Starting a Manufacturing Business: The Challenges and Advantages

If you’re looking to start a manufacturing business, now is a time of both unprecedented challenge and opportunity. Despite some concerns about a weaker domestic economy and high business costs, there’s a significant shift happening in the American manufacturing landscape – one that hinges on the rapid integration of virtual and physical technological advancements.

For new entrants in the manufacturing sector, understanding the numerous advantages and disadvantages of a manufacturing business is crucial. While innovative technologies can present opportunities for success, it’s important to be mindful of the everyday challenges that can come with navigating this rapidly evolving industry.

Challenges in the Manufacturing Industry

What are a manufacturing business’s chief concerns? Here are a few factors to consider before entering this sector:

While innovative technologies can present opportunities for success, it’s important to be mindful of the everyday challenges that can come with navigating this rapidly evolving industry. 

Shortage of skilled labor

There is a gaping space between available manufacturing jobs and skilled tradespeople – and the situation shows no sign of abating. According to The National Association of Manufacturers (NAM) Q2 2023 Manufacturers’ Outlook Survey, which surveyed 305 small, medium, and large manufacturers in the field during the spring of 2023, 74.4% of respondents ranked attracting and retaining a quality workforce as a primary challenge. The dire straits stem from several factors, including poorly defined roles triggered by digitization, outdated skill sets, and retirement. 

Automation and training

While automation has taken over some of the more onerous, repetitive jobs, the skills needed to manage and maintain automated equipment and digital processes must keep pace. In the next decade, it’s expected that technological and cognitive skills, like complex coding abilities, may be in huge demand as the share of physical and manual tasks dramatically declines.

Rising costs

The high costs of materials, warehousing, and supply chain volatility, not to mention other economic headwinds such as shrinking credit availability, continue to place stress on the manufacturing industry. Thus, operational cost efficiencies remain a priority, with many businesses seeking out alternative products, materials, and transportation solutions – all while pushing toward a “smart factory” approach that leverages advanced technologies such as AI, Internet of Things (IoT) devices, data analytics, and cloud computing.

Government regulations

Companies spend a significant amount of time and money to ensure they’re compliant with standards around employment, permits, product safety, and offsetting pollution. The NAM survey found that more than 63% of manufacturers report spending over 2,000 hours per year complying with federal regulations. If they weren’t shouldering such a regulatory burden, 65% of manufacturers said they would invest in more capital equipment.

Maintaining cash flow

Navigating the ebbs and flows of accounts payable and accounts receivable is an undertaking that takes the right combination of planning, tools, and services. Too much inventory, prepaying suppliers long before consumers purchase goods, and untimely customer payments can all hamstring manufacturers’ growth and impact liquidity.

Advantages of a Manufacturing Business

What is the manufacturing business optimistic about? Despite industry challenges, there are plenty of pluses to entering the production environment:

Manufacturing momentum

Three significant pieces of legislation – the Infrastructure Investment and Jobs Act (IIJA), the Creating Helpful Incentives to Produce Semiconductors (CHIPS) and Science Act, and the Inflation Reduction Act (IRA) – have pumped funds into several manufacturing industry sectors, while also advancing initiatives like expanding the semiconductor industry. The U.S. manufacturing industry is in turn poised to capitalize on this momentum.

Domestic production.

As manufacturers grapple with the logistics of offshoring and the international costs of shipping, storage, and transportation, as well as issues like inventory obsolescence and quality control, many are shifting towards onshore or nearshore production. Also known as reshoring, this approach uses domestic manufacturing (or close to it) because of its greater flexibility and responsiveness, shorter lead times, and more stable supply chains – all of which can help mitigate higher costs.

Enhanced customer service.

According to Deloitte’s Customer Service Excellence 2023 report, 78% of respondents said that increasing customer satisfaction is their highest investment priority for the coming year. The report surveyed 297 customer service leaders in Q2 2023, with manufacturing among the top industries represented.

While traditional phone calls and email remain popular with customers, focus is shifting toward cost-efficient digital channels, including chatbots, digital assistants, self-service channels, and AI/automation tools that streamline customer service processes, improve customer satisfaction, and reduce labor costs.

Starting a Manufacturing Business

If you're thinking of starting a manufacturing business, here are six tips to consider:

1. Home in on your niche.

Before launching your endeavor, try to determine what type of product you want to make, who your target audience is, what consumer demand is like, where you plan to manufacture, and where you plan to sell. It can be critical to know what sets your product and business apart, be it price, special features, an upgrade in quality, or a more advanced solution. Aim to produce items with minimal startup costs, a thriving market (be it niche or mass), and room for sizable profit margins.

2. Create a manufacturing business plan.

Whether you’re hoping to raise funding through bank financing, savings, crowdfunding, or just want to ensure that your venture takes off, you should consider a business plan. It should capture what your product or service offers, the competition, skilled tradespeople available, tools required, and a five-year strategy for attaining growth, backed by market research.

3. Think 4.0.

Steam engines kicked off the first Industrial Revolution in the late 19th century; today’s Fourth Industrial Revolution, also known as Industry 4.0, is digital. Powered by intelligent computers, Industry 4.0 applies disruptive technologies – including data and connectivity, analytics and intelligence, robotics and automation, and advanced engineering – throughout the manufacturing process.

For example, “digital twin” capabilities are virtual replicas of people, processes, or physical objects that are used to simulate behavior and provide a clearer view into how the original works in real life. Digital twins can integrate real-time data from sensors and IoT devices with augmented reality and machine learning tools to provide a digital window into machinery, the factory floor, inventory, supply chains, manufacturing process, and even teams of workers. These replicas can be instantly iterated on to reduce waste, increase traceability, enhance processes, and more.

4. Available resources.

Before getting started, try to be sure you can access the tangible materials necessary to support and grow your manufacturing business. For raw materials, aim to find dependable suppliers who can provide both quality and cost-effectiveness. The right manufacturing equipment, whether traditional machinery or advanced digital technologies, is also important. If you don’t have the seed money to buy new, leasing can be a cost effective alternative. Don't overlook the importance of finding the ideal warehouse or production space – it should be sufficient for your operations and within your budget. And try to be sure to factor in essential utilities like power and water supply.

5. Determine the best location.

Your business’s location can be as important as your product itself. Choosing a location is a multifaceted decision involving several key considerations. First, think about how close you are to customers. A location near your market can reduce delivery times and shipping costs, making your business more competitive. Then, consider supply chain logistics. Proximity to suppliers can cut transportation costs and streamline operations.

Don’t forget to factor in the cost of doing business in your location: what are local taxes, utility expenses, and labor costs like? Similarly, try to pay close attention to the local regulatory landscape, which can include zoning laws and environmental regulations. 

6. Recruit the right team.

It's important to surround yourself with experienced team members who support your business goals. Consider hiring a top-notch financial team, talented managers, and skilled tradespeople. To find and retain the best people, it can help to offer competitive salaries, invest in training and upskilling, provide flexible scheduling options, and cultivate a positive work culture.

The Bottom Line

It’s an exciting time in the manufacturing industry. There are uncertainties, including high costs, scarcity of labor, and a challenging economy, but there are also opportunities for entrepreneurs to make an impact. A manufacturing business plan, combined with skilled workers, the right location, products, suppliers and resources, and a firm grasp on advanced or emerging technologies can help you succeed as a manufacturing operation today, and tomorrow.

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