Already battered by decades of low-cost foreign competition, American manufacturers are suffering through one of the worst years most of them have ever seen, says Ethan Karp, president of MAGNET.
The Covid-19 pandemic hit manufacturers early, disrupting the supply of raw materials, parts and components from China as early as February. In March, COVID hit the demand side, shutting down the U.S. economy and bringing production at many factories to a halt. In April, the U.S. Purchasing Managers Index registered its biggest drop since the Great Recession, according to an analysis by Deloitte.
“As in the rest of the economy, manufacturing leaders are confronting a prolonged, painful road back that poses a very real threat to their survival,” Says Karp, whose organization is the Manufacturing Extension Partnership (MEP) center for northeast Ohio. MEP is a public-private partnership with centers in all 50 states, including the Oklahoma Manufacturing Alliance.
“Leading their businesses through to the other side will require some difficult decisions – and I don’t just mean staff reductions,” Karp Says. If manufacturers want to survive, and to thrive when the economy picks up, they must start investing in technology. That will be difficult not only because it will require new spending when revenue is depressed but also because for many of them, the learning curve will be steep. And many small manufacturers will have to overcome their natural risk aversion.
Intolerance for risk and the need to better understand technology have put many American manufacturers at a significant disadvantage to their overseas counterparts, who haven’t sat back and relied on their access to cheap labor to shore up their competitive positions.
Since 2013 Chinese factories have been the world’s most active in implementing automation technology, according to the International Federation of Robotics; in 2017 China accounted for 36 percent of the world’s industrial robotic installations, and while installations dropped in 2018, Chinese factories still installed more robots than American and European manufacturers combined.
They’re pouring money into robotics – plus sensors, data analytics, 3D printing and the other technologies we collectively refer to as Industry 4.0 – for the simple, obvious reason that it will make their factories more profitable. Automation and data help reduce costs by cutting down on machine breakdowns and errors and by minimizing injuries to workers, among other things. They increase revenue by speeding up production and making it easier to introduce new products.
“In a survey conducted by MAGNET in late 2019, 94 percent of manufacturers in Northeast Ohio said they were actively innovating – but more than 60 percent said they weren’t using or had just started using automation,” Karp says. “Half said they did not plan to increase automation spending.”
But while the reluctance to invest in automation predates the pandemic, perhaps the COVID crisis can be the catalyst for making American factories competitive again. Their backs to the wall, U.S. manufacturers have already demonstrated remarkable (and unusual) agility, converting production lines to churn out plastic face shields, hospital beds, hand sanitizer and other critical supplies in a matter of days back in March.
Technology investment has to be a permanent commitment, not a temporary adjustment, and it will require some hefty investments that won’t deliver immediate returns. But the returns will be there, and the cost of not investing will be far higher in the long run.
“To be clear, in my experience cost is only part of what’s prevented American manufacturers from investing in technology,” Karp continues. “What’s holding many of them back is a basic lack of awareness – of how the technology works and how it would pay off in the form of higher profits. I talk to manufacturers every day about the problems they’re facing, from mechanical breakdowns to rising operational costs. What I often find is that they simply aren’t aware of the ways automation and other Industry 4.0 technologies could solve those problems. But when they do see the connection, the result is more efficient, consistent production, lower costs and higher sales, plus a host of other new ways to serve customers and provide value.”
DECA Manufacturing, a 43-year-old maker of electronic cables, wire harnesses and other similar products in Lexington, Ohio, has invested heavily in industrial sensors and laser equipment over the past three years. The sensors go on equipment through its factory, providing real-time data on production and the machines’ efficiency – this is the Internet of Things technology you hear so much about.
The data shows DECA President Cameron Haring and his managers which machines need preventive maintenance – preventing breakdowns that bring production to a halt, at tremendous cost. He can now see which employees are performing well and who needs more training. New employees get up to speed faster because the data gives precise feedback on where they need to improve. And he can assess DECA’s manufacturing processes through the lens of real, hard data.
The result: Factory output has increased more than 20 percent. The laser technology has enabled DECA to add products, opening the doors to new customers, including always lucrative defense contracts. Haring says the technology begins to pay off in about eight months. He views the technology as an extension of the lean manufacturing processes that have been best practices in the industry for thirty years – and that changes the risk assessment.
“I don’t view process improvement as a risk but a must,” Haring says.
Karp could point to more manufacturers like DECA, but unfortunately, he says, they’re in the minority. The bulk of their counterparts have yet to recognize what Industry 4.0 technology can do for their businesses. “To bring U.S. manufacturing out of its current malaise and to reverse an industrial decline that began in the 1980s, we must convince factory owners and leaders that the way forward is through automation and embracing Industry 4.0.”
“There are other things that need to happen, of course, including policy changes. But ultimately, if there is to be an American manufacturing renaissance, it will begin on shop floors, factory by factory, led not by policymakers but by owners and executives who embrace new technologies that can collectively make our manufacturing sector the world’s most productive and efficient – again,” Karp concludes.
To learn more about how your company can incorporate technology to boost business and increase production, drop us a note at the Oklahoma Manufacturing Alliance.