Manufacturing Outlook and Challenges

4 Critical Actions for Addressing the 2016 Manufacturing Outlook

Looking forward into 2016, in the near term it’s going to continue to be a fragmented, up-and-down economy. We’re seeing a lot of volatility in some markets. Take energy, for example. OPEC’s refusal to adjust their production to match demand is creating a glut in the market and causing a price war that’s artificially driving the price of oil down. That cascades deeply into our economy. Companies that supply equipment, engineering, and services that support the oil and gas industry are feeling the impact of the low price of oil. That will have to end at some point.

The 2016 manufacturing outlook is for some manufacturers to be very busy. A recent interview with Ataman Ozyildirim, Director, Business Cycles and Growth Research at The Conference Board, suggests that — while possible — it will be hard work for the US economy to continue to be a bright spot in a dim global economy.  Manufacturers will be focused on managing capacity, capital investments (primarily in technology) and finding people with the right skills. On the other end of the spectrum, those companies experiencing little or no growth will be closely managing their costs and working capital.

In either market scenario, manufacturers will have to be thoughtful about how they manage productivity, quality and their assets. That includes their people. There simply aren’t enough people to fill manufacturing and supply chain jobs, now or in the foreseeable future. “We can’t find the right people. We can’t find people with the right skills. We can’t hang on to the people we hire,” clients tell us all of the time. That’s true in the United States, and it’s increasingly becoming the case in China, which has an aging population as well. Both countries will have to manage growing labor shortages down the road.

Of course this isn’t the situation everywhere. Mexico, for example, has a much younger population. You might see even more production shift there, not because of labor arbitrage but because of availability. The shortage of labor won’t get solved with the population that we have today.

You can’t fundamentally change the demographics of the population for several decades at least. It’s a core economic and market problem. Business owners have told us repeatedly that they could grow their businesses significantly if they could find more people. They need people who can be trained to operate their equipment and who will stick around.

New technology will help address the problem, automation technology that enables equipment to operate more independently, and shorten the learning curve for operators. We have to find ways for technology to change the rules of the game, or the manufacturing will go somewhere else. We can talk about different strategies for responding to all of the economic and market challenges, but they all revolve around speed.

There’s no single strategy of course but there are four high level themes you can’t ignore

• Optimize capacity
• Develop your people
• Create a culture of innovation
• Engage your employees and make them accountable

Whoever is the most innovative and fastest to solve their labor challenges, for example, will have an advantage. You’ve got to keep getting faster. It’s not new, it’s not sexy, but it’s the only constant in manufacturing and the supply chain. Over the next five to 10 years, the fastest and most agile organizations are the ones that will win.