Hartford Business Journal

12 HARTFORDBUSINESS.COM | MARCH 23, 2026 Authored By: Renee Rovelli, First Vice President, Commercial Banking at PeoplesBank M anufacturing has long been a bedrock of the Connecticut economy. As the state's second biggest industry – accounting for more than 11% of the state's GDP – that's as true today as ever. But while nearly 70% of firms report profitability, according to the Connecticut Business & Industry Association (CBIA), many are deeply challenged by margin pressure, rising costs, and ongoing volatility across labor and supply chains. As manufacturers navigate 2026, maintaining competitiveness will require a more disciplined approach to capital planning, workforce strategy, and risk management. So how can manufacturers prepare for those ongoing industry challenges and set themselves up for continued success? Prioritize Staffing and Labor Retention Staffing has become one of the most pressing issues facing manufacturers today, driven by rising wages and an increasingly limited pool of qualified talent. In fact, more than 80% of Connecticut manufacturers report difficulty finding and retaining workers, largely due to a lack of required skills and technical expertise. This ongoing labor shortage is forcing manufacturers to compete for talent while balancing escalating operating costs, putting additional strain on cash flow, productivity, and growth planning. To navigate this environment, manufacturers must take a proactive approach to workforce investment. This means not only implementing stronger recruiting strategies to attract qualified candidates, but also building Protecting Manufacturing Margins in a Volatile Market Member FDIC 877.888.1388 bankatpeoples.com a sustainable retention plan that aligns compensation and benefits with financial realities. Allocating funds toward upskilling programs can help transform unskilled workers into productive team members while enabling existing employees to expand their capabilities as technology and production demands evolve. Additionally, manufacturers may want to explore creative ways to retain key employees through value-added incentive structures such as deferred compensation plans, phantom stock, life insurance-based strategies, or employee stock ownership plans (ESOPs), tools that can strengthen loyalty while supporting organizational stability. Improve Supply Chain Efficiencies On average, fluctuating tariffs have increased by 17% over the last year, adding both cost and uncertainty to manufacturers. They're part of a collective increase in costs, which continues to strain manufacturers. Here in Connecticut, an overwhelming number of manufacturers report that the cost of doing business is increasing across the board, thanks to inflation, energy prices, and regulatory pressures. Without planning, these financial pressures can quickly erode profitability. Manufacturers should take a strategic approach to managing expenses by examining supplier relationships, diversifying their supply chains, and avoiding overreliance on vendors in a single region, particularly amid ongoing tariff uncertainty. At the same time, improving operational efficiency and cash flow while eliminating waste can help offset rising costs and strengthen company resilience. Implement Growth Strategies To support sustainable growth and improve cash flow, manufacturers may evaluate opportunities to consolidate operations and restructure existing debt to better align with expansion goals. Exploring alternative financing structures can also provide increased working capital and flexibility as the business scales. Additionally, investments in automation and technology must be considered part of a broader growth strategy. Adding automation can help improve efficiency and reduce operational strain. Just as important, manufacturers need to have a plan in place to respond quickly to demand, as scaling too rapidly without preparation often leads to overspending and underperforming investments. Surround Yourself With a Team You Trust Change is constant, and no company needs to navigate it alone. Manufacturers should prioritize partners and advisors who understand their business, including trusted legal counsel, accountants, and bankers who can provide the right advice and the right financial products. The best advisors can help identify potential risks early and ensure the business has access to the resources needed to address pain points. For those unsure where to begin, start local by connecting with local community partners who understand the barriers and opportunities you face. While the challenges facing Connecticut manufacturers are real, so are the opportunities for those willing to plan strategically and act decisively. By taking a more disciplined approach, manufacturers can position themselves not just to weather uncertainty in 2026, but to emerge more resilient and competitive for years to come.

• Cover