With so many headwinds, manufacturers can't expect to maintain current margins without a strategy to mitigate risk. PHOTO courtesy Sandvik Coromant.
Over the last few years, the manufacturing industry has been defined by inflation, supply chain challenges and labor shortages. Unfortunately, with many industries bracing for a recession, the outlook for 2023 isn’t much different. In a September 2022 Deloitte survey, participants named the rise in shipping costs, product issues from suppliers, logistics challenges, and parts shortages as their top four concerns. Many respondents saw ongoing supply chain challenges cutting into profit by as much as 13%.
Manufacturers cannot hope to maintain their current margins — let alone improve profit — without a strategy to mitigate risk in 2023. What will it take to bolster operations? Here’s a checklist of what to do.
Re-Evaluate Your Suppliers
Instead of looking solely at price, consider partnering with suppliers that lower the total cost of ownership. You may find new partners that have better weathered the current situation to keep your overall costs lower or even increase your productivity. Many manufacturers are now “nearshoring” their suppliers to cut down on the distance (and cost) of procurement.
Identify Opportunities to Diversify Revenue
With so many companies nearshoring manufacturing, there are more opportunities for manufacturers already established domestically or in regions closer to home. Take stock of your current production capabilities, including the materials and machinery used on a daily basis, and identify other in-demand products you can easily begin manufacturing. As demand for sustainable production rises, for example, many manufacturers are pivoting into new markets simply by greening some of their processes. As McKinsey points out, offering low-carbon products can create significant revenue growth opportunities.
Develop a Data Strategy to Control Costs
Manufacturers that have a data strategy can use analytics to more cost-effectively schedule workers and machine maintenance, predict equipment issues, and optimize inventory levels. Some AI-powered platforms have helped manufacturers cut their energy costs by 25%.
Invest in Worker Retention
There could be as many as 2.1 million unfilled jobs in manufacturing by 2030. Not only do you need to find ways to recruit more employees, but you also need to be extra diligent at keeping the employees you do have.
Identify and Reduce Waste
Manufacturing operations have fluctuated in the last few years, first to follow COVID restrictions, then to address the skilled labor shortage. Many operations had to adapt on the fly to these industry shake-ups without time to consider long-term impact.