Editor's note: This article was published in the Record-Eagle's Momentum '21 special publication. For more stories from northern Michigan's economic engine, click here to read Momentum in its entirety online.
Last spring while the pandemic was in full swing, I went out on a limb and predicted that for the first time in memory, manufacturing would help mitigate the economic recession and lead the way back to prosperity.
In previous recessions, manufacturing typically was a major contributor to an economic decline, leading the way to the bottom with indefinite layoffs caused by excessive inventories and dropping demand. Manufacturing also seemed to lag when the economy picked back up, pulled back into the recovery kicking and screaming when their inventories were depleted.
Here are a few updated facts related to last year’s prediction:
- 1. Shift to more localized supply: The Material Handling and Logistics News found around 30 percent of manufacturing companies plan to increase production localization efforts over the next six months to better shield them from future risks. Supplier matchmaking services offered through the Michigan Manufacturing Technology Center are funded through the federal Manufacturing Extension Partnership and the Michigan Economic Development Corporation.
- 2. Safety and cleanliness as a new focus: The CEO of OpenWorks suggested: “Countless businesses have implemented entirely new protocols that reflect their belief that the health of their employees is paramount. These business leaders recognize that enhanced cleaning and disinfection protocols not only offer physical protection, but they also bring employees peace of mind.” State MEP’s distributed playbook templates and examples to assist companies in developing their own.
- 3. Growth in use of automation: The Business Wire reported that the global industrial automation software market will accelerate with a compounded annual growth rate of almost 3 percent through 2024. Both the federal MEP and Michigan are investing resources to help small manufacturers to assess and improve their technology.
- 4. Low-skills jobs replaced with high-tech jobs: The World Economic Forum through a MIT study found that firms that quickly adopted robots became more
- productive and hired more workers, while their competitors fell behind and shed workers. Michigan is investing in reskilling and upskilling with funding for community college and workforce programs.
- 5. Reshoring of supply lines: The Reshoring Initiative Data Report found that reshoring of production is exceeding foreign direct investment in job creation. The national demand to shorten and close supply chain gaps for essential products to make the U.S. less vulnerable is most likely to benefit many industries.
- 6. Organizational agility: The Business Agility Institute in their 2020 Business Agility survey found that organizations saw a 9 percent increase in average business agility maturity due to the pandemic.
This time around, the bullwhip effect has been lessened by companies adopting lean thinking where inventories are kept in line with the actual demand from consumers. Also, this downturn was started by a pandemic rather than a normal business cycle and demand for some products surged beyond normal while the disruption of global goods created opportunities for U.S. manufacturers who began production of products that were delayed albeit even if more expensive. The net result was that manufacturing stayed relatively strong and related employment high.
Yet, surprisingly, manufacturing labor is still in short supply despite the unemployment rate also remaining high. This signals the need for smart policies around unemployment insurance and funding to offset training costs in order to guarantee that people who are capable of working are not held back or disincentivized to become employed. Effort is still needed to align the workforce with upskilling or retraining for the available and coming jobs.
Although some sectors of the economy were hurt disproportionally, others thrived, and overall the economy is in reasonably good shape.
I continue to believe that pent-up demand will propel the next growth cycle as soon as we achieve critical mass in vaccinations and have retail and service businesses able to fully open safely. Wishing you all the best for 2021!