Manufacturing: Best Bets for 2014

Don't listen to the fearmongers: The factory sector is far from stagnant. Manufacturing in North America faces some promising new sources of growth

Written by Deborah Aarts

Don’t listen to the fearmongers: The factory sector is far from stagnant. Manufacturing in North America faces some promising new sources of growth.

3D printing

Yes, there’s a lot of hype.

But in this case, it’s warranted, according to Ian McCarthy, a Canada Research Chair in technology and operations management at the Beedie School of Business in Vancouver. “I believe 3D printing will do for manufacturing what iTunes did to record shops or Amazon did to bookstores.” Why? Several developments—including a tremendous amount of R&D and the expiration in February 2014 of key patents that now restrict competition—persuade McCarthy that 3D printing is set to explode. Some project that 3D printers will be common in retail outlets and even homes in as little as five years.

If believers like McCarthy prove right, 3D printing will reshape the entire distribution chain into one where end users can create what they want on demand. Will this mean the end of manufacturing as we know it? No, but it will force many traditional producers to adjust to smaller-scale production. This, in turn, will create demand for software providers (to help manufacturers distribute product specs), service technicians (to install and maintain the machines) and legal professionals (to handle the thorny IP, compliance and regulatory issues that will emerge when production enters homes). “Over time, this technology will reshape how we get consumer products,” says McCarthy. “If you’re ignoring it or treating it with contempt now, you won’t be able to capitalize when it does.”


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Revitalized U.S.

Offshoring lacks the lustre it once had, with rising labour costs, supply-chain delays and increasing quality concerns. The result is a spike in reshoring, especially to the U.S., says Brent McPhail, founder of Windsor, Ont.-based Brave Control Solutions, whose clients include manufacturers in Canada and the U.S. A recent Boston Consulting Group survey found that 54% of large manufacturers are either moving or planning to move Chinese production back to the U.S.

This suggests a coming wave of big-ticket fabrication to support, and that could mean lots of business for those providing the industrial giants with services (think training for staff in advanced production methods—something Canadians do well) or supplies (everything from software and robotics to raw materials and sub-assembled components).

Canadian manufacturers should also consider shifting their own production from overseas to the U.S. A high loonie, a greater-than-normal availability of low-cost factory space and equipment (the lingering result of the recession), plentiful labour and an abundance of subsidies from state and local governments make this an attractive proposition. But proceed with caution. Jayson Myers, president of Canadian Manufacturers & Exporters, warns these conditions can all change fast, which is why cost shouldn’t be your sole rationale for setting up stateside: “Going into the U.S. should be a strategic business decision to gain market share or to follow customers.”

Supply-chain modeling

Manufacturers are hungry for technologies and consulting services that can help them navigate a dizzying array of sourcing and distribution options. Is it really cheaper to ship a $10 widget from Vietnam with a three-month lead time than it is to buy the same widget for $20 from a manufacturer across town? Is the environmental impact of buying local materials negated by the energy-guzzling equipment used in the factory?

Firms that are able to draw on big data, analytics tools and deep knowledge to provide recommendations will find eager clients, says Chris Griffiths, a manufacturing expert at Cobourg, Ont.-based Fine Tune Consulting. “Calculating things like opportunity costs and the risks of sourcing overseas is much more vague than calculating a hard cost,” he says. Adds McCarthy: “There’s a dearth of expertise in making decisions about whether option A is better than option B. A lot of companies are guessing.”

E-commerce for manufacturers

For producers of consumer goods, Griffiths points to another bright—but underused—opportunity: adding direct-to-customer ecommerce capabilities as a complement to normal retail and wholesale distribution chains. Platforms such as Shopify have made it relatively inexpensive to set up an online sales channel that allows customers to browse your entire product range (as opposed to the curated picks and limited selection offered by retailers). Choice-hungry shoppers get a window into everything that’s out there and manufacturers get double the margin, which usually more than offsets the individual-order processing time. “You can make what the retailer would normally make on top of what you’d normally make,” explains Griffiths. “You’d think this takes sales away from retailers, but instead there’s an overall strengthening of the brand and an increase in business for everyone involved.”

This story is part of PROFIT’s 2014 Opportunity Guide, full of trends, ideas and markets you can jump on right now

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