Build and deliver Featured

11:50am EDT August 3, 2010

Joe B. Johnson, partner, BDO Seidman LLP 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

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.

“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

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?

“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.”