Manufacturing is facing an assembly line of crises

In today’s landscape where every business is confronted with massive challenges, manufacturing stands out for facing a particularly unique set of crises. Some are systemic. Some are short-term. But all of them impact manufacturers across the board, from high-end robotics to old-fashioned shoemaking.

Let’s take a closer look at these challenges.

Systemic issues

• The manufacturing skills gap. This gap is well documented and is expected to lead to an estimated 2.1 million jobs unfilled by 2030, costing the U.S. economy $1 trillion annually. This factors in the expected retirement of a significant portion of the workforce in the next few years.
  
  For all of the promises of automation, robotics, and other efficiencies that we’ll address shortly, there is still a need for people. This is a systemic issue that needs public-private partnerships to focus on STEM education, bolstering apprenticeship programs and making manufacturing an attractive career path.

• Inventory and supply chain management. I debated whether to put this in short-term issues, as we all know about the supply chain issues experienced during the global pandemic, but these are the symptoms rather than the cause. Because manufacturers are so lean and such a big proponent of Just-In-Time manufacturing, any hiccup or delay in the supply chain causes inventory to be dramatically impacted.
  
  It’s a fine balance, as holding too little inventory can cause issues and shortages, as we’ve all experienced recently as consumers. And keeping too much inventory can be costly to store and difficult to sell. Real-time tracking helps manufacturers monitor and manage the flow of raw materials.
  
  There is no simple solution, but there are solutions. Dual-sourcing can help companies reduce their reliance on one supplier for raw materials and reduce their exposure to risk of supply chain interruptions but if national borders shut down it will impact all exporters. Manufacturers should consider dual-sourcing from different geographies, including domestically if the cost is palatable.
   
• Expanding process automation. Automation can help manufacturing companies produce more in less time. However, robotics and automation have not always delivered as promised. Bill Gates once famously said, “We always overestimate the change that will occur in the next two years and underestimate the change that will occur in the next ten.” Perhaps we are just at the start of the journey for robotics and automation? No matter where we are on the journey, efficiency is crucial for manufacturers.
  
  Most think of efficiency and automation as they relate to the “shop floor”, but I would argue the easiest way to gain efficiencies and automation is in the back office, most notably in the accounts payable department. Automating the AP processes can drive down the cost of goods sold, increase revenue, and improve relationships with suppliers - which provide downstream efficiency gains.  

Short term

• The biggest issue facing manufacturers is the spiraling cost of…well, everything. This is underpinned by inflation in the United States, the level of which has not been seen in over 30 years.
  
  As of early 2022, inflation is expected to hit an annual figure of 7%. Anyone who has taken even an introductory economics class understands that this will hurt the lowest-paid employees and subsequently stifle demand for discretionary goods.
  
  This is an issue facing all CFOs, especially those at manufacturing companies. It increases the pressure on the systemic issues highlighted above. There are no flexible staffing plans at the moment, as the skilled resource pool is shrinking. In addition, inventory levels are not predictable, which in turn increases the strain on relationships with suppliers.

What do you do about all these issues from the CFO’s chair, especially when so many seem so overwhelming? If I was CFO for the day, I would focus on short-term projects that free up staff from the burden of mundane tasks. This can give them time to focus efforts on solving the systemic issues, including negotiating terms with key suppliers, battling increasing costs, and trying to negotiate better rates from banks. We’re in an intense business environment, and your team needs to focus on the horizon, not the papers scattered across their desks.

AP automation is one way to address some of those mundane tasks and free up your accounts payable department. We’ve seen manufacturing organizations ramp up from contract to go-live within a month, and a majority of our customers reporting reduced check payments and AP costs by more than 50%.  In addition, 90% said they saw improvements to straight-through processing, the kinds of efficiency gains that can be a boon for your team.  

There is no time like the present to address both the urgent, short-term issues and the looming, long-term issues that are plaguing the manufacturing industry. In fact, it’s the only way to ensure a future of growth when the current state of crises is over.