Six predictions for manufacturing in 2015
There’s good news to share about manufacturing in America. The lower costs associated with reshoring are driving more local manufacturing activity, technological developments are drastically changing the way plants operate, and capital investments are on the rise. Six trends about manufacturing in 2015 follow.
As the director of the Georgia Center of Innovation for Manufacturing, I consult with manufacturing companies of all shapes and sizes on a wide range of projects. Over the past year, I’ve seen a convergence of activities that suggest to me 2015 will be a landmark year for American manufacturing. Among my predictions:
1. Reshoring will continue, but at a slower pace
Manufacturers typically evaluate six critical areas when it comes to operational decision making: transportation and energy costs; market demand for their products; rising labor costs in China and other developing nations; access to talent, tax, and regulatory policies; availability of capital; and currency trends.
In 2015 we will see jobs continuing to come back to America as trends around these divergent areas continue to work favorably for bottom lines. But this reshoring will happen in a more targeted way, with natural gas use serving as a driving factor in some cases.
The growing abundance of natural gas in the U.S. provides more affordable energy for factories as well as new opportunities for products and services. PricewaterhouseCoopers estimates that high shale gas recovery and low prices could add one million manufacturing jobs in the U.S. and reduce natural gas costs by up to $11.6 billion annually through 2025. In fact, one particular U.S. steel manufacturer has already invested more than $100 million in a Midwest plant to help meet demand for tubes and pipes used in shale gas extraction activities.
The U.S. shale gas boom has prompted some chemical producers—such as Dow Chemical, which began construction on a Freeport, Texas plant in 2014—to construct ethylene production plants in the Southeast to take advantage of more affordable feedstock.
Then there are the manufactured goods themselves. Generally, heavier goods equal higher shipping costs, a value-to-weight ratio that expands in concert with the distance between where they’re made and their market destinations. Higher transportation costs, combined with increasingly expensive labor rates in distant regions such as China, are leading manufacturers of heavy equipment and steel products to move production from overseas back to the U.S., where these products are also sold. Shortening the supply chain has become a significant value proposition.
Industries where very low-cost labor is employed will not seek to reshore jobs. The same holds true for companies with heavy foreign demand because it’s cheaper to manufacture in the location where the products will be sold in some cases.
2. A manufacturing boom will hit the United States
Manufacturing growth over the past several years has been minimal. The year 2015 will launch a new wave of domestic manufacturing, as the industry sees broader growth. One reliably strong trend has been the national Purchasing Managers Index, which stood at 58.7 in November 2014. Rooted in a solid expansion of manufacturing activity, this index allows us to look forward and reasonably expect between 4% and 5% growth in domestic manufacturing.
However, manufacturing employment won’t grow at that same rate because facilities and operations have become far more productive and efficient.
3. Big data will drive big efficiency
Software has helped manufacturing achieve terrific efficiencies. According to the CSC Global CIO Survey: 2014-2015, 81% of manufacturers feel big data has a positive effect on production and efficiency, and 65% believe big data will be a strategic business driver moving forward.
That trend will continue, but the lynchpin in 2015 will be the widespread introduction of the Internet of Things (IoT). The Advanced Technology Development Center at Georgia Tech, one of the world’s top technology incubators, hosts a wide range of IoT companies, and a recent Verizon Enterprise Solutions report stated, "The IoT market reared its head in Verizon’s predictions last year, and we have seen an increase in interest from companies worldwide over 2014." In addition, a November 2014 Forbes.com article entitled, Two High-Tech Stories to Watch in 2015: Digital and Industrial Internet of Things said, "The IIoT will take a major step forward next year. IIoT will no longer be an intriguing, over-the-horizon concept. It is evolving rapidly into new and tangible ways to connect disparate types of electronics equipment, devices, services and software than have ever been connected before, delivering unprecedented benefits, opening new markets, changing how people live and work."
Sensor technologies will drive the concept of connected factories, and will fuel the introduction of mobility-based manufacturing. Web browsers will be used as dashboards to control equipment, identify snags, and make quick decisions that previously would have taken entire teams of people to handle.
As connected factories go online, myriad amounts of data will be collected, and that data will be used in smarter ways that make things operate more efficiently in 2015. Even smaller companies in the industry will invest more to improve their software operations.
4. Increased investments in predictive maintenance technologies
U.S. manufacturers will also increase investments for predictive maintenance technologies in 2015. The proliferation of better and cheaper sensor technologies—combined with the trend of connected factories—will allow for greater opportunities to implement predictive maintenance technologies to reduce downtime and boost bottom lines.
5. Increased investment in capital equipment
With the convergence of several predictions outlined above, such as the increase in applications of sensor technologies and general industry growth, 2015 will be the year in which we will see a true renaissance in domestic manufacturing.
Improved bottom lines will drive replacement of aging legacy equipment and investment in new capital equipment that performs better, more efficiently and more reliably. Software also will assist in making current equipment more efficient.
6. Manufacturing will grow at a higher rate than the GDP
The GDP historically has been a marker against which industries peg their overall performance.
A report issued in December 2014 by the Institute of Supply Management stated that manufacturing revenues are expected to increase in 15 different manufacturing industries in 2015. It also asserted that capital expenditures, a major driver in the U.S. economy, are expected to increase by 3.7% in the manufacturing sector.
Additionally, 67% of respondents to the ISM survey expect revenues to be greater in 2015 than in 2014. The panel of respondents—all purchasing and supply executives—expect a 5.6% net increase in overall revenues for 2015 compared to a 3.6% increase reported for 2014 over 2013 revenues.
This momentum, combined with the factors outlined above, will contribute to a boom in manufacturing in 2015, helping the industry outpace the GDP for the first time in a long time.
– John Zegers is the director for the Georgia Center of Innovation for Manufacturing. Edited by Chris Vavra, production editor, CFE Media, firstname.lastname@example.org