2023 State of Manufacturing Panel Discussion
In 2023, Pitney Bowes Bank is hosting quarterly webcast discussions on the current states of different industries. In January, I moderated a panel discussion on the state of manufacturing for 2023. Guest experts included:
- Chad Moutray, Chief Economist of the National Association of Manufacturers
- Geoff Foster, Founder, CEO, and President of Core Technology Molding Corporation
- Kathleen Sullivan Garman, Operations, Supply Chain and Logistics expert
- Thomas Doherty, VP of Lending Services and Products at Pitney Bowes
Following are highlights from the discussion, or watch the video to hear all the insights from our panelists
Brian Moran: Chad, what's happening right now in the manufacturing sector?
Chad Moutray: Manufacturing is starting to see some slower growth, not just in the U.S. but globally. This comes after strong demand and significant growth over the last two years.
The top issue facing manufacturers today is attracting and retaining talent. Last year, 379,000 workers were added to the manufacturing sector. Today, we have the most workers since November 2008, and there are 779,000 job openings right now. Overall manufacturing activity is at a record high, so the outlook is not black and white, it's a little gray.
Brian: Geoff, your manufacturing business expanded greatly during the pandemic. You work in industries ranging from automotive to pharmaceutical, and you export products to 120+ countries. What is your business outlook for 2023?
Geoff Foster: We grew 300% during COVID and had 50% growth last year. In 2023, we project 100% growth. The biological pharmaceutical space has been a big growth driver for us. Pre-COVID, we were about 5% bio-pharm medical device; today that number is 60%.
Brian: Kathleen, you have decades of experience in shipping and logistics. What role will it play in the opportunities and obstacles in manufacturing in 2023?
Kathleen Sullivan Garman: We have been on a wild ride for a few years especially with shipping and logistics. Today, it's quite volatile. This year will include ramifications of what's been happening in the previous few years. Merchants with poor inventory planning will create ripple effects across all manufacturing. Mergers and acquisitions are changing the landscape, too.
Brian: Thomas, as VP of lending for Pitney Bowes, you witnessed firsthand the financial challenges that have been faced by many of the manufacturers dealing with these volatile changes. What's the best approach to optimizing cash flow, access to capital, and other financial concerns for business owners in 2023?
Thomas Doherty: With higher raw material prices and higher borrowing costs, the question our clients are asking themselves is “Can we pass these costs onto our customers?”
In addition, as Chad mentioned earlier, demand is starting to decline just a little bit. The recipe is brewing for potential problems with higher inventory levels. If a bank is lending a client money for working capital, they will monitor inventory levels. A traditional line of credit is based on an advance on certain inventory and accounts receivable levels. If inventory gets stale, the bank will look to confirm a proper matching between assets and liabilities on the balance sheet.
Brian: What manufacturing sectors will see an uptick in 2023?
Chad: There are 19 sectors in manufacturing, and not all of them are in the same place. In the automotive sector, there is an enormous amount of pent-up demand. For several years there were not enough cars, new or used, available for sale. Today, estimates suggest a demand of approximately 4 million vehicles. Higher interest rates will lower that amount somewhat, but it is still an enormous amount of demand.
Thomas: Manufacturing in healthcare is showing significant growth. We have ongoing COVID issues along with thousands of delayed procedures due to the pandemic. The demand for hospital equipment is increasing, and physician groups are joining forces to open their own surgery centers.
Brian: What technology trends are you seeing in manufacturing?
Geoff: In our company, we are growing head count, but we are also increasing the number of robots we purchase. Four years ago, we produced about five million parts a year; in 2023 we will produce 150 million parts. Next year, our goal is to produce 300 million parts. Adding automation and programmable robots, we can monitor the process…remotely if necessary. Those are some of the tech trends we are seeing in manufacturing.
Brian: Kathleen, what tech trends are you seeing in shipping and logistics for 2023?
Kathleen: Technology is the biggest missing piece between manufacturing and that final mile to the customer. Much of the last mile is still done via email. There aren’t solid communication platforms for merchants to follow their shipments from manufacturer to their warehouse; it is disjointed and disparate. It’s also a big opportunity. Getting end-to-end communications across the entire supply chain is the biggest missing piece. The right platform will be a game-changer.
Brian: Given the obstacles facing Europe and Asia right now, what will reshoring look like in 2023?
Chad: Companies have been reevaluating their supply chains for a while. It certainly predates the pandemic. However, the supply chain bottlenecks over the last two+ years have forced companies to reevaluate reshoring even more.
It will start with simplifying the supply chain. Businesses will increase business with key suppliers while shortening the list of suppliers with whom they do business.
In addition to reshoring, many U.S. companies will consider “nearshoring” which means using suppliers and manufacturers in North America.
The biggest thing that the U.S. government can do, in terms of public policy, is to make the business environment here as friendly as possible. Keep taxes and regulations in check while working on infrastructure, immigration, and the workforce.
Kathleen: The industry is cyclical, and right now it's volatile. In 2023, we will see ramifications of the supply chain juggling that went on for the last three years. Merchants that over-ordered inventory during COVID are creating a ripple effect across the supply chain. Additionally, mergers and acquisitions over the last six to nine months will change the landscape.
Brian: What disruptions do you see happening in domestic manufacturing that businesses should follow in 2023?
Thomas: I recently read that the 19 manufacturing sectors will need to fill 3.5 million new jobs by the end of 2025, and that almost two million of the jobs may go unfilled because of the lack of a skilled workforce.
Combine the need for skilled workers with the need for automation and new equipment, and that is a solution to the problem. The government should support these sectors with equipment and employment tax credits. Business owners need to do their homework and talk to their banker or accountant to see what government programs are available to them.
Geoff: Our supply chain is an integral part of our success; we are only as good as our suppliers. Most of our customers are in Europe. Initially, they wanted us to buy the components from Europe. Today, a large percentage of our components come from not just the U.S., but in our home state of North Carolina. It's important that our primary suppliers are in the U.S. It gives us more control of our destiny. We can’t wait 8-12 weeks for materials. We get them now in two days. That's the lead time for all our components.
Brian: What does the state of manufacturing look like on 12/31/23 for each of you in your respective roles?
Chad: Manufacturers are thinking long-term. They are investing in their companies. I expect manufacturing production will decline for part of 2023. Hopefully we come out of it by the end of the year and increase production in 2024. With this forecast, manufacturers will invest in technology, R&D, equipment, and their workers. This gives me optimism for long-term productivity growth.
Geoff: We signed long-term contracts recently, 7-10 years, with large OEMs. Our cash flow is now covered through 2030. It's a great feeling to know that large companies are investing in us. In return, we will invest in equipment and our people. We recently started an apprenticeship program with a local community college to bring on tool makers. We also introduced profit sharing to help retain our best employees for the long-term. That’s our best investment.
Kathleen: In shipping, air freight, and trucking, smaller companies are working hard to compete against their larger competitors. They are pivoting faster and changing the landscape. This year could bring a lot of changes in supply chain and logistics.
Thomas: I am cautiously optimistic for 12/31/23. If there is a recession this year, the hope is that it is short-lived with a quick recovery. Not all sectors in manufacturing will grow equally, but across the board, I see good things happening. Finding skilled labor will continue to be a big issue, but innovation will solve that problem.
Brian: Thanks to all of you for your time today to join us on our webcast. Thanks to Pitney Bowes Bank for giving us the opportunity to have this conversation. We have three more webcasts planned for 2023 covering different industries, so please join us as we continue the conversation.