Adapting to change

Manufacturing sector faces economic challenges, technological advancements as it adjusts to changing business climate

By Michael Crumb

Readapting to the new business environment, continued workforce and supply-chain challenges and navigating the world of artificial intelligence were some of the topics discussed during the Business Record’s Made in Iowa Manufacturing Forecast in August.

The Business Record invited a group of business leaders to share their thoughts about the current state of manufacturing in Iowa and what 2024 might bring during the virtual conversation held on Aug. 9.

This year’s panelists included Laura Phillips, vice president of engineering at Pella Corp.; Michael O’Donnell, director of CIRAS at Iowa State University; Megan Green, counsel and engineering manager at Weiler; Dereck Lewis, owner of Thelma’s Treats; and Thomas Root, associate professor of finance and department chair at Drake University.

Here are some highlights from their conversation. Their responses have been lightly edited for brevity and clarity.

Supply-chain challenges

Green: Our components are more stable than they were, but stability doesn’t mean cheaper. It’s just maybe the supply chain surcharges that we were seeing are now baked into the price of the goods. Or instead of seeing maybe four price increases throughout the year that were 1%, 2%, 3%, now is 10% all at once. We’re seeing expedited surcharges a lot more, rate surcharges, gas surcharges … anything they can think of to figure out their profit margin on these things. It does make it a little hard to know what your price is going to be.

Chances of the economy slipping into recession

Root: When you look at Iowa versus  national, we track very well with national overall with manufacturing in terms of ups and downs, but looking at that survey it’s been in contraction and has been for eight months. So the responses in the survey are basically saying they’re seeing a slowdown in the overall economy. They see a slowdown in new orders. They see a slowdown in the backlog of orders, so less backlog, and all those things point toward what we expect, a slow contracting. That doesn’t mean it’s a recession. It means it’s soft. It’s just not going as fast as it was.

Facing economic challenges 

Lewis: We really like to get in the field, in the stores and see what’s happening and talk to managers. Data is great, and we look at that and watch that, but sometimes data is lagging or misrepresenting what’s going on, so we have a pretty robust sales team out in the field … just talking to managers and seeing what they’re seeing. Also listening to buyers at the corporate level who we are completely aligned with them on our concerns so how can we work together to set strategies to mitigate [those concerns].

What challenge will you face in 2024?

Lewis: One thing we’re really focusing on is how the economy affects consumer trends … and then aligning that with our manufacturing output. Some of the things we’re doing is shoring up some of the disruptive ingredients that we had trouble with the supply chain, which I know everyone is doing, but minimizing our finished goods inventory and optimizing on those things that are a challenge for us.

O’Donnell: The big challenge as we get into 2024 is rebalancing their business. Stepping back and realizing a lot has changed, some for the good, some not necessarily for the very good. So stepping back and comparing, looking at your headcount, your costs, your product mix from 2019 to today and seeing what’s different and making sure you’re identifying those big, positive changes and fixing the ones you weren’t expecting to see.

Green: Workforce continues to be a big issue for us. One of the things we have done is bring in-house some of the things we have historically outsourced. We have also doubled down on employee benefits and offering alternative work arrangements.

Root: I think the biggest thing, looking forward, is the probability of recession and what that  means for demand variability and that’s going to vary across the types of firms we look at. If you look at Thelma’s and thinking of the individual consumer, their view of that is going to be different than Pella thinking about homebuilders or the construction industry for Weiler. How do we manage that and what does that look like? Looking at that idea going forward, although we’ve heard a lot of talk of a soft landing, the Fed, they are still putting the chance of recession in the next 12 months at over 60%, so that implies some sort of slowdown people are going to have to deal with, and we’re beginning to see that slowdown now.

How is your company addressing AI?

Phillips: The investments in automation, they can be big, complex and expensive, but they can also be small and rapidly scalable. We’re spending a time in the realm of industry 4.0, smart factory intelligent operations, there are a lot of terms for it, but once you get on the right track on how to add value both for driving efficiency, making better decisions but also making the work easier for your team members so they want to stay and do those jobs, you can start scaling rapidly. It does take specialized, skilled talent to deploy these technology solutions but it’s not overly expensive once you get on the right track with the solutions that add value. And we are seeing a significant uptick in productivity with the work we’re doing in both automation and digitization. We’re not seeing dramatic replacements. It’s about making the work better and easier, more efficient and oftentimes, safer, to deliver better quality.

Green: People are concerned about replacing people with automation. It’s a fair concern, but what we have seen is we are not going to be able to replace people with robotics in the near term but the people we need are going to be more expensive, more highly skilled. They’re also a higher investment to get them up and running to operate and maintain the robotics. There’s a lot of benefits we can see, particularly in that expensive equipment and having it run 24 hours a day because a robot can load and unload it. Loading and unloading … it’s a great job for a robot to do. It’s mindless. It’s potentially dangerous. Those are great to have automated, but I don’t think it’s the silver bullet for workforce concerns.

Lewis: Any tiny task you can do you can program it simply, you don’t need a high skill set. The impact is for the manufacturers of less than 10 employees, this little operator who can have this pallet stacked with this arm. And the price point is just now where we don’t have to finance it, we can just pay cash for it and it replaces 25% of this person’s payroll or lets them do something else. That’s how I’ve seen it play out and how we’re thinking about it for the future.

O’Donnell: When we look at productivity in manufacturing from an economic standpoint, it’s been mostly flat for 15 to 20 years now. We made some leaps about 20 years ago and it’s kind of stagnated and we haven’t really been progressing from dollars of output per dollars of input in productivity. In the last several years, automation technologies have become drastically cheaper, drastically more useful and we believe and we’re starting to see on the ground level productivity starting to improve.