It has been five years since President Trump, in his first term, signed the CARES Act to provide relief to families and business facing disruption associated with COVID-19. At the time, the virus was still new, causing uncertainty for individuals and business alike as it rapidly spread, threatening lives and livelihoods worldwide.
Since that time, businesses began facing their “new normal”. While the new catchphrase was mocked by some, the fact that many commonalities were changing became difficult to argue. Masks temporarily covered many faces, while social distancing replaced handshakes, networking, and in-person collaboration. Homeschooling and remote work occurred simultaneously, while children and pets often interrupted work meetings.
Manufacturers experienced changes that were not just focused on protecting the health and safety of workers and their families. They also created more focus on strategically operating a business while new and uncontrollable external forces continued to evolve. For some, this meant pivoting to sell masks, hand sanitizers, protective gloves, ventilators, or other health protection products. For others, it was the beginning of long-term transformation. The following describes five lessons that manufacturers have learned since the beginning of the COVID-19 pandemic.
1. Laborers are one of the most important assets – and liabilities – for any manufacturer.
It is no secret that manufacturers require laborers to facilitate the production of goods that it sells. Behind material costs, laborers are generally one of the most significant costs of the business.
However, the pandemic brought new challenges to the workplace, and three factors heavily affected manufacturers. First, the pandemic caused employees to rethink their needs from the employer, with many employees wanting remote assignments or flexible work that was challenging for manufacturers to offer. Second, due to a smaller candidate pool, other industries were increasing wages rapidly, even for entry level employees. Now, manufacturers faced competition for laborers that they had not previously faced. Lastly, the exit of Baby Boomers from the workforce – which was largely anticipated to occur within the decade – was occurring more quickly than planned. These employees were taking decades of hands-on experience with them, and manufacturers were not prepared for the transition.
Suddenly, manufacturers could not meet customer demand because they did not have the needed workforce. As a result, their workforce became a liability, and one that was critical to address in new and creative ways. For instance, manufacturers considered compensation package changes, including bonuses for accepting positions, attendance, and productivity, as well as ways to absorb or pass on the cost increases to their customers. They considered new avenues for recruiting, by working directly with technical schools and high school vocational programs, and by focusing on underrepresented populations in manufacturing including veterans and second chance workers. Manufacturers have also placed more emphasis on reskilling and upskilling opportunities, with a variety of programs available to support these initiatives.
While labor issues have eased for many manufacturers, they generally still persist. However, manufacturers have learned that without a laborer strategy, this asset quickly can become a liability that can affect their ability to operate and meet customer needs.
2.Strategic partnerships can help a manufacturer build its resiliency.
Manufacturers have always relied on strategic partners to operate their business, including material vendors, equipment vendors, insurance companies, professional services, and lenders. Even before the pandemic, evaluating certain vendors had become more common, with many providing scorecards or other performance measurements to their most critical suppliers as a way to evaluate the relationship. However, the pandemic taught many manufacturers that a partnership goes beyond a performance measurement score.
Supply chain disruptions during the pandemic were common, especially for goods that were produced in another country or that had a component that was produced in another country. Supply chain disruptions were caused by various factors, including manufacturers or partners facing their own COVID-19 challenges and delays in freight.. Those that could obtain supplies were faced with soaring costs, as inflationary pressures affected most goods and components.
As a result of these challenges, many manufacturers have learned to adopt more vigilant supplier selection procedures. They are no longer selecting vendors solely based on cost, but instead are seeking more strategic partnerships. While these partnerships cannot necessarily prevent disruptions or cost increases; they can facilitate the collaboration necessary to anticipate issues or to seek alternatives that can meet the needs of the supply chain.
Further, more manufacturers are realizing that these strategic partnerships are not necessarily just critical for vendors. Identifying service providers, including recruiters, lenders, accounting firms, law firms, and consultants, that have expertise in the industry can greatly benefit a manufacturer, whose challenges and needs are unique as compared to businesses in other sectors. In addition, developing strategic partnerships with manufacturing focused organizations or other manufacturers in the community can also provide benefits to leaders looking for support or help from those with a fresh or different perspective on the industry.
3.Best business practices evolve over time.
Strong leaders oftentimes look to adopt best practices into their business. For instance, lean manufacturing, just in time inventory, smart technologies, green initiatives, and documented policies and procedures are just a few best practices that manufacturers considered before the pandemic.
However, throughout the pandemic, many business aspects changed that caused some best practices to be altered. For instance, those utilizing just in time inventory practices may have experienced more significant impacts from supply chain disruptions than those who carried more safety stock. Similarly, those with rigid processes and procedures may have lost flexibility to seek alternative suppliers or expedite training procedures that could allow a manufacturer to focus on emergent needs.
Neither practice is a bad practice; in fact, both have benefits that can be right for the right manufacturer. However, oftentimes after a best practice has been implemented, its efficacy is assumed but not confirmed. Further, even if efficacy is proven in the short term, manufacturers oftentimes do not reevaluate efficacy over time.
Since the pandemic, manufacturers have learned the importance of flexibility and resiliency. This does not mean that they scrap their best practices on a whim. However, evaluating practices over time can provide significant benefits and help ensure that manufacturers can both implement and maintain best in class operations.
4.Industrial revolutions do not just impact large manufacturers.
Just like best practices, industrial revolutions also evolve. Between the mid-1700s and mid-1900s, three Industrial Revolutions occurred, introducing the concepts of factories and steam power, electrification and mass production, and computers and automation respectively. Now, the Fourth Industrial Revolution, or Industry 4.0 has brought more focus on the introduction of artificial intelligence, cloud computing, and robotics into manufacturing.
Before the pandemic, most Industry 4.0 implementation was considered by large manufacturers. This was partially due to the high cost of implementation which was deemed as unaffordable by small and medium manufacturers. However, small and medium sized manufacturers that began to understand Industry 4.0 concepts and look for opportunities to slowly introduce these concepts into their workplace earned an advantage over the competition.
Now, partially due to continued workforce challenges, many more manufacturers are beginning to look for opportunities to adopt these concepts, even in small ways. Industry 4.0 concepts have been found to reduce reliance on traditional labor, which can provide some relief in replacing exiting employees or expanding the workforce. However, these concepts may require the needs for new skills, including data analytics, computer programming, or maintenance and repair of smart machines.
5.Strong leaders must make time to work on their business.
Lastly, manufacturing leaders have learned the importance of working on the continuous improvement of their business. All aspects of business, including employees, supply chain management, best practices, and technology evolve quickly, and falling behind in any of these matters can be devastating.
Unfortunately, for most leaders, making time to work on the business is still a significant challenge as many fill multiple roles and are often faced with navigating the day-to-day disruption that occurs in any business. However, even carving out small blocks of time, such as an hour per week, can be a step forward for leaders who are not currently working on their business. Seeking a strategic partnership with a trusted advisor can also help a leader take steps in the right direction.
For additional information or to discuss your business, please contact a member of HBK Manufacturing Solutions at 330-758-8613 or manufacturing@hbkcpa.com.
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