Can Manufacturing Businesses be Recession-Proof?
If you’ve been tracking the Manufacturing ISM® Report On Business® for the past 12 months, you’ve likely felt unsettled. By all metrics, the manufacturing economy slipped into a recession for the better part of six months, and has teetered very close to contraction since recovering in January. Numerous other metrics and signals also have tolled loudly for a manufacturing recession, putting companies across the country on high alert and in defensive positions. But some will have to work harder than others to weather a full-blown recession.
Although it’s realistic to think that no manufacturer is immune to recession, there’s also plenty of merit to the idea of recession-proof producers. The simplest example is pharmaceutical manufacturing. Even at the market’s lowest levels, people still need their medication and, often, it trumps every other purchase outside of absolute essentials like food and shelter.
Pharmaceutical manufacturing isn’t the only recession-proof or recession-resistant form of production. A surprising number of manufacturers maintain and even grow their operations during recession. Some of the best examples include:
- Food producers rarely falter during economic turbulence. Food is the number one consumer product and becomes even more in-demand as consumers forgo dining out to make cost-efficient meals at home.
- Household staples also buoy manufacturers in a down economy. People need toothpaste, soap, laundry detergent, paper products, and more, regardless of economic outlook. Manufacturers of these products see relative stability in turbulent markets.
- Diversified manufacturers also tend to do well in rougher economies for obvious reasons. With less production delegated to any one product line or sector, these manufacturers can adapt quickly to maintain operations.
Honorable mentions include recession-resistant manufacturers such as alcohol producers, tobacco product manufacturers, automotive part manufacturers, and pet product companies.
Building a recession moat
Whether it’s truly here or not, most manufacturers are looking at a recession. Specifically, they’re moving into a defensive position ahead of one. For many, it means downsizing and tightening their belts. But there are other options for recession-proofing a business that manufacturers need to consider outside of simply cutting costs:
- Increase production efficiency through Lean initiatives.
- Make long-term investments in automation and digitization.
- Diversify supply chains and renegotiate terms with suppliers.
- Maintain leaner, more efficient inventories.
- Partner with third-party maintenance (TPM) providers for services too costly to maintain.
- Divest non-essential, low profit segments of operations.
There are numerous options in the way of insourcing production contracts and white-label manufacturing as well. Manufacturers need to optimize their production operations to generate more in addition to wasting less.
Above all, building a recession moat comes back to the core premise of recession-proof producers: essential elements. Essential manufacturers produce the products people need. What can discretionary manufacturers do to secure this same level of stability? The answer is finding ways to become invaluable outside of the products you produce. For many, it means a shift to value-add service and partnerships with those inherently recession-proof manufacturers.