An edited version of this article, THE NEW MANUFACTURING LANDSCAPE, appeared in the September 2009 issue of FF Journal
The recession of the last 18 months and its causes have been well documented. The decrease is spending and capital availability has cascaded throughout manufacturing, resulting in layoffs, rolling shutdowns, and factory liquidations. The cutbacks have created a range of challenges for those of us in manufacturing and manufacturing services. Spread thin, limited internal personnel, a lack of cross training, outsourcing and furloughs have caused an uncertain landscape for employees.
Outsourcing
Since the 1980s, layoffs of production, engineering and support personnel have been a common action to reduce costs during declines in business activity. These layoffs, along with retirements, have wittled away the manufacturing base in the United States to the point it is today. For many companies, with the pool of direct labor stripped to its core of personnel required to conduct business, other avenues have been pursued to cut costs. With the decreased business activity, it has created an environment for manufacturers to take the chance and outsource administrative activities, such as human resources, purchasing, and even accounting. As automotive and appliance manufacturers have done over the last several decades; small and medium producers are testing the waters with local outsourcing of component and production activities that may be done by job shops. Though these outsourcing activities may be a necessary step for businesses to survive this economic climate, it presents new challenges. For example, the outsourcing to local job shops may reduce the need for some on-hand inventory, but the manufacturer is no longer in control of the lead times or the opportunity to fill rush orders, which are more common as everyone has shed inventory to meet demand. This can be frustrating for customers and manufacturers alike: eventhough no one is ‘busy,’ ie., at or near full production, leadtimes for manufacturered items are nearly unchanged, or longer than usual.
In-Sourcing
Several years ago, because of the overwhelming cost savings touted by offshoring components, for some manufacturers it was automatic to try this. As offshore costs have approached parity with local capabilities, in-sourcing has become an admirable way for manufacturers to maintain a level of self-reliance and insure work for their remaining core of employees. In-sourcing has presented complications, though. For example, a manufacturer of scaffolding brought back their production of planks. Upon assembly they found their planks and fasteners, still offshored, no longer fit together per their print. Since they had purchased this fabricated subassembly for years, it had changed from the original specifications but went unnoticed because the deviated subassembly still fit within the overall system. Because the supply of offshored planks could not be instantly turned on, it was necessary to retool their plank. Additionally, a manufacturer of vacuums found their quality problems increased when they insourced production because they no longer had technical personnel familiar with the critical assembly of their equipment.
Cross Training
The recession and layoffs have pushed a lot of companies to no longer have backups in their workforce, there is one person to do each job or there are a handful of personnel that are doing all the various disciplines that are now required on a smaller scale. This has emphasized the need for cross training core personnel; on a given day it may require an engineer to design a component, purchase the materials, and schedule the production. It’s as if small business structure is being projected onto larger businesses.
Productivity?
Since this recession has proliferated the use of furloughs to meet business demand, it has caused a delay in opportunities. For the companies with liquidity to pursue capital projects, the possibility of purchasing new equipment or automation to increase productivity or in-house capabilties, the rolling layoffs impede the justification process. For example, a company furloughing on a four week rotation, the week off and week of catching up can cause the process of justifying a capital project by two or three fold, when considering the time required to coordinate technical personnel with outside vendors, review quotations and successive revisions.
Taking Risks (expanding in a down economy)
Developing technologies and new industries are a common sources for increasing economic activity or ‘green shoots,’ as has become the common buzzword lately. Even as some companies pursue the opportunities to create or expand their business to pursue these new opportunities, they are finding substantial roadblocks, particularly fiancial. Major banks and financing companies have restricted leasing to any LLC without several years of credit history or businesses of any kind that are less than a year old. It’s also disheartening that banks are resistant to finance capital equipment, even when the suppliers are willing to back the loans to some rate. For example, a small business that was not eligible for equipment financing because the banks no longer considered their debt ratio acceptable. The business was eventually able to lease the equipment, a used model financed directly by the manufacturer, at a 12% interest rate.
Inventory & Maintenance
As demand decreased, manufactruers have been forced to lower minimum order sizes. A few tubing manufacturers have been forced decrease their minimum production run from 100,000 feet to 30,000 feet to maintain orders. This adjustment to demand has caused the manufacturers to changeover tooling every single shift. These lower production quantities have resulted in more changeover time for products, higher scrap rate and more wear and tear on equipment. In the short term, manufacturers have met the maintenance needs of these demands by using parts from one of their mothballed production lines to keep the other one(s) running. When happens when the economy picks back up? Will the mothballed and scavenged equipment be operable to bring back online?
Flexible Employment
Where is manufacturing going? What will it look like when things rebound. Several manufacturers have commented that they will never have the number of employees they did before. They have found their ability to do more with less. A portion of our current unemployment rate are baby boomers who are still willing and able to work as well as people only a few years out of school that were fulfilling entry level roles. It seems that we are coming to a new era of freelance employment. Industry veterans, who may have been pushed out earlier than they desired, may be available on a a consulting basis. Additional personnel may fit into the puzzle as temporary employees, to fulfill fluctuations in business demand, since companies may choose to stick with their core of compotent, cross trained personnel.