INDUSTRY & BUSINESS
Work still piling up in equipment shops Backlog of orders at process equipment makers remains high as chemical expansion wave enters another big year and problems persist with labor and materials Process equipment makers who supply chemical plant constructors are operating at capacity, but without putting a noticeable dent in their backlogs, which have been high since 1964 (C&EN, March 28, 1966, page 2 9 ) . Delivery times probably won't go down in the near future, as plant construction shows little sign of a letup this year. The long delivery delays, together with the construction labor shortage, are holding up completion of new
chemical plants for months. U.S. Pipe and Foundry Co., for example, started up a multimillion pound-per-year resorcinol plant in Birmingham, Ala., last month after a half-year delay. The company attributes the late start of its first venture in the chemical field to a strike at equipment suppliers and to shortage of skilled construction labor. U.S. Pipe and Foundry's troubles in new plant construction are shared by many old-timers in the chemical field. Major cause of stretched-out deliveries of equipment for new facilities is the equipment makers' large backlog. Materials shortages and labor problems can add to the delays, however. For most equipment companies, the backlog started building during 1965, when the chemical industry spent $2.6 billion on new plant and equipment. This was 30% above the 1964 figure, and the surge caught process equipment makers with their capacities down. Orders continued to pile up last year as the chemical industry spent nearly $3 billion. It will spend almost as much this year, and equipment makers will have difficulty working off their backlogs under the continuing flood of new orders. The equipment situation has its roots in the chemical industry's expansion wave, which began in 1964. Constructors were first to be hit with large numbers of new orders. By early 1965, the constructors had translated
new plant orders into new equipment orders and passed them on to the equipment makers, who, at the time, were operating well under capacity. As the year progressed, equipment makers, with the memory of lean times still fresh, took all the orders they could get. They took them faster than their shops could turn out the finished products, so orders began piling up. They promised delivery times which often proved impossible to meet as materials and labor shortages cropped up to unsettle production schedules. Delivery times became not only longer but less reliable as well. Last year most equipment makers reached capacity, and some of them still can't predict delivery dates. Others have adjusted to the high work load and material shortages and can quote accurate, though distant, dates. Stretched-out deliveries add to the construction delays caused by the labor shortage. Chemical plants now take 10 to 50% longer to build and cost 10 to 15% more than they did two years ago. One chemical company that has been building many plants recently says that it used to take 12 to 15 months to build a plant; now it takes 14 to 24 months. One major producer of process equipment says that its fabricating shop is booked solid two months in advance for smaller vessels and five months ahead for larger ones. The backlog of orders is three or four times
Delays in equipment delivery are getting longer Delivery delays vary with the product and the supplier, but they have generally grown longer in the past year. A year ago, for instance, pumps were normally delivered three or four months after being ordered; now it's five or six months and up to 12 months for large pumps. Dorr-Oliver, however, says its deliveries of stock pumps are better now than a year ago.
two years ago; now they take 55 to 60 weeks. Pressure vessels used to take 28 to 32 weeks; now they take 50 to 65 weeks. Engineered filtration equipment took 18 to 30 weeks a year ago; now it takes 22 to 38.
Compressors normally took three months to get last year; now they take six or seven months and up to 12 months for large ones. But Worthington says that compression product deliveries haven't changed much.
Small a.c. motors (under 100 hp.) take 18 or 20 weeks for delivery now, and the supply is getting short as a result of the long strike at General Electric's Schenectady, N.Y., plant. Large motors are now delivered in 36 to 40 weeks, much longer than the 12 to 16 weeks in 1964. Fabricated piping deliveries have increased from eight to 12 weeks in 1964 to 18 to 24 weeks now.
Tanks and simple reactors were delivered in 12 or 14 weeks a year ago; now they take 18 to 25 weeks. High-pressure heat exchangers took 28 to 36 weeks
Other slow-delivery items include switch gear (a year), heat-exchange equipment (four to 24 months), and towers and columns (25 to 30 weeks).
28 C&EN JAN. 9, 1967
TOWERS. Struthers Wells worker applies final touch to part of large stainless steel absorption tower for use in making nitric acid. Equipment such as towers and columns can take well over half a year for delivery in present market
what it was two years ago. One vessel and tank maker has a backlog of 12 to 18 months' output, up 40% from a year ago. Another vessel maker, one of the few equipment companies to report a drop in backlog, has reduced its backlog from 10 or 12 months a year ago to six or eight months now. A major pump maker reports a 12-month backlog. The long wait at the fabricating shop door often hides delays that are cropping up in engineering and material delivery. Such delivery is usually completed before the shop is ready for the order. (By contrast, early in the expansion wave, when backlogs were smaller and the shops less busy, material delivery was the major source of delay. For some companies it still is.) The material in shortest supply is probably nickel. Henry S. Wingate, board chairman of International Nickel Co. of Canada, said that last year was the first time since the mid-fifties that nickel producers couldn't meet demand. He added that many producers had to ration deliveries last year and that supply will again be short of demand this year unless output increases markedly. Some equipment makers, meanwhile, complain that nickel and some of its alloys are impossible to get without a priority. Suppliers of nickel-rich materials often can't quote any delivery time. Monel and Hastelloy are in particularly short supply. Many alloy steels, including some grades of stainless steel, are hard to get. Delivery of cast and machined bronze has slowed.
Delivery of components to equipment makers can also be a problem. A pump maker complains that machine tool delivery times have increased from 12 to 14 weeks two years ago to 18 months now. Slow delivery of motors annoys some equipment makers and constructors, even though there are times when the motor comes before the parts it is to drive. For instance, mechanical couplings, generators, and switch gear are slow to arrive. A $2.00 item can sometimes hold up a huge reactor, one vessel maker complains. Often the item is a small forging or casting, and deliveries of forgings and castings are slow and sometimes erratic. Foundries sometimes send orders back because their work load is too high. Strikes have affected deliveries, too. The strike at General Electric's Schenectady plant has seriously slowed motor output there. Ritter-Pfaudler's Pfaudler division says that if this strike is not settled soon, its output of vessels (with agitators) could be seriously affected. In the materials area, nickel output has been cut by strikes. The shortage of skilled labor has hit most equipment suppliers, although few of them consider the labor shortage the chief cause of slow deliveries. Many do complain that the productivity of labor has suffered. For instance, although most equipment makers use overtime to ease the labor shortage, productivity during overtime is usually worse than during regular time. The shortage of engineers is stretching out engineering time on large pieces of equipment. In fact, one ves-
sel maker says that engineering time could replace shop lead time as the major source of delay in its custom vessel construction. Not all equipment has been involved in the general slowdown in deliveries. Valves are generally in good supply. Worthington says deliveries of its standard control valves and control valve instruments have improved, although special valves usually take longer than they did two years ago. Pfaudler's delivery of glassed-steel reactors takes longer than it used to but is more reliable. This results from a closer study of the fabrication operation. By eliminating in-process delays, the company has reduced total fabricating time and has benefited from more efficient shop loading (programing). Most equipment makers have managed to keep fabricating time constant or even improve it despite the rise in output and occasional material or labor shortages. Debottlenecking is one measure equipment makers are taking to cope with their problems. Another is expansion, although most companies tied to a business as up-and-down as construction are reluctant to build new plants. Some are carrying out small expansions and improvements. Worthington is adding about a third to the manufacturing space of most of its divisions. This summer, Pfaudler added a new medium-sized furnace at its Rochester, N.Y., plant and is also adding to the high-bay shop space. To speed delivery, equipment makers are ordering difficult-to-get materials further in advance. They're also using customers' priority ratings wherever possible. The trend to greater use of custom equipment troubles many equipment makers. They suggest that deliveries could be speeded if chemical companies would use more standard items. Pfaudler, which is encouraging customers to buy standard glassed-steel vessels, says it can deliver a standard 2000-gallon reactor, for example, in five to 24 weeks. A custom reactor takes 22 to 40 weeks. Pfaudler followed its own suggestion when it tired of long waits for custom sizes of Inconel sheet for dimpled jackets on stainless steel reactors. The company now uses inventory sizes and pieces them together to speed delivery of the reactors. A major pump maker says that work on custom pumps seriously delays fabrication of standard pumps. However, chemical engineers pride JAN. 9, 1967 C&EN
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BUSINESS PERSPECTIVES DAVID M. KIEFER, Senior Editor The annual barrage of year-end business forecasts is now subsiding. The consensus: Gross national product will average about $790 billion this year, nearly 7% higher than last year's level. There is considerable agreement; after all, economists do talk to one another and start from the same base in making their estimates. But this year you can also make a choice from forecasts that range over a fairly wide area: anywhere from $800 billion or more on the high side down to about $770 billion at the lower end of the scale. While a range of $30 billion or so amounts to only 4% of total GNP, the difference between the higher and lower estimates is the difference between another year of high-level (and probably inflationary) prosperity and one in which economic growth has practically ceased. The consensus estimate itself is subject to change, of course. Three or four months ago, economists generally were looking for a GNP of $780 billion in 1967. In the past few weeks, some are having third thoughts and are paring their estimates back toward that level again. Meanwhile, forecasters are hedging—as usual. They cite several uncertainties that dim the view ahead: questions regarding the course and the cost of the war in Vietnam, the size of future deficits in the federal budget, the likelihood of a tax increase, and decisions regarding monetary policy, among other things. When so much uncertainty clouds the outlook, does forecasting serve a function more significant than merely providing an intellectual exercise for economists? For many purposes, to be sure, forecasts need not be exact to be useful. Even a qualitative indication of future trends may be of help in making business decisions. On the other hand, even if business analysts could reach agreement, their prognostications would have to be viewed with a certain amount of wary skepticism. In the decade following World War II, a forecaster could have compiled a good record simply by studying the majority view and then publishing a contrary opinion. More recently, fortunately, forecasts have been more on target. For one thing, short-term forecasting has become more sophisticated. In addition, forecasters have always had an easier time in periods, like the past six years, when the business cycle has not changed direction. Despite the improving record, you need go back no further than a year to find predictions that fell wide of the mark. At the end of 1965, economists were confidently expecting GNP to rise 6.5 to 7.5% during 1966 to a level equivalent to about $725 to $730 billion for the year as a whole. Stacked up against the 8.5% increase—to almost $740 billion—that now seems to have actually taken place, these forecasts look pretty good. They missed by less than 2 % . Yet this is enough error to have serious implications for economic policy. Had 1966's more rapid expansion been foreseen, last winter's debate over policy is likely to have ended differently. The Administration probably would have tried harder to brake the economy either by cutting back on federal spending or by increasing taxes. While a tax increase still is being discussed, many economists are convinced that it is now too late to ease economic strains by that means. That economic forecasts remain inexact is not surprising; they must be based on data that often are imprecise, out of date, or unavailable, and they are dependent upon a knowledge of the interplay of economic forces which is still incomplete. It seems clear, nonetheless, that forecasts must be improved if the Government is to become increasingly involved with maintaining a steady rate of economic growth and if it is to apply effectively the principles of the so-called "new" economics. What is needed, for one thing, is more research on the techniques of forecasting. Yet even forecasts derived with the most precise techniques can be no better than the assumptions and the data with which they are built. Equally important, therefore, are more accurate and more timely statistics, so that the business analyst, as he peers into the murky future, will know better where he has been and where he stands at any moment. C&EN JAN. 9, 1967
themselves on designing just the right piece of equipment for the job, and chances are the item won't be found on any supplier's shelf. Indeed, the engineers usually keep on designing after the orders are placed, and the resulting flood of changes annoys both constructors and equipment suppliers. Since chemical companies prefer to have their plants built right, even if not early, the practice of changing orders is widespread. Constructors say that usually they can do little about delivery delays except put up with them. Often only a few equipment makers can supply a given piece of equipment. Constructors are saving time by placing orders earlier. Often they specify only the major materials and leave the details for later. Some equipment makers, though, complain that the details come too much later. Speeding up the delivery of one item and not others can cause odd problems. Pfaudler reports that now and then a customer can't take delivery on his reactor because he hasn't completed the building to house it. Some contracts between constructors and suppliers have penalty clauses, and delivery delays tempt constructors to take advantage of them. However, constructors are reluctant to antagonize what may be the only supplier that can make a particular item properly. Also, equipment makers can be customers of some constructors, so when the constructors lose patience, they try not to do so openly. Meanwhile, the chemical company which is waiting for completion of its plant can exercise penalty clauses, too. Constructors, caught in the middle, realize their situation and try not to sign contracts with penalty clauses or fixed-price provisions. Chemical companies do have some tricks for speeding up construction. One of them is to sign letters of intent with constructors before the new project has been approved by higher management. One chemical company says this can save 15% of a project's time. Sweetening the pot. Some chemical companies sweeten the constructor's overtime pot to speed things up. They can also give the constructor a bonus for a fast finish. This may cause him to supervise the job more carefully, and the result can be a better job, if not a faster one.. Nevertheless, the outlook for the future is for delivery times to remain about the same, at least until new plant construction slows down. The chemical industry will spend at least as much this year as last, even with suspension of the 7% tax credit on capital spending (C&EN, Oct. 31, 1966, page 36). Thus the slowdown, if any, won't start soon.
