The manufacturing industry had already been on a steady decline for the past two decades, but 2020 has been the worst year for the industry so far. In fact, it was one of the hardest-hit sectors in the economy. Thanks to the pandemic and its succeeding lockdowns, manufacturers have experienced a major fall in industrial earnings. With 2021 an opportunity for many sectors affected by the pandemic to pivot, how will the manufacturing industry cope?
Manufacturing Is Not Like What It Used to Be
The U.S. manufacturing industry hasn’t been at its best for a long time. Despite recovering since the Great Recession, decreasing employment, a lack of investments, shameful infrastructure, and non-competitive labor rates, was shifted to countries like China, where manufacturing costs were much lower. Because of this, the U.S. manufacturing industry fell behind, losing both employees and investors. Since 1980, over 7.5 million jobs were lost due to the trade with China and the reluctance of the local market to compete with the country.
The Pandemic’s Effect on the Industry
There are two types of manufacturing processes: discrete manufacturing and process manufacturing. The former involves assembling different components, while the latter involves the blending or mixing of raw materials. Unfortunately, both processes have been heavily affected by the pandemic.
All aspects of the industry are affected by this global crisis: supply, demand, availability of raw materials, and even workforce. The pandemic has forced many manufacturers to scale down their operations to only 40% to 60% because of these factors. This was especially true during the time of succeeding lockdowns in countries all over the world, including China, the hub of raw materials. Early into the pandemic, a global disruption in the local supply chain brought on by these lockdowns causes both operational and financial problems for manufacturers.
While many office workers can still keep a business running through remote work, this isn’t possible within the industry. Not only is remote work impossible for many manufacturing companies, but many don’t possess the tools nor the infrastructure to keep the business running from a distance. Aside from that, scaling down operations leaves many employees without a stable job, thus reducing the number of products manufactured. For some sectors of the economy that are experiencing reduced consumption, this is fine.
Other sectors such as pharmaceuticals and the food and beverage (F&B) industry can become a huge problem, especially in times when people tend to go panic buying.
These sectors find some manufacturers struggling to meet the demands of consumers as not all employees can work on-site due to capacity limitations and other health and safety measures. Other manufacturers, however, experience the complete opposite, seeing a drop in demand and consumption. With these problems threatening the industry, even maintenance services such as hydraulic hose franchises and HVAC cleaning are in trouble. The silver lining for these types of companies, however, is that they not only cater to the manufacturing industry but to other industries as well.
Unfortunately, manufacturers don’t get the same benefit, and they see the industry experience as one of the most difficult challenges yet.
Localization of Supply Chains
Luckily, many manufacturing companies are considered essential companies or services, such as F&B and pharmaceuticals. But with the pandemic slowing down, if not completely halting, many companies are being forced to make a difficult trade-off: resilience or efficiency? As the global supply chain continues to feel the pressure from the effects of the pandemic, many companies consider localizing their supply chains by producing and shipping locally. This allows minimal disruption in case of a lack of people, goods, or other supplies.
However, it is possible for the U.S. to regain its place in the industry with a more aggressive approach to advanced technology. These kinds of technology make it possible to automate tasks that, in the future, will shadow any competitive advantage that low-cost countries like China enjoy.
If this localization continues at a steady pace, it’s highly likely that more manufacturing companies will learn to rely less on countries such as China and may eventually start moving production back to the U.S. or other countries in Asia.
The future of manufacturing is still unsure. But like many sectors in the economy, only time will tell how these companies will adjust to meet the demands of not only their consumers but also the post-pandemic economy. If they can let go of old processes and practices, adapt quickly, and innovate, there may be a light at the end of the tunnel for the manufacturing industry in a post-pandemic economy.