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 all indicators do point up,
however modest, rather than down.
“In 2009, as a result of 2008, most companies cut employees,”
says Joe B. Johnson, partner, BDO Seidman LLP. “Production lines were cut, the
average workweek went up, and a lot of companies cut capital spending. I think
capital spending is going to go up compared to 2009, and I think most of the
cost-cutting should be finished. You’re starting to see companies hire again,
so I think the indicators for 2010 have shown continued improvement there.”
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. However much 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
“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
“I think manufacturers need to continue to innovate their
products,” Johnson says. “Some manufacturers haven’t explored all the
after-sell services are you doing warranty work? Are you outsourcing it? Are
you doing installation or maintenance work? And you can position yourself
better in the marketplace if you have those services to offer.
“From a financial standpoint, it also improves your annuity
base of revenues. If the manufacturer historically outsourced that or let
others do it, those are areas that can help improve both their relationships
with their customers and their bottom line.”
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.
“I do see companies starting from scratch and asking
themselves, ‘Are we doing everything as efficiently as possible, with the right
number of people, keeping quality in line, keeping all the other factors in
mind? And what is it we can do better?’” Johnson says.
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
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.
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?
“You need to make sure you’ve differentiated your products
enough from your competitors,” Johnson says. “Have you considered new and
ancillary products that will continue to push your business forward? Some
manufacturers are doing a good job but not all companies are there yet.”
With all of 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.”