While the domestic economy looks promising—most companies report they will continue to harvest most of their sales in Canada—those considering starting a manufacturing business should look at the advantages of doing so, but also keep a close eye on the changing challenges of entering the industry.
Challenges in the manufacturing industry
There are a number of factors that businesses need to consider when entering and expanding in this sector. Here a few:
- Shortage of skilled labour. There is a gaping space between available manufacturing jobs and skilled tradespeople. While automation has taken over some of the more onerous, repetitive jobs, there is still a need for workers trained in analytics, management and problem-solving. Some provinces are encouraging an interest in the trades, but there may not be enough trained personnel to close the gap.
- The costs of improving efficiency and productivity. An inefficient system can result in leaked capital. While advancements in technology can improve productivity, increase efficiency and save money, many businesses say they expect costs to rise due to higher payroll and energy costs. While manufacturers want to be the most efficient and productive, they report that it can be difficult to determine where productivity improvements make the most sense and how to prioritize them over everyday operations.
- Lower onshore and offshore costs with better quality. Onshoring is proving to be a growing challenge for manufacturers. While most manufacturing still takes place offshore and at a lower cost, some non-North American companies have found it's more cost effective to manufacture onshore than deal with the logistics and costs of shipping, storage and transportation, as well as tariffs. At the same time, while there has been a recurrent dilemma around price vs. quality with offshore manufacturing, nowadays offshore manufacturers can offer both. This certainly challenges the feasibility of items manufactured onshore in Canada at a higher cost.
- Government regulations. Ongoing regulation updates are the norm when it comes to standards around employment, permits, safety, offsetting pollution, etc. As a result, many Canadian businesses must spend time and money to ensure they're compliant.
- Maintaining cash flow/working capital. As with most businesses, the manufacturing industry is no stranger to the task of working capital management. Navigating the ebbs and flows of accounts payable and accounts receivable is an undertaking that takes the right combination of planning, tools, and services.
Advantages of the Manufacturing Business
Despite the challenges facing Canadian manufacturers, there are many reasons they remain optimistic about the industry. Indeed, there are several positive considerations to keep in mind when starting a manufacturing business.
- High standards of safety and better quality control. Among the many lifecycle aspects customers wish to know are a company's safety and labour practices. By manufacturing within Canada, companies can have tighter and better control over the entire manufacturing process. This includes ensuring products are built to specifications and standards set out by the industry, that health and safety regulations are adhered to for workers and that the environment is conducive to quick action should the market shift.
- Enhanced customer service. Customer service is a vital part of any company's success, and that success is often tied to the geographic location of the customer service representatives. Think of how many times you've called or emailed a customer service representative only to discover they're located thousands of kilometres away in another country. Not only that, communication can be hindered by language barriers and time zones. By having a manufacturing company—including its customer service centre—in Canada, you can benefit from having a responsive customer service protocol.
- Growing demand for product transparency. Customers are buying with environmental responsibility in mind. They want to know the entire lifecycle of a product, from where and how the materials were sourced to the manufacturing process and the transportation costs. Local manufacturing businesses have a distinct advantage in that they are an eco-friendlier option because they manufacture onshore and do not have to ship via ocean cargo. Ocean shipping is one of the largest emitters of greenhouse gases; by cutting down on it, not only are prices lower but customers can buy knowing a locally-manufactured product has a smaller carbon footprint.
Starting a manufacturing business
If you're thinking of starting a manufacturing business, here are five tips to consider:
- Assess your business model. Manufacturers have been around for more than a century, which means there's a wealth of information and education. Before you set up your warehouse management system and supply chain system, take the time to learn from other manufacturing models and apply best practices to your own initiative.
- Start with a manufacturing business plan. This plan should answer questions about the product or service, your competition (both the market and other companies) for said product, the skilled tradespeople available, startup costs and the type of business financial guidance and tools required. While you're building your plan, reach out to consultants in various fields, including finance, accounting and manufacturing.
- Reach out to industry sources. Ideally before you start your business, you'll want to make sure you are aware of and have access to the resources available to support your manufacturing business endeavour. This includes materials, hydro and warehousing space. You could build a factory, but the ideal situation would be to find a factory that has all these resources already and purchase it.
- Determine the best location. When looking for a space for your manufacturing business, look out for transportation links to easily facilitate shopping and receiving of raw materials and final products, as well as access to and from your site for employees and customers, as needed. Cost does play a factor, and that can include any business taxes to set up in your chosen area. Be sure to evaluate these costs against the ease of having accessible links to your market.
- Recruit the right team. Every good business needs a good team. You'll want to surround yourself with experienced, enthusiastic team members who believe in the goals of your manufacturing business. Hire a top-notch financial team and great managers and allocate budget for skilled tradespeople. Remember, there are more jobs than people to fill them so offer competitive salaries to find and retain the best employees.
It is an exciting time in the manufacturing industry. There are uncertainties, but there are also opportunities for entrepreneurs to enter the industry and take advantage of the disruption that's happening. A manufacturing business plan, combined with a trusted group of experts, can help you take advantage of the flourishing industry.
1 https://www.plant.ca/wp-content/uploads/2019/01/PLT_Outlook2019_FINAL_v2lrb.pdf
This article is intended for general informational purposes only and does not constitute legal advice or an opinion on any issue. It should not be regarded as comprehensive or a substitute for professional advice.