printing and equipment may be high with the potential attractions of producing more locally, securely and on demand, then also avoiding the wastages and inefficiencies inherent in other more traditional printing and supply chains. Inkjet and digital manufacturing or printing equipment may be part of the solution, a restructuring to improve consumer product manufacturing. However, systemic shortages of any of the many components involved in building digital printers obviously makes it difficult for OEMs to meet this high and growing demand.
Producing printing equipment, in common with many other categories of industrial equipment, suffers shortages, the same as those in consumer goods manufacturing. Print technology manufacturing is a tiny part of the big-picture scramble for parts. Global availability of microchips, sensors, drive motors and many other key commodity components is difficult. Many reasons have been floated - not all are necessarily real.
On the demand side, naturally the general boom in consumer spending, especially consumer electronics, and even governments’ driving the switch to electric cars has been mentioned, i.e. new consumption of components that were formerly, in the old normal, for other industrial applications.
Supply constraints are attributed to fires in semiconductor factories, lockdowns in ports, short-time manufacturing working and continuity planning from larger organisations alleged to have bought up components for safety stock - the economist estimates $9 trillion in inventories stockpiled as insurances against shortages and inflation.
Whatever the cause, the result has been unforeseeable gaps between what OEM buyers want and need, and what they can buy. For whatever is available, prices have been massively inflated. Electronics have always been designed using optimum board components. Most now have been forced to redesign using anything they can source, with costs reported to be 10x and more.
Ricoh as both a printer OEM and a supplier of some of the components critical to inkjet OEMs is well placed to see the situation from all perspectives. Some commodity component scarcity has affected Ricoh’s ability to meet demand for printers, some buying at inflated pricing has been necessary too, to maintain flow of product.
For printheads, planning and procurement of materials and sub-components has ordinarily to be very long-term and super-controlled to feed the continuous production processes involved in this type of manufacturing. Clean rooms have heavy overheads and “the show must go on”, not least of all to maintain process stability and ultimately product quality. Fortunately, the show is going on and Ricoh printheads are freely available to meet demand which has generally been at record levels for the last 18 months.
Mark Hanley, as an inkjet industry expert, lends his insight to make sense of the apparent global chaos and its effect on the print sector. “During the pandemic digital printing business bounced back really well and is, underlying, very strong. Buying behaviour is difficult to predict. We see strong growth but different patterns of work and demand are resulting due to the pandemic. I think some vendors are slow or reluctant to accept that buyer interest may have shifted towards or away from the products they have to offer. For those quick to recognise trends and new technologies doing new things there will be opportunities.” Most in the inkjet industry will have noticed such trends, textile printing being an example.
Mark adds “Of course, price inflation and shortage of paper and supplies have negative effects. However, some may also be positive. For example, shortage makes paper more expensive and the paper cost is a particularly large proportion of analogue print. Comparably, digital print is more efficient [less wasteful] and should therefore be more appealing. This should impact analogue printing and should boost digital print as an alternative.
“Printers are increasingly seeing inkjet as having a very strong future now (in graphic arts) where they were previously slow to adopt. The barriers to change are far lower now. For printers, there’s an ever more distinct choice between specialisation and generalisation. If you are already an analogue printer then economics is driving you now to look at new technology to equip for the future - it’s a must.” The same applies to consumers of print, the producers of products that use some form of print - for clothing, flooring, etc.
As an observer of the general print service provider sector, Mark points out an aspect related to digital print which can sometimes impair greater adoption: “The model for printers is for digital print output to be offered as premium and specialist with pricing high. This remains preferred by both vendors and users. Digital production is still under 10% of the label market, even after 20 years. Printers use digital to sustain themselves with the higher profits of digital print.” For inkjet and digital protagonists this can sometimes be frustrating. Printers often pitch digital pricing high for short runs based on the old model involving analogue costs of set up and lower price per unit for longer runs. However, we all know there are no print set up costs for digital and the unit cost is the same whether the run is for 1,000 or 100,000 units.
“We [IT Strategies] thought COVID would clear out the dead wood. This we see happening. Across the print world there is an accelerating consolidation of print service providers which gets rid of poor performers and grows companies with a better capital base. Investment is now concentrating in people’s minds more towards inkjet, a trend driven by the pandemic, and there’s a sound basis for this to continue.”
Mark and Roger both note another big scarcity issue, common to both the US and Europe: labour availability. It’s a real problem to fill jobs, especially skilled jobs, and this extends way beyond the print industry.
Taking a macro view, Roger offers two reasons. “On one side of the coin, younger people are not joining markets in the way we perhaps need and expect. In the early 2000’s for a reason nobody can actually explain, there was a lower than expected birth rate. This simply means that fewer young people are available for the positions required. Secondly, the ‘Great Resignation’ is really fundamentally caused by high property prices. People in their ‘50’s have realised they can retire by using the unexpectedly high equity in their houses. They have, prompted by COVID, relooked at their jobs and lifestyle and decided to do something else. Losing these people from industries makes a big difference. Both of these factors are causing a skills shortage.”
So retaining and acquiring staff are extra challenges, and retaining knowledge and expertise. With a shortage of the human resource that might signal wage inflation. However, the great rethink during and post pandemic might need for the employment to look at other drivers for keeping existing or attracting new staff. Home working and flexibility of working hours are obvious factors that are equally relevant to Generation Z or Zoomers, as well as those over 50’s. Simply making peoples’ jobs more rich and interesting, or less frustrating and boring, might also be possible. Zoomers are motivated towards businesses doing something that matters - sustainability, impact investment, measuring things in something other than just money. They also discern the differences between saying and doing.
To what extent will such a passionate generation be attracted to work in the print industry, or any associated sector, if there’s an impression given of being trapped in a “we’ll do it the way we’ve always done it” mentality, especially where there is obvious wastage and need for change. According to Mark, “the ‘new normal’ has to become more efficient with people only printing what they need. This will lead to new ways of designing. We’re still in the process of divesting ourselves of the print we don’t need with strong realisation of the potential from digital print.”
Liselotte Lyngsø from Future Navigator, a consultancy dedicated to insight into future trends, looking at the medium to long term. She plots our path through the past two hundred years in distinct stages, from agricultural to industrial, to an information age. Now we move into the “precision age". “It will be about being very precise with what you need, carefully judging when we create something valuable, and when we create something surplus. In 20 years time, we will question why we used to create surpluses [unneeded materials and wastage], whether for businesses or consumers. Cars sitting idle for 90% of the time is not precision” whilst car sharing is more so. For print, why produce more than you know you need? This precision age resonates precisely with Mark Hanley’s view on printing only what we need.
Liselotte says this applies to many areas. “Automation will make a huge difference, re-humanising people. Machines can make the rudimentary decisions, and do the menial tasks, freeing people up to do creative stuff. People will be comfortable using a wide variety of technology to make smarter decisions. This is a key part of the precision age: we will need data to be collected and compared, we need quantum computing and we will all have a virtual version of ourselves as well. The metaverse will continue to grow in its social and commercial relevance, already, through gamification, people are investing a lot of money in virtual clothes for instance! The next iteration of AI will enable us to create our own art and design. This will need to be printed whether for wallpaper, flooring, a piece of art, or a design on clothing. ‘Made for me’ and printed for me as a unique piece via AI - personalised, a characteristic of the age of precision.” At a recent Canon event, Liselotte saw a design she liked. “I asked my dress designer to come up with something similar. The process is automated and she knows my size. I paid £70 for a very affordable personalisation.” This is just an example: We increasingly want to express our individuality in clothes, so digital textile printing will be a growing trend for sure. The same applies to many other areas of manufacturing involving print.”
Consumers having higher expectations in a ‘precisely-for-me’ way must work its way back through manufacturing and supply chains for all the industries that need to serve those growing expectations. This needs new capabilities and fresh thinking, not least of all in the whole way we produce printed matter, and where we produce it. In its simplest form, wastage of inks and paper in making ready and overruns in a traditional printing process can be virtually eliminated. When you add the extra demand for variety that is predicted as a growing trend in the new normal, the precision age in which consumers want precisely, not approximately, what they want, traditional methods via intercontinental supply chains can result in even greater wastage and surplus.
We could all try to predict and plan to provide what consumers, individuals rather than an aggregated body of consumers, want: high risk! Or we could produce and use systems which facilitate pull instead of push, agility and responsiveness to meet real demand. When commodity resources have suffered such dramatic price hikes, buying “cheaply” from halfway round the world, planning months (or years) ahead, burning fuel to transport goods to market, piling up WIP or finished product in inventory and hoping to sell it is wasteful, results in surpluses and is not even good use of working capital: It is not precision.
In this precision age, where wastage and surplus are squeezed out, industrial-scale adoption of digital manufacturing and industrial inkjet equipment should probably be a better way, provided the equipment built to exploit this technology addresses the right need. Equipment must be made to be useful in reforming the way that the goods are produced.
Roger Martin-Fagg is adamant that there are positives. “The technological revolution is only 25% underway. I think there’s another 75% to go.” Some might say there is rather more than 75% to go in the industries where inkjet and digital manufacturing might target. “A lot of things people were getting around to have been accelerated by COVID. I believe over the next 10 years we will see productivity gains which will allow us to have things such as the 4 day week in western society due to hybrid working, which changes the whole commuting and congestion problem and gives people more time to focus on what they’re good at and what they enjoy, this will have a positive social and economic impact.” This can only help the labour equation and appeal to new labour market entrants.
Martin-Fagg’s sage advice for any business leader is not to be too concerned over the things you cannot control but instead to focus concern on “3 things that should be within their control:
Ensure you know your position relative to your competitors.
Is the position you have chosen, with the customers you choose to serve, distinctive?
Is your organisation's mindset, culture and behaviour compelling?
“If you get these three fundamental things right then you will do well in a downturn. There will be times when you make more money than others, but you will remain strong. And if you get this core approach right you can largely ignore what is going on in a macro-economic sense.”
Summary
The relevance of inkjet technology as part of the toolset is obvious, as is the potential for manufacturing to use it. When this technology is integrated appropriately, inkjet can deliver some clear and beneficial capabilities to address some of the issues faced by producers of goods involving print in this new normal. Inkjet can help to retain supply line security, to take or keep control and enhance resilience to shock factors such as pandemics, and steep energy cost increases should be noted.
While the economic advantages of digital manufacturing during stable and predictable times may seem somewhat unproven when a comparison is made of costs for gravure ink per kg versus inkjet ink per kg, there are other factors. Wastage falls into a different accounting pot and is often obscured, perhaps deliberately. Wastage comes in many forms: it is wasteful to print tens of languages in tiny print on all our consumer packaging. It is wasteful and costly for a producer to be unable to supply their product to market.
Remembering the characteristics of those young people entering the job market and becoming the new consumers in this precision age of scarce and choosy labour resource, wastage can even influence whether a producer is acceptable or not; both as an employer who a worker might join or as a brand for a consumer to purchase.
In industrial markets overall, a tiny proportion of operators use inkjet technology at all so there is much to do. Some industry players feel sceptical about the fragility of the technology and our industry does persist in pushing the limits and sometimes delivering less than ideal performance as a result.
Ricoh stands by a position that functional performance, boring reliability, dependably long printhead and equipment life, are paramount factors, and that good printing to fit the purposes of most does not require the highest resolution and tiniest drops. Technology that gives ink chemists the window to focus on creating inks that do what they do on the substrate should be preferable to forcing the need for inks to be modified simply to suit the needs of the fanciest pumping devices.
Often trumpeted, first principle thinking is essential and entirely consistent with the precision age. What problem(s) are we trying to solve? There are many problems to solve in whatever the new normal is or comes to be. We can take an economist’s advice: Ignore the macroeconomics and instead reflect on Roger’s three fundamentals that should be within our control for each of our businesses, and as a whole technology industry.
Contact Richard Darling here.
More information on Ricoh Industrial Inkjet Heads here