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Time to Invest for the Manufacturing Upswing

dan janka President and CEO Mazak Corp.
By Dan Janka President and CEO, Mazak Corp.

While most companies tend to postpone or cancel investments in challenging business environments, others view them as ideal times to invest in improved business processes, facilities, human resources, and technology. Investments can help a company step up production and customer service to edge past the competition. Manufacturers practicing this “seize-the-day” strategy are already experiencing steady upticks in business while many of their competitors trim workforces and/or close facilities.

Manufacturing is expected to recover, with prospects for a strong 2021 and 2022. For some machine tool OEMs, sales are already on the uptick. But when suppliers rein in business investments in tough times, doing so presents an even a greater challenge to keeping pace with customer demands for increased sales and service, as well as new, innovative technology.

For most companies that fail to invest, the reason is simple. There are two different corporate mentalities—scarcity and abundance. That means most organizations only invest when times are good. The reality is, however, that when there is change in the industrial environment, companies must address it aggressively rather than retreating—of course in a fiducially responsible way.

While a company’s sales may be sluggish, if its financial performance is strong it can invest during tough times. But a company must be smart about what it postpones or curtails while staying aggressive on strategies that will have the biggest impact on market share growth when sales pick up.

A continuous growth mindset ensures suppliers can meet and exceed customer needs in good and bad times. Investments in regional technology centers, for example, allow manufacturers to provide customers fast, localized sales and service support as well as access to training and the latest machine tool technology. This will help manufacturers take advantage of opportunities in industries with expected surges in demand.

Recovery is Taking Place

Considering the overall U.S. economy (GDP) by value add, manufacturing and government each represent about 12 percent. Government continues to drive strong investment in aerospace and defense while other industries are experiencing recovery, such as medical, semiconductor and housing. The heavy equipment industry will experience a resurgence as the U.S. once again starts building its infrastructure and as farming recovers due to more favorable trade agreements.

While many factories and businesses were forced to temporarily shut down in the second and third quarters of 2020, consumers continued to spend on automobiles and consumer-related goods. As a result, inventory levels are extremely low in some cases. Currently, new car demand is greater than supply.

Also, the pandemic has shifted consumer spending toward family oriented outdoor recreational activities and in-home physical fitness. This is helping industries such as fitness and health, marine, and recreation as disrupted supply chains are starting to flow smoothly.

Brian and Alan Beulieu of ITR Economics recently hosted a forecasting webinar and reminded us that the current economic decline was the result of a natural disaster, and that many key economic indicators remain positive for a solid 2021 recovery. We’ve simply had to adjust how we conduct business. Also, the medical industry continues to up its game in the rapid development and testing of new vaccines and therapeutics to insure we can eventually put this pandemic behind us. And when that happens, manufacturers that invested in operational improvements will be poised for future prosperity.

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