HRI is conducting these surveys to better understand how the COVID-19 pandemic is impacting small- to medium-sized manufacturers, both production and tooling.
On average, HRI noted that of the more than 250 responses to the survey, shops predict a 25% drop in revenue from the original 2020 forecast. While dying makers and die casters are expecting the most significant drop, they are closely followed by stamping, molding, and mold manufacturers. The automotive industry is experiencing the highest level of impact with an operating level of 33%; on average, shops serving the automotive industry have laid off 29% of their workforce. This is an improvement from the April survey results, however, which indicated the automotive industry was at an operating level of 28% with 41% laid off.
“Even though the manufacturing industry is operating, it is not out of the woods. There are a number of challenges shops will face in the remainder of 2020 and 2021, so strategically managing resources required to build capacity and meet customer needs will be increasingly more critical,” said Laurie Harbour, President, and CEO of Harbour Results. “In our study, 35% of tool shops and 47% of production shops indicated they are struggling or concerned about the future. This tells me not all shops will survive this crisis. We know there will be a dip in production across all sectors, so shops need to develop business plans that account for best, worst, and likely scenarios.”
As shops look to ramp up operations, operating cash will continue to be critical to maintaining viability. In the May study, more than half of shops indicated that they had less than six weeks of cash on hand, with 67% of tooling and 56% of production shops experiencing payments being stretched or negotiated. Additionally, 32% of respondents were not modeling 13-week cash flows.
According to Harbour, shops that don’t understand their current and future cash situations cannot make informed business decisions. “Shops need to pull levers to strategically contain costs,” she said. “If you don’t understand your current situation, you will not know how far you need to cut.”
One consideration for cost containment is voluntary and strategic layoffs. This second study indicated that all shops have implemented some level of temporary layoffs and 92% plan to retain their workforce. Additionally, 98% of shops applied for federal funding to support retaining staff.
“We feel strongly that leadership needs to closely look at its workforce and determine who the key players are and be strategic when bringing back employees to better manage cash,” said Harbour. “Unfortunately, the federal funding is not a competitive advantage for shops and may have created a false comfort level for those who received the funds.”
In spite of the downturn in revenue, one positive result of the COVID-19 pandemic is that many companies are looking to restore work in an effort to better manage their supply chain and eliminate risk, said HRI. Nearly 50% of North American tooling shops are quoting on programs historically produced in China and 34% of production shops are increasing North American sourcing.
“This is positive news for the industry — shops need to focus on sales to take advantage of this opportunity while it exists,” Harbour added.