How 2020 Shaped Manufacturing and Its Impact on 2021

Looking back at 2020, there's much to be said about the hardships that took place as manufacturing companies tried to navigate through the pandemic. It was impressive to see the creativity and entrepreneurial spirit that took place for businesses to take advantage of new opportunities or avenues that were forced upon them due to the pandemic. There were a lot of major business themes that took place during 2020, including unbelievable stories of companies experiencing tremendous growth through new pivots or companies having to completely restructure to face the everchanging climate. What we do anticipate in 2021 is a very quick recovery from the recession, along with much greater focus on U.S. made or sourced production. With that, we see companies really focusing on their supply chains and potential onshoring, along with major investments in technology to even the global playing field’s competition of lower labor costs, and a commitment by the U.S. government - through passing of the new stimulus bill on December 27, 2020 - to continue to provide economic incentives to manufacturers to do so.

Manufacturing is poised to turn around quickly as we have seen multiple sub-industries with tremendously strong demand during the pandemic. Some of those industries that have flourished are tied to personal protective equipment (PPE) development, cleaning supplies, and paper products to name a few. On the other side, the market has been soft for manufacturers tied to hospitality, auto, and restaurant industries; however, with vaccine distribution already underway, we can anticipate those industries to rebound once again. What will be extremely important for those that pivoted toward pandemic-related opportunities is the potential for too much supply of PPE-related raw materials in the market. Now that global demand for PPE has been met, we are seeing companies turn back inward to review product on hand and projected backlogs. Companies are starting to see unexpected declines in inventory valuations which will impact 2021 profit margins and access to working capital as companies shift their focus back to their core competencies and potentially begin to unload PPE-related products that are no longer needed.

Prior to the pandemic, there were massive concerns within the U.S. regarding the trade war with China, the impact of tariffs, and how to approach either changing suppliers or onshoring more production to the U.S. The huge reliance on foreign countries for goods, increased cost of landed product due to tariffs, and overall lack of control over the production process were all major strains on U.S. companies. For our privately-owned and managed clients, this was a very difficult decision and sometimes tied to long-term relationships, which made it very difficult to navigate. The pandemic quickly accelerated these decisions and we are already seeing companies supplement their supply chains, reducing their concentration risk, or onshoring more of their production to third-party U.S. contract manufacturers or doing it themselves locally. We will continue to see more investment in buildings and equipment locally to support this increased demand for U.S. made products. With that will come increased jobs within manufacturing companies, increased construction jobs, and an increase of technology and manufacturing firms supporting and creating these new technologies. 

With investments in new technology, cloud computing, and artificial intelligence, the factory environment is also changing. Companies that have already made these investments are reporting increased production levels, better quality, and much stronger inventory control procedures along with a variety of secondary benefits, including higher safety levels, higher employee morale, lower staff turnover, and lower environmental impacts. The return-on-investment analysis goes beyond the financial benefits of improving brand awareness by showing that the corporate culture is driven to improve job satisfaction, stability, safety, and be environmentally friendly.

The new economic relief package released at the end of 2020 offers quite a few opportunities for manufacturers, a few of the key highlights are:

• Paycheck Protection Program (PPP) – Allowance of tax deductions calculated in forgiveness (rendering the loans non-taxable) and re-opening of the PPP program with an option of a second loan for eligible recipients through March 31, 2021
• Employee Retention Credits – Extension of the payroll tax credit through June 30, 2021 and increasing the percentage from 50% to 70% for those eligible
• Vaccines – The bill provides an allotment of funds for companies who need to funding for vaccines and testing for their employees
• Long-term Relief – Specific long-term relief aimed at energy, environment, anti-counterfeiting, broadband, and transportation

All of these areas should see more of a focus for U.S. made products in 2021 due to the specific incentives created by the government along with decisions that were born out of a pandemic to create more self-sustainability, local reliance, and hopefully, increased prosperity for U.S. manufacturing.