To diversify, or not to diversify- that is probably not the big question. At least, not for everyone. But for us, a small leather manufacturer, it has been something we have wrestled with for the better part of our long history. Diversification is not a word most people would associate with the manufacturing industry these days. Instead, manufacturing probably conjures the image of a giant factory with conveyor lines and assembly stations all outfitted to produce a specific set of products with a limited variety of materials, whereas diversification sounds more suited to stock options and portfolios.
[ctt tweet=”“Reshoring is changing the manufacturing landscape in the states.” @MakersRow” coverup=”fl97n”]
In the past, limitations of technology, access to labor, and cost effectiveness have been the driving force behind how and where manufacturing was carried out. Places like China, India, and Mexico had cheaper labor, access to the same raw materials, and fewer restrictions on how they could conduct their operations, and thus saw a huge influx of manufacturing fueled by the economies of other nations. These factories excelled at specialized production of one or a handful of particular goods or materials, drastically reducing the cost.
Recent growth of the American manufacturing sector necessitates revisiting this question. Reshoring, as this process has been called, is changing the manufacturing landscape in the states, and small manufacturers that had previously survived without too much competition in a niche industry are now facing the possibility of large companies edging them out with reduced costs and more flexible production methods.
[ctt tweet=”“We’ve learned to be flexible as a manufacturer, and how to adjust and adapt to changing demands on us and our materials.” @MakersRow” coverup=”04W45″]
Matched against this new competition, small manufacturers are faced with a choice; either, they focus and specialize their capabilities to offer higher quality and value for a few select products or materials (positioning themselves as a better alternative than lower-quality competition), or they expand their capabilities beyond a single industry to a few other – hopefully complementary – markets that broaden their customer base.
[ctt tweet=”“Small manufacturers are faced with two choices: Focus their capabilities on a few products or expand beyond a single industry” @MakersRow ” coverup=”5G23I”]
With over a century of history in this country alone, our family business is rich with the successes and failures of myriad philosophies on how to run an establishment. From full-tilt, single-product manufacturing to branching out into finished goods and services, our ancestors seem to have tried everything to keep our business going. Finding a balance of manufacturing diversity that could sustain us was an arduous, prolonged, and absolutely necessary process. Pressed by a recent – and nearly catastrophic – collapse of the sole industry for which we manufactured, we decided that depending on an individual market was too risky for the survival of our business. So, after a few years of experimentation, we developed a new process that yielded a material we could market to multiple industries without too much tweaking.
[ctt tweet=”“Finding a balance of manufacturing diversity that could sustain us was an arduous, prolonged, and absolutely necessary process.” @MakersRow” coverup=”bhddx”]
This decision, and the subsequent continuing success, was not easy to achieve. Ideas have been tried and tossed, new industries have been approached, materials refined or abandoned. Over the course of several years, we gradually accrued a set of offerings that we could produce easily and which were suited to a number of applications. And while this process has given us materials we can market today, it has also taught us how to be flexible as a manufacturer, how to adjust and adapt to changing demands on us and our materials.
[ctt tweet=”“Ideas have been tried and tossed, new industries have been approached, materials refined or abandoned.” @MakersRow” coverup=”0TSG1″]
There is no single answer that tells all manufacturers how to stay successful in this revitalizing industry. While diversifying our capabilities has proven to be rewarding for us, it’s not necessarily going to work for all manufacturers or all industries. However, as the manufacturing sector continues to grow in the US, this question is becoming an increasingly-important consideration to make.
[ctt tweet=”“As the manufacturing sector continues to grow in the US, diversifying is becoming an important consideration to make.” @MakersRow” coverup=”FiP2s”]
Here are some reasons for and against diversifying that we deliberated on while discovering our own successful formula. None of these are set in stone, so don’t be afraid to edit or add your own points when thinking this through for your company.
Pros of Diversifying:
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- Company no longer dependent on a single industry and it’s potential ups and downs
- Multiple industries can offer outlets for previously unusable or under-utilized material and machinery
- Slow seasons in one industry can be supplemented with work in others
- Collapse of a single industry or product won’t topple the company
- Practices common in one industry can be used in others to improve quality, speed, or other aspects of a material or production process
- Some industries are very complementary in terms of finding new clients
- Production processes could be very similar to materials or goods already produced, thus requiring minimal investment in learning new skills or acquiring new machinery
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[ctt tweet=”“Pros of Diversifying: The collapse of a single industry or product won’t topple your company.” @MakersRow” coverup=”PSlOs”]
Cons of Diversifying:
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- Requires potentially high upfront investment to learn how to work with new materials or produce different goods
- Possibility of decrease in quality or volume as focus on single product/material is reduced
- Learning how to work with new industries and materials can be a time-intensive investment
- Current facility may be unable to handle new demands on space, utilities, or manpower
- Multiple industries can sometimes conflict in production methods, leading to less efficient output
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0 thoughts on “How Small Manufacturers Can Stay Competitive”
Interesting and useful article. Thank you Steve. One comment and then an addendum. The smartest line in here is “There is no single answer that tells all manufacturers how to stay successful in this revitalizing industry.”. Wise indeed Steve.
Now the addendum and a bit of a history lesson.
Let’s get in the MAKER’S ROW TIME MACHINE! Set the controls for 1918
At this time in the women’s apparel business, strong holds other than New
York, Philadelphia and Chicago were St Louis and Kansas City. Domestic apparel business roared into the1920’s. It was a high point. It was also the beginning of a very slow decline in domestic sewing. A decline that has lasted over 90 years and has just recently been halted (due to many people that are reading this missive).
What happened? Shops became unionized in the 1910’s and 20’s.
Then, a mistake occurred that we as a society have repeated time and
time again. Manufacturers were less interested in technological innovation and focused on concessions to be made by the unions. Lost strikes in the 1920’s seemed like just what garment companies wanted, but it was the beginning of the previously mentioned decline. Cheap labor must be the Opiate of the garment manufacturers.
Large men’s clothing firms tried to maintain sales by integrating retail
outlets, but small ones began to leave for nonunion towns in the Midwestern
countryside and in the South. This was a precursor to the big move to the Asian Basin in the 1990’s.
OK, you can come back to the present day. Hope the MAKERS ROW TIME MACHINE is in good working order. Modernization and quality will save the day and push our industries forward….and as Steve points out, sometimes diversification.
Thanks for the history lesson, Jay! Lowering the bottom line for manufacturers is something that seems endemic to the free market in general (and this isn’t bashing or supporting the free market system as a whole, just an observation). But our family was in business during this decline you mention in the manufacturing industry, and one reason we seem to have weathered the storm was our family-oriented business model (mainly that we felt responsible for both our workers and customers, and so lowering wages and cutting corners wasn’t an option).
Unfortunately, this is still something that seems to be a hurdle for American manufacturers today. In some cases, producing goods and materials in the US is just going to be more expensive than overseas. In those instances, what gets impressed on us is that, even if designers understand and are willing to work around the higher costs, the consumer is still the deciding factor, and if they’re not willing to pay more, then you have to educate them as to why there’s such a big difference. Our hope is that, as foreign markets begin to grow and mature and manufacturing continues to move back to the states, the cost of materials and goods begins to even out, and it becomes more significant to the consumer when a manufacturer pays living wages and adheres to better safety and environmental regulations. Doesn’t quite roll off the tongue, but hopefully it gets the point across for us.
One of the reasons that costs are high are all of the smaller runs.. When someone makes 2,500 blouses in one place at one time, unit costs plummet. No fair comparing Asian factories with an 1,800 pc minimum and our local contractors that take 100 or 200 of a style. At the end of the day, you are certainly right that the consumer is the judge, jury and executioner. Also, small batch manufacturing does have its advantages. Product differentiation eliminates price competition. Meanwhile, all of this is interesting and useful to discuss and ponder.
Enjoyed the article, Steve. As you have proven, diversifying into other products and markets can be a highly successful strategy, particularly if a company can do so while sticking to their core manufacturing competency.
Small U.S. manufacturers, to be successful against the imports, should also consider implementing what I call the principles of FEWER, FASTER, FINER.
The FEWER principle means shorter, and/or more customized production runs. Keep in mind that the low cost overseas manufacturing business model was built on the concept of long runs of commodity products. However, today’s B2B buyer wants to minimize parts inventory to keep costs lower, and today’s consumer wants a product more tailored to her own individual preferences. A small U.S. manufacturer who can cater to the desire for smaller or more customized orders in a B2B or consumer environment creates a competitive advantage that an overseas manufacturer cannot match. The use of 3-D printers is an extreme example of the FEWER principle in action.
The FASTER principle simply means quick turns on product orders. If it takes an overseas manufacturer three months to ship a product, you must find a way to ship it in three weeks, for example. This allows the customer to maintain lower inventory levels and maximize their cash cycle. And if you are making a consumer product, being “Faster” allows you to satisfy the consumer’s desire for instant gratification.
The FINER principle (and you alluded to this in your article, Steve) means manufacturing safe, high quality products. The Consumer Products Safety Improvement Act has dramatically altered the manufacturing landscape in favor of companies that are meticulous about safety and quality. I’m a strong proponent of those tougher guidelines because they force U.S. importers to think twice about the integrity of their supply chain before they bypass U.S. manufacturers for overseas sources. If China manufacturers will sell lead-tainted toys to Mattel, what would they sell to a smaller importer?
Of course, it is most effective if a manufacturer implements all three principles. Given the competitive situation, two out of three may not be enough.
Michael, thanks very much for the in-depth reply! The three principles you mention are very succinct ways of expressing the mindset needed for small manufacturers trying to adjust to the changing landscape. Being nimble is a huge factor in our success, and being able to take advantage of modern technology (like the 3-D printers you mention, and even tools like laser cutters, CNC lathes, and the internet) are an essential part of all three F’s you point out.
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