If there’s one word that describes the manufacturing sector moving forward, this is it.
“There’s macroeconomic uncertainty, public policy uncertainty, uncertainty in terms of the value of Chinese currency, and that is going to make the business sector — particularly in manufacturing — very cautious when it comes to capital investment,” says Edward Hill, dean of the Maxine Goodman Levin College of Urban Affairs at Cleveland State University.
There are signs of better days ahead, with more orders coming in and North American factories running at higher capacity than in the past few years.
“A big barometer for manufacturing is auto sales, and auto sales just took a dive the last couple of years, but it’s picking back up and demand is back up,” says Eric Burkland, president of The Ohio Manufacturers’ Association. “The good news is, the economy has clearly turned and demand is picking back up, but the cost pressures globally remain just incredible, so that dampens the hiring.”
Chuck Hadden, president and CEO of the Michigan Manufacturers’ Association, says that things are slowly turning around.
“We’re one of the sectors that are doing a little bit more hiring out there — not a lot, but we’re starting to get some hiring,” Hadden says. “There was a lot of uncertainty toward the end of the year — what was going to happen with federal taxes, elections, and that uncertainty is now gone. We know what’s going to happen with those things, and now people can start moving forward, and I’m optimistic at the direction we’re going.”
While no one can say for sure what the next 12 months will bring for manufacturing, there are two things that the experts agree on: Success in the sector will be driven by diversification and innovation, something Jim Nicholson, vice president of chemical maker PVS Chemicals Inc., will attest to.
“This year, we are really working on continuing to expand our customer base — we’re looking for new markets that we traditionally have not served and adding those markets to our customer base, and we’re making investments in new kinds of people, with different kinds of experience, specifically related to market and marketing,” Nicholson says. “We think this is going to be a pretty good year for manufacturing.”
Diversification has been critical the past few years and will continue to play an integral role this year.
“If you’ve made it through, you’ve probably figured out a way to diversify your company from one product to another product so you’re not reliant on one business sector,” Hadden says.
But he says it’s time to take it a step further in 2011.
“Let’s diversify your customer base so you’re not totally reliant on one customer in that business sector,” Hadden says. “Find ways to expand your business that way, still doing what you ... do best but find more customers. It’s a big world out there, and there’s no reason why we can’t be competing in a lot of markets out there.”
He says one of the keys to effectively doing this is to look beyond America’s shores.
“Our biggest growth opportunity for us as manufacturers that we haven’t taken advantage of is finding customers in other countries that we can help supply,” Hadden says. “I think that’s the biggest tone that we’re going to try to set this year. We all know we can’t rely on one or two customers anymore. … If you’re making a part here for an auto company, why can’t you be making it for someone in Germany or Japan or India?”
Hill agrees that diversification overseas is important because of the growing demand that will come from those markets.
“There is a lot of opportunity out there, but the opportunity is going to be based first on international markets, particularly in growing, developing economies,” Hill says. “It is really important for American manufacturers to really pay attention to international markets.”
For example, one of the biggest markets that American manufacturers need to be involved with is China, but it’s not because of cheap, offshore manufacturing.
“They should be looking seriously at China, because it’s an incredibly growing demand and middle class that’s going to drive global sales for years,” Hill says.
Diversification also means that you have to look at other ways to position your expertise and capabilities in the market.
“Companies are continuing to look for new markets and new ways to use their knowledge and their capital for new products,” Burkland says.
But when you look at the global economy and look at your industry and look at your business, you could get dizzy from seeing everything that could potentially happen. That’s when you have to choose a few things to focus on in your diversification efforts.
“Survey, and then pick a couple that are likely winners,” Nicholson says. “Trying to do everything is logistically impossible.”
The way Nicholson and his company decided was by looking at the products they know really well and then looking at applications where they felt their products weren’t well represented. Finally, they looked to see if they could move into those markets with their products.
“Again, [it’s] trying to leverage what you know into a new market. It’s very hard to get into a new market where you know nothing about the product and where you know nothing about the market,” Nicholson says. “You have to choose to either serve a market where you know something about the product or serve a market where you know something about the market and need to develop the product. There’s too much risk and investment to try to solve both those problems at once.”
One of the other keys for manufacturers to find success this year is to focus on innovation.
“That’s the trick today — cut costs but don’t cut innovation because innovation is the path toward future profitability,” Burkland says.
Giorgio Rizzoni can explain why innovation is so critical. Rizzoni is the Ford Motor Co. chair in electromechancial systems, as well as a professor of mechanical and electrical engineering and director and senior fellow for the Center for Automotive Research at The Ohio State University. He says that if you and a friend have the same laptop, in theory, you both have the same battery in that laptop, even though you could each get a different capacity out of that battery.
“You sort of adapt to whatever you have,” Rizzoni says. “It doesn’t matter, from a consumer perspective, that that one battery in your computer or cell phone has whatever performance it has, and if the variability is plus or minus 10 percent, who’s going to tell, right?”
While it may not matter in electronics like your laptop or your cell phone, it does make a big difference in larger items where batteries are needed, such as electric cars. In one of those, you have hundreds or thousands of battery cells.
“Some of them can range up to $15,000 a pack,” says Suresh Babu, associate professor for materials science and engineering and director of the NSF Center for Integrative Materials Joining Science for Energy Applications at The Ohio State University. “A pack means many batteries in it. That means you have to make sure these batteries last longer.”
And that’s where innovation is critical. If you have that 10 percent variability in those batteries, it makes a huge difference and is a serious liability to the car and its cost of maintenance.
“There’s an old adage that a chain is only as strong as its weakest link,” Rizzoni says. … “There’s an analogy there — if you have weaker cells, they will bring down the body of the entire battery pack so the ability to manufacture cells with a high degree of repeatability and quality is a very important thing.”
Improvements to these batteries aren’t happening on an annual basis either — they’re changing monthly. And the saying is that as the automobile industry goes, so does the rest of manufacturing go, and the auto industry is innovating at a rapid pace, so by rule, the rest of manufacturers will be, as well.
But innovation in the automobile industry will go beyond making better batteries. As it strives to reduce the mass of its vehicles, it’s looking for lighter-weight materials to help, and finding lighter materials will also help other manufacturers.
“The more you’re able to find new ways, lighter ways, more resilient ways, more flexible ways, more whatever the characteristics of the materials, that leads to opportunities in product innovation,” Burkland says.
Rizzoni says some of the new materials that are getting implemented in automobile manufacturing are plastics, aluminum, magnesium and high-strength steel. But new materials also mean more changes in the industry.
“One of the challenges that has surfaced when you start working with similar materials is that now you’re trying to join a piece of plastic to a piece of steel, for example, so joining techniques become, possibly, a real challenge,” Rizzoni says.
This is where you have to look at what you traditionally do and throw it out the window. Kevin Arnold is the business development manager for advanced energy for the EWI Energy Center, which helps manufacturers in the energy sector and other industries improve their productivity, time to market and profitability through new, innovative technologies. He says, for example, that if GM built every battery for its electric vehicles to Six Sigma standards, which for years was the gold standard of quality, none of the cars would run, because they would all have bad welds in them.
“You’ve got to get so many decimal places out of quality,” Arnold says. “This is a challenge. That’s part of the growing pains we’re seeing now is that what was considered good enough for many years is now not quite good enough, so it’s looking at the fundamentals, understanding and controlling them and ongoing monitoring to ensure that you’re within limits.”
Look at the processes in your organization and find ways to make them better — even if it’s something that’s been the same way for decades.
“What manufacturers have to be open to is don’t take processes that seem simple, like welding, for granted,” Arnold says. “Welding is a fundamental manufacturing process that’s been around for 100 years, but it’s often one of the least understood processes and one of the first that could go out of control and cause problems. Ensuring that they have the right expertise on staff to look at their processes, understand the variables and understand that what they’re doing is with increasing levels of scrutiny.”
The experts recognize that the money is likely not there in your organization for you to throw out your assembly line and start with something newer and better though, so that’s why they’re working to help manufacturers find ways to cost-effectively innovate.
“All of [the processes] have to be mature,” Babu says. “Mature means not only from the science aspect but also from the industry aspect — how can we implement them in an existing manufacturing line. That’s the biggest challenge.”
But it’s a challenge worth exploring because the way to succeed this year is to push your product and process innovation efforts to the limits.
Resources: Center for Automotive Research — The Ohio State University, (614) 688-3856 or car.osu.edu; EWI Energy Center, (614) 688-5000 or ewienergycenter.com; The Maxine Goodman Levin College of Urban Affairs at Cleveland State University, (216) 687-2000 or urban.csuohio.edu; Michigan Manufacturers’ Association, (800) 253-9039 or www.mma-net.org; NSF Center for Integrative Materials Joining Science for Energy Applications — The Ohio State University, (614) 247-0001 or www.matsceng.ohio-state.edu/faculty/babu; The Ohio Manufacturers’ Association, (800) 662-4463 or www.ohiomfg.com; PVS Chemicals Inc., (313) 921-1200 or www.pvschemicals.com
Manufacturing has led the economic comeback, but will it last?
When you look at the brightening economic picture, manufacturing has played a major role in the comeback. The biggest question facing the sector is simple: Will the good times last?
Robert Dye, vice president and senior economist for PNC Bank, says the odds are in favor of manufacturers, but there are still risks.
“It is my expectation that we continue to see strong growth but not as strong in the last year or so,” Dye says.
The overall recovery in the U.S. will eventually reach across all economic sectors, including service and construction.
“When I look at price conditions for manufacturers, I’m concerned about a profit squeeze as energy and higher commodity prices drive producer prices up,” he says. “Those prices will not be able to be passed through to the consumer at this point. Even though there are currently strong profits, there is potential for profit erosion down the road.”
Companies that make consumer goods should also see better times ahead.
“I do expect the consumer sector to show ongoing improvement through 2011, as we saw consumers bounce back in 2010, with strong retail sales and a strong holiday shopping season after three disappointing seasons in a row,” Dye says. “Measures of consumer confidence are improving and job creation should improve through 2011. Manufacturing sectors that will be able to take advantage of that will be the consumer-focused sector.”
There are also potential risks in the consumer sector, as well: Foreign debt woes could increase the value of the dollar, hurting exporters, unemployment is still high, and the housing market is still weak.
“We are still in uncertain times, and manufacturers will face cross currents in the year ahead, but most of the wind will be at their backs,” Dye says. “But the lingering risks are still with us.”
How to hire in 2011
While most manufacturers are seeing things on the upward swing, hiring can still be a difficult decision as you continue lean operations. Likely, you’re down to a core group of people who you trust and can rely on to do a good job, so if you have a good core and you want to hire, you have to take an approach that most manufacturers have never taken.
“If they do have to hire, it will be slowly — one or two at a time — and they’re not looking at the skill base they have, but how do they fit in with the rest of the people,” says Chuck Hadden, president and CEO of the Michigan Manufacturers’ Association. “Can they work as a team? Is it someone everyone else will get along with? Those are all crucial things they’re thinking about beyond can the guy or the woman do the job.”
Hadden says you have to take more time in your hiring now if you want to be successful.
“Your HR person does the interviewing, but maybe you include a couple people from the floor, and they sit in on a couple [interviews] and listen to them,” Hadden says. “It used to be, when I was growing up, somebody’s grandfather or uncle would get them a job in the place and they’d take off. It doesn’t work that way anymore.”
He says to make sure you look for people who are willing to learn and want to continue to learn through technical school, additional training or whatever the company may call for.
Jim Nicholson, vice president of chemical manufacturer PVS Chemicals Inc., says you also have to trust your managers to make good hires.
“The key on the hiring process is to have confidence that your managers can hire well,” Nicholson says. “Spend time and effort training your managers on how to hire well, and make sure your managers spend enough time on the process and have choices and present choices, so that they can get input from their fellow managers and hire the best person for that role.”
Doing these things will help you as you look to add bodies in 2011 and the years to come.