High demand and pandemic-related supply chain disruptions have created shortages of components and raw materials, affecting the makers of everything from computers and electronics to fabricated metals and automobiles.2 That has pushed up expenses for manufacturers, who also must deal with surging shipping costs.3 To lock in more predictable prices and ensure that their businesses remains a priority should supply disruptions persist, some manufacturers are signing multiyear contracts with suppliers. And many are passing along higher costs to their customers. In place of the traditional once-a-year pricing review, some are approaching customers multiple times throughout the year as conditions demand.
Labor costs are increasing, too. Manufacturers find themselves paying higher wages and benefits to attract scarce workers as the economy approaches full employment. And while the materials shortage could ease when pandemic disruptions end, a study by the Manufacturing Institute and Deloitte forecasts a continuing labor squeeze, with more than two million unfilled manufacturing jobs by 2030.4 Beyond providing better wages, many manufacturers are now offering signing bonuses for new workers, as well as retraining existing employees in “multi-skilling,” enabling them to serve in multiple roles.
Robotics and automation may provide a longer-term answer to the labor problem, enabling manufacturers to maintain or increase productivity with fewer workers. Investment in automation is rising in subsectors such as automotive and aerospace components, refrigeration equipment and tool manufacturing, as the price of technology drops and the ability of machines to handle complex tasks increases. Mindful of budgets and of the need to keep production lines humming, midsize manufacturers are adopting robotics selectively. In existing factories, they may automate one strategic part of a production process at a time, focusing on complex assembly or welding tasks, and shifting skilled workers to other areas. Then, when the time comes to build a new factory or warehouse, or replace an old one, companies may take the opportunity to implement robotics more fully across the operation.
Meanwhile, investment in more advanced areas such as artificial intelligence and the industrial internet of things (IIoT) may be further down the road. Though the global IIoT market is expected to surpass $106 billion globally by 2025 (up from $76.7 billion in 2021), that growth is largely among major manufacturers.5 Midsize companies are watching closely, but most are waiting until prices come down and technology evolves to meet their specialized needs.
To stay resilient and productive in a post-pandemic economy, many companies are retreating from the low costs and convenience of the “just in time” supply chain model that flourished amid the rise of the global economy. Instead, they’re prioritizing resilience by maintaining larger inventories of crucial components and raw materials while also moving production closer to home.
As many large U.S. companies “reshore” factories from Asian to North American locations, midsize manufacturers that can supply components to them may benefit. In a 2021 survey, 83% of manufacturers said they planned to add North American suppliers in the next year, compared with just 54% that had such plans in 2020.6 But midsize companies are also changing. Rather than buying subcomponents such as wiring or battery separators inexpensively overseas, many are making these subcomponents in their own factories—a process known as insourcing.