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The State of Manufacturing 2020 Mid-Term Report

Aug. 12, 2020
The pandemic presents a novel challenge to manufacturing decision-makers, but their first objective must be to see beyond the current restrictions, and specifically to identify the opportunities available now.

The only normal aspect of manufacturing in 2020 is the steady work by analysts and investors to explain all the implications of what has happened since March 15, the date when businesses started taking decisive actions to halt the spread of the COVID-19 pandemic. We know what happened: We need to examine what has been the effect. Work activity may stop, but in “the new normal” research and development, and analysis, continues — even if much of that analysis is focused on getting back to something like the old normal.

To be blunt, the old normal is gone forever. Shutting down was not simple, but getting restarted is the new challenge, particularly for the manufacturing networks and supply chains that are the physical proof of a global economy. And when the restart has been fully affected, what will that next normal look like?

A timely insight to all the disruption in manufacturing networks is the “2020 State of Manufacturing” report released by Fictiv, a “digital manufacturing ecosystem” that offers Cloud-based services like process design, quoting, billing, and logistics systems; and an intelligent orchestration tool for managing manufacturing partner networks.

“COVID-19 is a clear point of demarcation in the (manufacturing) industry, accelerating the transition from traditional supply chains and manufacturing to a digitally enabled future,” according to Fictiv CEO Dave Evans. The research was based on a survey of 215 individuals who are senior-level, U.S. manufacturing decision-makers working in supply chain, engineering, R&D, technology, or business leadership roles at companies that produce medical devices, robotics, automotive, aerospace or consumer electronics.

Among these manufacturers, Fictiv’s research showed 89% of manufacturing businesses were directly impacted by the COVID-19 pandemic, including lower sales, increased costs of materials and production, and canceled or delayed product launches. Among the unexpected problems resulting from the shutdowns, 41% of manufacturers noted costs of materials and components increased and another 41% reported production lead-times have lengthened.

Manufacturers’ strategic planning also felt the effect, again with 41% revealing that new-product launches have been delayed or cancelled; 36% have had to lay off “good employees”; and 29% have had difficulty securing financing; while 27% have reduced their budgets for R&D and product or service innovation.

Also among Fictiv’s respondents, 24% of manufacturers were unable to fill their customers’ orders.

The “supply chain” disruption will be felt keenly by forging producers, whose high-volume orders are components and systems destined for automakers and their Tier suppliers, aircraft manufacturers, and builders of heavy equipment; and whose lower-volume programs supply critical infrastructure projects, like oil drilling and power-generation projects. The 2Q 2020 financial statements from Boeing (2Q revenue, -25%), Airbus (-55%), Caterpillar (-40%), and General Motors (-53%) offer just a glimpse of the difficulties now rippling through the manufacturing supply chain.

For reference, consider the Precision Metalforming Assn.’s July 2020 Business Conditions Report, in which 113 North American metalforming companies revealed declining optimism about their current and near-future business prospects: 62% of the respondents predict no change in or declining economic activity (a -15% shift since June), and only 38% foresee improving economic activity (also -15% from the June report.)

Pessimism is running high among the metalformers, with the survey showing 52% of respondents expect little change in new-order activity; 28% anticipate no change in new orders; and 20% predict a decrease in new orders.

“It’s clear that this country’s economic recovery will take some time,” commented PMA president David Klotz.

There is some evidence of improving business conditions among the metalformers’ responses, as 35% of respondents indicating that their operations recorded rising three-month shipment volumes. However, 15% of respondents recorded no change in shipments and 50% recorded a decrease in shipments.

Most discouraging, 46% of metalforming businesses continued to have some portion of their workforce on reduced schedules or laid-off — and that number is up slightly from 43% during June.

Another gauge of the current “normal” may be read in the July report by the Equipment Leasing and Finance Assn., a regular index of economic activity by 25 businesses representing a cross-section of the $900-billion equipment finance sector. How manufacturing decision-makers allocate their businesses’ financial resources is indicative of their current financial status, as well as their confidence in their business outlook. The ELFA respondents are on the receiving end of those decisions, and their current reporting shows overall new business volume for June fell -10% year-over-year, to $8.9 billion. That volume increased 33% month-to-month, from $6.7 billion in May. And, the year-to-date result shows that cumulative new-business volume is down -0.5% compared to January-June 2019.

ELFA president and CEO Ralph Petta said, “The month of June’s pickup in new-business volume is welcome news, but it remains to be seen whether this trend continues as the summer progresses. The economy is soft, too many employees are out of work as a result, and many states are struggling with the decision to re-open their economies.”

Endeavor Business Media — parent to FORGING magazine and — also conducted research of readers and customers (including forgers and FORGING readers) during July, to evaluate conditions across the manufacturing landscape we cover.

The majority of the respondents to this survey are C-level executive managers and managers in engineering, R&D, and design and technical roles. Nearly two-thirds of them are affiliated with businesses with annual revenues over $1 million; and 15% work for organizations with annual revenues over $500 million.

Among these 2,500 manufacturing-sector respondents, nearly 68% of respondents describe themselves as optimistic about their businesses’ prospects for recovery through the next six months, though just over 37% said they were currently working as normal, meaning, in their normal workplace.

Looking further ahead, 34% said of the EBM poll respondents said they feel their industry will recover in the first half of 2021, while 21% said their industry will recover in the second half of 2021. This line of inquiry can be sobering, as nearly 29% of the respondents said returning to business-as-usual for their organization could take at least one year after precautionary guidelines are lifted; and 20% responded that “business-as-usual” will never fully return for their operations.

On the surface, the mid-term results for 2020 show a weak manufacturing sector, with uncertain demand for products and low levels of certainty about near-term improvement in business activity. But what is also clear is that these evaluations are based more than usual on personal experience — the loss of steady revenue due to low levels of manufacturing productivity; the lack of revenue due to the weakness of new orders; and the scarcity of confidence about current programs.

The Fictiv survey presses further on the respondents’ views of how a recovered manufacturing sector will operate. Notably, a majority of the respondents are reviewing their organization’s reliance on China as a source of raw materials, supplies, or component parts, and studying the prospects of using U.S. as a preferred manufacturing center; and 99% of respondents emphasize a need for their organizations to strengthen supply chains. Among these, 96% report they already are working to increase “supply chain agility.”

The same survey probes respondents’ receptiveness to “digital transformation,” referring to advances in Artificial Intelligence and the Industrial Internet o Things technologies, which are credited with the most recent increases in supply-chain efficiencies and other target objectives for manufacturing (including predictability, capacity, availability, visibility, and flexibility.)

These are more than targets for manufacturers: They are status levels, and achieving them remains a goal even in reduced circumstances resulting from the COVID-19 pandemic.

According to Fictiv, “88% of our survey respondents believe that the manufacturing companies who survive COVID-19 will be the ones that saw the innovation opportunities in the mix, not just the problems… There is tremendous opportunity to inject agility into static supply-chain paradigms, to increase resilience and also accelerate innovation.”

The first objective for manufacturing decision-makers at mid-year 2020 must be to see beyond the current restrictions on their businesses, and more specifically on their business opportunities.