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The Manufacturing industry faces challenges and risks that are unique from any other industry. Since manufacturing is a vital spoke in the global economy and an essential component of many other industries, risks to manufacturers tend to have a much larger ripple effect. If risks go unaddressed they can lead to operational and financial losses throughout our economy, not to mention damage to the reputation of the company. It’s important for manufacturers to be aware of the basic and evolving risks they may face and take appropriate steps to mitigate them.

Some key risks include:

Supply chain constraints
Attracting and retaining quality workforce
Cyber security threats
Inflation

Our team of Manufacturing Experts have put together a risks overview so you can explore the risks to the manufacturing industry in detail and search for opportunities for growth as we cruise through 2023.

Risk	Description
Supply Chain Constraints Parts/materials difficult to find/long lead times.	Acquire logistics companies or develop in-house logistics operations. Greater supply chain visibility and higher quality as well as reducing shipping costs and time due to more streamlined logistics networks Consider new suppliers and sourcing options Relationship management
Attracting & Retaining Quality Workforce Labor challenges experienced through a shrinking pool of applicants, aging workforce and shortage of highly skilled workers.	More favorable working conditions including pay increases and flexible work arrangements Diversity, Equity & Inclusion (DEI) approach to attract more women and racially and ethnically diverse groups Manufacturing companies today have a hard time finding employees who will show up and be on time for work and stick with their jobs Considerable void when it comes to skills and experience – Manufacturers need to work with schools and universities in their communities to ensure that manufacturing focused subjects are being well promoted and taught
Cyber Security Rise in cyber security incidents across manufacturing companies.	Potential effects of a network infiltration include shut down of operations, theft of sensitive customer information, or theft of sensitive banking information Education of employees of potential phishing schemes is paramount to a successful cyber security campaign
Technology Technology continues to evolve with endless possibilities.	Take ERP to the Cloud Data analysis predictive maintenance and use of data analysis to identify anomalies in equipment performance Data decision making around sourcing, production, fulfillment, cost reduction. Controls around Artificial Intelligence Autonomous vehicles in warehouses to move materials and product Robots will change the economics of manufacturing with less time focused on low cost labor positions
Environmental, Social, Governance (ESG) A sustainability mind-set becomes more of a focal point.	Complete visibility throughout supply chain for own compliance and that of their suppliers Manage waste Increase supplier diversity Smart buildings Electrifying fleets
Product as a Service (PaaS) Diversifying revenue sources has become more important in establishing an indefinite future.	Manufactures lease equipment to customers and offer a list of subscription based value-added services Collect equipment usage data from customers
Inflation Manufactures have to integrate higher priced materials into budget and determine how much to increase prices to customers to absorb these cost increases.	Producer price inflation for goods other than food and energy slowed to an annualized 4.2% in the three months ending in December 2022 from 11.5% in the three months ending in April 2022. (Reuters) Manufacturing payrolls increased at an annualized rate of 1.6% in the three months ending in December, down from annualized growth of 5.5% in the three months ending in April. (Reuters)
Possible Recession Managing through a potential slowdown in the economy will be a focal point of 2023.	Sixty-two percent of manufacturers expect the U.S. economy to enter a recession in 2023, according to a survey conducted by the National Association of Manufacturers

Manufacturing Services

Halfway through 2021, there are millions of jobs available and millions of people out of work. So why are employers across industries having such a hard time filling vacant positions? Opinions vary, but a few factors appear to be depressing the labor market.

Caring for sick relatives and supervising kids home from school is keeping many people from returning to the labor force. Continuing fears over the pandemic also play a role, especially for older employees who elected to retire. Elevated unemployment benefits may diminish work incentives as well. Regardless of the cause, the effect is clear: The labor force is approximately five million people smaller than at the pre-pandemic peak.

Labor shortages affect some industries worse than others right now, but hiring is becoming harder across the board. Some companies have accepted ballooning labor costs to aid with recruiting efforts. Others have concluded that the skills they need simply aren’t available, leaving a necessary position unfilled indefinitely. Today’s tight labor market has made everyone think hard about recruiting, retention, and talent development. After all, if companies can’t find the workers they need, the pandemic recovery could take longer than anyone wants.

It may be time for companies to think differently about how they bring experience, expertise, and productivity into their ranks. Recruiting is one option, but there’s another.

Outsourcing in the New Normal
Labor shortages are happening at the same time that companies are embracing remote work and automation like never before. Workplaces are evolving, and having a huge staff of people in the same office doesn’t seem as mandatory as it once did. Outsourcing was made for this moment.

Outsourcing can help companies overcome short-term hiring challenges. If the local talent pool lacks the specialized skills a company needs or can’t supply enough qualified candidates to meet growing workloads, outsourcing can fill that gap on demand. Outsourcing professionals distinguish themselves through the depth and diversity of talent they offer, helping clients take on the biggest recurring responsibilities or the most complex special projects – all without recruiting headaches or the cost of a full-time hire. But doesn’t outsourcing mean shipping my company’s needs overseas? While that may be the first thing that comes to mind, there are many professional services firms locally, regionally, and nationally that have the right expertise to meet your expectations and help your organization succeed.

Take accounting, for example. Accountants were in short supply even before the pandemic. That hasn’t changed, and companies need the oversight and input of smart financial professionals most of all during periods of robust economic activity like now. Outsourcing delivers exactly that. No matter what a company sees on the horizon, outsourcing keeps the accounting capabilities aligned with the business requirements. The labor market doesn’t matter when there are accountants available on demand through the right partnership. Outsourced accountants can handle a single project, take over an ongoing workload, stand-in for an entire accounting department, or serve as CFO. Unlike the labor market, outsourcing with a professional partner promptly supplies exactly what the you need.

Make sure that accounting accelerates the recovery effort instead of slowing it down. Contact Dean Dorton to outsource the missing pieces.

Justin Hubbard, CPA, CGMA | Accounting and Financial Outsourcing Director
jhubbard@deandorton.com
859.425.7604