The American manufacturing industry went through decades of decline, but in recent years, it’s been experiencing a resurgence. Now, there are both headwinds and tailwinds affecting manufacturing.
For example, in December 2021, the manufacturing output index went up to its highest level since 2019.
At the same time, there are challenges that can’t be underestimated.
From supply chain issues that affect equipment to rising costs due to inflation, there are plenty of problems to contend with.
There are certain things manufacturing businesses can do to stay strong even when they’re facing difficulties. For example, focusing on resilience, maintaining your equipment to improve continuity, and having multiple suppliers in case of supply chain disruptions are all important.
The following are some things to know, in particular about the U.S. manufacturing industry right now.
GDP from manufacturing in the U.S. declined in the third quarter of 2021, going to $2320 billion from $239 billion in the second quarter of 2021.
American manufacturing accounts for around 12% of total output, and it employs around 8.5% of the workforce.
Chemical products are the largest share of the manufacturing sector, followed by computer and electronic products and food and tobacco products. Other sectors relevant in the U.S. manufacturing industry include cars and car parts, fabricated metal, machinery, and petroleum and coal products.
The major export markets for the U.S. are Canada, Mexico, China, Japan, and the U.K.
Supply Chain Problems
While there was a fairly rosy picture for the manufacturing industry in the U.S. pre-COVID, now the industry is being hard hit by supply chain disruptions.
Manufacturing growth in the U.S. has been slumping because of supply chain problems.
The Institute for Supply Chain Management which is a trade group reported its index of manufacturing activity fell to 58.7 in December, which was 2.4 percentage points below the November reading.
Any reading above 50 does indicate growth in manufacturing, and there have been 19 straight months of growth since spring of 2020.
The December slowdown reflects declines in production as well as new orders.
Trends Affecting Manufacturing
Some of the things affecting manufacturing and trends emerging in the industry, according to Deloitte, include:
- Workforce shortage: One of the most pressing issues for manufacturers and also other industries is how to deal with a growing talent shortage. There are record numbers of unfilled
- jobs, and these are going to negatively affect growth and productivity this year and beyond. Manufacturers should work to combat these issues by rebranding what it’s like to work in the industry and for their company. They’ll also need to reach a wider talent pool to find the skills they need and build a culture that’s well suited to innovation and retention.
- Supply chain problems: Manufacturers, like so many other businesses across industries, are dealing with significant supply chain disruptions. They’re still unfolding, and these problems are paired with high costs of raw materials and slow deliveries. Driver shortages in trucking and congestion at container ports are further compounding problems. These are all leading to higher costs for consumers. Supply chain instability in the U.S. is multifactorial and includes low inventories and less domestic capability.
- Automation: It’s not all bad news in U.S. manufacturing. There are also opportunities for forward-thinking businesses. If manufacturing businesses can adopt more digital technology and automation, they can become more efficient and promote longer-term profitability. Manufacturers should be eyeing the ways that artificial intelligence, robots, and more can change their operations. Cloud computing for computational power as well as speed and scale are important. Some manufacturers may be considering the impacts of the deployment of 5G in 2022.
- Cybersecurity: There have been a number of high-profile cyberattacks across all industries and governments. Cybersecurity is an essential priority for all industries, and the threats grew even further during the pandemic. There’s an expansion of attack surfaces because of operational technology, information technology, and external networks. When manufacturers are relying on legacy technology, they’re not equipped to combat sophisticated potential cyber threats. Along with shoring up protections, manufacturers also need to plan for resilience and continuity in the vent of an attack.
- Sustainability: There is a rapid growth in environmental, social, and governance factors known as ESG that is reshaping the manufacturing industry in terms of sustainability. To be financially viable and competitive, manufacturers will need to expand reporting on diversity, equity, and inclusion, as well as take environmental accountability and work to deliver on goals of being carbon neutral.
Factors That Could Continue Helping Manufacturers
Some of the factors that have the potential to help manufacturers going forward include:
- There are more opportunities to cut out the middleman. In the traditional sense, manufacturers would often sell through retailers and group buying organizations, but now, with the use of technology and newer fulfillment services, profits can move directly to the manufacturer. This allows for higher margins and more opportunities for investment in automation and other elements of growth.
- Another opportunity or advantage in manufacturing is a focused demand for products made in the U.S. Americans like to buy things made in their country. There’s more accountability and transparency when you know where something is being made.
- As a domestic manufacturer, you have the unique opportunity to create a brand that has a face and something that customers can connect with.
- Simply by being a U.S-based manufacturer, you’re doing things that are more sustainable and economically sound than overseas competitors. For example, you’re reducing the carbon costs of shipping.
Finally, the rising amount of automation available to U.S. manufacturers is going to create significant competitive advantages. Businesses will have to make upfront capital investments, but that cost is similar to what global businesses have to pay as well.
You can take away the strategic advantage overseas manufacturers traditionally had, which was cheap labor.
The opportunity for advancements in AI, robotics, and automation could have serious implications for a resurgence of U.S. manufacturing.
These advancements in automation could actually end up creating high-paying jobs without the need for advanced education.