By Bart Taylor | Jul 06, 2022
As much as forecasts of an impending recession shape the business news today, manufacturing is in growth mode. Despite a gloomy macro-economic narrative, June's Purchasing Managers Index (PMI) measured a solid 53, squarely in 'expansion' territory.
Moreover, against the backdrop of recession fears, manufacturers are increasing staff. In the same ISM survey, an "overwhelming majority" of companies said they were hiring.
In our ongoing series, we circled back with Jim Watson, CEO of California Manufacturing Technology Consulting (CMTC), to talk manufacturing and prospects for growth.
CompanyWeek: Jim, great to chat with you again. How do we parse the conflicting news? Is growth still on tap for manufacturing, or are we to interpret a slight downtick in the PMI as others have -- a sign of contraction to come?
Jim Watson: No, growth is still on the minds of manufacturing leadership. However, while opportunities for growth exist, seizing new business is encountering some strong headwinds. The rise in inflation has increased materials cost, which is stressing margins and bottom lines. Supply chain issues continue to bring uncertainty in securing sufficient materials in time to meet demand. Also, finding skilled workers has inhibited many manufacturers from aggressively looking for new business. Today, growth is definitely an aspiration but proving to be elusive for many small- and mid-sized manufacturers (SMMs).
CW: We hear more and more about automation as a catalyst for growth. Can automation alleviate some of the pressure manufacturers are facing in trying to grow?
JW: Yes, manufacturers need to make automating a priority. In a manufacturing survey commissioned by CMTC last year, 61 percent of respondents said they will have a significant or moderate increase in automation in the next three to five years. However, because of the continuing need to increase productivity -- that for the most part will be driven by automation -- automation deployment timeframes will need to be expedited.
CW: I wrote last week that automation is becoming a magnet for attracting new workers. Are you seeing manufacturers improve workforce prospects via automation?
JW: Great question. The need for skilled workers is at an all-time high. In fact, California has a significant appetite for high and high-to-medium technology jobs -- 51 percent of all manufacturing jobs in California fall into those two categories. In comparison, the nation has a lower level of tech employment at 43 percent of their manufacturing jobs. In addition, according to a CMTC-commissioned study by Beacon Economics, 63 percent of manufacturing jobs require a high school diploma (or equivalency) for an entry-level job.
The challenge is that, if you are not already automating, getting sufficient skilled workers to automate is a tall order. What comes first? The chicken or the egg? It's estimated that there are presently more than 50,000 open manufacturing jobs in California. Upskilling existing workers could provide some relief in the tight labor market.
CW: Let's switch gears. What role is the supply chain having with those manufacturers who want to grow?
JW: Those who want to grow will need to rethink their supply chains and look for ways to improve their own performance as a supplier to secure additional business. Effective supply chain management is becoming increasingly data driven. Today, close to 70 percent of supply chain functions are handled on spreadsheets; and, only 17 percent of manufacturers have extended visibility into their supply chains. Moreover, most manufacturers agree that they do not have the necessary digital skills to meet future goals. Without automating supply chain functions, increasing visibility to their supply chains, and reevaluating their suppliers, manufacturers will continue to struggle getting the right materials delivered at the right time to meet demand.
To grow as a supplier, internal processes need to be improved to eliminate waste then automated to expand production. Suppliers will need to focus on building operational efficiencies, managing costs, and enhancing their resiliency to increase the ability to overcome supply chain and environmental challenges.
CW: Has inflation impacted growth plans for manufacturers?
JW: Higher costs are lowering bottom line profits and reducing cash reserves. For many manufacturers, this has diminished financial resources that were going to be used to expand automation, sales, and marketing programs. This has greater implications in California due to already high costs associated with manufacturing. Cost control takes a front seat to reduce the impact of inflation. Also, the Great Resignation has significantly increased the cost of acquiring a skilled workforce, which is adding to the inflationary challenges for manufacturers.
CW: How would you sum up the outlook for growth?
JW: Growth opportunities exist in many manufacturing sectors, but challenges remain in the form of rising costs, supply chain issues, material, and labor shortages. Manufacturers will be tasked with acquiring new talent, adding capabilities, and diversifying product portfolios to act as a foundation for growth. Manufacturers must remain agile and be prepared to take action to build resiliency in the short term to set up future successes. Technologies will create both a challenge and opportunity for manufacturers to seize the opportunity to grow.
Reach Jim Watson at firstname.lastname@example.org; or Bart Taylor at email@example.com