Today we have a post from Andrea Olsen. Andrea started her career in the tech start-up world, and has brought much of that innovative thinking to her work as the CEO of Prag’madik, an operational strategy consultancy, specializing in the industrial and manufacturing markets.
What’s Holding US Manufacturing Back?
There has been an ongoing national conversation about bringing manufacturing back to the United States. The government, states, educators, and organizations have been pushing a resurgence through, addressing many of the roadblocks facing these organizations, including: lack of skilled labor, decreased sales, advancing lean manufacturing, integrating additive manufacturing, robotics, IoT and Big Data.
The middle-market manufacturers – primarily in the Midwest, in the range of $50-$500m in revenues, employing 10-800 people – face a unique set of challenges. While the advancement of things like 3D printing and robotics will undoubtedly change the manufacturing landscape, these manufacturers face much more basic challenges to compete – and more accurately – survive the next 3-5 years.
This isn’t about the “skills gap,” or “robots taking jobs,” or “offshoring” or even “regulation burdens.” Those challenges are further downstream for these manufacturers. Today’s issues are much more fundamental. The advancements in digital technologies, communications platforms, and simply the Internet, have dramatically impacted business operations and overall competitiveness. The “blocking-and-tackling” of things like: embracing change, utilizing technology platforms, digitizing information and fostering an innovative culture, are the true essentials for US middle-manufacturing growth. Here’s a short list of those essentials:
1) Modernization of internal information infrastructure
Many manufacturers are running business operations on outdated technologies. This is not simply about having old computers, but the underlying software and systems. Whether it’s running Windows 97, ERP systems circa 1989, taking orders by faxes, or managing customer data on Excel spreadsheets, this lack of having a ‘modern tech stack’ limits the organization’s ability to leverage real-time business insights, dynamically connect with remote purchasing platforms at larger OEMs, and serves as a deterrent for younger employee candidates from taking a position at the company. Digital technology growth is exponential, so for every year a process is not modernized, the organization falls 3+ years behind. Without continual advancement and improvement, the technology gap will continue to expand to the point of no return, reducing the company’s competitiveness, and overall organizational value down to physical assets and customer lists.
2) Changing long-standing internal cultures
Mid-Market manufacturers often are serving as a major employer within smaller, more rural communities, where employee turnover is low. With a large set of “lifers” leading the organization, employees cling to the Status Quo out of comfort and familiarity. This resistance to change is frequently fostered by leadership, who often are second, third, or even fourth generation owners. While this of course, doesn’t apply to every private manufacturer, many leaders are not pushing a culture of continuous improvement. Platforms and processes haven’t notably changed in decades, and many small changes cycle in and out – reverting back to the “old way of doing things” within a matter of months or weeks. Without a dramatic change to the culture and it’s attitude towards change, the organization will quickly become obsolete.
3) Expanding the business acumen of middle managers
Many middle managers within mid-market manufacturers have advanced to their roles through hard work and a series of promotions. Often times, these managers have worked at the organization for the majority of their careers – they’ve not been exposed to other companies, environments, or new business processes. Many have little to no formal business, finance, sales, marketing, or operations training. The challenge becomes that key leaders are not fully capable to design, develop and implement broader strategies, to streamline operations, reduce expenses, identify new markets, and drive innovation throughout the company. Without education and exposure to new ideas, the organization remains stagnant.
4) Securing talent when located in small town USA
There is no doubt that there is a skills gap, and it’s growing. But with this skills gap comes exclusivity. When there is a nursing shortage, those with an RN degree can pick and choose which hospital they want to work at, and negotiate a very competitive salary and benefits package. With the manufacturing skills gap continuing to grow, manufacturers that exist in small, remote communities, with a long commute from dense population centers, will have a harder and harder time securing the necessary talent to advance their organization. New recruitment and incentive strategies will need to be employed to secure (and more importantly, retain) necessary talent for organizational advancement.
5) Shifting business operations from order fulfillment to value added
Manufacturers have had the advantage of being a “product provider” for many decades, as demand for equipment, components, and materials has generally stayed consistent. When major offshoring occurred in the mid-80’s, price pressures set in and it became challenging to compete with overseas suppliers. As the trend of on-shoring has begun, these manufacturers will have a new competitor to contend with – buyers with higher expectations. Buyers that are not simply seeking a product, but a strategic partner that will add value to their product, reduce costs, and help streamline their purchasing operations. This new level of “service” requires a change in the mentality and business strategy for manufacturers. Examining how they can add value – not simply through added product offerings, but throughout the entire supply chain and customer engagement experience. Without this, manufacturers will continue the price race to the bottom.
6) Understanding and leveraging marketing
Back 20, 30 and even 40 years ago, manufacturers built their business on handshakes and relationships. With the expansion of online sales, automated purchasing, and even Amazon.com, marketing plays a much bigger and more impactful role when it comes to revenue growth. Since many of these companies have solely utilized marketing as a department for brochure creation and website updates, the lack of strategic resources keep this department from helping advance and grow the organization. Marketing is inherently communications – identifying where customers are, what they want, new opportunities within the market, new or underserved markets, how information flows through the company and how the customer experience can be leveraged as a differentiator. Even traditional branding, messaging, positioning, and promotions play a part, but not without a clear strategic plan in place. If manufacturers don’t start embracing the concept of marketing, they will continue to fall by the wayside.
7) Understanding how to use business data to make strategic decisions
Everyone talks about “big data”, but what about using the data you have at hand now to make better business decisions? Manufacturers have reams of data – including product usage, field performance, customer orders, past purchase history, and much more. Yet, an overwhelming amount of companies simply look at the P&L each quarter and see if sales are up or down, and push the sales force to increase numbers the next go-around by 10%. By examining the financials – where and how money is made, understanding margins, looking at seasonality, regionalization of purchases, and customer mix – new opportunities for building business and increasing sales can be discovered. With the identification of those opportunities, new marketing, sales, packaging, pricing, and product strategies can be employed, keeping the company cash flow humming. Even with the purchase of a data analytics platform, organizational leaders need to know the right business questions to ask to leverage that investment.
Manufacturing is the backbone of the US economy. The “American Dream” was born from entrepreneurs seeking and developing new solutions and products to serve the market. American industrialists had an unmatched drive to see an opportunity in a market and capitalize on it. Mid-market manufacturing isn’t dead yet – we simply need to bring back the entrepreneurial spirit and business savvy from which US manufacturing was born.
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