Manufacturers have been on a wild economic rollercoaster ride over the past year and a half as ongoing supply chain issues, spiking inflation and record-high interest rates have combined to suppress growth. At long last, though, the ride is becoming smoother.
A new report from the Institute of Supply Management (ISM) points to several favorable trends taking hold that are opening more lanes for growth, a perspective shared by Deloitte in its 2024 Manufacturing Outlook. The big question now is whether companies are ready to shift from a defensive mindset and capitalize on this long-awaited growth surge. One of our most important jobs at TBM is helping them make sure they do.
Industry Benchmarks Pointing North
While growth has been stagnant, the manufacturing sector remains a top driver of global GDP, contributing between 10% to 12% in each of the last few years. Per the ISM report, this percentage is on the rise as a mix of positive data around new orders and projected demand has instilled a higher level of confidence, which is projected by gains in both the Industrial Production Index and the Purchasing Managers Index, the latter of which reached the 50-point mark in March for the first time in 18 months, the longest stretch in more than 25 years. Historically, this level indicates a green flag for growth.
Optimism is in the air, and it feels good, but there are caution flags. Prices for raw materials keep soaring, supplier lead times remain challenging, and inflation is always top of mind. The chair of the ISM survey committee put it this way: “demand remains at the early stages of recovery, with clear signs of improving conditions.” We will take it. The time has finally come to step off the rollercoaster, but are companies truly prepared to seize the opportunities that are coming?
Three Focus Areas: Workforce, Operations, and Adaptability
Manufacturers can put themselves in position to answer that affirmatively by upping their focus in three key areas: investing in their people, maximizing operational capabilities, and embracing flexibility.
- Invest in People.
There is no path to growth without skilled, motivated workers but many manufacturers are still feeling the pinch of tight labor markets and are seeing high turnover, particularly in the sub-120-day category. While wage pressures have softened some, it is still tough to find the right combination of skills and cultural fit, and once employers find it, it is vital to keep it. Beyond offering competitive pay and benefits, manufacturers should focus on developing more effective onboarding and training programs, which will show employees they are joining a confident, organized firm that invests in the development of their people. This rubs off and can bring many positive benefits such as reduced turnover, improved morale, increased productivity, and achievement of Safety, Quality, Cost, and Delivery (SQDC) goals. - Assess Operational Readiness.
We know higher demand equals more volumes, and we know the industrial manufacturing sector has been among the hardest hit by the economic and labor challenges, which have brought large-scale layoffs earlier this year. As conditions improve, it is essential to analyze current capacity and production capabilities as soon as possible. This typically involves identifying bottlenecks that are hindering performance and aggressively making changes to improve the overall flow and efficiency of the process. Implementing or re-implementing lean manufacturing principles, targeted OEE improvements, and enhancing maintenance capability and data analytics to identify areas for improvement are all must-dos.If capacity constraints are tough to remove, automation and other capital improvements could be warranted. Now is the time to rethink your current production processes and be selective about how you might use automation or other tools to help improve the process. A new line design, process, or plant layout change can enhance the whole process. - Be Nimble and Flexible.
One of the main tenets of lean management is lead time reduction, getting products and services out the door and into customers’ hands faster, and thus being more profitable.
Just like Taiicho Ohno, the father of lean management who developed Toyota’s widely emulated Workplace System, TBM’s founding fathers believed strongly that lead time was a strong indicator of how much waste there is in the overall system. Striving to significantly reduce waste will improve lead time, productivity, quality, yield, and safety. On both small and large scales, companies that can pivot and make themselves leaner tend to exceed their growth expectations.
Flexibility is an important tenet too, as companies need to be able to adapt to new technologies and evolving customer needs. Providing new or enhanced products or solutions – for example, around sustainable practices or capabilities – can provide a distinct competitive advantage.
There must be a total understanding of waste. Unless all sources of waste are detected and crushed, success will always be just a dream.
Preparation Wins the Game
The Roman philosopher Seneca said “luck happens when preparation meets opportunity” in 65 A.D., and the statement is as true today as it was then. While the signs point to growth ahead, we have learned our lessons about predictions. We also know that many manufacturers have been in the air raid shelter regarding cost controls during this wild and crazy ride. The best strategy is to develop multiple scenarios and have sound contingency plans in place to adapt to the inevitable curveballs that will come. This will help ensure that your business doesn’t get trampled, particularly by global competitors, in the rush to take advantage of a newly opportunistic market.
