Manufacturers next year will be facing many of the same challenges as in years past. A fair amount of manufacturing is still migrating overseas, which makes it difficult for domestic businesses to compete solely on cost. It’s unlikely that pricing pressure is going to go away, either, but customer education can go a long way toward insulating your company against “sticker shock.”
One of the most common misperceptions in the manufacturing business has to do with labor. Manufacturing is moving overseas because labor is cheaper in emerging countries. This may be true, but how much does labor contribute to your overall costs? Your customers may be surprised. In many industries, labor accounts for only 10 percent to 15 percent of overall expenses. Applying automation to operations can decrease these costs further.
According to market research firm iSuppli, global manufacturing firms are looking beyond labor costs as they expand. “Ultimately, the emphasis has greatly shifted from labor costs only to the total cost of ownership, which considers managerial resources, organizational structuring, manufacturing competencies, intellectual property and, of course, logistics,” says Adam Pick, principal analyst for EMS/ODM market intelligence services at iSuppli.
Many of the same factors can be applied domestically. Find out what the labor benchmarks are for your industry (trade associations would be one place to start). Figure out exactly how much of your costs are associated with labor. If they are relatively low, emphasize this point to your customer—and help narrow the gap between perceptions and reality.