October is National Manufacturing Month, a time to recognize the innovations of the manufacturing industry – which plays a significant economic and jobs role in the Inland Empire.
By: Anthony Turner, Greater Los Angeles and Inland Empire Market Executive of Global Commercial Banking at Bank of America
With manufacturers of every size and across every industry weathering unforeseen economic forces rising from the coronavirus pandemic, it seems timely to address these challenges and how the industry can overcome them.
Demand for products has been upended, relationships with suppliers and customers are being tested and liquidity issues have multiplied. Some manufacturers have had to rapidly increase the production of goods, such as grocery items, household products and essential medical and protective equipment. Other industries, like aerospace, automotive and energy, have seen a sharp decline in demand. As of August 2020, manufacturing jobs were down 11.1 percent compared to August 2019 due to ongoing shutdowns and an overall decrease in demand.
While employment in the region remains below pre-pandemic levels, health-mandated countermeasures also continue to restrict many businesses’ ability to operate at capacity, especially those in industries that require workers to operate in close proximity, including the manufacturing industry.
In addition to the economic toll, manufacturers must consider the health and safety of their people. They need to find a balance between keeping factories running and not subjecting employees to unnecessary health risks. The pandemic has highlighted the need for manufacturers to prioritize public health, including employee health, in addition to taking forward-looking measures such as retooling technology systems to handle supply chain issues, inventory management and shifts in production processes.
Employee Health and Well-Being
To protect employees from health risks, manufacturers should consider leaving extended periods between shifts and conducting remote handoffs, which helps reduce unnecessary face-to-face interactions. Some are monitoring employees’ health by checking temperatures, setting up temporary health centers and even hiring onsite medical professionals to test employees.
Because these decisions are both critical and unprecedented, sharing experiences is key. Industry leaders should engage in continuing, open dialogue to address shared issues, like frequency of employee health screenings, steps to take if an outbreak occurs and best practices for addressing other employee-centric issues. These considerations are vital and working with industry colleagues can help companies identify and implement the best solutions.
Manufacturers should also consider the economic health of employees. While short-term challenges can be acute, manufacturers should think about how they want to be positioned as a business in the long-term and consider the importance of their employees. Given how challenging it can be to acquire good talent, many are looking at how to maintain their workforce, by temporarily freezing or cutting pay rather than laying off employees. This can help to build loyalty and retain talent, putting companies in a stronger position when conditions improve.
Short- and Long-term Business Transformations
In response to declining demand for certain products, some manufacturers have quickly pivoted to meet new demands. Hockey mask companies are making face shields, fashion designers are selling masks and distilleries are producing hand sanitizer. This is a smart short-term strategy for those who can retool existing facilities, and it allows manufacturers to reallocate resources toward most pressing needs. It also enables them to consider longer-term objectives in an environment where future demand is uncertain.
To guide business strategy and gain a window into future demand, it’s also essential that manufacturers carefully track orders, inventory and other internal data. For some companies, this will require upgrading or acquiring analytics systems that can deliver more robust predictive models. Manufacturers should also closely watch indicators including national retail sales numbers, housing stocks, building permit numbers and consumer confidence levels.
With fluctuations in demand, inventory challenges and sharply reduced production, many businesses are facing liquidity issues and other financial concerns. As they navigate the path forward, manufacturers can consider implementing more systematic credit checks to ensure customers can pay for orders or requesting advance payment terms. Banking partners can offer insights into best practices for credit management, working capital and cash management. Some of these practices include running sensitivity models and stress tests to project how long cash will last. While companies may not need relief immediately, setting thresholds can be helpful for knowing when it’s time to seek assistance.
While manufacturers currently face a host of challenges, with this industry as a key driver of the region’s economy, there are opportunities we should consider now, which can benefit companies in the long term. Policies that retain top talent and build loyalty; technology and process changes that make companies nimbler and more adaptive; and financial practices that lend greater insight into risk can help manufacturers develop a stronger business foundation for the long-term.