Booms and Busts: How America's Manufacturers Need To Prepare For Economic Uncertainty

The prospect of a consumer-led recession hitting in 2023 has dominated headlines for months. If it in fact comes to fruition, how will this impact the recently revitalized American manufacturing industry?

For the past few years, American manufacturing has seen an astronomical resurgence, driven in large part by de-globalization leading to more reshoring, the supply chain being remade due to the war in Ukraine, Boeing securing some of their biggest orders of all time, and numerous other factors. But American manufacturing is not a monolith and different industries will face different challenges as we head into the next few years. Shops that service the semiconductor industry, for example, are slowing and need to find new ways to diversify, while shops servicing aerospace and defense appear to be busier than ever.

It’s important to remember that baby boomers are retiring across the industry. This is leading to a dire shortage of skilled workers, and if manufacturers do not commit to becoming more efficient, they’ll quickly find themselves struggling to find the support they need to meet the rising demand for manufactured goods.

As I write this, there is positive momentum based on indicators like the Gardner Business Index, Purchasing Managers Index, and McKinsey reports. But the only thing certain in life is change. If manufacturers want to be successful long-term—no matter what happens tomorrow, next year, or 20 years down the road—they must have a proactive plan for staying resilient in any condition.

What manufacturers should focus on if business is slowing

“Seize the Day”

• Regroup and optimize capacity
  Slow times should be spent focusing on process improvement. Getting the technology, ​​software, people, and operations in place gets the business ahead once demand picks back up again and ensures the floor and team are equipped to capture maximum work.
• Communicate your capabilities and capacity to your customers—regularly
  Social media and email marketing are completely free, and it’s important to 1) do everything possible to win new contracts and 2) stay top of mind for existing customers.
• Double down on marketing to industries that are growing
  Having a diversified customer base is critical, but during times when money is spread unevenly across sectors, focusing on expanding business with customers whose industries are thriving is a smart strategy.
• Adjust your budget
  It’s during these times that every manufacturer should be trying to do more with fewer resources. It’s wise to be simulating revenue going down and monitoring what happens to expenses and profitability.
• Be as opportunistic as possible
  It’s unfortunate, but if some manufacturing businesses decide they can no longer keep their doors open, machinery sales can become unbeatable opportunities for others who are still in business but are being cash-conscious.
• Keep your pricing firm & offer other advantages
  It takes courage, especially when committing to long-term vendor-managed inventory. But without holding firm on prices, inflation and the lack of demand will cause the business to shrink. By offering other benefits, such as shorter lead times, customers become empowered to make decisions based on their project timeline instead of just price.

Staying on track during hectic times

“Time is Money”

• Protect your capacity with the right work
  When there's more demand than there are people to make stuff, it’s important to protect capacity at all costs. That means deploying strategies like identifying and focusing on highest margin work and adjusting pricing to reflect demand. Simply taking a ​First In, First Out​​ ​approach risks profit loss due to longer lead times, work becoming sloppy, or errors actually creating negative margins on deals.
• Automate what you can
  Automating certain tasks can be absolutely critical. Leveraging technology that helps offload admin tasks and streamline processes is key to making work faster, easier, and more error-proof.
• Just say no
  Saying no to certain contracts can prevent the need to turn down highly profitable work. It starts by looking at the margins on jobs, determining which are most profit-yielding, and freeing up the production schedule to never turn that type of work down in the future.
• Command a premium
  When time is more valuable than ever, baking in add-ons helps ensure work that requires things like special packaging or additional inspection is bringing in revenue.
• Stay agile
  In the age of Amazon, buyers are used to 1-day, 2-day, or "standard" shipping. The manufacturing industry should take a page from Amazon’s book instead of getting stuck offering rigid lead times. Even if a customer doesn't ask for options, offering them anyways often results in a surprising amount of people suddenly opening their wallets.

How to build long-term resiliency

Getting ahead of the curve (and the competition) means being relentless about continuous improvement—no matter how much it feels like things are running like a well-oiled machine.

If the goal is to build a generational business, investments in improvement should not only be continuous, but intentional. ​Some investments​​ ​ may drive immediate ROI, but will ​they​​ ​ drive​ long-term​ flexibility and scalability​ ​?

When manufacturers invest in technology that can help them pivot and work more strategically, they’re able to better navigate our world’s ever-changing economic landscape. The right technology can help uncover trends to predict what’s around the corner. It can enable more junior employees to get involved in skilled jobs to help offset the labor shortage. Technology fosters collaboration (and they say “collaborate or crash” for a reason).

Ultimately, if American manufacturers are equipped with the right resources and job shop software at the right times, the supply chain will flourish. And we—and the economy—will thank them for it.

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