U.S. manufacturers face many complex business challenges, but they also have many reasons to be optimistic. The industry is responding to today’s volatility by investing for the future and embracing innovation to seize business opportunities.

Industry changes spark opportunities for businesses.

The manufacturing sector in the United States is facing a series of major shifts. Businesses are challenged with managing a sea of changes in technology, labor, supply chains and other factors — all in the midst of significant movements in U.S. trade policy.

Yet amid this uncertainty there are many reasons to be optimistic, including the potential impact of business-friendly reforms in Washington, D.C., along with manufacturers investing in the future and driving innovation inside their organizations and across the industry.

These topics led the agenda when some of the nation’s leading manufacturing experts gathered with business executives recently in Hershey, Pennsylvania. Hosted by M&T Bank, the event, headlined “Impacts on Manufacturing in an Evolving Global Market,” featured a lively panel discussion and audience Q&A session.

Moderated by Joe Crosswhite, Area Executive for Pennsylvania at M&T Bank, the panel featured:

  • Karen Mills, Senior Fellow at the Harvard Business School and former Administrator of the U.S. Small Business Administration
  • Rick Schreiber, National Manufacturing & Distribution Practice Leader and National Industry 4.0 Co-Leader at BDO

Read on for a summary of the most pressing questions on the minds of manufacturing executives and the views of our subject-matter experts.

Note that the views reflected in this summary reflect the opinions of the panelists and audience members, and not necessarily those of M&T Bank or its employees.

President Trump, new tariffs and changing trade policy raise many questions, but may eventually help level the playing field for U.S. companies.

Coincidentally, the event occurred the day President Trump imposed new tariffs on as much as $60 billion worth of Chinese goods.

The panelists acknowledged the possibility of a trade war that could negatively impact manufacturing in both nations, and accepted that the President could make additional moves if he feels compelled to protect certain sectors of the U.S. economy. But, the panel agreed, only time will tell what direct impacts and unintended consequences these tariffs will bring to manufacturers, noting that “the devil will be in the details.”

However, the panel stressed the need to take the long view of shifts in U.S. trade policy and advised manufacturers to look for positive opportunities amid the volatility. One panelist suggested that poorly designed policies and weak or ignored trade enforcement mechanisms have hurt U.S. manufacturers and led to the loss of domestic jobs.

Overall, the panel expressed cautious optimism that new tariffs and policy changes could not only help level the international playing field, but also encourage and help U.S. companies to diversify their value chains. For example, it may be critical to identify suppliers, business partners and new opportunities outside of China to position a U.S. company for future growth.

Washington, DC is just one source of the volatility and uncertainty that comprise of the new normal for manufacturers.

Whether its new tariffs, stock market swings, new tax laws or geopolitical shocks, volatility and uncertainty are the new normal for manufacturers, the panelists concurred. The key to future growth will be strategically managing through this new normal and targeting new positive opportunities created by it.

Many companies may need to reassess how they manage risk – operational risk, supply chain risk and others – and “be prepared for things to go bump in the night,” as one panelist explained.

Savvy manufacturers are considering how much cash to hold and examining their sources of liquidity to prepare for potential shocks. Companies are also prioritizing how they diversify their business models. For example, U.S. manufacturers that are overexposed to exports to or imports from China, and other countries the White House might deem an “economic enemy” are considering how they can ramp up their U.S. businesses as a hedge. Others are looking at “re-shoring” processes they currently conduct overseas, according to the panelists.

In short, while it may be too soon to fully comprehend the effects of volatility and uncertainty, now is the time for manufacturers to think about what investments need to be made today to seize opportunities moving forward.

The promise of digital technology is as complex as it is great, which requires a disciplined approach to the paradigm shift.

Industry 4.0 is upon us. A term coined by German government researchers earlier this decade, Industry 4.0 refers to the fourth industrial revolution. First came water and steam power, then electric power, then computers and electronics.

Today digital technology is quickly revolutionizing the way manufacturers innovate and operate. From the internet of things and robotics to intelligent automation and augmented reality, the technology can seem complex. That’s why it’s important for every manufacturer to approach these potential disruptors in three ways.

  1. Conduct a technology assessment to determine the current state of your systems.Also, use this time to gain a consistent, company-wide understanding of these various technologies and the benefits they can provide. The end goal of this phase should be an adoption and implementation road map that can stretch from two to five years.
  2. Remember that the focus of digital technology should be value creation: top – and bottom-line growth and risk mitigation.Each company can decide where to begin by asking what information can be gathered to possibly create value. One organization might want to know where its distributed workforce spends its time. Another may want to discover how long specific processes take to complete.
  3. First walk, then run, then fly.The panelists agreed that manufacturers should take an incremental, methodical approach to any implementation. It’s key to avoid trying to solve an entire problem at the outset. Instead, concentrate on experimenting and running pilot projects. Collect small samples of data to determine if the insights gained are truly useful before expanding a project. “If you get just a couple of facts, you can be a whole lot smarter than the next person,” one panelist said. And if a project fails to meet expectations, move on quickly. It’s important to be able to pivot away rapidly from pilots that don’t succeed and other setbacks. As one panelist put it: “This is about failing fast, failing smart and failing profitably.”

The panel pointed out that technology such as 3D-printing and related solutions that many manufacturers are considering offer the strategic benefit of enhancing a company’s ability to customize products for customers. While previous waves of technology enabled cost reduction, one panelist said, emerging digital technologies can make it cost-effective to manufacture very small quantities customized for a particular customer.

This makes it imperative that companies listen closely and continually to customers’ pain points and needs, the panelists agreed.

Fortunately, the unprecedented levels of computing power and storage capacity available today enable more efficient data aggregation and analysis. Using digital solutions such as cloud-based data warehouses to collect information on customers, manufacturing processes, products and other factors, combined with advanced analytics and artificial intelligence to parse it, manufacturers are poised to gain enriched insights about their business opportunities.

As one panelist concluded, “If we’re going to compete, particularly in complicated global scenarios, we’re just going to have to get a whole lot smarter about what our customers want and how we can deliver at low cost.”

Perhaps the greatest challenge today is attracting and retaining skilled workers.

One fact abundantly clear among the panelists and audience is that hiring and retaining skilled workers is going to be absolutely critical moving forward. For a manufacturer to be innovative and agile enough to succeed in a volatile economic and geopolitical environment, a highly proficient and productive workforce will be crucial.

However, there was general agreement that finding and keeping skilled workers who can succeed in this landscape is difficult. Various factors were cited for this labor supply-demand mismatch — from the state of the U.S. education system to the “work ethic” of the Millennial generation.

But the discussion turned positive quickly and changed to solutions for this challenge, both strategic and tactical. All agreed that the situation is so important that manufacturers, government and educational institutions need to collaborate even more often and more closely on programs to attract and train skilled workers.

  • Manufacturers are partnering with colleges and universities to bring classes into their facilities. Others are collaborating with trade schools on joint internship programs. One company mentioned at the event is offsetting college tuition costs not for employees, but for employees’ children. This tactic is designed both to retain high-value workers and build the next generation of skilled labor
  • A manufacturing trade association is working with its regional economic development agency and local community colleges on an apprenticeship program. Most of the operational and training costs are borne by the manufacturers, who see it as an investment in their future
  • Companies are tapping into innovative Manufacturing Institute programs to find skilled workers. One is Heroes MAKE America, which trains U.S. Army veterans for various roles in the industry. Another is Science, Technology, Engineering and Production (STEP) Ahead, an initiative focused on attracting and retaining women in manufacturing
  • Companies were also encouraged to open their doors to their communities for National Manufacturing Day, the first Friday in October. More than 3,000 events are planned this year aimed at giving the public a true perspective on modern manufacturing

Even with programs such as these, the panel noted, the labor supply-demand mismatch is not a problem that will be solved quickly. Companies must continue to focus on the challenge and continually innovate solutions to bridge the gap.

“Can you put as much effort into your supply chain of human capital as you do continually innovate solutions to bridge the gap. “Can you put as much effort into your supply chain of human capital as you do your supply chain of goods?” one panelist asks. “There’s a lot of work we’ve all done on our supply chains of goods. Let’s do the same thing on our supply chain of people.”

In spite of complex challenges facing the industry, there are many reasons to be optimistic.

More than 94 percent of U.S. manufacturers have a positive outlook, according to a National Association of Manufacturers survey released in late 2017.

The panel echoed that optimism. Despite the challenges of new tariffs, potentially disruptive technology, a skilled-labor shortage and other issues, companies have many reasons to be confident. Both the U.S. economy and global economy are growing, the impacts of tax reform are becoming clearer and, as one panelist put it, “President Trump is manufacturing’s number-one cheerleader.”

In terms of innovation, the U.S. “has been leapfrogged,” one panelist admitted, by nations such as Germany, China and India. But today, industry-friendly government policies are U.S. inviting manufacturers to catch up. Those companies that invest intelligently and seize opportunity amid uncertainty are poised for even brighter days ahead.

Questions?

We’re here to help. Call 1-800-724-2240 or your M&T Relationship Manager or visit us at mtb.com/commercial.

 

Disclosures

This article is for informational purposes only. It is not designed or intended to provide financial, tax, legal, investment, accounting, or other professional advice since such advice always requires consideration of individual circumstances. Please consult with the professionals of your choice to discuss your situation.

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