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Top Challenges Facing the Manufacturing Industry

Top Challenges Facing the Manufacturing Industry

The manufacturing industry is fundamental to our society, from powering economies to creating jobs and driving innovations. While manufacturing plays a pivotal role in society, there are  several key challenges in today’s rapidly evolving market that are affecting manufacturers. Some of these challenges are familiar external pressures to manufacturers, such as labor shortages and disruptions, while others may be new, such as implementing automated technologies. Addressing these challenges requires innovation, flexibility and a forward-thinking approach to the future of manufacturing.

Workforce Obstacles

Though it is not unique to the manufacturing industry, one of the biggest challenges faced by manufacturers is attracting experienced workers. The current labor shortage has been caused by many economic factors, including an aging workforce, a lack of skilled labor and difficulties meeting increased wage demands. According to a study done by Deloitte and The Manufacturing Institute, 2.1 million manufacturing jobs could go unfilled by 2030; the total cost of these missing jobs would be $1 trillion in 2030 alone. Unfortunately, reduced amounts of experienced workers equate to reduced output, causing lost revenue, longer lead times and an inability to meet product demands.

In addition to the labor shortage, disruptions like strikes, layoffs and protests also pose a workforce obstacle for manufacturers. According to Resilinc’s Artificial Intelligence (AI) monitoring system, EventWatchAI, labor disruptions were ranked the number two disruption for manufacturers in the first half of 2024, marking a 42% increase compared to the first half of 2023.

While labor shortages and disruptions may never be resolved completely, there are some strategies that manufacturers can put into place to combat these challenges, including:

  • Workforce development programs – Investing in training and apprenticeship programs is crucial for addressing the labor shortage in manufacturing. For example, companies can partner with local community colleges and technical schools to create a tailored curriculum that addresses their specific industry needs.
  • Workplace flexibility – Offering flexible work arrangements, such as remote work, compressed workweeks and the ability to swap or split shifts, can help with employee attraction and retention.
  • Alumni program – A significant number of manufacturing professionals are approaching retirement within the next ten years. To keep these experienced employees engaged, companies may consider creating an alumni program, where retirees can remain engaged with the company and help transfer important knowledge to the next generation of workers.
  • Human Resources (HR) Consulting – Depending on finances, hiring an HR consulting practice to help with talent acquisition services can help manufacturers with recruitment and staffing. 

Cybersecurity

Along with all other industries in the U.S., manufacturing is experiencing a significant increase in digital transformation projects, or initiatives that use digital technologies to improve how a business functions and produces value for its customers.

While this digital transformation is highly beneficial, it does mean that manufacturers face an elevated risk of cyberattacks, due to the increased use of information technology and Internet of Things (IoT) systems. These cyberattacks often consist of ransomware attacks that result in malicious data encryption. In fact, the manufacturing industry ranks as the second most targeted sector for ransomware attacks. These data breaches can significantly disrupt operations, leading to downtime and profit loss. They can also affect the reputation manufacturers have with their clients, who may fear that their personal and financial information is not secure and decide to take their business elsewhere.

To combat cybersecurity attacks, manufacturers must be vigilant about putting systems in place to detect cyber threats and keep employees educated on cybersecurity best practices. Some strategies to consider include:

  • Cyber insurance – Manufacturers may obtain cyber insurance, which is a type of insurance that protects businesses from financial losses caused by cyber-attacks, data breaches and other cyber-related incidents.
  • Data security protocols – As manufacturers are implementing digital transformation projects, it is important to develop disaster recovery plans and other policies for how their systems and data will be protected. Multi-factor authentication and network security tools can help manufacturers monitor and respond to cybersecurity breaches, aiding in their effectiveness for managing cybersecurity risks.
  • Employee training – Employees are the first line of defense from a hacker attempting to access a company’s system. For that reason, many manufacturers are investing in education for their employees on how to identify any malware, ransomware, phishing and other types of external attacks.

Supply Chain Digitalization

Since the pandemic, manufacturers have continuously faced global supply chain disruptions. The causes of these disruptions are diverse, ranging from geopolitical conflicts to extreme weather, and they have caused slower shipments, reduced product quality, increased costs and led to a lack of resources. Manufacturers can prepare for these supply chain complications by:

  • Adopting digital tools – By adopting digital tools, manufacturers can track software that monitors key performance indicators (KPIs) and gain deeper insights into their supply chain. Another digital tool option is a supply chain digital twin, which is a virtual replica of a manufacturer’s current supply chain that uses real-time data to model and predict supply chain behavior. Manufacturers can simulate a variety of potential real-world scenarios and highlight the components that have the greatest amount of influence on their value chains. This can then help companies identify alternative suppliers for key components, reduce dependencies and increase supply chain robustness.
  • Integrating novel technologies – Generative AI is a type of AI that uses machine learning to create new content and can aid in areas such as product design, aftermarket services and supply chain management. Utilizing generative AI can help identify any interruption in the supply chain, based upon both publicly available and supplier data. Novel AI technologies, such as block chains and smart contracts, are gaining popularity with some manufacturers.

Reducing Carbon Emissions

In recent years, there has been a push towards a net-zero emissions future, which has caused an increased investment in electrification and decarbonization among manufacturers. For example, the Infrastructure Investment and Jobs Act of 2021 invests in electric vehicle (EV) charging infrastructure, while the Inflation Reduction Act of 2022 provides over $270 billion in climate and clean energy-related incentives, including $40 billion in tax credits to expand EVs, batteries and clean energy technology. As manufacturers move forward on reducing carbon emissions, new challenges often arise, such as high initial costs for transitioning production processes, significant time and monetary investments into technology and complex supply chains for batteries.

Despite these challenges, there are strategies that manufacturers can implement to help their approach, including:

  • Embracing net-zero emissions – Manufacturers can use renewable fuel technologies for products, adopt sustainable supply chain practices, use low-carbon materials and switch to renewable energy sources to embrace net-zero emissions.
  • Collaborating for decarbonization – Some manufacturers have formed external partnerships and joint ventures to help achieve emissions goals for their products. By collaborating and identifying key needs, significant progress can be made in product decarbonization across the industry.
  • Creating a specialized vertical – Manufacturers have been forming special divisions dedicated to enhance product portfolios and help achieve their climate-related goals.

Overall, the manufacturing industry faces several complex workforce, cybersecurity, supply chain and environmental challenges. However, with proper investments into technology and other strategies to minimize disruptions, manufacturers can anticipate substantial growth in the years ahead.

If you have any questions regarding the manufacturing industry, please reach out to an advisor at Brown Plus.

Posted In: Manufacturing & Distribution | Insights

About the Author - Tim Grunstra, CPA

Tim is an Audit Principal and Shareholder with Brown Plus. As an accountant specializing in a variety of niche markets, including manufacturing, healthcare and nonprofits, his client base is primarily in the Central Pennsylvania region of Harrisburg, Lancaster and York. He provides accounting and auditing services in addition to Yellow Book and A-133 Audits. Tim serves as a trusted advisor to his clients, many of whom he has worked with throughout his over 30-year career at the Firm.

He serves on the Firm’s Investment Committee and periodically as an instructor of staff training courses. He is directly involved in oversight of the Firm’s Human Resource manager and professional staff.

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