How Companies Can Plan For The Changes, Pressures And Opportunities

U.S. manufacturing was in decline and under stress even before the pandemic. Then, things got worse. Way worse. An unexpected surge in demand for manufactured goods was accompanied by massive supply chain disruptions, political and economic pressures, component shortages and labor constraints.

As much as we’d all probably like to forget about that dark and germy chapter, it had a lot to teach us. And big manufacturing disruptions aren’t expected to let up. Companies should expect to experience many flavors of hazards, from natural disasters to geopolitical uncertainties to cyberattacks. While we don’t necessarily know what kind of hazard will pop up, we can plan for manufacturing disruptions that last a month or longer to occur an average of every 3.7 years. We also know that these disruptions have the potential to exact an ever-higher financial toll.

CEOs who’ve been grappling with the impact now realize that one of their most important responsibilities is to build agility, flexibility and resilience into their value chains—permanently. Supply chain resilience can no longer be “just in time” or “just in case.” It needs to be an “any case” business imperative. That starts with developing a business continuity plan, one that can restructure supply chains to boost local manufacturing and production.

Pressures U.S. manufacturers face today

The decline of the U.S. manufacturing industry has contributed to rising inequality and hurt the country’s global competitiveness. By working individually to strengthen the manufacturing sector, business leaders can collectively ease pandemic-induced short-term disruption while also improving global competitiveness in the mid-to long-term.

What exactly are we looking to revitalize?

Today there are roughly 25% fewer U.S. manufacturing firms and plants than there were in 1997. Increased import dependence has left some key U.S. manufacturing supply chains exposed to greater global risks. However, if we could restore growth and competitiveness in key manufacturing industries, we could boost the annual GDP by more than 15%.

Moreover, global and U.S. investors now expect manufacturers to make much more significant sustainability commitments. Much of this transition is supported by a renewed sense of urgency to reduce greenhouse gas emissions below a 1.5C warming threshold, which would require a 50-55% drop in GHG by 2030. From heavy industry to fast-moving consumer goods, manufacturing companies will see a continued shift from fossil fuels: generation from renewables is projected to quadruple by 2050. In tandem, aging plants and equipment will need attention. An estimated $15 to $25 billion annual investment in upgrades could boost U.S. GDP by $275 to $465 billion annually for the next decade, while adding up to 1.5 million direct and indirect jobs.

Recent supply chain disruptions highlight need for local manufacturing

These sorts of changes could help solve a range of urgent issues. Most immediately, spikes in transportation costs and delays have exposed the chokepoints inherent in far-flung manufacturing networks. Regionalization could cause large trade shifts across key manufacturing sectors; up to $4.6T in global trade could shift across regions in the next five years. Already, Mexico has quietly become the second largest trading partner of the U.S. (behind Canada), accounting for a steadily increasing share of U.S. imports.

Nearshoring is changing the game, as organizations look to capitalize on out-of-house manufacturing opportunities. This gives them the power to improve the entire process through increased quality control, better inventory management, a more manageable supply chain, improved communications, and ultimately better customer service.

Digital innovation to help manufacturers keep pace

But nearshoring isn’t likely to make manufacturing simpler. Instead, digital capabilities are only becoming more critical. Artificial intelligence, machine learning and advanced technologies are key elements to make sense of disconnected data and find new optimization opportunities in global supply chains. Advanced organizations are already taking action. In a recent survey, 49% of supply chain leaders said they invested in supply-and-demand advanced analytics over the past year, and 27% have accelerated these plans since early 2022.

With new technology comes a need for new skills. Few organizations say they feel ready. In 2020, 70 percent of companies were building talent by reskilling their existing labor force. This year, the primary approach, used by 68 percent of companies, was outside hiring.

How to respond to these changes

Restructuring value chains does not come without risk. But inaction generates its own perils. Today, the U.S. meets just 71% of its final demand with domestic goods — a smaller share than in Germany, Japan or China. Achieving parity on this front alone could add $400 billion to U.S. GDP.

Making things matters. It improves resilience, competitiveness and standards of living. A competitive and diversified manufacturing sector not only fuels the economy in good times but helps to keep it functioning during inevitable disruptions.