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Post-COVID puts digitalization into spotlight in hand tool and hardware sectors

2022/12/27 | By CENS

Coronavirus lockdowns and travel restrictions around the world have generally lifted this year, prompting a flurry of activity as suppliers and buyers alike seek to take advantage of the resurgence of demand, as well as changed market landscape in the post-pandemic world. Taiwan's hand tools industry sits on the cusp of change, as many seek to find opportunities to reinvent business operations and gain a stake in the changing industry.

As the third largest hand tools exporter in the world, Taiwan's total hand tool exports value reflected the surge in demand in 2021, with the overall figures steadily reaching USD$4.79 billion, a significant increase of 27.4% compared to 2020 and breaking the historical value on the record as the economy had rebounded and metals had seen a significant price hike. Growth statistics in 2022 are likely to continue the trend, where in the first half of 2022, Taiwan's hand tools total export value could surpass USD$5 billion.

Noting how the domestic hand tools industry has been moving away from the traditional OEM model in recent years, Taiwan Hand Tool Manufacturers' Association (THTMA) Honorary Chairman David Huang pointed out that average unit prices have been steadily increasing year by year now. While total exports are not yet comparable with China's performance, Huang pointed to the industry's strong foundations, allowing companies to develop towards high-end markets.

However, the next step for the traditional sector will be significant in its challenges, since suppliers aiming to enhance their bargaining power in the competitive market must similarly embrace new technologies that are outside their expertise: digitalization. Citing the online magazine for the global home improvement industry, DIY International, in an article covering the Taiwan International Tools & Hardware Expo (TiTe), Merkle Taiwan Chairman Boice Lin was quoted saying that the most common problem encountered by traditional Taiwanese business was that in the past, they were unable to integrate each stage of work necessary for them to fully utilize the benefits of digital transformation. On the other hand, Lin added that many suppliers did not have the tools or knowledge to analyze and manage the data collected, therefore could not effectively take advantage of further optimizing management and processes.

As integrating new technologies require time, education, and most importantly, funds, the National Development Fund Strengthening Investment Services Project Office worked with THTMA to host promotional events at the TiTE venue, with the aim to help further educate suppliers regarding the office's investment options, and to encourage applications to obtain investment. While larger businesses have a leg-up in terms of resources to fall back on, funding remains one of the biggest differentiators in Taiwan's hand tools industry, as the majority of suppliers are small-and-medium enterprises.

Another factor to consider is in what was normally considered an unique feature of Taiwan's hand tool production chain, but could pose potential challenges, is the subcontracting culture. A single hand tool could go through many different subcontractors that specialize in different expertise and manufacturing techniques, before arriving back the original manufacturer as a complete product. If the suppliers do not implement digital transformation as a collective, they risk missing out on opportunities to scale up and employ efficient measures to their production operations.

An On-Going Movement

A myriad of different government-backed schemes to bolster digital transformation implementation measures in Taiwan's traditional sectors have been ongoing in the past years. In mid-October of 2022, representatives from the industry and academia gathered at an event sponsored and hosted by the Industrial Technology Research Institute and MOEA's Industrial Development Bureau, called the “Value-Adding Digital Manufacturing Management Program.”

A number of suppliers from different industries, including the hand tools sector, attended the event to share their experiences and results regarding implementing digital transformation.

According to Industrial Development Bureau division chief Chang Shan-chun, the program is in its second year, with many metal industry suppliers implementing lean manufacturing concepts to achieve digital manufacturing as their first step. This allows suppliers to quickly identify inconsistencies and issues early on in the simplified, lean manufacturing process and improve flexibility to adapt to fast-changing market trends.

As reported by local Taiwanese media, a die-making supplier who partook in the program said that while they were designated suppliers for a notable electric vehicle brand, the company was unable to scale up operations quickly enough as their client's demand grew month by month, especially due to mismanagement of their primary product revenue causing negative profits. By implementing lean management, the supplier was able to remove redundant operations and cut down on costs through redesigning the production process. The supplier shared that they were able to cut inventory by half for half-made products, improve machinery operation efficiency, and turn around gross profit margins.