Why We Need More Entrepreneurs in Manufacturing

The United States ranks No. 1 out of 138 countries as the best environment in the world for being an entrepreneur according to GEDI’s 2017 study. CNN and the Kauffman Foundation report that hundreds of thousands of new companies are started each year and approximately 6 percent of U.S. adults claim entrepreneurship as their main source of income. However, statistics regarding skilled-labor entrepreneurship in manufacturing are significantly more alarming.

The Problem

Recent data reported by VoxEU show that the number of new U.S. manufacturing businesses has been decreasing. They also report that the size and quality of the new businesses has gone down as well. In fact, the data suggests that most new U.S. manufacturing establishments fall below the 30th percentile in terms of complex problem-solving ability. In other words, we are losing our ability to think and act creatively to produce new and innovative products. The study also highlighted that the decrease in problem-solving ability is only partially due to increased offshoring of manufacturing and cautioned that the new, lower-skilled startups face an increased risk of becoming obsolete with continuing automation.

Many people who read these findings may not find them particularly shocking. It’s common to read headlines or hear stories about how U.S. manufacturing is a dying industry, or that there are no opportunities because it’s impossible to compete with the low labor costs in other countries.  Many people believe that manufacturing is dull or lower-class work and will continue to have a diminishing role in our country’s future. I want to counter those beliefs by presenting some thoughts on how improving U.S. manufacturing entrepreneurship can lead to greater success for individuals and our economy as a whole; after all, it’s a multi-trillion-dollar industry at stake.

Opportunities

Direct-to-Customer: One common argument against U.S. manufacturing is that labor is too expensive and margins are too low to make money.  However, what we really need is a paradigm shift when thinking about the business of manufacturing. Consider the example of a sports water bottle being sold in a retail store for $20. Typically, that retail store paid around $10 to buy it from a wholesale company, and the wholesale company bought it from a manufacturer for around $5. We can assume the manufacturer probably made the bottle for around $3, including labor and materials.

In that scenario, it’s true that margins are low, labor cost plays a big factor and competition from cheaper countries makes it very difficult to stay in business. However, if we imagine a manufacturer that has to ability to sell directly to end customers, they immediately change the playing field.  Instead of fighting with competitors over a $2 margin, they now have a $17 margin to play with. With the higher margins, labor cost no longer plays as significant of a role, companies have more money to invest in areas like new product development and they can focus on efficiency and optimization while still able to cut prices if there is a need. Many extremely successful U.S. manufacturers utilize this kind of business model, taking advantage of online, branding and other opportunities to sell directly to customers. The additional benefit is that these types of manufacturers are still able to offer products at bulk prices to retailers in order to grow their market presence. Selling directly to customers offers huge potential for startups and established companies in manufacturing and there are plenty of online platforms that are making the process easier every day.

New Skills: Manufacturing is a highly skilled industry by nature, but there are countless opportunities and a big need for more people with both technical expertise and diverse skill sets. Manufacturing impacts just about every other industry, so a little creativity can go a long way in finding opportunities to add value. Rather than just becoming experts at making something, some of the most successful manufacturers also have additional expertise to tap into new markets, create new revenue streams and expand product offerings.

It’s impossible to list all the skills that could give a new manufacturing company a huge advantage over competition, but some examples include: design, intellectual property, marketing, technology, programming, logistics and writing. Companies who can design, develop and build their own products in-house while creating intellectual property around their products and processes have a huge advantage because they grow their competitive assets, get new ideas to market faster, and can sell unique products directly to end users.

Marketing, branding and sales are all often underdeveloped in manufacturing, but individuals with those skills greatly benefit both customers and their business by clearly and succinctly telling stories, conveying value, and connecting with customers. People with skills in technology, programming, and software are a huge asset in manufacturing because of their ability to automate dull and repetitive operations, improve customer and employee experiences, and speed up processes. Logistics, supply chain and other related skills open opportunities for manufacturers to save money, decrease lead times, and improve quality. Finally, both creative and technical writing are skills that open a lot of doors for manufacturers especially when it comes to quality control, marketing, and applying for certifications and grants.  Bringing unique skills to manufacturing gives new companies a strong foundation when it comes to competing in the market.

More Competition: Despite the steady decrease in the number of U.S. manufacturing companies over the years, the opportunities available to companies willing to grow the industry are enormous. U.S. manufacturing contributed around $2.2 trillion to the economy in 2016 and that contribution has increased over the years while the number of manufacturing companies has decreased (NAM, World Bank).

The decreased competition creates several problems for the industry including a shortage of much needed suppliers, a slower rate of innovation and development and apathy. Millions of dollars in manufacturing contracts and development grants go unfilled every year simply because there are not enough manufacturers to meet the needs. Many of these contracts are renewable for several years and involve industries like aerospace and defense where the products are required to be manufactured in the United States. New manufacturing companies that are willing to invest some time and money into getting the right capabilities, expertise and certifications can almost guarantee themselves a portion of these contracts because a certain percentage of the contracts are required to go to new or small manufacturers. They can also often qualify for grants from state and federal institutions to get up and running, especially in rural areas.

However, because there aren’t enough manufacturers to fill these and other contracts, progress slows for companies looking for local suppliers to introduce new products into market and development and innovation in our economy are negatively impacted. Unfortunately, the lack of competition also tends to breed an atmosphere of apathy and has contributed to the manufacturing industry having the lowest rate of employee engagement in the country (Gallup). However, increasing the level of competition in manufacturing can create a greater network of suppliers, increase innovation and speed up the modernization of the industry.

Conclusion

The manufacturing industry is in desperate need of a larger network of intelligent, creative and talented people who are willing to solve complex problems. Regardless of what skills you bring to the table, there is more than enough opportunity in the industry and plenty of problems to solve. Getting the chance to solve some of those problems leads to amazing possibilities for wealth, progress and personal satisfaction.


About the Author:

Eric Doxey Boud Eric Boud is a manufacturing engineer that speaks Chinese and is the owner of Rover Manufacturing Consulting. He helps companies find new manufacturers or improve outcomes from existing international, domestic, and in-house manufacturing operations to get physical products better, faster, and cheaper. He can be reached at eric@rovermfg.com for any questions.

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