With an improving economy boosting profits and prospects for the manufacturing sector, U.S. manufacturers are eyeing expansion opportunities, both domestically and overseas. According to the Bank of America Merrill Lynch 2015 CFO Outlook, a majority of U.S. manufacturing CFOs expect their sales to increase this year (68%), and nearly half believe profits will rise (46%). As a result, manufacturers will look to open new facilities, build-up infrastructure, and identify new opportunities to drive revenue growth.
However, whether deciding to reshore back to the U.S. or pursue new foreign markets, expansion must be planned carefully, especially because of the upfront expenses that many manufacturing projects require. The following are the most important considerations for manufacturers as they look to grow:
Reshoring? Consider the Midwest
According to a recent report from the Boston Consulting Group, more than half of all large-scale manufacturers were considering re-shoring their projects away from China, and many other companies are considering moving projects back from even lower-cost regions. For manufacturers considering reshoring, the Midwest might be an especially attractive option.
Historically, the Midwest region of the U.S. has dominated the manufacturing sector, even as new hubs for manufacturing opened in the South and West. Today, the Midwest is still at the top when it comes to attracting new manufacturing facilities due to favorable energy prices, better infrastructure and government incentives—with many Midwestern jurisdictions providing incentives in the form of tax breaks and other financial help for companies to create jobs in the region.
Companies should also consider the infrastructure: Major interstates crisscross in the Midwestern states, supported by many intersecting with rail hubs and ports along the Great Lakes. As a result, the Midwest is an ideal location for many companies, no matter how they ship out the finished goods or import raw materials.
According to the Reshoring Initiative Library, more than 70 companies are returning to the Midwestern U.S. The automotive industry is a great example of one of many sectors experiencing an influx of manufacturers heading to the Midwest for growth opportunities. In fact, automakers and auto suppliers have invested more than $19 billion over the past five years in expansions and facilities upgrades in Michigan. For instance, Eissmann Group Automotive (EGA) announced that it was expanding operations in Port Huron, Mich., and investing $13.55 million in a new facility there, creating up to 233 new jobs. EGA’s location decision took into the consideration the availability of workforce, as well as a location that would maximize the company’s ability to service existing and future customers.
Look for Talent Before You Decide
Increasingly, the talent of the workforce is one of the greatest predictors of success for a manufacturing project. As a result, manufacturing executives should spend time considering their long-term workforce needs before committing to a new facility.
To start, executives must be confident that they will find enough people for the first round of the project. But then, they must evaluate whether they will be able to field enough replacement workers over the life of a project. Specialized training with community colleges and universities is a good strategy to develop a pipeline of talent, and many communities offer this type of program.
Local governments have also launched programs to invest in manufacturing talent, such as Iowa’s statewide launch of ‘Get Skills to Work,’ in partnership with The Manufacturing Institute to train veterans, and Michigan’s Workforce Development Agency’s MI-AIM (Apprenticeships, Internships, Mentoring) program.
Companies should also consider what programs and incentives they can offer to remain competitive. Our CFO Outlook study revealed that many CFOs are already investing in retaining and attracting talent by offering healthcare insurance (96%), funding retirement programs (92%), bonuses or other compensation (87%), wellness programs (63%), education funding (54%) and flexible work hours (52%). Additionally, executives should identify other benefits for a community that would attract new workers, such as opportunities for leisure activities, quality of schools and housing affordability. By focusing on all aspects of an employee’s life, the company can reasonably determine the ease of attracting the right workforce.
Expand the Toolkit
Thanks to the digital revolution, U.S. manufacturing has truly become advanced, driving higher profit margins and new and innovative products. On the management side, the executive team must consider all applications and toolkits that can enhance or streamline everything from human resources management to payroll to information technology.
Consider the fact that a decade or two ago, many documents needed to be printed and announcements made in-person, as the majority of the staff was on the shop floor rather than in front of a computer. Today, digital advancements, such as cloud-enabled computing, allow manufacturers to increase operational flexibility and react faster to the needs of their customers, while reducing capital expenditures and IT workforce costs.
Manufacturing executives should evaluate all of their processes and, in working with consultants and outside partners, determine how to benefit from the new digital technologies across the business.
Going Forward
Before executing on a growth strategy, manufacturers must keep the above considerations in mind. These businesses must pay attention to the needs of their workforce and how they can retain the best talent in the industry, as well as drive efficiencies via new digital technologies. Focusing on these areas will provide manufacturers with the tools for long-lasting success in their new operations.
