Outsourcing and insourcing
Since the 1980s, layoffs of production, engineering and support personnel have been common choices to reduce costs. These layoffs, coupled with retiring workers, have whittled away the manufacturing base in the United States. As a result, companies must pursue other avenues to cut costs.

With decreased business activity and workforces, manufacturers are outsourcing administrative activities, such as human resources, purchasing and even accounting. Small- and medium-sized producers are testing the waters with local outsourcing of component and production activities to job shops.

Although these outsourcing activities may be a necessary step to survive, they present new challenges. For example, outsourcing to local vendors may reduce the need for some on-hand inventory, but the manufacturer is no longer in control of lead times or the opportunity to fill rush orders.

As demand decreases, manufacturers have been forced to lower minimum order sizes. This adjustment to demand has caused them to change over tooling every single shift. These lower production quantities have resulted in more changeover time for products, higher scrap rates, and more wear and tear on equipment. In the short term, manufacturers have met the maintenance needs of these demands by using parts from one of their mothballed production lines to keep the other ones running. What happens when the economy picks back up? Will the mothballed and scavenged equipment be operable, or will these manufacturers have unintentionally decreased their production capacity?

And today, as offshore costs have approached parity with local capabilities, insourcing has become a way for manufacturers to maintain a level of self-reliance. Insourcing has presented complications, though. For example, a manufacturer of vacuums found its quality problems increased when insourcing production because the company no longer had technical personnel familiar with the assembly of its own equipment.

Cross-training
The recession and layoffs have also forced companies into a situation where there's only one person to do each job or a handful of employees who are doing all the required work. This has emphasized the need for cross-training core personnel. On a given day, an engineer may be required to design a component, purchase the materials and schedule the production.

While saving overhead, employee furloughs can delay opportunities. For the companies with cash available to pursue capital projects, the rolling layoffs impede the justification process. For example, a company furloughing on a four-week rotation, the week off and the week of catching up can cause the process of justifying a capital project to increase by twofold or threefold, considering the time required to coordinate technical personnel with outside vendors and review quotations.

Developing technologies and new industries have bailed us out of recessions before by increasing economic activity. Even as companies pursue expansion, they're finding substantial roadblocks. Major banks and financing companies have restricted leasing to any LLC without several years of credit history, even when the equipment suppliers are willing to back the loans.

The future of manufacturing
So, what will the manufacturing landscape look like when things rebound? Several manufacturers have said they will never have as many employees as before this recession. They're able to do more with less. A portion of the current U.S. unemployment rate is baby boomers who are willing and able to work, as well as people in entry-level roles. Plus, companies have had to give their core team more responsibilities to survive, potentially making some old disciplines obsolete.

It seems we're coming to a new era of freelance employment in manufacturing. Like a small business, medium and large manufacturers now have their core personnel who are cross-trained and capable of many responsibilities. On the outside, industry veterans are available on a consulting basis. Additional personnel, in entry-level or midlevel capabilities, may fit into the puzzle as temporary employees to fulfill fluctuations in business demand. It's tough to say if this is how things will stay, but at least in the short term, as we're bouncing around the bottom of a recession, it's the landscape we face. FFJ

Jack Pennuto Jr. is the sales manager at Formtek Metal Forming Inc., Warrensville Heights, Ohio. He's worked in the sheet metalforming industry as a researcher, tooling designer and project manager.