Manufacturing remains in flux, but growing again Featured

8:00pm EDT July 26, 2010
By the time financial markets around the globe started to tumble in October 2008, so 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. Thousands of factories had been shuttered. Whole companies just disappeared. None of it was coming back. It was gone for good.

Manufacturing was not, of course, the only industry hit hard prior to the start of the larger recession, but perhaps no industry was affected more since the turn of the millennium. 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, 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, but many indicators do point up, however modest, though challenges remain.

“As far as Northern California is concerned, there is a fairly significant concentration of manufacturing jobs in technology and pharmaceuticals,” says Aftab Jamil, partner, Technology and Life Sciences Group, BDO Seidman LLP. “The trend has been, for several years, that jobs and functions have been outsourced. A lot have gone overseas, but many have gone to the neighboring states, as well. That trend has continued the last two or three years as manufacturing jobs have been lost.

“I think Silicon Valley and Northern California are still very much the innovation capital of the world, but in terms of competitive standpoint, there’s a lot to be desired, and the competition has been increasing domestically and internationally.”

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.

Among those changes are the new gaps in the supply chains of some larger original equipment manufacturers, the result of smaller companies closing, 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, what with banks starting to somewhat relax their requirements. 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, the ripple effect across industries.

For example, if you have not already reassessed your vision and your plan for your company, that should move to the top of your priority list.

“Every business will look to be more competitive and more efficient in production,” Jamil says. “I think the focus should remain on the manufacturing processes and making them as efficient as possible.”

Keep the long term in perspective

Two years ago, few manufacturers were prepared for the recession. But you can prepare for the ascension, however slow and modest it might be and whenever it does become more noticeable, 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 departments of federal, state and local government. And you will likely want to consider your risks, especially over the long term.

“From a competitiveness standpoint, we have to make sure that we keep the long-term views in mind because the short term looks very attractive,” Jamil says. “That goes to both the public and the private sector, as well. We might be able to produce something more cheaply elsewhere, but we don’t look at the long-term view and effects.”

Technology and education, as would be expected, can also play a role in increasing your business. Several experts discussed how the advantage of U.S. companies is U.S. technology. Domestic manufacturers continue to be at the forefront when it comes to utilizing technology in their processes. 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.

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.

Ask questions

As you prepare for 2011, it will be important to keep any number of questions in mind. What those questions are 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?

“As the competitiveness increases in other parts of the world, you look at the overall cost when they come back to the U.S. That should very much be a part of the equation. Looking at it from a customer standpoint, what is that customer demanding?” Jamil says.

With all that in mind, you will also need to think about innovation as much as ever. 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,” DeRocco says. “But remember the volatility of this market.”