Pandemic brings out the best in companies that are prepared and versatile

Charlotte Business Journal

By: Laura Williams-Tracy

Oct 16, 2020

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Among those not working in the sector, it’s a common refrain that U.S. manufacturing is dead.

Thomas Jalics, chief market strategist for Fifth Third Bank, has some strong data to refute that misconception.

“From 2010 to 2019 the U.S. added 1.5 million manufacturing jobs,” says Jalics. “There was this fear that technology was going to displace people working in shops around the country, and that couldn’t be further from the truth. U.S. manufacturing on a global stage has gotten a lot more competitive, with better cost, energy independence and a better tax structure.”

Given supply chain disruptions with difficult U.S.-China relations and then the coronavirus pandemic, Jalics and others expect a massive reshoring trend as U.S. companies bring production back home.

Jalics made his comments about the strong position of U.S. manufacturers as part of a virtual roundtable discussion presented by the Charlotte Business Journal. The conversation took a look at how Covid-19 is affecting manufacturing, how technology is changing the industry, and what is ahead.

The event was presented by Fifth Third Bank and sponsored by broad-based consulting and recruiting company Vaco, and Quest business advisory firm. Joining Jalics in the conversation were Summer Cline, vice president of finance for Okuma America Corp., a builder of CNC machine tools, and Ernie Young, COO at Delta Mold, the largest injection mold builder in the southeast. Ben Brandon, managing director of Vaco, moderated the event.

On the importance of manufacturing to the economy:

Charlotte may be a banking capital, but North Carolina is a manufacturing state. About 18% of North Carolina’s GDP is tied to the manufacturing sector, compared to 12.5% in the U.S.

“North Carolina out-kicks its coverage, if you want to use a football analogy, when it comes to manufacturing in the state,” Jalics says.

Manufacturing accounts for almost 11% of all the jobs in North Carolina, compared to 9% nationally. And manufacturing jobs in North Carolina, on average, pay much better than other non-farm, non-manufacturing jobs. The average salary for a manufacturing job in the state is $70,700 versus $45,000.

“It’s a big part of your state’s economy, it employs a lot of people, and the people who are in that industry earn wages that are far in excess of the averages that are outside of manufacturing,” Jalics says. “It’s a boon to have it in your state.”

On workplace changes in 2020:

Covid-19 has put employee health and wellness at the forefront for manufacturers who strive to keep production lines going while protecting employee health.

“We are a manufacturer, and traditionally manufacturing has been a tough-it-out-if-you-are-sick place to work” says Young of Delta Mold. “The days of a-small-cough-but-you-go-to-work are over. That’s probably for the betterment of the world. We are keeping such a close eye on how employees are feeling both mentally and physically.”

Staying in communication with employees while the workplace is so different was critically important, says Cline of Okuma.

President and COO Jim King began making self-recorded videos each week, uploaded to YouTube, so employees could hear from the top on how leadership was navigating the rapidly changing business climate.

“It really proved to be a way to bring the whole team together,” Cline says. “We didn’t realize how powerful that genuine connection from the top would be. We will continue to do the videos.”

At Fifth Third, the percentage of the bank’s 20,000 employees working from home went from under 10% of the workforce pre-pandemic to now 50% of the workforce, Jalics says. As the company has learned more about how to keep employees safe, employees are slowly returning to the office. But Jalics thinks remote work is here to stay.

“Our experience is that work from home or mobile work will become more of a norm rather than an anomaly going forward,” he says.

On market changes:

When the pandemic struck the United States in March, business everywhere took a pause. Cline says some of Okuma’s customers closed their shops, but companies wanted to still maximize their employees’ time.

“We had available  resources as well and had knowledge to share,” Cline says.

Okuma began offering free training for customers, a service the company had long wanted to do but for which it had never found the time, Cline says. The training and virtual guidance was helpful to many of Okuma’s customers that are job shops that transitioned early in the pandemic from making parts, such as those in the automotive industry, to making ventilator parts.

“We jumped in to help them adjust to those new machining processes,” Cline says. “We had great response from our customers.”

The necessary transition to digital communication for training and customer support has had some unexpected benefits.

At Delta Mold, most of the equipment is made in Italy or Japan, Young says. In the past, when there was a complex issue with the equipment, the maintenance team had to wait for someone to fly here from overseas to diagnose and repair the problem.

“With technology today and our ability to be in our plant instantaneously, we are able to turn around maintenance repairs within days. Now we are paying a service fee $15,000 a year to access a virtual platform. We used to pay $15,000 for a plane ticket. It is so efficient how we are able to maintain and repair equipment.”

Likewise, as a service provider to manufacturers, Jalics says Fifth Third bankers are providing services to customers virtually, answering questions on things such as short-term financing or short-term debt easier than in the past.

“If we went through this pandemic 25 years ago, the outcome would look very different. We fortunately live in a connected world. There are downsides of course, but the upsides outweigh the downsides.”

On cash flow strategies:

When economic downturns hit, manufacturers, like other businesses, work to limit cash going out and increase cash coming in. The cyclical nature of manufacturing means those businesses need to have cash on hand to make it through difficult times.

Slowing the flow of cash out of the business means taking a harder look at vendor terms and extending payment terms where available, Cline says.

“We managed our accounts receivable by working closely with our distributors through a list of customers to talk through their challenges,” Cline says. “Some customers needed an extended grace period on terms because their business turned off. It’s about going through it with a fine-tooth comb to allow us to forecast that cash coming in.”

Young says Delta began working on cash flow problems two years ago with a new finance director who renegotiated how the company is paid by customers.

“As Covid hit, we had the discipline in place. We have been very successful managing our cash over the last six to eight months, and it’s because of the work we did on the issues we had in the past. It’s been good.”

Jalics says the pandemic has “supercharged” trends that were already happening in business and in society, including telework, a move to online technology to provide touchless services and a rightsizing of commercial real estate space needs.

For the bank, many back-office operations that were at regional locations are being centralized at headquarters. Likewise, companies are outsourcing some back-office operations to third parties as a way to lower cash flow needs.

On future trends based on 2020 changes:

Futuristic technology that allows management to see production activity on the shop floor with the click of a computer icon once seemed unnecessary. Since Covid-19, those technologies have gained traction for their efficiency and safety.

Trendy topics such as Industry 4.0, or the internet of things in manufacturing, were not catching on rapidly before the pandemic when managers could easily roam the shop floor and stay on top of production. With Covid, Cline says manufacturers now see the value of fully automated and remote observation of the manufacturing floor.

“Keeping a shop floor remotely monitored and connected, it’s almost an obvious thing for customers to do,” Cline says.

Based on the success of Microsoft Teams used by management, Cline says Okuma is finding ways to embed the use of the software in machines as a way to support service to customers.

“We have been looking at having virtual reality on the shop floor and having customers see the product on their floor and see product being made,” Cline says. “I do think that will be a useful tool people will adopt.”

Young says technology has advanced to the point that he can click an icon on his laptop and see the output of any injection molding machine in the factory in real-time.

“If you had told me that two years ago, I would have laughed,” Young says.

The efficiency driven by cameras and technology on the shop floor has increased efficiency and provided data that can be shared with customers.

“If I have a customer who wants to know how we are doing on a particular injection molding machine, I simply copy and paste that link into a text message and send it to him,” Young says. “The days of telling your customer you are further along than you are … those days are gone. We plan to use this technology to create trust and respect within our customer base, so they want to continue to do business with us.”