Relentless media talk and discussions from reputable financial institutions have continued to focus on the likely severity of an economic global recession. While all the chatter makes it convincing that the manufacturing sector is heading for troubled times and significant uncertainty, we have found that this is not the case. Challenged with meeting current order demand, manufacturing companies are focusing on substantive opportunities in their value chain to drive significant growth in the near term.
In a recent operation round-table exchange that we hosted with multiple manufacturing companies, the group’s consensus was that they did not yet feel the recession’s impacts. Instead, their focus was the challenge of fulfilling the current order demand. Multiple companies echoed the same comment:
“Many businesses are in a sold-out state or close to a sold-out state. Our biggest challenges are rapidly addressing staffing shortages, maximizing production and managing supply chain disruptions.”
Whether the order books are bulging or not, companies are taking a more confident and aggressive approach to optimize some of the more substantive opportunities in their value chain, including:
- Skilled Employee availability – including Employee retention, training & development, and Wage inflation
- Supply chain disruptions, logistics, and S&OP (Sales and Operations Planning) optimization
- Margin optimization
- Maximizing productivity while improving maintenance & reliability
- Deployment and utilization of Industry 4.0/Artificial Intelligence/process automation and optimization
Several core indicators underly our confidence in the overall manufacturing sector and its ability to achieve significant growth in the near term. Under normal circumstances, deep cost-cutting measures, including headcount reductions, often follow a recession’s onset. In the current environment, and likely to continue into 2023, the manufacturing industry is predominantly struggling to fill front-line and supervisory positions. The sentiment amongst manufacturers is that there cannot be reductions to the existing workforce given the current hiring struggles to fill open positions and employers working diligently to replace leavers as quickly as possible. Filling open positions and holding on to employees is a meaningful challenge in the current job market.
Another indication that supports the growth thesis for 2023 is the light at the end of the tunnel in the global logistics log jam. Supply Chain disruptions are high on any list of current challenges; inbound and outbound logistics are the most significant supply chain challenges for most manufacturing companies. The issue has not been the ready availability of raw materials and manufacturing feedstocks but the ability to get those materials to the point of production and finished goods to the customer. All of that is beginning to change with the slowing demand for Chinese exports; container shipments have fallen significantly between China and the United States, already lowering freight costs, increasing capacity at major ports, reducing vessel waiting times, and increasing container turnaround times. These changes will quickly translate into meaningful improvements for manufacturers to access raw materials and feedstocks more readily, ship finished products and ease the warehouse and storage crunch.
As manufacturing companies face severe shortages of skilled labor, they turn to innovation and collaboration to stem the tide of early retirements and employee turnover. The skilled (and unskilled) labor shortage, is unlikely to get better anytime soon, given that there are currently 10 million job openings and only 6 million workers in the job market.
Companies that are successfully mitigating the labor shortages are doing so because they are tackling the challenges of digitalization, automation and employee engagement head-on. Robust strategies to improve employee engagement has already delivered remarkable benefits, including dramatic improvements in individual productivity and top-tier performance improvements across a range of critical metrics: overall productivity, EHS, employee turnover, employee morale, workplace stress, and top and bottom-line profitability. These companies also find it easier to fill open positions and recruit the best talent.
The biggest differentiator has been successfully deploying and utilizing digitalization, process automation, and robotics. Connected production lines and machines on the shop floor, providing accurate real-time data, enabling manufacturers to operate production lines with fewer resources and helping production and maintenance teams with remote diagnostics and more rapid repair of production equipment to minimize downtime and lost production.
Unlike robotics and automation, the digitalization process can start with little capital and minimal burden on shopfloor resources and supervision. Under normal circumstances, deep cost-cutting measures, including headcount reductions, often follow a recession’s onset. In the current environment, and likely to continue into 2023, the manufacturing industry is predominantly struggling to fill front-line and supervisory positions. The sentiment amongst manufacturers is that there cannot be reductions to the existing workforce given the current hiring struggles to fill open positions and employers working diligently to replace leavers as quickly as possible. Filling open positions and holding on to employees is a meaningful challenge in the current job market.
Another indication that supports the growth thesis for 2023 is the light at the end of the tunnel in the global logistics log jam. Supply Chain disruptions are high on any list of current challenges; inbound and outbound logistics are the most significant supply chain challenges for most manufacturing companies. The issue has not been the ready availability of raw materials and manufacturing feedstocks but the ability to get those materials to the point of production and finished goods to the customer. All of that is beginning to change with the slowing demand for Chinese exports; container shipments have fallen significantly between China and the United States, already lowering freight costs, increasing capacity at major ports, reducing vessel waiting times, and increasing container turnaround times. These changes will quickly translate into meaningful improvements for manufacturers to access raw materials and feedstocks more readily, ship finished products and ease the warehouse and storage crunch.
As manufacturing companies face severe shortages of skilled labor, they turn to innovation and collaboration to stem the tide of early retirements and employee turnover. The skilled (and unskilled) labor shortage, is unlikely to get better anytime soon, given that there are currently 10 million job openings and only 6 million workers in the job market.
Robust strategies to improve employee engagement has already delivered remarkable benefits, including dramatic improvements in individual productivity and top-tier performance improvements across a range of critical metrics: overall productivity, EHS, employee turnover, employee morale, workplace stress, and top and bottom-line profitability. These companies also find it easier to fill open positions and recruit the best talent.
The biggest differentiator has been successfully deploying and utilizing digitalization, process automation, and robotics. Connected production lines and machines on the shop floor, providing accurate real-time data, enabling manufacturers to operate production lines with fewer resources and helping production and maintenance teams with remote diagnostics and more rapid repair of production equipment to minimize downtime and lost production.
When executed well, digitalization provides rapid results and eases the stress of labor shortages on production lines. The caveat here is “when executed well” because over 90% of manufacturing companies have already initiated some form of front-line digitalization; sadly, about 70% of those initiatives fail to deliver the desired outcomes and benefits. We cannot underestimate the impact of those failures on cost, time, and shopfloor confidence and trust.
In deploying and utilizing digitalization, especially given the criticality of success, here are a few key enablers to success:
- A clear strategic vision and digitalization transformation strategy aligned across the organization, especially the C-Suite
- A dynamic and compelling business case with clearly defined outcomes and benefits
- Transparent business and operating rationale
- Avoid one-size-fits-all or single-silver-bullet solutions
- Streamlined and purpose-fit operational processes and management systems
- Focus on people and organizational changes: roles and responsibilities, job descriptions, functional interfaces, reporting relationships
- Capabilities and skillset to sustain the implementation
- A robust change management strategy and approach
- Ownership, accountability, and reporting to the C-Suite
Critical elements of digitalization can produce rapid results, but only when done well. Lessons learned provide a roadmap where companies do not need to repeat the mistakes of the 70% of implementations that failed to deliver desired outcomes.
The topics covered above are merely the tip of the iceberg; there is certainly enough to give manufacturers added confidence in planning to deliver growth aspirations over the next 2-5 years. With innovations in technology, digitalization, organizational frameworks, and structures, the manufacturing environment will look very different in 5 years. Manufacturing companies absolutely have to position themselves today to take advantage of the many opportunities for growth, now is the time to act!
