The Covid 19 pandemic had a detrimental impact on US companies. The globalization of domestic supply chains emerged as a significant negative factor as companies struggle to manage the demand and production balance internally. In the early days of the pandemic, companies were actively considering reshoring production and advancing internal manufacturing abilities. However, insight from recent events points to a completely different landscape.
Insight into the Domestic Manufacturing Landscape in the US
One of the most significant impacts of the pandemic emerged in the form of the great resignation. The result has caused a massive scarcity of qualified workers within the US. Manufacturing workers in the country are highly in demand due to their productivity and local expertise. These factors are all playing a significant role in elevating wages and making it challenging for companies to shift to domestic production models for production.
- The US manufacturing sector has experienced significant wage elevation in the country due to growing demand and global economic reopening. Sectors like aerospace and defense have witnessed the highest internal competition for skilled workers.
- In other globalized segments like healthcare, the industries have been alleviated from supply chain concerns due to expansive globalization support and offshoring initiatives. The medical industry has been the prime example of the positive impacts of broader globalization.
- Future mitigation plans should be centered around expanding inventory considerations instead of exploring domestic reshoring options for manufacturing.
- The US manufacturing industry is still struggling to find talent to fulfill millions of vacant positions in the industry. The lack of viable working talent is serving as a barrier to domestic production.
Domestic Trends Unlikely to Reverse – Impact of Digitalization
Rapid technological growth has been a key factor in expanding globalization and transforming the American manufacturing sector. Automation has been at the center of American manufacturing for decades. The result has been in the form of increased productivity and decreasing local talent.
Here are some stats that provide further insight into the extent of transformation experienced by the manufacturing industry in the past few years.
- The cumulative value of domestic manufactured goods has doubled since peaking in the 1990s. Subsequently, a significant decrease in staffing levels has been observed in key manufacturers over the same period.
- Globalization has transformed the workforce dynamics as digital services gain transaction domestically. Labor-intensive positions are being outsourced abroad as the mix of domestic productions shifts more towards digital and soft skills.
- The development of machine learning and artificial intelligence has been a key factor impacting the productivity of manufacturing talent. However, with the decrease in available manufacturing talent, worker compensation will comprise a significant share of future productivity benefits.
Dwindling Local Inventories – A Positive Sign
Figures from leading US companies indicate dwindling inventories and surging demand. These inventories signal booming consumer growth in the region. Manufacturers can look towards elevated demand as a positive sign of future growth and benefit from advanced projections.
- Automobile sales within the country have increased significantly, with the average dealer inventories lowering to 15 days’ worth of sales. This number represents a 33% inventory compared to pre-pandemic levels.
- Over the coming years, manufacturers will be able to benefit from pre-booked inventories. Restoring inventories to pre-pandemic levels can help companies capitalize on a significant increase in sales.
Uneven Economic Recovery – Predictability Challenges
Even though the reopening of the economy has triggered a major surge in most sectors, the recovery is not even across all sectors. Customers have shifted away from traveling and restaurant services to focus more on finished products, including automobiles and appliances. While demand has elevated in certain economic segments, recovery has still not materialized in other critical segments.
For financial organizations, it is essential to have a sector-wise evaluation of critical domestic sectors to ensure that they’re able to accurately project growth on an industry basis. Predicting the recovery period can help companies effectively prepare for surging demands with appropriate inventory and servicing arrangements.
Here’s an insight into the contrast between different industry segments.
- The shift towards sustainable travel options has led to a massive surge towards electric vehicles. Companies like Tesla have been able to generate record-breaking profits on the basis of elevated customer demand.
- Subsequently, the high component manufacturing industry has been facing unprecedented demand from multiple industry segments as Artificial Intelligence, and processing technology becomes a standard requirement for critical industry segments.
- Digital appliances are witnessing record-breaking demand as remote working becomes the normal working structure in key global locations. Demand for high-tech products has been increasing since the pandemic and does not seem to be slowing down any time soon.
- In contrast, the aerospace manufacturing sector has witnessed a significant downturn as travel restoration is still hindered by newer Covid variants and fluctuating customer interest. Quality assurance issues from leading providers, including Airbus and Boeing, have also been critical contributing factors in the industry slump. Despite the recertification of the 737 MAX jet, the industry has been slow in growth and has only managed to receive 50% of its pre-pandemic levels.
Despite the widespread disruption in global supply chains, globalization is still a significant factor for domestic manufacturers. Relying on external providers is providing manufacturers with the ability to scale down costs and benefit from expansive inventories in contrast to struggling domestic manufacturers.
Conclusion – DIF Insights
DIF experts predict that the US domestic segment will continue to face pressures from labor shortages and elevating worker wages. The segment will need to look towards expanded globalization in emerging economic segments to scale down costs and fulfill surging consumer demands across critical areas.
The industry-wise recovery will continue to fluctuate based on the Covid 19 landscape around the country. With variants like Omicron emerging over time, hospitality, travel, and entertainment will continue to linger below pandemic levels. Digital entertainment products will be critical in the manufacturing segment as customers embrace new behaviors from the pandemic.