(Automated) Manufacturing is Alive and Well

I had a conversation with a friend in the packaging equipment business.  His company manufactures equipment for both direct (think consumer packaged goods) and indirect (think shipping) packaging.  The company has never been busier. The company’s backlog is up almost double what it was two years ago.  He spends his days as “chief complaint resolver,” as he put it, trying to figure out ways to get orders out the door faster for his demanding customers.

Yet anyone on the consumable side of the packaging business tells me things are just “OK.”  Most are meandering along with GDP-like growth.  Some are doing much better, some much worse than the 2-3% growth in the overall economy.  But, if I add it up, that’s probably a safe number for consumable growth.  What gives?

In this specific example, a lot of the equipment is going to consumer packaged goods (“CPG”) companies.  Their customers, predominantly major retailers, are getting hammered by the internet and consumer desires for fresh foods, among other things.  Retailers screaming for lower prices, necessitating cost cuts from the CPGs.    I’ve written this before but it bears repeating: despite what the government says about stagnant wage growth, the costs of employees continues to increase.  Health care isn’t getting cheaper.  Workers’ compensation insurance isn’t getting cheaper.  As the costs of labor increase, the cost of capital equipment becomes relatively cheaper.  Equipment also doesn’t call off work.

Automation is a fact of life.  US manufacturing output is at an all-time high.  Manufacturing employment has barely budged since the great recession (see graphs and link below).  If you’re not automating your business, someone else will.  If that happens, your business will have no jobs.



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