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Analyst Report

Manufacturing Renaissance

By October 12, 2022July 20th, 2023No Comments

A recent article from McKinsey & Company makes the case that manufacturers in the United States have an opportunity in front of them for a boom time—or even a rebirth—if they’re ready to take advantage of it. Fortunately, in “Delivering the US manufacturing renaissance,” the authors also give a blueprint for just what “being ready for it” will take.

Currently, US manufacturing, still considered a world-leading manufacturing economy, represents only 8% of the U.S. workforce and 11% of the GDP, though it employs some 12 million people and delivers $2.3 trillion of GDP. McKinsey notes, “…the sector makes a disproportionate economic contribution, including 20 percent of the nation’s capital investment, 35 percent of productivity growth, 60 percent of exports, and 70 percent of business R&D spending.” The trend in recent decades has been a slowing of manufacturing growth, with most of the growth due to design, services, and software. Physical production of goods has not been a driver of growth for some time. But that could change.

What benefits manufacturers also benefits the entire US

In the decade prior to the COVID pandemic, physical-goods manufacturing showed signs of recovery—and even with the challenges of the intervening years, McKinsey sees the industry as poised for change and growth. Their analysis suggests “restoring growth and competitiveness in key manufacturing industries could boost US GDP by more than 15 percent over the rest of the current decade.”

A manufacturing overhaul could also be a jobs engine, potentially adding up to 1.5 million jobs, especially among middle-skill workers. These jobs wouldn’t require four-year college degrees, would employ a broader range of the overall population, and would be more inclusive. Government officials view a manufacturing renaissance as critical for sustainable and inclusive growth, and they are ready to invest billions of dollars to support it.

Finally, an even more obvious advantage of a US manufacturing resurgence would be stabilizing the variety of supply-chain issues that have been so challenging over the past few years, as well as improving overall global competitiveness. Currently, the US only fulfills 71% of demand with regional goods, which trails many other large manufacturing nations. “Increased import dependence has left some key US manufacturing supply chains exposed to greater global risks,” the article points out.

Manufacturers can make their own luck

A philosopher once said that luck is what happens when preparation meets opportunity. The opportunity is in front of the industry, and McKinsey outlines how to prepare in four basic categories.

Sustainability: With the new focus from all directions on a more sustainable approach, manufacturers who make the change to low-carbon sources will be more viable long-term. In addition, manufacturers who produce more sustainable infrastructure have a potentially huge market in front of them.

Digitization: Digital technologies could be anything from enterprise platforms, such as product lifecycle management (PLM), to robotics that automate the manufacturing floor, to artificial intelligence that can help make sense of disparate data sources and global supply chain challenges. These technologies are already proving to be worth the investment for manufacturers seeking to overcome existing pain points in their operations, to improve offerings, or to keep up with the rest of the industry.

Sustainability: With the new focus from all directions on a more sustainable approach, manufacturers who make the change to low-carbon sources will be more viable long-term. In addition, manufacturers who produce more sustainable infrastructure have a potentially huge market in front of them.

Improved skills: Digitization and automation don’t necessarily mean a reduced workforce, simply a changed one, requiring new roles with different skills. McKinsey research projects the overall percentage of physical and manual tasks in the US economy overall will fall by 2030, “replaced by greatly increased demand for technological and cognitive skills.” They suggest US employers would do well to become “skill builders,” developing the workforce they need while also contributing meaningful and lasting employment to the economy.

Resiliency: As US manufacturers put greater emphasis on sustainability, automation, and digitization, the resultant change in how their products are produced is prompting CEOs to give greater thought to where manufacturing is being done, per McKinsey. Particularly after the challenges of the past couple of years, these factors can outweigh prior advantages of non-US manufacturing and supplier networks. In an early-2022 survey of supply chain leaders, 44% had increased regional sourcing in the past 12 months, and 51% expected that trend to continue in the future.

“Doing nothing may not be an option”

In McKinsey’s view, change is coming, and the successful manufacturer will get on board the innovation train before it’s too late—though they also recognize the biggest challenge facing manufacturers is internal alignment on the best path to pursue. They offer advice for companies beginning to draw up the plans necessary to prepare for the coming opportunity, along with a suggested fine-tuning of the approach. The best and most successful manufacturing transformations will come from those organizations that view the work as “a chance to update processes, technology, people, and culture for the next phase of the digital age.”

Read the entire article here.

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