Becoming More Competitive As A Domestic U.S. Manufacturer
As the trend of reshoring various industrial manufacturing capabilities toward domestic U.S. facilities continues, it’s important to not lose sight of the reality that the companies operating these facilities are predominantly still competing at a global level and on an economic basis. While quality, locality, fiscal incentives, and social factors undoubtedly serve as a tailwind for many of these operations, the fundamental practices being utilized to design and operate these facilities are largely the same regardless of where they may physically be taking place, and require intentional optimization if they are to remain competitive in a global marketplace.
We’ve briefly outlined some of the more significant focus areas and a perspective on what might constitute a ‘best practice’ from the standpoint of overall competitiveness. These thoughts are not comprehensive and encourage you to reach out to us directly if you’d like to discuss how StageGate Partners may be able to assist you with your manufacturing optimization needs.
Lean Labor
The prevailing labor model in the U.S. manufacturing market for quite a while has been for workers on the ‘shop floor’ to typically earn the least; or to be paid the lowest labor rate per hour worked. One of the natural consequences of this practice has been higher turn-over and an increased need for supervision (often simply from more senior fellow team members) and management (often from a dedicated layer of management within the company’s organizational chart).
By rebalancing where labor costs are allocated within this model (i.e. by paying the ‘shop floor’ team members more, the talent that is attracted is often retained at a higher rate and requires less oversight, both from supervisors and management. This allows the company to realize labor cost savings associated with drastically reducing or eliminating an entire layer of the company’s org chart.
Raw Materials: Adopt Commercial Policies That Attract Customers
The current model that domestic U.S. customers are all too often subjected to involves a purchasing goods through a supply chain that includes a myriad of foreign sources and domestic middle-men, each with their own mark-up and whom often add no additional intrinsic value to the good being purchased.
We’re often told that removing intermediate layers of our supply chain is the most effective way to reduce cost, increase efficiency, or both. And while that is often correct, it is not always practical. These layers exist for some reason after all and are likely enabling some aspect of the operation that is, to one degree or another, essential. What can be practical however is re-emphasizing the unique value or selling proposition that you’re offering the market as a manufacturer situated in the United States.
For example, by working with you, your customers may avoid onerous minimum order quantity criteria or avoid long lead times stemming from geographically stretched or otherwise exposed global supply chains. Each of these features represent unique value to different customers – and, when paired with lower prices, can substantially expand your addressable market, in turn driving significant sales growth.
Vertical Integration
By getting as many of the processes required to design, manufacture, and deliver your products brought in-house, you gain a corresponding level of control over the variables that ultimately determine your success.
Cost: Controlling multiple stages of production enables you to streamline processes and avoid paying markups. It also facilitates savings associated with achieving economies of scale; be it via inputs, the cost of operating equipment, labor, etc.
Quality Control: Vertical integration of manufacturing processes can improve, often dramatically, your company’s ability to efficiently oversee all aspects of production, which in turn enables the consistent enforcement of a quality or standards regime (e.g. adherence to ISO or internal standards). Having ready access to the entire production line also facilitates the immediate remediation of any issues identified during quality inspections – enabling the reduction or avoidance of downtime, reduced costs, and more happy customers.
Distribution and Delivery: Integration of the distribution and delivery (often referred to as Forward Integration) gives your company greater control over both the handling of the item and the timing of the delivery – ultimately giving you greater control over the overall customer experience. And since a single negative delivery experience can significantly damage a customer’s trust in your business, direct control of the distribution and delivery process is hard to overvalue – although all too easily overlooked.
Use of Automation Technology
It’s critically important to understand that production technology is a ‘make or break’ aspect of any manufacturing business is therefore critical that your team is regularly evaluating new technologies for their potential to bring additional value to your operation. As efficiency in production capabilities increase, opportunities to reduce per unit costs, gain market share, and to increase margin do as well. This is true for both your operation and your competitors’.
Having said that, the use of automation technology in any production facility is an optimization; not a universal mandate. Some tasks within the workflow will more naturally align with technology solutions while others will for the time being remain most effectively completed by skilled workers. Understanding the limitations of not only the equipment you have today but also those of emerging equipment technologies – and keeping that understanding current – will greatly help in defining where the line between automation technology and skilled labor is at any given time. And, as always, being able to smartly combine these two will yield the best results.
