It's a generic problem with flat demand in heavy industry. Shipbuilding, bridges, nuclear reactors - when the production backlog runs down and the factory goes idle, the factory dies. So do the companies that feed specialized parts into the process.
Governments keep making contracts with megacorp prime contractors, who stiff their suppliers at the first opportunity, instead of the SMEs that are essential to reliable long term capability. It's the bean counter obsession with counting delivered parts as the only basis for payment.
This would be a great opportunity for the government to get involved.. Tell them to just make two of every order they have now and the government will buy the second one at whatever price the customer is paying. Put the spares in a strategic repository and sell them at “cost” to whoever wants them. Would be a much better use of a few billion dollars than some asinine Star Wars II or another half a trillion into the war maw.
The head of Newport News Shipbuilding and Dry Dock, which builds the US aircraft carriers, once ran a full page ad announcing that if Congress would order two carriers at once, instead of one at a time, they'd throw in a third carrier for free. The total shutdown between jobs was that expensive for them.
Liquidity is expensive. Selling a carrier one at a time is like a retail business where you're expected to hold onto stock. If you don't build up an inventory to sell from and just sell one unit, you have to markup the price to cover the cost of the factory when it is idle.
It’s a major cause of why the U.S. shipbuilding industry can produce such a tiny number of surface combatants per year, despite having the industrial capacity to do far more if it was steady work.
The US Government selling off the helium reserve at cost over two decades effectively capped the global price, even while exploration costs got higher. So exploration was killed, no investments made in better extraction, processing or recycling.
Now that it's gone we're ultra dependent on a by-product of methane extraction and liquification for LNG transport. But most of the helium we extract as natural gas is not separated, as it just gets piped as gas. Helium is getting very very expensive.
You can have the government buy the equipment with the economy goes down, or you can have the government manufacturing it and letting the factory go idle when demand dries down.
But amplifying the orders just makes the problem worse.
Have the government only sell these in times of crisis. They're not competitors, but vendors of last resort. For general maintenance replacement, the gov should tell prospective buyers to take a hike.
The Biden administration invoked the Defense Production Act and used $250m of IRA funds to increase production of grid transformers. Guess what happened when Trump took office.
The problem expressed, I think, that it is not useful to scale up production quickly (or perhaps at all), because a factory catching up on all of their orders means that the factory goes idle. Idle factories can't afford to pay wages, so they lay off some or all of the workers -- and those folks go and find different jobs.
And when they leave, they take their institutional knowledge with them.
So the sustainable goal is to never be idle, and the way to accomplish this is to never catch up.
For an example of how idle factories can go sideways, look at the Polaroid film story: Polaroid closed. Everyone left. Some investors with a big dream eventually bought many of the physical assets that remained.
But owning some manufacturing equipment didn't help them much because the institutional knowledge of producing Polaroid film had already evaporated. They had to largely re-invent the process. (And they've done a great job of that, but it's still not the same film as the OG Polaroid was.)
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So anyway, suppose the government steps in and simply artificially multiplies transformer orders x2, and pays them fairly for this doubled production. Since transformers are tangible things and we can't just spin up more AWS instances to cover demand, the immediate result is that the "short" lead time on new orders has increased from 2 years, to 4.
That's not seeming to be very ideal. It seems to amplify the problem instead of resolve it.
I suppose that the government could also offer safeguards that would help protect the businesses (including suppliers for parts) once they eventually catch up on orders, and that this might motivate them to scale production sooner instead of later (or never).
Which -- you know -- that isn't unprecedented. As an example: The Lima Army Tank Plant, in Lima, Ohio, is place where I've spent a fair bit of quality time. It still exists and continuously has employees largely because the institutional knowledge of how to build tanks (and a few other war machines) is considered to be too important to lose. During lulls, it mostly just sits there on its expansive site, loafing along repairing stuff that comes in, and waiting for the day when things to turn bad enough that we need to start increasing our number of tanks again.
It needs to keep operating (at any expense), and so with the magic of the government money-printing machine: It does. But it's one of the most actively depressing industrial sites I've ever been to; like the life just gets sucked right out of you before even getting past the entrance gate.
We can certainly extend that kind of thing to transformer production. But should we?
Lead times increasing to four years doesn't necessarily mean that every order will take that long. Since the additional orders are just there to cover idle periods, the government could omit an expected delivery time so regular orders don't get delayed.
> You'd think if it's causing this much of a problem, there would be money available.
There’s plenty of economic solutions if companies are really that desperate. They can pay a premium to encourage more investment. They can invest themselves, or enter into partnerships, acquire their suppliers or even open their own facilities.
Companies often complain about shortages, but it usually comes with the caveat ‘at the price we’re willing to pay’
It's a generic problem with flat demand in heavy industry. Shipbuilding, bridges, nuclear reactors - when the production backlog runs down and the factory goes idle, the factory dies. So do the companies that feed specialized parts into the process.
Governments keep making contracts with megacorp prime contractors, who stiff their suppliers at the first opportunity, instead of the SMEs that are essential to reliable long term capability. It's the bean counter obsession with counting delivered parts as the only basis for payment.
Agreed, it takes decades to build manufacturing expertise.. lose demand for a few years and all is lost
Throwing more money at it does not work either, you need skilled workforse
Same is happening in EU with shipbuilding
This would be a great opportunity for the government to get involved.. Tell them to just make two of every order they have now and the government will buy the second one at whatever price the customer is paying. Put the spares in a strategic repository and sell them at “cost” to whoever wants them. Would be a much better use of a few billion dollars than some asinine Star Wars II or another half a trillion into the war maw.
The head of Newport News Shipbuilding and Dry Dock, which builds the US aircraft carriers, once ran a full page ad announcing that if Congress would order two carriers at once, instead of one at a time, they'd throw in a third carrier for free. The total shutdown between jobs was that expensive for them.
That reminds me of the restaurant using its liquidity to prepay its dry aged steak supplier.
https://commoncog.com/cash-flow-games/#3-pre-payments-in-the...
Liquidity is expensive. Selling a carrier one at a time is like a retail business where you're expected to hold onto stock. If you don't build up an inventory to sell from and just sell one unit, you have to markup the price to cover the cost of the factory when it is idle.
It’s a major cause of why the U.S. shipbuilding industry can produce such a tiny number of surface combatants per year, despite having the industrial capacity to do far more if it was steady work.
The US Government selling off the helium reserve at cost over two decades effectively capped the global price, even while exploration costs got higher. So exploration was killed, no investments made in better extraction, processing or recycling.
Now that it's gone we're ultra dependent on a by-product of methane extraction and liquification for LNG transport. But most of the helium we extract as natural gas is not separated, as it just gets piped as gas. Helium is getting very very expensive.
You can have the government buy the equipment with the economy goes down, or you can have the government manufacturing it and letting the factory go idle when demand dries down.
But amplifying the orders just makes the problem worse.
> Put the spares in a strategic repository and sell them at “cost” to whoever wants them.
That means that eventually the factory goes idle, when all the demand is serviced by the spares.
Have the government only sell these in times of crisis. They're not competitors, but vendors of last resort. For general maintenance replacement, the gov should tell prospective buyers to take a hike.
1 reply →
The Biden administration invoked the Defense Production Act and used $250m of IRA funds to increase production of grid transformers. Guess what happened when Trump took office.
It got reversed because executive action is a stupid way to make policy?
3 replies →
> This would be a great opportunity for the government to get involved
They have been:
https://www.energy.gov/oe/transformer-resilience-and-advance...
I'm not sure that this helps.
The problem expressed, I think, that it is not useful to scale up production quickly (or perhaps at all), because a factory catching up on all of their orders means that the factory goes idle. Idle factories can't afford to pay wages, so they lay off some or all of the workers -- and those folks go and find different jobs.
And when they leave, they take their institutional knowledge with them.
So the sustainable goal is to never be idle, and the way to accomplish this is to never catch up.
For an example of how idle factories can go sideways, look at the Polaroid film story: Polaroid closed. Everyone left. Some investors with a big dream eventually bought many of the physical assets that remained.
But owning some manufacturing equipment didn't help them much because the institutional knowledge of producing Polaroid film had already evaporated. They had to largely re-invent the process. (And they've done a great job of that, but it's still not the same film as the OG Polaroid was.)
---
So anyway, suppose the government steps in and simply artificially multiplies transformer orders x2, and pays them fairly for this doubled production. Since transformers are tangible things and we can't just spin up more AWS instances to cover demand, the immediate result is that the "short" lead time on new orders has increased from 2 years, to 4.
That's not seeming to be very ideal. It seems to amplify the problem instead of resolve it.
I suppose that the government could also offer safeguards that would help protect the businesses (including suppliers for parts) once they eventually catch up on orders, and that this might motivate them to scale production sooner instead of later (or never).
Which -- you know -- that isn't unprecedented. As an example: The Lima Army Tank Plant, in Lima, Ohio, is place where I've spent a fair bit of quality time. It still exists and continuously has employees largely because the institutional knowledge of how to build tanks (and a few other war machines) is considered to be too important to lose. During lulls, it mostly just sits there on its expansive site, loafing along repairing stuff that comes in, and waiting for the day when things to turn bad enough that we need to start increasing our number of tanks again.
It needs to keep operating (at any expense), and so with the magic of the government money-printing machine: It does. But it's one of the most actively depressing industrial sites I've ever been to; like the life just gets sucked right out of you before even getting past the entrance gate.
We can certainly extend that kind of thing to transformer production. But should we?
Depends if we intend to reboot after a major geomagnetic event or a war that destroys electrical infrastructure.
6 replies →
Lead times increasing to four years doesn't necessarily mean that every order will take that long. Since the additional orders are just there to cover idle periods, the government could omit an expected delivery time so regular orders don't get delayed.
3 replies →
> You'd think if it's causing this much of a problem, there would be money available.
There’s plenty of economic solutions if companies are really that desperate. They can pay a premium to encourage more investment. They can invest themselves, or enter into partnerships, acquire their suppliers or even open their own facilities.
Companies often complain about shortages, but it usually comes with the caveat ‘at the price we’re willing to pay’