The Continuing Manufacturer Uplift - Marc A. Pfister
Where Manufacturer Boards are Increasingly Focusing Their Time
(Originally appeared in the September 14th, 2022 ‘Across the Board’ digital publication, a Board Director, Board Advisor, C-Level, and Business Leader publication reaching 28,000+ exceptional business leaders in over 70 countries with articles focused on leadership, strategy, and governance topics — sign up here)
Of all the global industries, those squarely positioned in manufacturing verticals have truly experienced a challenging past 36 months. Many of these currently-realized challenges had been quietly festering over a long period of relatively easy money availability and risk-burdened supply chains waiting for the right time to pounce. For a vast majority of manufacturing companies around the world, the perfect storm had formed in late 2019 / early 2020 with the imminent COVID-19 pandemic. The pandemic simply acted as the catalyst.
Manufacturing company CEOs and their Boards of Directors have been begrudgingly thrust into the spotlight with many hurdles, and not just by investors and shareholders. Consumers have also played a large and unique role in voicing their opinions and displeasure when dealing with less availability, backorders, and in some cases lower quality or feature-removed products. We have all seen the social media rants following a less-than-stellar consumer/product interaction. Not pretty. When the company responds, it is commonly a no-win situation with additional focus spotlighting the issue or a lengthy apology outing leadership weaknesses.
As this correlates to the manufacturer boardroom, many thorny topics are making the agenda. However, which thorny topics seemingly appear on every agenda and within the meeting preparatory Board Books? Following are some ubiquitous trends.
1. Increasing Cost of Raw Materials & Decreased Availability
No surprise here! Most manufacturers around the globe are feeling inflation pressures and are forced to pass along the cost pain to their consumers. Supply chain issues are common hurdles to overcome, too. Both of these challenges are simultaneously straining inventory management tools, processes, and resources within many manufacturing organizations with the recent need for many manufacturers to hire additional sourcing expertise. “At the beginning of the pandemic, manufacturers experienced higher-than-normal raw material cost and low availability. As a result, many manufacturing companies focused on increasing raw material inventories. Pricing to market was increased to compensate for this situation,” states Gonzalo Martinez, CEO, President, & Board Member of Schaefer Brush and Gornell Brush Manufacturing. “Being able to rapidly adjust to the ever-changing supply chain situation is key for the success of any organization. Sourcing specialists are crucial in detecting and anticipating supply chain risks, protecting core customers of the business, and monitoring raw material price evolution. Increasing price to market is something that is becoming increasingly difficult in this new era of high inflation and customers are no longer open to receiving price increases. One area of continuous focus should be operational efficiencies, as manufacturing companies that excel in continuous improvement will have the upper hand in the near future.”
In the June 2022 Across The Board article, Governance During Inflationary Periods, we touched on many of the governance topics listed here relating to increased cost / decreased availability:
Board Focus Areas (governance & strategy):
- Focus on Employee Retention — During inflationary periods, it is quite easy for operations to direct a majority of focus towards consumers and unintentionally neglect the organization’s employees. As a Director, be sure you are receiving metrics relating to culture.
- Deeply Understand Your Current Market — Inflation commonly affects entire industries and markets, so what is your organization’s differentiator(s) as it relates to price and value?
- Refocus on Supply Chain — Does the organization you serve require additional material suppliers and do single points of failure exist?
- Capitalizing On Demand — Look for proactive measures being instituted in your organization’s approach to marketing and client incentives/retention.
- Ensure a Clear & Fair Pricing Strategy — Look for indicators that the organization is clear on how they plan on articulating the “why” of a price increase to consumers.
- Alignment of Your Brand’s Values — Honesty and authenticity are paramount in messaging relating to price hikes, lessening quantity, or reducing quality. Does management fully understand this?
2. Lack of Skilled Workers
This is also no big surprise to many. For the quantitative support we always desire, Deloitte and The Manufacturing Institute’s 2022 survey on U.S. manufacturing shared some shocking facts. Of those surveyed, attracting and retaining a quality workforce is a top focus for 83% of manufacturers. Additionally, almost 45% of manufacturing executives have turned down business opportunities due to lack of workers. The survey also showed manufacturing companies are “increasingly competing with other sectors for skilled labor. Manufacturing ranks behind technology, health care, communications, energy, and financial services as preferred career options.” These are painful statistics — and the U.S. is simply a microcosm of a larger global trend. To add insult to injury, other studies conclude that roughly 22% of workers in manufacturing will be retiring in the next ten years. “Since the pandemic, the manufacturing industry in the U.S. still struggles to recover from losing more than 1.2 million jobs at its peak and current statistics show a 45% rate of unfilled job openings,” mentions Mariano O. Presas, CEO, President, & Board Member of Americas Probst Inc. and Probst Corp. “As leaders, we face a tremendous challenge in adapting our companies to this persistent outlook. Investing significant efforts into defining the right strategy and governance model to attract, develop, and retain skilled and non-skilled entry-level personnel while simultaneously engaging our current teams should be CEO and Board priorities to guarantee long-term success.” Attracting as well as retaining skilled and dedicated employees is indeed a long-term challenge to prepare for.
Board Focus Areas (governance & strategy):
- Define & Document Ideal Employees by Skill Sets (current state + future) — Ensure management knows exactly what they require in ideal employees and candidates to fulfill organization needs.
- Existing Employee Retention Planning — Look for a formal plan and metrics to back up what is expected and required.
- New Employee Attraction Plan — Ask the right questions! Is your organization’s offering and personal growth plan competitive — not just for your industry?
- Employee Rewards & Recognition Program — Does management’s approach make employees feel valued? Are there actual incentives when recognized for exceptional performance?
- Employee Surveys and Action Plan — Are we, as Board Members, receiving accurate and consistent metrics of current state as well as action plans relating to direct employee feedback?
- Business Continuation Planning (BCP) — Is the organization continuously prepared for the loss of key employees and leaders? How is the organization and its customers protected?
3. Need for Automation
Automation can increase output, and can sometimes help with the lack of skilled workers, but savvy manufacturing leaders know that automation simply shifts the search criteria for qualified talent. Boards in many manufacturing sectors are constantly weighing the risk vs. reward for investment decisions relating to an increasingly automated production environment, but these decisions are not so simple. Additionally, technological advancements seem to happen every week, with the consequences of potentially increasing demand putting more strain on manufacturers to fulfill larger orders. Boards have a particularly difficult role in guiding today’s manufacturing companies as it relates to the intertwined culture, employee retention & attraction, and profitability priorities.
Board Focus Areas (governance & strategy):
- Understand Your Market & Competitors — Board Directors in the manufacturing sectors must allocate more time to research activities on their own time. What is the industry doing as it relates to automation? What have been the pros and cons? When a Director can’t ask the right questions they will never get the right answers.
- The Automation Proclamation — Automation simply for the sake of automation is not the answer. Be the Director who sees further than the fabricated excitement and is able to truly ask the important questions relating to all potentially affected areas.
- Automation Governance Framework — Sustaining automation initiatives requires a clear governance framework to be effective. This framework additionally acts as a mitigation to risk. Remember, the framework comes before the rollout!
- Controls Mechanism — Dig into the mechanisms designed to indicate problems. Poor controls that allow errors to become systemic to a process could put the whole company at risk. Speak often and early on this topic as it is an important form of governance.
Manufacturers haven’t necessarily arrived ‘to’ the light at the end of the tunnel yet as there are still many pieces of the puzzle which need to fall into place. However, many manufacturers are ‘seeing’ the light at the end of the tunnel (although a looming U.S. rail strike threatens more supply chain disruption). These encountered challenges have, however, changed the discussional dynamic in a large percentage of manufacturers’ boardrooms for the better. Long-term crises indeed have the supernatural effect of forcing a valuable and needed balance between governance and strategy focus. This equalizing of a previously unbalanced norm, seemingly repeated because “that’s how we’ve always done it,” is paying off. Let’s hope the governance gods smile favorably upon them.
Do you know the boardroom discussion trends in your industry?
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About the Author: With a strong focus in Strategy, Governance, and Technology/Cybersecurity, Mark A. Pfister is CEO & Chief Board Consultant of M. A. Pfister Strategy Group, an executive advisory firm that serves as a strategic advisory council for executives and Boards in the public, private, and nonprofit sectors. He is also Chairman & CEO of Integral Board Group, a specialized Board services and consulting company. Mr. Pfister is a ‘Board Macro-Influencer’ and his success has been repeated across a wide range of business situations and environments. He prides himself on being a coach and mentor to senior executives and directors. In Board Director circles, Mr. Pfister has earned the nickname ‘The Board Architect’…………. << read full bio here >>