With the majority of the U.S. and the world now attempting to get back to some semblance of normalcy, we are struggling with how to properly transition into a post-COVID economy. Most governmental entities and businesses are committed to safely reopening, even with the added challenges of COVID variants, fluctuating numbers of hospitalizations, and vaccine breakthrough cases. But it seems that every time we get a little traction, issues arise that threaten to derail all of our progress.
The long-term future of manufacturing is bright as ever in the fourth industrial revolution, but the short-term future is still rife with uncertainty, specifically surrounding supply chain disruptions, and labor and raw material shortages. The entire situation almost reads like a comic strip joke: “We can’t buy it, but if we could, we’d have no way to get it here, but if we could, we’d have no one to put it together!”
COVID's Effect on Manufacturing
Since the pandemic began tearing across the globe, our established supply chains have struggled to keep up, balancing safety and lockdowns with the greater global duty to supply the world’s needs. Truck drivers and shipping crews were pushed to the very edge to try and keep an industry still viable while juggling all their safety responsibilities. Had the pandemic ended after a few months, I believe everything could have returned to normal, but time and circumstance have a way of wearing us down, and 18 months later our supply chains are still feeling the effects, which are passed on directly to industries like manufacturing.
In a June 2021 article released by the White House illustrating national data, the manufacturing industry reported the greatest percentage of supply chain disruptions from domestic shipments over any other industry, topping out at just above 60%. The trend with international shipping does not look better than the domestic picture, either. An accumulation of global shipping disruptions, such as the shipping container shortage, port closures and lockdowns, or the Ever Given blocking the Suez Canal for a full week (a pathway for about 12% of global trade), has culminated in a massive increase in the cost of shipping via ocean freight, sometimes upwards of four-fold, and increased wait time due to shipping backlog. It does not take much analysis or imagination to realize how these factors impact the operations and margins of a manufacturer, since the typical model requires shipping of raw materials in and shipping of finished goods out.
The other side of “The Big Short[age]” facing manufacturers is the labor market.
The question of labor had already been at the forefront of the industry’s mind even before the pandemic. With a projected need of 4.6 million new skilled manufacturing workers by 2028 to keep up with forecasted growth in the industry, but a projected labor output of only 2.2 million workers to fill those roles, the pandemic has only served to exacerbate the issue by making tomorrow’s problem today’s nightmare. According to the Bureau of Labor Statistics’ August 2021 news release, the manufacturing sector added about 37,000 jobs during the month, but the total number is trailing pre-pandemic levels of employment by about 378,000 jobs. At the current pace, it will take at least several months under good conditions to return to a state similar to that of February 2020.
However, the one thing there is no shortage of demand. Demand for raw materials, demand for transportation, demand for human capital, but even beyond these sectors into the larger economy: housing, auto and basic consumer goods. Economics 101 is ruling the day since supply is uniformly down in industries across the board. While this may spell dismal news for manufacturers in the short term, the outlook overall is still positive and continually getting better. The August 2021 Institute for Supply Management report touts another month of modest growth in manufacturing, and the 15th month of consecutive growth. Slowly but surely, we are clawing our way back on track. We will reach that goal by continuing to stay focused on understanding, managing and mitigating challenges like supply and labor shortages. We are not out of the woods yet, but the end is in sight.
You’ve heard our thoughts… We’d like to hear yours
The Schneider Downs Our Thoughts On blog exists to create a dialogue on issues that are important to organizations and individuals. While we enjoy sharing our ideas and insights, we’re especially interested in what you may have to say. If you have a question or a comment about this article – or any article from the Our Thoughts On blog – we hope you’ll share it with us. After all, a dialogue is an exchange of ideas, and we’d like to hear from you. Email us at [email protected].
Material discussed is meant for informational purposes only, and it is not to be construed as investment, tax, or legal advice. Please note that individual situations can vary. Therefore, this information should be relied upon when coordinated with individual professional advice.