There is an industry axiom which refers to business leaders moving from clipboard to automation. As competition becomes more and more robust, so too does the need to remain in constant control of all parts of the manufacturing process. From raw materials, to temperatures, sick days, machine downtime, quality standards etc. There are many roadblocks manufacturers face in our region. Some of them are beyond their control. However, there are many variables they can manage to ensure more productivity and success. It would do us well to understand some of these variables and why we should help them on both fronts.
In this blog series, I’ve been sharing what I learned from manufacturers in our province through a series of interviews I’ve been conducting on behalf of the JDI Roundtable team. In my last post, I talked about how a change in culture is required, along with an adjustment in how we view and value our manufacturing sector. New Brunswick manufacturers are significant generators of revenue and employment. They are economic engines right here in our own communities! Are you aware that we have more than 1,200 manufacturers located throughout the province? Did you know they employ more than 30,000 workers? Have you ever wondered how much revenue they bring into our communities? What if I told you these 1,200 manufacturers accounted for more than $3 billion of our provincial GDP? That’s significant!
What if I told you these manufacturers are not selling the majority of their products in our region? Our economy is highly dependant on these companies exporting their goods to markets in the US, EU, Asia and Russia. These manufacturers grow our economy by competing for global market share. With their export sales, there is unlimited income growth for us and them. However, it only happens when they gain a larger share of growing global demand. The same cannot be said if they produce and sell just to our local market. It’s simple math really. Our local market is too small.
For manufacturers to drive our economy, we need to mitigate things like trade disputes that can lead to tariffs, trade costs and delivery delays. This makes it difficult or impossible for our manufacturers to ship their goods to markets. Manufacturers deal with market disruptions erupting from international conflicts. They must also adjust to dramatic fluctuations in the value of the Canadian dollar relative to other world currencies. Those are external factors beyond our control and they have a negative impact on our manufacturers’ ability to compete. Given the large proportion of our GDP that comes to us via our manufacturer’s efforts, any negative factors will have a direct impact on the New Brunswick economy.
What can we do in New Brunswick to improve their ability to compete? What conditions can we control to allow manufacturers to produce and export from here? Our manufacturers were doing fairly well prior to 2010. Their levels of productivity and efficiency were trending in the right direction. Are you aware of the effort and investment that manufacturers must make to ensure they are as efficient and productive as possible? Are you aware of the attention they must pay to every detail? Things like up stream and down stream shipment, quality and timeliness of delivery to customers, costs of raw material, interest rates, utility bills? It’s not for the faint of heart.
And then consider the competition. It’s formidable! As global competition drives prices for our manufactured goods down, productivity and efficiency at home is critical. Productivity and efficiency are responsible for reducing the average costs of producing. If you don’t manage this well, you may get the product to market but there is a big risk that you aren’t going to sell. Price competition is a killer. If the competitor has any advantage that permits them to produce at a lower cost and thus sell at a lower price, they will do it. Without sales you can’t remain in business. If you are good, there is always someone out there that wants a piece of your success. Our manufacturers need to continuously invest in their business to ensure they stay top of class for their customer. Every penny, every input, every improvement matters.
The challenge for our province’s manufacturers to maintain their competitiveness and global market share is important. We need to be aware that our producers are not geographically close to their customers or suppliers. They must pay suppliers for raw materials, shipping companies to haul material in and bring finished products to market. I know you are aware of your water, sewer and power bill. How much does that cut into your disposable income? You can’t even imagine the size of the manufacturer’s utility bills. It is staggering when you hear the manufacturers talk about the $250K power bill for the last quarter. Their water bills aren’t small either. Factor in the cost of insurance. The percentage of our disposable income dedicated to insurance is maddening. It pales in comparison to the insurance manufacturers pay. And then there is the New Brunswick provincial property tax. Are you aware that manufacturers in other provinces do not face the same tax challenges?
Consider the cost of health care and education for our families. They are a necessity for us – aren’t they? The same is true for our manufacturers. They dedicate money to training and retraining employees. They must keep them safe and healthy. An injured worker cannot contribute to productivity. An untrained or stale-dated worker is a liability when it comes to consistently getting top rate products out to their customers. These are just some of the costs that whittle away at revenue and thus bottom line profits. Don’t get me wrong – our manufacturers are not asking for a free ride. They willingly invest in their people and their business. My point here is simple – running a successful business is not easy, it is expensive, it is risky and there are no guarantees.
The manufacturer is constantly on the hunt to control cost, streamline production, eliminate waste, and guarantee quality, amongst other things. These are part of the “cost of doing business.” So why do we need to recognize these facts? When we set taxes, regulation or other policies that impact a manufacturers’ costs, productivity – and ultimately profitability – are we thinking about the impact of these actions on the competitiveness of our exporters? Are our actions part of the solution or are we adding to the challenges that manufacturers deal with every day? We need to do all we can to support their continued investment in productivity so they continue to create wealth and employment in the community.
I suspect you are aware how valuable the manufacturing sector is to Ontario. This is where many vehicles and vehicle parts were manufactured. In NB we often viewed them as the economic engine of Canada. A giant that could never be beaten. Are you aware that since 2008 they have lost more than 250,000 jobs? Are you aware these jobs were labour intensive? Did you know these jobs moved to other parts of the world where labour is not even paid a living wage?
NB is no less vulnerable than Ontario. In fact, we are more vulnerable. We are much farther from our suppliers and the customers to whom we sell our products. If we want great paying jobs and manufacturing activity in NB, we need a change in how we support NB companies. We need to help them compete. We can’t alter geography, but we can help them to invest in advanced manufacturing methods and processes.
Enough bad news. The good news is that our more seasoned manufacturers are already preparing to remain competitive and/or become more competitive. Each of the businesses we interviewed demonstrated where, why and how they are making strategic plans and investments. Investments that give them more timely access to information, more control over process and more ability to quickly control and improve their productivity. They are doing this in spite of us, not because of what we are doing to support them to grow their exports.
Our manufacturing business leaders are making the move from clipboard to automation. They are making investments in both simple and sophisticated methods of production, information systems and machinery. These investments are essential to keep them as competitive as possible. Whether they compete on price or quality – being in control of either is extremely important. They are determined to remain relevant in the export markets. It is a point of pride for them. Think of this pride as a value-added commodity! These investments pay dividends, but they are costly, and in many cases, the ROI isn’t immediate. The frightening fact is that the opportunity cost of not making the investment is far more expensive – to all of us.
I wish we had 10X more of these engines in New Brunswick. And so should you! A wise man once told me that “hope is not a strategy.” In our next post we will reveal some of the strategies our manufacturers are investing in to become more competitive, stay relevant and continue to employ our youth, our neighbours – maybe even you. They aren’t gambling their future on hope.
I “hope” you come back for my next post and learn what local manufacturers are doing and how you can help.
Ed McGinley has worked in the Information Technology sector for 24 years. He gained experience in the building trades, modular home manufacturing before it was sexy. As a student he worked in mines, mills and nightclubs, studied economics and business at university and after all that, stumbled his way into the tech sector. He has seen provincial politics from the inside. He grew up in Bathurst and now makes Fredericton his home. He has been one lucky NBer – often in the right place at the right time! He would like to see more of our youth experience the same, but admits we have to remove “lucky” from the equation. As citizens, we need to be more calculated in how we make luck happen here.
August 6, 2020
The JDI Roundtable on Manufacturing Competitiveness in New Brunswick is an independent research program made possible through the generosity of J.D. Irving, Ltd. The funding supports arms-length research conducted at UNB.
