Tag: manufacturing trends

Tough Economy Expected to Force Industry Consolidation

Consolidation across the American economy is one of the most discussed results of the down-turning economy. While economic gurus aren’t predicting a return to national monopolies, Americans will definitely have fewer choices to make by the time the economy turns the corner in the next year or two. Most industry watchers agree that this across-the-board contraction in U.S. markets will have a positive effect, both for industry and the consumer. Consolidation is expected to force industries in all sectors of the economy to become leaner and more efficient while improving product quality and customer service.

Times have changed since the breakup of the monopolies that controlled the American economy and workplace in the 1800s and early 1900s. It’s been a quarter of a century since the government split apart the Bell Telephone System, America’s last remaining monopoly, and some would say, opened Pandora’s Box. The plethora of phone options and short-lived providers that followed gives credence to the current view that too much competition is not always a good thing. Customers became annoyed by the constantly changing phone rates and service options. Many of the new companies were unable to maintain promised service levels and failed. While there is still healthy competition in the telecommunications industry today, there are fewer big players and each one is stronger. Consumers may have fewer products to choose from, but products are more dependable and reliable. 

The U.S. auto industry is undergoing a similar consolidation. True, if GM can’t stop the bleeding, the Big 3 may become the Big 2 which would be a considerable loss to U.S. industry. But on the plus side, each of America’s auto makers is pruning out the dead wood. Low-profit lines like Hummer and Saturn are on the chopping block. Labor contracts are being renegotiated to more reasonable and sustainable levels. Detroit is finally releasing its grip on “bigger is better” and embracing a fuel-efficient future. When the dust settles, industry experts expect the U.S. auto industry to be leaner, meaner and more competitive with foreign auto makers.

The same healthy consolidation is expected to happen across most sectors of the U.S. economy. Stay tuned Wednesday for more on this subject. 

Consolidation Mergers Can Strengthen U.S. Industry

Consolidation is the new industry watchword. As we discussed in our last post, industry experts expect consolidation to affect every sector of the U.S. economy as we struggle to climb out of the current recession. The good news is that some experts, particularly Federal Reserve Chairman Ben Bernanke, are now cautiously predicting an end to the recession this year. Echoing a statement he made to Congress last month, Bernanke said in an interview with CBS’ 60 Minutes this week that if the government’s shoring up of the U.S. banking system succeeds, “… we’ll see the recession coming to an end probably this year.”

That doesn’t mean that U.S. business will return to its pre-crash ways. The hard lessons learned during the past year are expected to have a lasting impact on U.S. businesses. Savvy business owners are expected to continue leaner, more-efficient practices adopted during the recession to protect themselves against a still uncertain future. But we’re not out of the woods yet. Consolidation is playing a major role in weeding out weak and under capitalized players and broadening the scope of strong companies. Consolidation mergers could play a significant role in strengthening U.S. industry across the board.

In a March 16, 2009 article posted on SupplyChainDigest online, Materials Handling Editor Cliff Holste says, “SCDigest predicts the automated materials handling industry will soon see rapid consolidation …” Holste reports that a merger between two of the conveyor systems industry’s biggest suppliers is imminent, barring any last minute glitch. It could be the first of many. Holste and SCDigest believe the material handling industry is ripe for consolidation. Contributing factors include:

  • Over-abundance of suppliers in a shrinking market. Even before the recession, Holste reminds us that many industry watchers didn’t believe there was enough business to support all the players profitably. The recession just accelerated what might have been a slower winnowing of the ranks.
  • Consolidation allows companies to increase their product and customer scope while cutting expenses, primarily in personnel cuts across the board. Mergers “can goose profits of the combined companies,” Holste notes, while nearly halving expenses.
  • Well capitalized companies are buying out poorly capitalized ones resulting in stronger firms better able to withstand the economy’s financial roller coaster and provide long-term products and services to their clients. 

Global Competition Requires New Strategies

Not so long ago some were predicting the death knell of U.S. manufacturing. As the recession brought Detroit’s Big Three to their knees, put the brakes on consumer spending, forced massive layoffs and shuttered cash-strapped plants across the country, American manufacturing seemed to be in its death throes. But as they say, what doesn’t kill us makes us strong. Strong competitors assimilated weak ones. Loose financial and operational practices were tightened. Costs and expenses were pared down. From the assembly line to the board room, American manufacturers are running a tighter ship — and it seems to be paying off. Manufacturing declines have been slowing since December. In July new orders resulted in the biggest production jump in more than two years. Customers are beginning to restock and assembly lines are running again. The light at the end of the tunnel is getting brighter; but there is concern that unless U.S. manufacturers make major changes to their business model, the light could still go out. 

A recent national study found U.S. manufacturers distressingly unprepared to compete in an increasingly global economy. Conducted by the American Small Manufacturers Coalition in conjunction with Manufacturing Extension Partnership, the Next Generation Manufacturing Survey polled more than 2,500 U.S. manufacturers. The report identified six essential next generation strategies manufacturers must adopt to compete successfully in global markets:

  • Customer-focused innovation
  • Talent recruitment, development and retention
  • Systemic continuous improvement
  • Supply chain management and collaboration
  • Sustainable product and process development
  • Global engagement

More than 25% of American manufacturers — over 90,000 firms — were considered at risk because of their inability to meet world-class achievement levels in any of the six strategies. Unless U.S. manufacturers are able to adopt next generation strategies, America may not be able to compete in global markets.

U.S. Manufacturing Faces Dangerous Crossroads

One of the realities brought home by the worldwide recession is the fact that the economy truly has gone global. Manufacturers who fail to adjust their business models and adapt will be unable to compete. Many believe American manufacturing is at a crossroads. Driven by 282,000 small and midsize manufacturers — the backbone of U.S. industry — many of which lack the resources to meet the demands of global competition, American manufacturing must step up to the plate or find itself struck out by better prepared foreign competitors.

In our August 21 post, we talked about six essential next generation strategies identified by the American Small Manufacturers Coalition from a survey of 2,500 U.S. manufacturers. An online article on the Material Handling Industry of America (MHIA) website pointed out several of the most challenging threats to the viability of U.S. manufacturing revealed by the Next Generation Manufacturing Survey.

  • Too few manufacturers, only 28%, recognized the importance of global positioning. The days when the U.S. dominated world manufacturing are gone. The torch has passed to China, India and other emerging powerhouses. The reality is that market demand, talent pools and competitive opportunities are growing outside U.S. borders and declining within. The greatest opportunities lay in forming global alliances.
  • Too many U.S. manufacturers failed to recognize the growing importance of green operations and sustainable product and process development. Only 16% of survey respondents considered eco-friendliness important to their success with a like percentage denying its relevance. The reality is that consumer demand for green and sustainable products is increasing. Government regulation will mandate change if manufacturers fail to adapt.
  • U.S. manufacturers are clinging too tightly to the old management from the top down model. Too few manufacturers are taking competitive advantage of the opportunity to partner with employees, suppliers, even competitors. Less than half of survey respondents engaged employees in improvement efforts; less than a quarter sought supplier input. The reality is that productivity and innovation improve when employees, suppliers and customers are fully engaged. Future success will belong to the collaborators, not the mavericks.

The majority of American manufacturers seem to have stuck their heads in the sand rather than face the challenges of the future. Those who deny the future are apt to be buried by it.

Manufacturing Faces Another Year of Tough Times

It looks like the start of 2009 will bring more of the same for U.S. manufacturers, but things may ease up as the year progresses. The economic difficulties that started with the mortgage crisis and snowballed with this fall’s stock market crash will take time to correct. While some economic experts are predicting a minimum three-year recovery period before we again see a robust U.S. economy; others see small indications of coming recovery. 

According to the semiannual forecast recently issued by the Institute for Supply Management (ISM), manufacturers anticipate a 1.1% net revenue loss over the coming year. While definitely disappointing, it’s an improvement over the 2.2% decrease reported for 2008. Those industries that have been particularly hard hit this year include: primary metals, nonmetallic mineral products, fabricated metal products, textile mills, computer and electronic products, machinery, paper products, furniture, transportation equipment, plastics and rubber products. Revenue increases in 2009 are predicted to come largely from petroleum and coal products, electrical equipment, appliances and components, printing, food and beverage products, tobacco, apparel and leather goods and chemical products.

“Manufacturing purchasing and supply executives lack their usual optimism about their organizations’ prospects as they consider the first half of 2009,” said Norbert Ore, chair of ISM’s Manufacturing Business Survey Committee; “however, they are somewhat more positive about the second half. While 2008 has been a challenging year overall, we are apparently seeing a rapid halt to the inflationary cycle of the past several years as it relates to manufacturing inputs.”

ISM reports that manufacturers are operating at 75.2% normal capacity, down from 78.6% reported in April 2008. Sixty-five percent of the manufacturers surveyed by ISM expect their 2009 revenues to be the same or smaller than in 2008. To cope with economic woes, manufacturers are expected to decrease capital expenditures, reduce on-hand inventories, layoff more workers to decrease labor and benefit costs, and increase exports.

It looks like another year of belt-tightening for most of us. But all is not doom and gloom. Manufacturers should view this as an opportunity to tighten up their operations and improve efficiency across the board. This is an opportunity to learn to run leaner and meaner than your competition. Tightening up your operations today will better position you to compete in the future.

Gloomy Manufacturing Outlook to Brighten in 2009

For just about all of us, 2008 has turned out to be a tough year. According to statistics posted on Manufacturing & Technology eJournal, three straight months of no growth have plummeted the manufacturing index to 26-year lows; and it hasn’t reached bottom yet. 

“It appears that manufacturing is experiencing significant demand destruction as a result of recent events, with members indicating challenges associated with the financial crisis, interruptions from the gulf hurricane, and the lagging impact from higher oil prices,” Norbert Ore, chair of the Institute for Supply Management’s Business Survey Committee, told eJournal.

Adding insult to injury, contractions in the global economy have caused export orders to decrease after 70 consecutive months of growth. Manufacturers who were running at 78.6% capacity last April were operating at just 75.2% capacity by December.

While tough times are expected to continue into the first half of 2009, all is not doom and gloom. The sun should start to peek out within a few months. Manufacturers are already realizing a small boon from decreased commodity prices and lower fuel prices. They are guardedly optimistic that the manufacturing climate will begin to ease during the second half of 2009, particularly as credit improves. As the dollar strengthens, export orders are expected to return to normal strength. Adding another item to the plus column, Ore noted, “While 2008 has been a challenging year overall, we are apparently seeing a rapid halt to the inflationary cycle of the past several years as it relates to manufacturing inputs.”

ISM predicts a 1.1% net decrease in manufacturing revenue for 2009 which would actually be an improvement over the 2.2% decrease reported in 2008. While little to no growth is expected in most manufacturing sectors over the next year, most will stop losing ground. ISM actually expects small gains in some areas, including petroleum and coal products, electrical equipment, appliances and components, printing and related activities, food and beverage products, tobacco products, apparel and leather products and chemicals.

Manufacturers and other businesses are expected to hold their ground by decreasing capital expenditures, reducing inventories and downsizing workforces to decrease labor and benefit costs.

Next time: What it will take to succeed in 2009.