Northeast Ohio manufacturers must reimagine, diversify

The manufacturing industry in Northeast Ohio had a good year overall, but the health of its disparate sectors can vary drastically based on unique circumstances as well as larger macroeconomic factors.

For example, John Colm, president and executive director of WIRE-Net, says the automotive and commercial construction sectors had a strong 2016, but companies supplying the oil and gas sector have been hurting, which has led to significant layoffs.

“It’s really a mixed bag,” Colm says. “It depends on markets and it could come down even to the specific customers you’re serving.”

“I can’t downplay how important the macroeconomic picture is,” says Ethan Karp, CEO and president of MAGNET. “As our economy goes, so goes the manufacturing sector.”

The manufacturing sector is a vital part of the region’s economy. According to the Ohio Manufacturers’ Association’s 2016 Ohio Manufacturing Counties report, there were 5,913 manufacturing establishments in the region’s 13 counties in 2014, employing 249,689 people.

Many Northeast Ohio manufacturing companies are component manufacturers, sometimes referred to as job shops. They make parts for other companies’ products — for cars and airplanes, medical devices and more.

These companies are under significant pressure to keep their costs low as they face margin pressures from their customers and wage competition from foreign competitors. These conditions require manufacturers to try anything to make processes more efficient, create value for customers, and in some cases, find new opportunities based on the creative application of existing competencies.

Reframing capabilities
Some manufacturers rely on one client or one industry for sales, which is risky. To mitigate this risk, Colm says manufacturers should work to understand where else their capabilities and competencies might apply and identify companies in those sectors to increase sales opportunities.

“Another key is to think of yourself differently, think of your company differently,” Colm says. “In other words, you’re not an autoparts supplier, you’re a metal fabricator. Who else other than automotive is buying metal fabrications? So it’s thinking of your capability, not the stuff you make.”

Once new opportunities are identified by looking inward at new applications of existing skill sets, manufacturers should look outward, taking full advantage of digital marketing and branding to stand out among competitors to reach new customers.

Many manufacturers, however, rely primarily on word-of-mouth and long-term relationships to find business. That limits their reach and doesn’t meet buyers where they now tend to start their buying process: on the internet.

“There’s a whole new generation of buyers emerging in the manufacturing sector who are using their smartphone to find suppliers,” Colm says. “If you can’t be found because you don’t have a good web presence, that’s becoming a problem.

“We’re working with a couple companies right now that that’s the project is to help them bring their web presence into the 21st century. The ones that are doing it are reporting good results almost immediately. It’s really an area that I think manufacturers need to pay attention to.”

Relieving margin pressure
Karp says continuous pressure on margins for manufacturers that are making parts for other companies is a reflection of just how competitive the sector is in both domestic and foreign markets.

“When you ask a manufacturer what they need, sometimes they say people. But if you probe a little bit more they say more sales. Probe a little bit more and they say better margins,” Karp says.

Striving for improved margins is driving interest in Lean manufacturing to decrease inefficiencies while finding ways to add value.

“I think it’s imperative that U.S. manufacturers integrate Lean thinking and action into their day-to-day operations,” Colm says. “It’s not something you can do once and be done with it. It’s really got to be part of your culture. If you can do that successfully — continue to Lean out waste out of your production process — if you can do that year after year, then you’re in a pretty good position to compete on a global basis.”

As improving margins continues to be a focus for Northeast Ohio manufacturers, it introduces automation into the conversation.

“We are making more product today than we made 25 years ago, but we’re making it with far fewer people,” Karp says.

“And that’s been the trend since the 1970s. The shedding of jobs out of the manufacturing sector is, for the region, very real and of course very hard for the region. But the striking feature is that in terms of the amount of product made and gross regional product, we’re still up. And that is due, primarily, to automation.”

Colm says small and midsize manufacturers have a limited ability to invest in expensive capital equipment that could, for instance, automate a production line. Automation for these companies is done more incrementally and tends to support existing jobs rather than displace them.

He says manufacturers are interested in automation in part because of the trouble finding job candidates with the right skill sets, but also because of the long-term cost savings.

“If you can, over the long term, invest in some automation, it can save you money,” he says.

Creativity is not a monopoly
Overall, the need for manufacturers to innovate is critical to their success. What form innovation takes, however, is entirely dependent on the creativity of each company.

“I’m a big believer that creativity is not a monopoly,” Karp says. “You can, with the right efforts and the right skills and techniques, come up with new and innovative things to try out in your market in terms of product and product design.

“And if you’re a job shop, it might not be a physical product, but there’s a lot of innovative things you can do to improve your shop, be more competitive, diversify and ensure that you have strong business going forward.”

How to reach: MAGNET, (216) 391-7002 or www.manufacturingsuccess.org; WIRE-Net, (216) 588-1440 or www.wire-net.org