Manufacturing Industry to Continue Climbing in 2022
The manufacturing sector is set to reach new highs in 2022 after a difficult plunge in March 2020 and a promising recovery in the following 21 months.
This positive forecast draws from societal factors such as the rollout of the coronavirus vaccines, as well as industry developments like advances in smart manufacturing and an evolving and skilled workforce.
Recession and Recovery
The socioeconomic impacts experienced globally at the pandemic’s onset—mass infections, school and business closures, and supply chain issues—strained industry and individual alike. Along with the rest of the economy, U.S. manufacturing took a big hit in Q2 of 2020, as a sudden nationwide shutdown caused massive job loss, logistical delays, production slowdowns, and budget shortfalls.
A September 2020 study by the Brookings Institution, a leading nonprofit for public policy research, reveals the pandemic’s immediate and devastating impacts on U.S. industrial production.
Thankfully, this sharp contraction only lasted for two months, and manufacturing was largely able to rebound in the back half of the year. Riding increased demand and production, the sector experienced accelerated growth late in 2021.
A November 2021 report by the U.S. Census Bureau showed an increase in manufacturing orders and shipments in 18 of the past 19 months, as well as monthly increases of 1.6% and 1.2% over October’s figures for orders and shipments, respectively. Building on recent all-time highs in quarterly profits, manufacturing corporations are poised for unprecedented growth in 2022.
Even so, challenges loom, and no economic issue currently outweighs the long-dreaded issue of inflation, which has fully emerged as the central challenge for 2022. The BLS reported a CPI-U increase of 7% in the 12-month period ending December 2021, the largest annual increase in 40 years. As manufacturers explore strategies to combat this surge, they must simultaneously respond to a difficult labor market trend.
The Not-So-Great Resignation
One of the biggest stories to emerge from the past year is that of the Great Resignation, so named because of the high number of employees leaving the corporate world. Reduced operations in the form of shutdown, layoffs, and cutbacks in hours drove a 60% decrease in the average hours worked in March and April of 2020, catalyzing a migration away from the workplace that persists today across all sectors
According Chad Moutray, chief economist with the National Association of Manufacturers (NAM) and director of the Center for Manufacturing Research at The Manufacturing Institute, “there were 349,000 workers added in the sector in 2021, the most since 1994, but there remained 219,000 fewer manufacturing employees in December relative to pre-pandemic levels.”
This helps illustrate why labor shortages will remain an issue for manufacturing and other economic sectors well into 2022. But it helps to look at The Great Resignation through a nuanced lens. The manufacturing quit rate in November 2021 fell to 2.3% from September’s high of 2.6%, national unemployment fell 0.3% in December, and demand for manufactured goods continues to rise.
Employers have adapted their operations to a changing workforce with new skills as well as needs. Manufacturing no longer bears the hallmarks of back-breaking labor and dangerous factory conditions that were common in the early era of industrialization. Employers in the sector now require a skilled workforce that is fluent in operating and optimizing automated technologies and smart solutions, making for a more desirable work environment and a variety of attractive options for college-educated workers.
Knotted Supply Chains
In spite of U.S. manufacturing’s growth, the sector’s supply chain issues will persist into 2022. Nowhere was the interconnectedness of the global economy—and its fragility—on display during the pandemic more than in manufacturing. An inability to procure essential components such as steel and semi-conductor chips curtailed production and resulted in months of bare shelves and backlogged orders.
Manufacturers’ 2022 efforts to avoid such costly inefficiencies will include a turn toward implementing data solutions and improved workflow methodologies to identify and correct issues such as demand distortion. Economic Order Quantity (EOQ) and Economic Production Quantity (EPQ) help minimize the costs of ordering, carrying, and holding inventory. Lean Manufacturing and Agile Supply concepts enable efficiency and cost effectiveness by eliminating non-essential processes and establishing structures that allow for rapid responses to dynamic market factors.
Skying Trade Costs
Facing labor shortages and a perfect storm of inflationary factors, manufacturers in 2022 must balance their need to recruit and retain top talent with the need to stay lean amid rising trade costs. Taking advantage of current low interest rates for borrowing and locking in supplier contracts with favorable long-term pricing can help businesses weather the short-term effects of high inflation, but corporations will also need to explore multi-faceted, long-term solutions to cutting costs.
To cope with logistical obstacles and the meteoric rise in shipping rates, domestic manufacturers will look to diversify their list of suppliers and reincorporate onshore facilities into their business models in 2022. This turn toward home-grown goods and services boosts local markets and can be compatible with lean and agile workflow methodologies such as just-in-time (JIT) manufacturing.
Creative, data-driven solutions can help by adding value to product offerings. Yet another option is to explore new price structures altogether. Some producers may find it advantageous to move to a subscription-based, goods-as-a-service model—the way that software developers such as Adobe and Microsoft have done in recent years and with great success.
Continuing with the trend of leveraging better data, successful producers in 2022 will consider rebundling products and services to provide higher value to customers and eliminate purchase barriers. This may also include disaggregating existing product offerings to include only what is in high demand.
Finding Answers in Advanced Tech
With the deployment of 5G networks, more operations will turn to Industrial Internet of Things (IIoT) technologies to streamline processes and make data-informed decisions. Increased digitalization will drive new plant designs and retrofit projects with automated elements. AI will continue to make manufacturing safer, faster, and more accurate. With infinitely more data at hand about its operation than its predecessors, virtually every U.S. manufacturer can find ways in which smart manufacturing tools would improve production and logistics.
Industrial technology doesn’t just optimize existing processes—it can also introduce totally new, disruptive production methods. Additive manufacturing, a relatively new but transformative process, serves as a great example. As rising costs and lead times continue to confound the global economy, additive manufacturing (broadly known as 3D printing) can offer faster, higher-quality, and lower-cost alternatives to materials locked up in traditional supply chains. The process allows components to be grown and fused, layer by minute layer, into unique, complex pieces—all from a single machine. This simple solution can slash production and trade costs and even surpass the quality of traditional methods. As AM tech’s processing capabilities expand to involve more materials and designers become more fluent in its uses, additive manufacturing will become an indispensable process for manufacturers across the country.
Overcoming Headwinds to Reach Opportunity
Overall, manufacturers have more cause for optimism in 2022 than for concern. The pandemic’s economic effects have been largely made up, unemployment is falling, and profits are high. Companies which emphasize innovation and a positive work environment will weather The Great Resignation as a new class of workers bring technical savvy to IT/OT. Transformative manufacturing tools such as advanced analytics and automation will make an increasingly significant impact on efficiency, while inflation will subside as corporate efforts and monetary policy course-correct, though it may be 2023 before we reach calmer waters.
Some opinions expressed in this article may be those of a contributing author and not necessarily Gray.