TFT:The Aging of Small Manufacturing Companies - Good or Bad?
Small manufacturing firms are old and need updating
Manufacturing is a key part of the economy today. After all, without it, nothing would show up on Amazon for us to buy. While overseas giants like China and India dominate the fear-mongering of the media, there are plenty of small-scale, local manufacturing companies in the US today. The challenge is they are old and getting older, so how do they keep up with the innovation of today?
For this Thought for Thursday I wanted to think through is it good or bad that small manufacturing companies are aging. At the end I’ve shared a couple of links that speak to the points we’re debating here.
The Good Side of Aging
An established company is likely to be around for many more decades. They have already been through good times and tough times and they are still here, which is a plus for an older, established small manufacturing company. Most data shows that many of these companies have been around for 20-30 years, meaning they made it through the financial crisis of the early 2000s and the COVID crisis of 2020. They have also been through several presidential terms and divided and non-divided congresses. Basically, they are established and you can count on them for your manufacturing needs.
These firms are also likely to have better customer relationships. Being family-run shops, they understand that life happens and sometimes you just need a little help. They are more willing to work with you when something goes wrong with your order. They won’t stick rigidly to the T’s and C’s; instead, they’ll do what is right on a handshake deal. Although they may have limitations in their product offerings, they will likely recommend someone who can help you with your request, even when that doesn’t benefit them directly.
The Downside of Aging
One downside is the lack of innovation in the AI age. Generations not wanting to move forward with the ownership could lead to private equity consolidation. Innovation can mean many things. Are they investing in new machines or technology that can speed up processes? Maybe not. Maybe they don’t want to go any faster or learn something new. If the companies have been around for 20-30 years, that likely means the owners have as well, and there’s a reason they say you can’t teach an old dog new tricks.
There could be ways to automate processes and reduce overhead costs, which would keep them competitive with some of the overseas products, especially when you add great customer service. Lack of innovation can lead to challenges staying competitive and meeting new customer needs. This could lead to a stagnant business that no one wants to take over. Many owners face challenges when their children don’t want to take over the business, which opens the door to other buyers, including private equity (PE).
Not all PE is bad, but often, PE looks for the buy-and-flip. They might buy several small firms, inject some technology, reduce headcount by combining back-office roles, and then put them back on the market. While some technology infusion would be helpful, PE isn’t looking to operate a small manufacturing firm long-term. They will aim to make it bigger and more profitable for an easier sale.
Conclusion
The key question for small manufacturing firms is leveraging technology they understand to stay competitive and grow. Growth can be controlled and reasonable, but every business needs growth because customers will turnover.
Another challenge is staffing. The skilled labor market is tight, and it’s not easy work to recruit for and train. Some automation can help, but the key challenge will be recruiting and keeping key talent. This can be solved with journeyman or apprenticeship models. Another strategy to retain employees is to share profits and improve compensation.
Small manufacturing companies need to continue finding ways to improve and grow, even if it’s little by little, to remain a significant part of the US economy. Embracing technology and innovative practices is crucial to staying competitive and meeting customer needs. Would you agree or disagree? Let me know in the comments below.