Robert Schoenberger:
Hello. Good morning or good afternoon, depending on that time zone. This is Robert Schoenberger with IndustryWeek and welcome to Production Pulse, our biweekly livestream, where we talk about news important to the manufacturing world. Today we are going to present a panel discussion with some of the best and brightest from Endeavor Business Media, our parent company. We have editors covering manufacturing from a lot of different angles, and we're going to share our insights from what was driving 2023 and what to expect in 2024.
Our panel today is Karen Langhauser, who is with Pharma Manufacturing and covering the pharmaceutical world. Lynne Sherwin is with Plastics Machinery & Manufacturing. Jon Katz is with Chemical Processing and Anna Townsend as a dual role, working for both our Control Design publication and Plant Services.
So welcome, everyone. Thanks for joining me today. It's going to be a pretty simple format today. We have two giant questions. The first is: What were the big drivers in 2023? How did we get to where we are in manufacturing? And for that, I'd like to start with you, Karen. Just from your point of view in the pharmaceutical world, what were the big stories?
Karen Langhauser:
Well, thanks for having us on the panel. Even if it's because we're the only editors left in the office right now. The “best and the brightest and the only ones here.”
So in the U.S., there are a few government-driven initiatives right now that are really kind of disrupting the way the pharma industry traditionally does business.
One of these is the tenant of the Inflation Reduction Act that looks to lower prescription drug costs by allowing Medicare to negotiate prices with drug companies and by putting an inflationary cap on prices. So if the prices of certain drugs covered under Medicare rise at a rate that exceeds inflation, drugmakers have to pay a rebate back to the government.
And there's been a lot of backlash already from the pharma industry, including companies like Merck, J&J, Bristol-Myers launching lawsuits against the government, arguing that the law is unconstitutional.
The second big initiative that's affecting the pharma industry is the Federal Trade Commission's more aggressive stance on pharma mergers. So back in 2021, the FTC vowed that it was going to take a new approach to what it deems anti-competitive pharma deals. And it really followed through on that this year.
The FTC filed a lawsuit earlier this year to attempt to block Amgen's $27 billion buyout of Horizon. That deal eventually closed in October, but only after Amgen agreed to some of the FTC’s settlement terms. The agency also took aim at Pfizer's acquisition of Seagen and that deal closed only recently after Pfizer agreed to donate royalties from one of the drugs that was in question.
So if you look at both of these initiatives, from the pharma industry's perspective, there are two main ways that drugmakers develop innovative new therapies — by reinvesting revenue from drug sales back into R&D and through acquiring new therapies and new companies. So the IRA and the FTC changes affect both of these avenues for innovation.
RS:
Yeah, we've definitely seen some changes in the regulatory environment at IndustryWeek. The big one lately being for us is the cybersecurity reporting requirements, which has led to a lot of more public knowledge of how bad the cyber breaches have been in recent years.
So in a different regulatory environment, let's go to Lynne and talk about what you're seein in the plastics world.
Lynne Sherwin:
Yeah, a bunch of the issues we're having in plastics are kind of common, I think, to a lot of manufacturing sectors right now. We've got dealing with the labor shortage — a shortage of skilled workers who can operate these big machines.
Also, the workforce is graying. There is there's a lot of questions about how do you pass along this knowledge from the people — the ‘Boomers’— who are who are retiring? We had one figure that the Plastics Industry Association provided to us where they think that about 70% of the workforce is going to be Millennial or Gen Z within a couple of years.
And that's a huge shift. I mean, right now I think most of the people in the industry are 55 and up. So that's a big change going on. How do you grow your leadership? That's been a big discussion for us in training. A lot of companies are doing programs now with high schools and with trade schools where they're trying to partner with them.
They provide machines and and let these students learn hands-on how to operate these. And some of them even graduate and go right into jobs, which is obviously a big thing for a student to be able to have a job right out of school.
Another issue that the industry is dealing with is the overcapacity problem. During the pandemic, there was a lot of demand for things like bottles for spray cleaners, the plastic canisters that wipes come in — remember, everybody was trying to get wipes? There's got to be something that that holds them
So there was a lot of investment in that. There were also things that people were buying because they had the money — for their houses, furniture, construction materials, people building plastic decks, people buying RVs to go traveling in. There's a lot of plastics in an RV. So there was a lot of investment in machinery and now a lot of that market has fallen off and people are trying to figure out, well, what do I do with all this capacity?
In February of 2020, my boss and I visited a plant out in California that was making plastic test kits. And we just kind of ask them, “what do you think is going to happen with this new virus that they're talking about?” And they said, “Well, you know, we'll have to see what happens.” And we called them back two months later. They had invested $3 million in seven new lines and had expanded their cleanroom by several thousand square feet. And now that that market is over. It's places like that that are looking for something else to do with all of that capacity.
And then the big issue that even lay people understand in plastics is sustainability. There's the terrible perception that plastics are choking the planet, which well, it's hard to argue with when you see bags in trees and bottles in the ocean and stuff like that.
So there are a lot of bans, a lot of other laws. States are starting to introduce extended producer responsibility laws where a company like Coke that generates a lot of plastic would then have to pay money toward infrastructure for recycling all of that plastic.
We're kind of catching up to Europe where there's a lot more standards on things like that. And the industry is kind of realizing now that it has a problem. There is more advocacy surrounding all the good things that plastic can do, but then also more effort into making recycling better.
RS:
And Jon, this seems to kind of segue into some things you and I were talking about earlier. On the overcapacity on the plastics side, you're seeing some kind of over storage in the chemicals world, some people overstocking, also facing some sustainability issues. Could you walk us through some of those issues facing the chemical processing world?
Jon Katz:
Sure, yeah. In the chemical industry, when the pandemic started, a lot of the customers started to stock up on products. Basically, overstocking. And so the industry right now is going through a destocking cycle.
Martha Gilchrist Moore, the chief economist with the American Chemistry Council, hosted a year-end outlook a few weeks ago. And she was talking about how we're finally nearing the end of that cycle, so that's hopeful for the chemical industry. It looks like it'll be more toward the beginning of 2025 when they reach that.
We polled our readers and 20% said that supply chain issues have been impacted their site significantly. So obviously, supply chain issues continue to be an issue for the chemical industry. I'd spoken with a supply chain executive from Akzo Nobel, the paint manufacturer, and he had talked about how they're still only getting something around 60%, I think upper 60% range, on-time delivery. And they're trying to address that by expanding their supply network, basically having backup suppliers.
And yeah, the environment at all aspects, always an issue in the chemical industry that we're hearing about. Pretty much every chemical manufacturer has a plan to cut emissions. We're hearing more about the manufacturers trying to incorporate more bio-based feedstock into their products, partnering with renewable energy suppliers and installing technologies to detect and monitor emissions within their facilities.
And that also ties into regulations, which I would say is probably one of the biggest issue, if not the biggest issue the industry has been dealing with for the past several years now. It's actually an issue they're always dealing with and I'm sure everybody's heard about ‘forever chemicals’ or PFAS — per- and poly-fluoroalkyl substances.
There's been a lot going on with that. In September, the EPA released its final rule on PFAS reporting and recordkeeping requirements. And that rule removed some exemptions for PFAS reporting. My understanding is that previously, manufacturers that produced formulations with smaller amounts of PFAS didn't have to file these reporting forms and that rule is changed.
We have a regulatory columnist, Lynne Ferguson, who covers this very well. She's talked about the impact that it could have on the supply chain. So, I expect to hear more about that in the coming year as well.
RS:
I shared one of Lynne's more recent columns in the comment section here. So if anyone wants to read her thoughts, I believe that's on the PFAS issue and some of those settlements. Some really good insight there from her.
Thank you so much, Jon. To move on, last but not least, Anna Townsend, you have your feet in a couple different worlds. If you could talk a little bit about what you’re seeing from 2023 in the machinery control design space and also from plant operations.
Anna Townsend:
Yeah, thanks. I always like hearing from my colleagues about their very industry-specific perspectives. Both my brands cover a narrow slice of manufacturing, but across all industries. So I'm coming with a little bit of a broader lens. But I want to focus on something that Lynne talked about, which is workforce and the skills gap as it relates to equipment maintenance and the use of industrial automation.
So the skills gap is a huge issue in every industry. It has been for a long time in manufacturing. I think one thing we're seeing change more and more is the nature of the skills gap. So it's not just about the large hole that the retiring industrial workforce is leaving, but it's also changing the nature of the current jobs.
They're changing very rapidly. They're changing sometimes continuously as operations are adopting new technology. And we all hear about upskilling and digital transformation, and what that often means on the plant floor for equipment maintenance is very highly skilled and niche technicians. Often they need to then be trained in a specialty, which may be specific to an industry. So it's not always easy to fill those very niche positions, and for some it's been a question of whether they can or should fill those specialized roles or instead rely on vendor aftermarket services for providing their maintenance.
So the way I see this translating for the industrial automation market and what we talk a lot about in Control Design is the democratization of technology. So an increasing focus on user-friendly components and machines. Everything is easy to install, plug and play, drag and drop, where in essence, workers don't need as much controls, engineering or programing knowledge to configure these new components or make changes to machines in the production line.
That's not to say that we're eliminating controls engineers, but they can focus on more challenging and complicated work. So again, the nature of their work is changing and in some cases they're getting more work done with less, essentially in a way that's also moving some of this technical expertise and knowledge further upstream on the production development supply chain, so to speak, where the vendors need that technical expertise and know-how in order to make the products more user friendly in the first place.
RS:
It's definitely a trend we've been seeing in IndustryWeek as well. I mean, the number of presentations that we've seen in the past year, they're talking about low code or no code solutions. You're giving all these great technical abilities to people who are not software engineers or not data scientists. That seems to be a really growing piece of the industry because everyone wants to increase productivity as much as possible because like a bunch of us have said, finding those people is harder and harder.
And that's really not even just amongst manufacturers. I talked to our friends over at Fleet Owner magazine, and hiring truck drivers is nearly impossible. Hiring store maintenance people, hiring dental technicians. We're just in a demographic spot in this country where there are fewer people entering the workforce. Not enough are coming in to replace the ones who are retiring and labor and workforce are going to be challenges for a very, very long time for all of us, I would think.
Which brings us to the second big question we're asking today, which is what's next? What are the big things you expect to see in 2024 based on what you're seeing so far and the interviews and the conversations you've been having? So let's stick with you, Anna, where do you see the market going?
AT:
Sure. So again specifically looking at equipment maintenance and machine design, we see an increasing use of predictive maintenance technology used for equipment monitoring. So we're talking about things like ultrasound or vibration analysis, infrared, thermography. There's a big investment in these technologies as a way to get more out of your equipment and make it last longer.
And again, just to touch on my earlier point about workforces, these are really very highly skilled labor jobs that do that conditioning monitoring. Just as a caveat, I would say PDM technologies are not super widely used across every aspect of an operation. Typically it's applied very strategically to the most critical assets or areas where, you know, there are known failure issues.
To tie this in a little bit to some of my colleagues’ industries, in quality and safety intensive industries like pharmaceuticals or process chemical manufacturing, a lot of times we see facilities in those industries running their equipment harder than other industries or burning through parts faster because they can't afford — either for production, quality or regulatory reasons — that downtime to do typical maintenance. When operations are trying to squeeze more out of less PDM technology, this can be a way to do that.
We are starting to see, machine learning and artificial intelligence added on top of PDM. Over time I think that will take over more and more tasks. But for now, much like PDM, AI is really being applied in very specific applications as manufacturers kind of exploring those capabilities.
On the machine automation side, I would just point to, the growing market for new business models such as machines-as-a-service, maintenance-as-a-service, whatever you want to call it, this means facilities aren't having to make that big upfront CapEx spend for new equipment. They're essentially renting equipment or machines from the machine builders. In some cases are paying a monthly or a subscription fee, but there are also models based on production output. So production-as-a service, obviously the big takeaway there in terms of maintenance is that facilities are no longer responsible for that maintenance that comes as a service.
RS:
We've had quite a bit of attention paid to that as well. Robots-as-a-service was one I didn't really think would take off the first time I heard it. But we've heard several companies saying that they're successfully implementing this. And boy, when you can't find people, robotics sound a lot more attractive.
So we'll see if that does become a bigger trend in the new year. Jon, moving over to you in chemical processing, you've talked about the oversupply and the destocking phase. How is that going to affect 2024?
JK:
I want to revisit what Anne was talking about digitalization. That’s an interesting point forthe chemical industry as well, because historically the chemical industry has been slow to adopt digital technologies. But we're hearing more about more plants adopting some of these technologies like artificial intelligence. I sat in on a webinar awhile back where they were talking about the potential for generative AI to help with things like product development, identifying new molecules that might be more environmentally friendly.
So it'll be interesting to see how that expands in the upcoming year. I think we'll be hearing about more plants adopting digital technologies to improve the efficiency of their plants and to help with maintenance, predictive maintenance and just improve their overall operations. I think some other things to look forward to is clean hydrogen — we're hearing more about AI investment in clean hydrogen.
The chemical industry is directly involved in the production of hydrogen, but it also uses hydrogen as a feedstock. The Biden Administration announced in October that under the Bipartisan Infrastructure Law, it's going to fund these regional hydrogen hubs that leverage existing capabilities in different regions to produce hydrogen. So I'd expect the chemical industry to be involved in that as well.
And then obviously the election looms large. The industry has been critical of the current administration, the American Chemistry Council in particular saying that there's been a lot of regulatory overreach. So it'll be interesting to see how that plays out and what impact the election could have on the industry as well. I think a lot of us will be paying a lot of attention to politics in the new year.
RS:
That rhetoric is going to be pretty extreme, I assume. And it should be interesting to watch, Karen, on the pharmaceutical side, I assume the election and the regulatory environment are still going to be pretty big issues for you as well.
KL:
Yeah, especially in an election year, you have to look at what is capturing public and political attention, even if that's not necessarily the biggest issue facing the pharma industry. One of those for pharma is certainly drug pricing.
Drug pricing in the pharma industry is very complicated. It's not well understood. And I count myself among those who don't fully understand drug pricing. So a big component to this is going to be a push for more transparency.
On the state level, you could see stricter DPT — drug pricing transparency — laws. Basically these laws require pharma companies to inform the public when they're increasing their prices, by how much, and why they're increasing prices. I think some of the states refer to it as the “shame and blame” system.
The industry is going to face federal involvement, too. Like I mentioned before, with the Medicare negotiation clause in the in the IRA — and that's probably just the tip of the iceberg.
But I think it's important to point out that tackling drug prices is more than just a PR issue. As you see more and more complex therapies getting approval — this year there were historic cell and gene therapy approvals; earlier in December, we had two approvals for sickle cell disease on the same day — Ss as these multimillion dollar price tag drugs move out of these rare niche spaces and into bigger patient populations, you have to consider that our payment models in the U.S. can't support drugs that are $4 million per dose.
So how this manifests on the manufacturing side and how it will continue to manifest is, similar to what my colleagues were talking about, is with things like automation — a lot of pharma manufacturers experimenting with AI where it could cut down on waste and save time. Basically manufacturers are just prioritizing technology that increases efficiency and reduces any sort of waste.
RS:
Yeah, when we were talking about this earlier with— kind of segueing a little bit into Lynne — but I want to get your take on this first, Karen. You know, we talk about the environmental push in a lot of areas. The regulatory pushes to reduce plastics, reduce waste. There's a very different take on that in the pharmaceutical world where plastic is a very important substance for maintaining safety and cleanliness. So can you can you talk a little bit about that?
KL:
Yeah, I mean, it's a tradeoff. In defense of single use plastics, that's the most cost effective way for the industry to manufacture aseptic drugs. The single use components are going to offer a level of flexibility, scalability, cleanliness that would essentially be impossible to achieve with stainless steel.
And during the pandemic there was such a need for speed and reallocating spaces for vaccine production, that single use components were the answer to getting stuff done as fast and as safe as possible.
So from an environmental perspective, yea you have higher amounts of solid plastic waste, but there's a tradeoff because you're using less water and you're using less chemicals and you're reducing your chance of the waste that would be associated with contamination.
That being said, the pharma industry has a massive carbon footprint. I think a study came out a couple of years ago that actually said the carbon emissions in the pharma industry were higher than those in the automotive industry. So historically, pharma has kind of gotten a pass on that, but that's already changing in Europe. It's going to eventually change in the U.S., too.
So I think a lot of the forward-thinking companies are starting to work through greener ways of processing and more recyclable packaging just in anticipation of what's to come.
RS:
Over to you Lynne, I assume single use plastics from the plastics industry is a different take that maybe some of us see in our niches.
LS:
Yeah, but it is a huge issue and a major image problem for the industry. The Plastics Industry Association is doing this new “recycling is real” program where they're showing how recycling is working in real time.
But part of the problem is kind of a lack of will for building any kind of national infrastructure for recycling. It's like every municipality has its own rules. And, you know, you can recycle this here and you can recycle that there. And there is not enough of the facilities to collect and process and turn it back into renewable plastic.
Right now, a lot of companies have goals that they want to meet regarding including a certain amount of recycled content. But sometimes they just can't get the recycled content because it's not being collected, it's not being processed. And some of it is that people just aren't willing to do any hard work to recycle — they want to throw everything in one bin and let somebody else worry about it.
So yeah, that's definitely an issue there. There's a lot more talk about sustainable materials that are more like biomaterials that are grown from bacteria or from plant materials or things like that. Things that are compostable. Although compostable doesn't necessarily mean you can throw it in your backyard compost bin, it might need a professional composting facility.
There's just so much confusion and so many different rules about recycling right now that there needs to be more of a unified message to make it work better. And as Karen was saying, they're doing this in Europe and it will take some political will to get it done here.
Some of the other trends that we're dealing with: We just did our annual survey. PMM always surveys our readership to see what kind of investments they're making in the upcoming year. And that gives us kind of a nice snapshot of what people are thinking about. This year reflects that overcapacity problem that not a lot of people are buying primary equipment, but they're buying a lot of automation and a lot of auxiliaries, things like that, that'll make things more efficient.
And the other big thing that's looming on the horizon is the return of MPE, which is the biggest plastic show in the Americas, and it hasn't happened for six years. It only happens every third year because it's so massive. I mean, they bring in these gigantic million dollar machines and run stuff all day and all night and we get to kind of kick the tires and see what's new and exciting.
And the equipment makers have really suffered because we haven't had an MPE for all this time. And so they're looking forward to getting everybody together and trying to make some sales down there. But again, if you don't have enough programs to run on your current machinery, then you're probably not going to buy something new. So we'll see what happens after that takes place in May. There's a lot of eyes on that.
RS:
Here from the IndustryWeek perspective, we're still hearing from some companies about things that they're expecting for the new year. I mean, I'm echoing a lot of what other people have said here today, that there's some expectation that interest rates will go down in the new year because inflation has slowed considerably in recent months, which oddly could work as a disincentive against investing right now because if you want to hold out for a few more months, maybe you'll get a lower interest rate. On a $5 million piece of equipment or a $15 million expansion, half a percentage point on the interest rate can make a really big difference over the financing of that project.
But yeah, we've just been in a very strange economic space for quite a while now. We're not seeing explosive growth. We're not seeing any kind of collapse there. There are lots of challenges out there, but lots of solutions on the horizon as well. It should be a very interesting year. We have some stories coming in the next few days about some of those predictions and we'll be sharing those.
But thank you, everyone, for joining me today. It's been a pleasure hearing from so many of my colleagues. Karen with Pharma Manufacturing. Lynne Sherwin with Plastics, Machinery and Manufacturing. Jon Katz with Chemical Processing and Anna Townsend with Control Design and Plant Services.
Thank you so much for your time today. This will be our last Production Pulse of the year and we will be back in three weeks instead of two. We're changing our schedule just a little bit. We'll be back the week of January 11th. And I'll have a topic for that and we'll announce it on our social media sometime in the next week or so.
Thank you for joining me today and have happy holidays and a happy New Year to everyone.
