Productivity Improvements are Manufacturing’s Next Necessity

The U.S. economy is projected to slowdown as we continue to recover and manufacturers must focus their time and investments on improving labor productivity to prevent lowered revenues from becoming the new normal.

The overall economy is set to grow annually by 3%, the average for the past century, until we reach post-recession levels, according to a new report from TD Economics. The rate will slow to roughly 2% afterwards, hurt by declines in labor force and labor productivity.

To keep manufacturing from seeing the slowdown in revenue growth, we must turn to smart policies that promote both increased sales and increased jobs. A common focus for 2014 will be a focus in lean logistics principles and meeting consumer demand before that demand has been entirely actualized.

The key is evolving to project consumer demand across a longer term and applying advanced-staging techniques on a customer level instead of just as a disaster preparedness scale.

Near-Shoring Becomes Next-Shoring

Big Data deployments and analysis of historical data has entered the realm of affordability for most, if not all, manufacturers. This understanding shapes one of the most popular new terms we’ll hear this year: next-shoring.

Beyond simply creating products nearer to our final customers once orders are created, called near-shoring, we now have access to predictions that will move materials and parts close to consumer areas before an order is in place. This “next-shoring” has an ultimate goal of staging materials and manufacturing goods next to consumers before even they know they’ll want to order.

The shipping benefits of this method are already established, growing significantly as we ship final products from locations closer and closer to the end consumer. However, this structure provides significant local advantages that we don’t initially think of when looking broadly.

Not only does this investment generate local jobs, but it also creates local interest. Manufacturers experience increase brand recognition and consumer demand closer to the regions where they manufacture goods. Narrowing our supply chain actually leads to an increase in demand because this centralized employment builds stronger community ties.

Narrow supply chains also allow for greater product customization and variation because there is significantly less ground between final assembly and the end customer.

The concern about next-shoring is how to balance customers and the local economy. Manufacturers look at many economic and workforce trends when determining their new plant location. However, big data and tomorrow’s potential new normal necessitate looking to non-traditional trends across a long term.

The most vital trend to observe is the junction of new immigration and education.

2014 Booster Shots: Immigration and Education

It’s cliché to say we need to look to the future, but it’s also the best advice manufactures and economists can provide for today’s growth.

Immigration reform may just be that future to look toward. Immigration reform has been touted at industry events for years and, no matter where you may fall on the political spectrum, it may hold the strongest chance for strong growth in American manufacturing.

Most people who will seek to immigrate and gain legal working status will be young people “in their prime working years,” with reform laws actually helping to increase labor hours, reduce the amount of capital invested per worker, and boost productivity, according to the TD Economics report and the Congressional Budget Office.

Immigration reform has a significantly high chance of boosting the labor force for the manufacturing sector and provides workers who are ready and willing to go through training programs and learn new skills. Immigration reform is a strong near-term solution to potential labor shortages.

Arriving with new workers are their families, which often have multiple young children. Education provided by the state and in association with manufacturing partners shapes the future potential of an area.

Cities, counties and states that develop educational opportunities in tandem with manufactures and large employers have proven that they increase the skilled workforce within three years of a program’s launch. These educational opportunities introduce the skills we’ll need to maintain productivity gains over the long term.

The next-shoring decision for the industry should be guided by regional attitudes about legal immigration and education partnerships because they provide the strongest-growth case available. It’s just good business sense.