5 Areas of Uncertainty in Manufacturing as We Head into 2022
As we turn the corner on the pandemic, it feels we have traded one challenge for many. 2022 promises to bring an even more acute period of uncertainty to manufacturing than the previous two years.
But what are the most important areas of concern for the US industry as we enter 2022? We think five areas are most important to consider and discuss, and ideally get counsel from internal colleagues, external peers, CEO groups (Vistage and YPO are both great choices), professional advisors and
boards of directors (if you have one).
The first area is inflation (no surprise). US consumer prices rose in October at 6.2% on a year-over-year basis, a number not seen for over 30 years. To highlight how this is playing out at the consumer level, new car prices rose 9.8% year-over-year (and 1.4% in the past month alone).
Used car prices are up 26.4% year-over-year.
Small and medium-sized manufacturing owners and leaders desperately need input and guidance to help them navigate price inflation on key commodities, semi-finished materials, finished materials, parts, assemblies, and components. Should we buy spot or long term? Should we lock in capacity for capacity’s sake? Are there substitutes we should consider? How much inventory should we hold? These are all questions worthy of discussion and debate.
The second area (which ties to the first) is pricing strategy for customers. Pricing strategy is both art and science, but above all, it should be grounded in data to build the best set of customer relationships. As you increase prices, explain precisely why and document it. Use this time and pricing to establish better relationships with customers through data and transparency. Many large suppliers in the metals industry are doing exactly the opposite — and when the markets turn the other way (which they will eventually), this will come back to hurt them the most.
The third area is logistics and supply chain — not procurement and pricing but the actual physical movement and warehousing of inbound and outbound materials and goods. Manufacturers should have an all-hands meeting weekly to plan for both short-term and long-term supply chain considerations, including addressing emergencies. LTL, FTL, and ocean freight are perhaps the most volatile areas, owing to labor shortages, accessorial charges and other considerations (e.g.,externalities such as dock workers and port capacity). Our advice: Get input from experts in the industry and work closely with your logistics partners, keeping them on Zoom speed dial!
The fourth area of uncertainty is vaccine mandates. We have spoken with many peers who run manufacturing facilities who are not sure what to do about vaccine mandates, stemming from a federal circuit court in Louisiana staying the Biden administration mandate, among countless state and company (e.g., Daily Wire) challenges to the likely unsustainable (legal) executive order. The issue is sometimes even bringing empathetic HR managers and employees to tears on what to do.
Professional legal advice remains a must on this issue, but take any course of action under deep consideration given our final point (below).
The fifth area of uncertainty (yes, you guessed it) is labor. Labor shortages continue to plague manufacturers of all sizes, and when labor is available, workers, especially specialized workers, are often demanding wages outpacing even inflation numbers. Vaccine mandates are likely to put
additional pressure on labor considerations in December and January, especially in middle-market and larger firms. One survey by a Connecticut business association (CBIA) found that employee retention is where companies are making their greatest investments in 2021 (outpacing property
and facilities, technology, capital assets and other areas). Our advice: Human capital is our scarcest resource. Treat it as such. And above all, treat your employees with empathy if you want to keep them.
2022 promises to bring a rollercoaster of manufacturing uncertainty. But don’t sweep the top areas of concern to a dark corner of the shop floor. Surface them. Discuss them. Get advice on them (peer and professional). And revisit them all the time. As ex-Intel CEOAndy Grove once remarked:
“Only the paranoid survive.”