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Fuel Expansion in Trying Times

By: Brad Kuvin

Sunday, June 01, 2008
 
Last month on this page we implored metalformers to jump all over the big tax advantage floated by Congress to encourage capital investment in our nation’s manufacturing companies. Some recent conversations lead me to believe that many of you will at least consider the “offer that you can’t refuse,” and look for opportunities to leverage new capital-equipment resources to improve productivity.

But, to be sure, for some the offer of a bonus depreciation and a substantial hike in the write-off for new purchased equipment still fail to overcome deeply rooted fear—fear that the economy will continue to slide so far and so fast that even at such a great bargain, any new purchased equipment will be nothing more than an albatross. In this case, what can companies do to more than just survive this slowdown, but to also increase their level of competitiveness, and even expand?

Answer: According to a recent survey of small manufacturing businesses conducted by the Small Business Research Board (SBRB), Northfield, IL, the leading option to improve productivity and spur expansion is to invest in human resources. The survey reveals that there’s plenty of aggressive planning underway by owners and managers of small manufacturing companies that focuses on human resources and customer needs. Of those participating in the survey, 34 percent look to expand their businesses during the next 12 to 24 months, and to propel their expansion plans they will concentrate on human resources and customer satisfaction.

Now this does not mean that to expand your services you have to hire more people. Instead, according to the survey, improving staff training promises to provide the greatest boost to small manufacturing companies. This represents a shift from the previous SBRB survey, completed late last year, when adding more automation or technology was regarded as the leading means for improving operating efficiency and productivity.

And, improve it did—U.S. Department of Labor statistics for the first quarter of 2008 indicate that manufacturing productivity grew at an impressive 4.1 percent, as hours worked declined by 4.2 percent and output only dropped a modest 0.3 percent. This implies that people are working harder. There’s no doubt in my mind that this is the case; I see it every time I visit a metalforming shop.

But not only are people working harder, they’re also working smarter, thanks to a continued emphasis on manpower development and skill upgrades. Actually, in many cases investing in human resources can yield an even bigger bang for your buck than will investing in capital-equipment resources.

Research supports this notion. One study I found shows that increasing the educational level of employees by one year raises productivity in manufacturing plants by as much as 8.5 percent. Another study says that by simply improving literacy, companies can enjoy a 2 percent jump in productivity.

Bottom line: Train now to improve productivity and you’ll be ship-shape to handle the economic turnaround, when it comes. And it might come sooner than you think—the surprising growth in the backlogs of orders through the first four months of the year (according to the Institute for Supply Management) may be an early sign that the economy will pick up in the second half of the year. At least that is what one analyst—Roland Chalons-Browne, president and CEO of Siemens Financial Services, says. Thanks to lower interest rates, the economic stimulus package and the stabilization of the dollar, Chalons-Browne says: “I think we’re going to see more positive third- and fourth-quarter results.”

Don’t we all hope he’s right.

 


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