3 Trends Affecting US Manufacturing

A recent report issued by the Institute for Supply Management documents that the US manufacturing sector has expanded over the past 11 months. Comments from panel members reflect significant growth through the first four months of 2014, providing evidence of meaningful strength in manufacturing – an economic sector once written off as dead. But, will 2014 be a good year for manufacturers? Although it is too early to tell with certainty, many experts are seeing increased demand for U.S.-based products across country.

Trends Affecting Manufacturing

Even though making specific recommendations for an individual organization based on general manufacturing trends is very difficult, examining the latest trends can help manufacturers operating in the US succeed in today’s global market. Here are the top three trends we have identified as being the most valuable and relevant for California manufacturers.

Re-shoring – Re-shoring more operations back to the US will help us increase exports, reduce imports and regain manufacturing jobs. Additional reasons to re-shore include superior quality and inventory control, minimized logistics costs, improved ability to respond to market demands and consolidated defense industrial base, which plays a significant role in strengthening the US economy.

Sandy Montalbano of ReShoreNow.org, a nonprofit organization that is leading an effort to bring manufacturing jobs back to the United States, recently commented,

“Current research shows many companies can reshore about 25% of what they have offshored and improve their profitability simply by using TCO (total cost) instead of price to make their decision. Twenty-five percent is equal to 1 million manufacturing jobs!  Our trade deficit in goods equals about 40% of our manufacturing output – so if we balance the trade deficit by substituting domestic production for imports, we will increase manufacturing employment by 4 million jobs and overall employment by 8 million jobs due to the manufacturing multiplier effect. Companies are reshoring because they are finding that having manufacturing near customers gives them better flexibility to respond to customers changing needs, eliminates higher shipping expense, minimizes supply chain disruptions and eliminates the larger production runs and inventories associated with long distance offshoring. Companies are also finding that when manufacturing is moved next to engineering, they can improve design, eliminate waste, improve quality and increase productivity. In order to help companies decide objectively to reshore manufacturing back to North America or offshore, the not-for-profit Reshoring Initiative’s free Total Cost of Ownership Estimator which can help corporations calculate the real P&L impact of reshoring or offshoring.”

In an effort to encourage re-shoring and sustain growth across the manufacturing sector, states like California offers a series of incentives, including the California Competes program, which provides 180 million in tax credit for businesses that want to relocate or expand to California; worker compensation reforms, which allow for reduced costs to businesses and increased payments to workers; and tax exemptions for certain industry sectors (e.g. furniture, machinery, fabricated metals, appliances and computers) to encourage investment and job creation.

Manufacturing Skills Gap – With the manufacturing sector expected to suffer large numbers of retirements over the next 10-15 years, it is believed that a skilled worker shortage will become a very serious challenge that needs to be addressed as soon as possible.

The solution? According to industry experts, manufacturers must find a way to change people’s perception of manufacturing. Although this sector has evolved over the years, wrong perception relating to rigid jobs, hard work and short breaks keeps new generations away from factories.

Fueling this perception problem is a lack of investment into programs designed to develop the next generation of manufacturing employees. Many manufacturers have made considerable investments into technology. However, most of them do nothing when it comes to bringing in fresh talent. One solution is education outreach by manufacturers to vocational schools, high schools, colleges and universities.

Investing in training is another thing manufacturers must do if they want to close the manufacturing skills gap. Even before new workers come through the doors, manufacturers need to prepare them for success. For this, a series of earn and learn training programs have been developed.

“Made in the USA” – Labor and material costs used to be lower overseas; but, things have changed. Besides rising labor costs all over the world, including China, US-based manufacturers must pay increased prices for leaner supply chains and superior product quality. Considering that access to capital for US manufacturers and consumer perception of quality and value are two factors positively influencing the supply and demand for US-based goods, it is no wonder that more and more products wearing “Made in the USA” labels are manufactured.

As a result, a number of manufacturing sectors, including Primary Metals, Fabricated Metal Products, Apparel, Leather and Allied Products, Furniture, Food, Beverage and Tobacco Products, Textile Mills, Transportation Equipment, Appliances and Components, Paper Products and Wood Products, have reported growth.

In the final analysis the manufacturing sector must find ways to reinvent itself and appeal to the newer generations. Competition for skilled workers is only going to increase as the boom in technology now provides the Millennial generation with far greater options for employment and career decisions.

Richard Espinoza is VP of IDR Environmental Services.