Diversified manufacturers ready themselves for next downturn

Minnesota’s manufacturing executives continue to perk up despite uncertainty they face in the broader economy and an ongoing worker shortage that threatens to hold back growth, new research shows.
For the third consecutive year, manufacturing executives around the state gave a sunny forecast for their companies. A strong majority — 90 percent — of the 400 executives surveyed by Enterprise Minnesota, a manufacturing consultancy, said they are confident in their financial futures.
That faith in the future sets a new high mark for the survey, now in its eighth year. Paradoxically, it comes as their economic outlook dims: Nearly half of those surveyed predicted conditions would stay flat in the coming year, and 15 percent believe a recession is coming soon.
But where past downturns have bitten deep into manufacturers’ bottom lines, Tuesday’s report underscores manufacturers’ increasing belief they can weather the next storm, especially after rebounding from the most recent recession.
“In general, most manufacturing executives who might have lived through [past] recessions really used this recession to focus on developing processes and their people more, more so than any other recession, and came out of it a lot stronger,” Enterprise Minnesota President and CEO Bob Kill said.
Particularly in the Midwest, a U.S. manufacturing stronghold, companies have focused heavily on rapid delivery, competitive pricing and high quality. Those services help local companies compete nationally and globally in an increasingly on-demand marketplace.
That philosophy has ramped up executives’ investments in productivity boosters like automation technology. Most companies aren’t trying to fully replace workers with machines, Kill said, but rather squeeze more out of their staffs.
“We’re fighting what everybody’s fighting. People from around the world want to press a button and have products at their doorstep,” said Anne Hed, CEO of Roseville-based Hed Cycling Products, which makes high-end bicycle wheels. “They just don’t have the patience that they used to. It’s an Amazon style.”
In some corners of the manufacturing marketplace, getting ahead of market demand is more complicated. Sluggish commodity prices, for example, continue to hold back manufacturers with businesses rooted in the the agriculture and energy industries.
But manufacturers of all types are finding ways to better insulate themselves from market volatility, including by building out their offerings. Stung in the last economic downturn, many of them have dipped into new market segments.
“They were sure after the recession to really diversify their work,” said Angela Petersen, executive director of the Minnesota Precision Manufacturing Association. “That has helped to keep them floating when one industry might be down or another.”
In other cases, companies are looking for ways to add value to their bread-and-butter business lines.
Harmony Enterprises, named after its hometown in southeastern Minnesota, began renting its solid waste equipment to cash-strapped customers. It also added a 24-hour phone line that customers can call for help with Harmony goods and others produced by competitors.
“We’re looking at changing our business to look at different types of employees,” Harmony President Steve Cremer said. “Different types of employees can help us grow our business by supporting our customers with different services.”
That strategy helps counteract the pervasive worker shortage that has limited growth prospects. Nearly one-third of manufacturers surveyed said attracting and retaining qualified workers remains one of their biggest concerns, next to health care costs and government regulations.
A separate report released by Creighton University on Monday singled out slow hiring as one of the biggest barriers to growth for Minnesota manufacturers, who vie to pull sought-after workers away from the construction industry and others.
More than half of the executives in Tuesday’s survey said their companies are either more automated so they don’t need to hire additional workers. But another 15 percent said they are trying to do more with fewer workers to ease the effects of lower profit margins.
The worker shortage won’t go away anytime soon, but manufacturing industry watchers say they are finally sensing movement in the right direction. More collaboration between employers, educators and career counselors are helping fuel a shift in prospective workers’ attitudes about working in the field.
“In our state, we’ve made some progress, but we’re competing against everybody,” Kill said. “It’s not just one manufacturer competing for its next hires against other manufacturers. They’re competing against every industry.”
It’s unclear when and if Minnesota manufacturers can recapture prominence in the job market that drove its success decades ago. But even as the bigger economic questions loom, companies widely say they’re ready to compensate.
“There is more uncertainty, but I think for a lot of us in manufacturing over the years it’s been up and down, so it isn’t necessarily something new,” Cremer said. “Over the 55 years we’ve been in business, we’ve had a lot of those ups and downs.”
Related content:

Enterprise Minnesota survey
Slow hiring still a drag on MN manufacturers

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