By the time financial markets around the globe started to tumble in October 2008, much of the manufacturing industry was already deep in a recession that had stretched across the better part of a decade. Millions of workers had been sent home, their labor and their experience no longer needed because of more efficient machines and the rise of globalization. Thousands of factories had been shuttered. Whole companies just disappeared. None of it was coming back. It was all gone for good.
Manufacturing was not, of course, the only industry hit hard prior to the start of the larger recession. Publishing and newspapers had been on the decline for years, and the domestic automotive industry, technically under the umbrella of general manufacturing, had been in a slide for a generation. But perhaps no industry was affected more since the turn of the millennium than manufacturing. About a quarter of a million manufacturing jobs were lost over the course of a decade, the large majority of them prior to 2008. As the recession spread from one industry to another, millions of workers were laid off from the collective work force, but manufacturers often still let go of the most employees.
The cycle was vicious, and it continued, month after month.
How is it possible, then, that less than two years after the economy turned, manufacturing is on the rise again? Manufacturing activity increased again in May, according to the Supply Management’s index, the 10th straight month of growth. And even though that growth has started to slow a bit, growth is still growth. Were the 2008 levels just so low that any growth is significant? Or is the sustained increase in manufacturing a sign for the rest of the economy? Nothing is certain, not yet, but all of the indicators do point up, however modest, rather than down.
“It’s really an opportunity, after you’ve survived the last two years and you’ve streamlined your business, to leverage off of those hard decisions you had to make and to figure out how to do business better,” says John Fenton, partner of assurance services, BDO Seidman LLP. “Do you want to go back to normal, where you were two years ago? Or do you want to build off the efficiencies you’ve already gained?”
“And what is normal?” says Scott Yancey, senior manager of assurance services, BDO Seidman LLP. “Is normal what you had five years ago? Are you hoping to get back there? Or will normal reflect improvements in the future?”Prepare for more change
What was normal two years ago will almost certainly not be normal during the second half of 2010 or even during the first months of 2011. What was normal then, in fact, might never be normal again. Even though it might be a cliché, change really is the new normal in manufacturing and plenty of other industries, too.
Among those changes are the new gaps in the supply chains of some larger original equipment manufacturers, the result of smaller companies closing during the last couple of years, which might cause delays and problems in receiving supplies in a timely manner. A number of industry experts say the availability of credit will also likely change, with banks starting to somewhat relax their requirements for the first time in two years. But the biggest change might be the addition of manufacturing jobs.
“Manufacturing is now the only business sector that has been adding jobs for five months,” says Emily Stover DeRocco, president, The Manufacturing Institute. “Manufacturers have added 126,000 new jobs.
“But the focus is going to continue to be more on what we call mass customization, as opposed to mass commoditization. This reflects, again, the industry’s response to globalization, which is that U.S. manufacturers, in order to maintain their global leadership, have had to move to a higher quality and a higher value product.”
And that higher quality product will almost certainly lead to more changes in the way manufacturers and so many other companies plan and do business. It is the ripple effect across industries.
For example, if you have not already reassessed your vision and your plan for your company especially in terms of green initiatives and a more green production cycle that should move to the top of your priority list.
“Reassess your priorities and really have a vision for what you want the company to be five or 10 years down the road,” Fenton says. “Keeping a lid on costs is important, so technology and investment are important, as is investing in employees.
“One of the things you hear about a lot are green initiatives. We have a client in Atlanta that, about 15 or 20 years ago, began their green initiative with the goal of having no carbon footprint by 2020. They were ahead of the curve, but more and more companies are starting to look at that and adopt policies around that. From a business perspective, it can help to reduce waste in companies.”
It can also help you better position yourself and your company for the continuing changes and the eventual uptick in the economy and the industry.Keep the long term in perspective
Two years ago, few manufacturers few companies at all, really were prepared for the recession. But you can prepare for the ascension, however slow and modest it might be, by being smart during these coming months and years.
You might think about diversifying your product lines into other markets, so you aren’t as dependent on single-source customers, and, more generally, diversifying your portfolio. You might also research how to best tap in to loans, grants or tax credits that are available from various levels and departments of federal, state and local government to help increase business during challenging times. And you will likely want to consider your risks, especially over the long term.
“You can help yourself by really developing a business plan or a manufacturing strategy that embodies the risk associated with the business, with a customer-centric focus and the quality of the products, exploring existing markets or looking at other markets where you can expand,” Fenton says. “Consider your supplies. How do you manage the possibility of wild swings over time in the prices of commodities? How do you plan for significant variations?”
Technology and education, as would be expected, can also play a role in increasing your business. Several experts discussed how the advantage of companies that are owned and operated in the United States is the technology that is developed in the United States. Domestic manufacturers continue to be at the forefront when it comes to utilizing technology in their processes, a trend that will only continue. To ensure that the technology is operated correctly and efficiently, workers should be more educated than they were 40, 20, even 10 years ago, and with so many quality workers still unemployed, there is a deep talent pool from which to hire.
How you handle all of that now might be the difference between a quicker return to profitability and increased production, and the far less appealing option of a long struggle back to respectability and some small sense of comfort in the market.
Most important, though, is to do everything with the long term and that refers to years and decades, not just months and quarters in mind.
“There has been some talk about a double-dip recession,” Fenton says. “I don’t know if that will happen or not, but companies are being cautious right now, and rightfully so. Consumer spending is still down, and consumers are retrenching and reducing their personal debt loads. That’s a good thing overall for the economy, though there is a ripple effect on the manufacturing industry. Companies need to continue to be frugal and wise and to look at the horizon.”Ask questions
As you prepare for the last months of 2010 and the first months of 2011, it will be important to keep any number of questions in mind. Write them down. Type them and print them out. Keep a copy on your desk. Distribute copies to your executive team, perhaps even all of your employees. Just keep them in mind. No matter how well you know your business and your industry, that list of questions will be as important now as it has ever been.
And just what questions should make the list? Well, a lot will depend on your industry, your goals and your financial standing at the moment, but there are some questions that all businesses need to be asking right now. And those are: What is happening in your industry? Is it expanding or contracting? Is your company expanding or contracting? Where do you see your company in 2015? In 2020? Is your company in the right market? Is it in the right position in the market? What are the strengths and expertise that your company has that could be adapted to another market or product line? Where can you turn to think through your situation? Will your company be able to receive a large enough line of credit during the next year? Will you be able to fund your growth? How sustainable are the current demands? And, the great unknown, how will global events affect your company?
“Analyzing and determining what events in the global workplace impact you and how they impact you is important,” Yancey says. “For instance, there will be increased regulation for those companies that operate or sell in the space of the Gulf of Mexico, just because of the failure of the oil spill. That’s something that used to be confined to one or two industries, but companies are going to have to start looking at things like that.”
With all of that in mind, you will also need to consider whether your supply chain will be able to respond to the innovative approaches required for future growth and success, which means supply chain capabilities and locations become more important. The demographics of your work force are also important, especially with a generation of baby boomers still on the brink of retirement. And innovation is important, too. How will you move ideas from the collective mind of your company to the drawing board to the marketplace? Live in the present but remain focused on the future.
“Eyes on the future, but remember the volatility of this market,” DeRocco says. “There’s a constant threat to every business sector and there are some very large factors in play right now that will determine manufacturers’ cost structure for continued operations, so they’re keeping an eye on all of those public policy, the global impacts around the world, certainly the European financial crisis.
“Every one of those issues has an impact and creates new challenges for manufacturers operating in that environment.”