Business Topics

The State of Manufacturing Today ... and Tomorrow

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MCN Editor Dan Markham

Manufacturing is growing in the United States. It’s just not the traditional form of manufacturing that’s on the rise.

“What’s happening is we’re expanding manufacturing, it’s advanced manufacturing. It’s not your grandfather’s manufacturing” said Rosemary Coates, executive director of the Reshoring Institute. Coates and FMA’s Chris Kuehl co-headlined a panel discussion on the state of the industry at FABTECH last month.

The past two years have seen an increased push to grow manufacturing, spearheaded by two major initiatives from the Trump administration. The GOP tax cut and the easing of regulations were both undertaken with at least one eye on the positive effect on manufacturing.

Of course, the chief government action in 2018 has been the imposition of tariffs, a choice that is a little more difficult for fabricators and manufacturers to navigate. “The effects of the tariffs are causing a lot of chaos as companies try to figure out what their strategies are,” Coates said.

The effects are two-fold. Companies that source metal or parts from elsewhere are dealing with the Section 232 tariffs on steel and aluminum and the Section 301 tariffs on various products. Additionally, those looking to shift their sourcing strategies to domestic producers are discovering extremely extended lead times. “They either won’t take a quote, or they say sure, we can manufacture this part, but not for 18 months,” Coates said.

In each case, the result is the same – higher prices for raw materials. “The effects overall in the industry are quite significant,” she said.

Kuehl agreed the tariffs have been a pesky problem for the industrial economy. “What you’re seeing with the tariffs is a lot of stop and go. Not only with the steel and aluminum industry, but with manufacturers,” he said. He cited the push and pull that’s taken place since the 232 announcements, with countries moving back and forth from exemption status depending on how negotiations have flowed.

While 232 has been the focal point for producers and distributors, downstream companies have also been affected significantly by the 301 levies. The tariffs have been applied in four tranches, with 25 percent tariffs applied to all products in the first two. The third went into effect later, with 10 percent tariffs immediately increasing up to 25 percent in January.

The tariffs have been problematic for two reasons. “There wasn’t a particular strategy as to what kind of products to go after,” Coates said. Moreover, with the most recent tranche, the announced step-up in fees has produced a rush on buying, as companies try to stock up on affected parts and material under the 10 percent tariff rather than have to absorb the larger hike later. “The result is it’s causing enormous shortages of goods,” she said. “Companies are hoarding inventory.” 

China has been the chief target of many of the trade actions. Kuehl noted that while it may be painful for the U.S., the ramifications of a trade war are even greater for the Chinese. “Down the road, maybe a year or two years, China’s challenge is going to be finding a replacement consumer, finding a country that buys as much as we do. Good luck with that. We have a less serious challenge in some respects than China. We have to find sources; they have to find customers.”

Coates’ organization, the Reshoring Institute, is responsible for helping companies make decisions on bringing back manufacturing and other jobs to the United States. She said that’s beginning to happen in greater numbers. “In order to make it work financially, you have to look at the total cost of ownership. That generally includes automation. If you have a high labor cost, it probably will stay overseas. If you can automate, you can probably drive a decision to bring at least part of your manufacturing back to America, whether it’s assembly or full-blown manufacturing,” she said.

Kuehl agreed. “We all remember when manufacturing was on its seeming last legs, the post-industrial age. Then robots and automation technology came along. It eliminated a lot of jobs, 20 million, but it created a whole set of new jobs. We are competitive, now we can do things with robots and technology that other countries can’t do. We set that revolution in motion.”

The Future of Manufacturing

So how does manufacturing look five to ten years from now? Kuehl said there are three things\ that stand out from an economist’s perspective. The first involves demographics. Over the next decade the manufacturing industry will transition from the Boomer generation, which will have mostly left the scene by then, while millennials will be fully integrated into the workforce.

No. 2 is the continued advances in technology. The historical preference for subtractive manufacturing will give way to more additive types, which create less waste and allow for products to be built on demand. Additionally, he said we’ll find ourselves in an even-more integrated world. “It won’t be unusual for even the smallest company to be involved in some kind of global network of supply.

Finally, he said, is an understanding of the rhythm of the economy. We’ve enjoyed an abnormally long period of growth, one that could reach a record length before the next recession hits. But that downturn will come.

“What does that recession look like? Kuehl asked. “Is it a short sharp one, where it just eliminates the badly run companies and you can go back to growth, or is another grinding long slog like we just go through?”

For Coates, the change she sees is the continued application of analytics in business-making decisions. She said the previous generations of executives made shifts in production based on little more than as a response to the actions of customers or competitors. “It wasn’t much of an analytical process. It was, ‘My competitors are moving to China, and if I don’t, I won’t be competitive.’”

Now, “Senior executives are much more analytical,” she said. “They look at data analytics to determine where they’re customers are, where the growth is likely to be and what kind of products they should serve.”