Issue link: https://nebusinessmedia.uberflip.com/i/1492748
22 HARTFORDBUSINESS.COM | FEBRUARy 20, 2023 Q: What is your perspective on the manufacturing industry as a whole, given our current economic environment? A: The manufacturing industry will continue to endure wage escalation and labor shortages and experience an economic slowdown in market activity in 2023. Though falling, in - flation remains higher than normal, which will be a drag on production, as will constraints on liquidity. Manufacturing activity contracted in December and January, and we expect activity will remain in con- traction territory through the first half of 2023, lagging the Federal Reserve's interest rate hikes. Q: What must manufacturers do to address our current economic environment, stay competitive, and thrive once we pass these current economic times? A: Businesses are facing economic headwinds ranging from higher input costs to rising wages. The current environment presents chal - lenges, but more importantly, oppor- tunities for manufacturers that are proactively adopting advanced tech- nologies to boost resilience against future disruption. Companies that make intentional efforts to prepare now will also have an advantage on the other side of these headwinds. Businesses must analyze and plan for best- and worst-case scenarios in a downturn and understand what a recession will mean for their oper - ational needs. Businesses must care- fully throttle activity while not sacri- ficing future capacity when activity increases in subsequent periods. Automation and digitalization will continue to be central to filling labor shortfalls and could be disruptive in the mid-term for businesses that fail to harness the opportunity. The current environment is an excellent opportunity to find efficiencies in business models where productivity enhancing projects can help busi - nesses emerge from a recession in a position of strength. Q: The labor market continues to be a challenge for many manufac- turers. What is your perspective on the current labor market, its impact on manufacturers, and things that companies should do in order to address these challenges? A: Access to labor will be a per- sistent challenge – unemployment overall was at 3.4% in January and in the manufacturing sector it fell to 1.8%. This will cause continued up- ward wage pressure to persist in the manufacturing sector in near term. As of 2022, there were as many as 4 to 5 million fewer people in the U.S. workforce than in 2020. That includes early retirees who will not return, COVID-19's long haulers, and those who died during the pan - demic. While the pace of hiring re- mained positive at the end of 2022, we expect that to reverse by the second half of 2023. In order to address this labor shortage, high performing manufac- turers must double down on their capability to attract, train, and retain top talent and critical labor as the battle for talent continues. Compa - nies should seek out opportunities to use automation and digitalization to fill worker shortages, and invest in such technologies, especially for re - petitive tasks and processes. As this labor shortage persists, and the land- scape of manufacturing continues to evolve, we find that our clients that recognize the changing dynamic of the workforce and train labor to be more technologically savvy continue to outperform their competitors. Q: With the current geo-political landscape, what strategies have you seen manufacturers take in order to address risk within their production facility footprints? A: Evaluating and implementing alternative manufacturing strategies that consider the consolidation of operations and/or the shifting of production to new locations are disruptive initiatives for many of to - day's lean management teams. The substantial level of effort and poten- tial capital investment involved will deter some businesses from consid- ering alternative operating models, regardless of the potential benefits that these models could generate. By evaluating the entire business case for implementing this type of a strategy, manufacturers that diversify their manufacturing foot - print should use the opportunity to evaluate what they can do better. Many of our clients who have suc- cessfully answered this question have realized significant enterprise value. Through the adoption of new productivity-enhancing equipment and state-of-the-art technology, we have seen leading manufacturers reduce reliance on labor, lower vari - able costs and maximize long-term capital investments. An effective way to explore these options before making costly decisions is by using digital twin technology to create 3D models of shop floors, equipment layouts, and employee productivity and run myriad scenarios to identify the most efficient use cases. Q: What strategies have you seen clients take to address their op - erating effectiveness in an effort to drive enterprise value, and manage costs in today's current economic landscape? A: We assist many of our clients in evaluating their operating models in order to streamline operations, enhance product quality and deliver and ultimately drive growth and enhance enterprise value. Much of our work assists our clients in un - derstanding in detail their product strategy and rationalizing where in- vestments should and should not be made within their product portfolio. The ability to leverage vast amounts of data is critical in order to effec- tively deliver value through this process. We find that many of our clients have significant amounts of data but, ultimately have not histor- ically been able to use this detailed data to drive operational decisions. In our current inflationary environ- ment, we have seen clients realize very near-term value in multiple areas, specifically in strategic sourc- ing and inventory optimization. The ability to drive a leading practice sourcing program can many times drive savings in the 3-5% range (de- pending on the category of spend). Additionally, we have seen through optimizing the management of in- ventory in many manufacturers, the ability to realize significant gains which drives greater liquidity - a vital need for manufacturers in our current economic environment. Dan Wheadon Partner, National Industrials Consulting Leader Sponsored Content Visit rsmus.com /aboutus for more information regarding RSM US LLP and RSM International. Join us for a global meeting of the minds. PUT OUR MANUFACTURING INSIGHTS TO WORK FOR YOU. To make confident decisions about the future, middle market leaders need a different kind of advisor. One who starts by understanding where you want to go and then brings the ideas and insights of an experienced global team to help get you there. Experience the power of being understood. Experience RSM. rsmus.com/manufacturing Visit rsmus.com /aboutus for more information regarding RSM US LLP and RSM International. Join us for a global meeting of the minds. PUT OUR MANUFACTURING INSIGHTS TO WORK FOR YOU. To make confident decisions about the future, middle market leaders need a different kind of advisor. One who starts by understanding where you want to go and then brings the ideas and insights of an experienced global team to help get you there. Experience the power of being understood. Experience RSM. rsmus.com/manufacturing