Product manufacturers play a critical role in ensuring various items—whether it’s equipment, machinery, appliances, toys, textiles, food or beverages—are correctly produced before they get distributed. By properly piecing together key parts and components, these manufacturers can successfully generate final products that prove effective and safe for customer use.
In recent years, product manufacturers have encountered a wide range of industry developments. Between labor shortages, supply chain challenges, costly lawsuits, inflation issues and technological advancements, there are several trends currently affecting the product manufacturing sector. Keep reading to learn more about these developments.
Labor and skills shortages
Similar to other industries, the product manufacturing sector has experienced significant labor shortages amid the ongoing COVID-19 pandemic. While the sector has been able to regain 75% of its 1.4 million jobs lost since the initial onset of the pandemic, product manufacturers are still struggling to fill open positions and retain workers—contributing to a national deficit of nearly 350,000 jobs.1 These struggles have largely been caused by a growing number of employees reassessing their job priorities due to the pandemic, thus motivating both existing and entry-level workers to pursue opportunities within other industries that provide more competitive wages, offer additional employment benefits and have less restrictive job requirements.
Such labor shortages have subsequently led to an expanding skills gap across the product manufacturing sector, making it increasingly difficult to secure qualified workers. In fact, U.S. manufacturers have confirmed that finding the right talent is now 36% more challenging than it was in 2018, despite the current unemployment rate doubling the number of available workers. Consequently, as many as 2.1 million manufacturing jobs could be left unfilled by 2030, costing the U.S. economy $1 trillion.2
To combat labor and skills shortages, product manufacturers should consider adopting a variety of workplace strategies. First, these manufacturers may want to enhance their employee offerings in order to remain competitive with other industries and keep workers from exiting the sector. Such offerings may include increased wages, added benefits and greater work flexibility. Also, product manufacturers may be able to secure additional talent and promote workplace diversity by focusing their hiring efforts on underrepresented communities, such as women and minority groups. After all, women make up less than one-third (30%) of the manufacturing workforce—showcasing a substantial amount of untapped talent and growth opportunities for the sector.3 Furthermore, product manufacturers should focus on enhancing their employee training practices to ensure workers are able to acquire the specialized skills (e.g., performing data analysis and working with automated equipment) and digital knowledge (e.g., utilizing industrial control software) needed for their roles. This training has become increasingly vital to help close the sector’s skills gap, especially as manufacturers are expected to implement a growing number of digital systems within daily operations in the years to come.4
Finally, recent industry advancements have made it possible for product manufacturers to leverage technology to help minimize the impact of labor and skills shortages. Examples of this technology include collaborative and self-repairing robots, commercial drones, artificial intelligence (AI)-enabled machinery and other smart devices.5 This technology can improve operational efficiency and boost workplace productivity by assisting workers with job tasks or replacing employees altogether. In particular, it can be utilized to complete a number of activities, including equipment inspections and quality control assessments. Such advancements can also help protect workers from potential injuries on the job by enhancing hazard visibility, minimizing physical contact with heavy machinery (e.g., forklifts) and automating repetitive motion tasks (e.g., lifting and lowering objects).6 Yet, it’s important to note that the implementation of this technology may require product manufacturers to hire workers with advanced technological skills, which could be a challenge in the current labor market.
Supply chain disruptions
Apart from labor and skills shortages, the pandemic has also contributed to supply chain concerns for product manufacturers. In fact, the majority of U.S. manufacturers (93%) reported experiencing inventory struggles due to the pandemic.7 Taking a closer look, a combination of high demand and limited availability has ultimately led to supply disruptions and skyrocketing prices for a range of raw materials throughout the past few years, many of which are critical to product manufacturers’ operations. What’s worse, delivery times for various materials have been significantly delayed due to driver shortages within the trucking industry and substantial congestion at U.S. container ports—further compounding supply chain challenges.8
These inventory issues have forced many product manufacturers to make changes to their supply practices. While some manufacturers previously relied on lean, low-waste tactics and the “just-in-time” model—which refers to storing the bare minimum of supplies needed on-site to meet customer demands—supply chain struggles have made these processes harder to maintain. For manufacturers committed to lean tactics, it has become increasingly vital to closely monitor ongoing shifts in supply and demand to ensure adequate inventory.9 To further mitigate supply difficulties and avoid elevated expenses, some product manufacturers have opted to work with alternative, low-cost materials that are easier to obtain. However, these materials are often less reliable, creating quality control issues and increased liability concerns if finished products are defective or pose safety hazards.
In addition, some product manufacturers have sought to capitalize on supply chain disruptions by expanding their operations to include products outside their area of expertise. For example, at the initial onset of the pandemic, certain manufacturers attempted to add products such as hand sanitizer and face masks to their operations, thus pivoting into the medical product space. Yet, doing so can create additional production risks, especially when manufacturers lack the necessary knowledge and experience to generate these products. What’s worse, expanding operations amid supply chain disruptions could also lead to insurance challenges, as manufacturers may encounter difficulties in adding these new operations to their existing liability coverage.
Nevertheless, there are other strategies that product manufacturers have implemented to manage supply chain challenges. Specifically, some manufacturers have begun reevaluating their shoring and sourcing practices with the goals of transitioning to domestic (as opposed to international) production and obtaining raw materials from local suppliers. These techniques—known as reshoring and near-sourcing, respectively—were already on the rise among U.S. manufacturers since 2010 but have become increasingly common since the start of the pandemic. Such practices can help manufacturers reduce their reliance on foreign materials and avoid any international transportation challenges that could cause supply chain disruptions (as well as related costs).10 Additionally, a growing number of product manufacturers either plan to or already have started investing in supply chain visibility software to prevent potential inventory problems—including demand-planning technology and customer relationship management (CRM) tools.
Nuclear verdicts related to product liability issues
In today’s increasingly litigious society, many businesses have encountered a surge in nuclear verdicts, which are lawsuits that lead to plaintiffs receiving damage awards totaling more than $10 million. Over the last five years, the average verdict among the nation’s top 100 verdicts skyrocketed from $64 million to $214 million, making it clear how prevalent nuclear verdicts have become. These verdicts have been driven by a combination of shifting attitudes toward businesses (commonly referred to as social inflation) and more aggressive plaintiff attorneys. In other words, there has been a rise in demand for businesses to be held more accountable for their mistakes, thus increasing both the cost and frequency of related lawsuits.
As it pertains to product manufacturers, nuclear verdicts are most likely to arise from liability lawsuits in which customers allege that the poor manufacturing of a product caused them harm or resulted in other damages. With this in mind, it’s crucial for product manufacturers to prioritize effective quality control methods and ensure their products are safe for customer use. Investing in these measures is well worth it to avoid the risk of a financially devastating lawsuit. Additionally, as a result of these nuclear verdicts, insurance carriers are willing to deploy smaller liability limits resulting in the need for multiple carriers to help build out the limits needed to adequately protect these businesses. As product manufacturers look to adjust their coverage and increase their excess towers in response to social inflation and nuclear verdicts, Nationwide can assist with providing higher limits.
The culmination of the aforementioned trends has collectively led to inflation issues across industry lines, including product manufacturing. Such inflation has been clearly showcased through the rising consumer price index (CPI) this past year. Between November 2020 and November 2021, the all-items CPI jumped 6.8%, representing the largest 12-month increase since 1982.11
Product manufacturers have likely experienced inflation concerns in recent months by way of surging raw material expenses, the need to increase employees’ salaries for hiring and retention purposes, and potential nuclear verdicts related to product liability lawsuits. Looking ahead, inflation issues are expected to continue throughout much of 2022. As such, it’s important that product manufacturers take steps to offset the impacts of inflation by engaging in appropriate pricing. Seeing as pricing and procurement go hand in hand, rising material costs should be adequately reflected in manufacturers’ pricing methods to maintain sufficient profit margins.
Nationwide’s underwriters stay abreast of current industry trends and understand the current volatility in revenues relating to procurement issues. To combat these issues, Nationwide can offer flexible coverage solutions, such as lower minimums and advanced premiums (in certain circumstances).
The product manufacturing sector has recently adopted several technological advancements. In addition to previously mentioned technology, additive manufacturing—also called 3D printing—has risen in popularity and subsequent implementation. This technology allows manufacturers to construct products using digital, 3D models. The 3D printing industry is valued at $12.6 billion, with an estimated annual growth rate of 17% through 2023.12 Through 3D printing, manufacturers can benefit from a cost-effective and streamlined prototyping process, giving them the flexibility to easily test and troubleshoot new product designs with different materials. What’s more, 3D printing can also boost manufacturers’ productivity levels by permitting them to generate products at a faster rate and conduct tooling on-site.
Nonetheless, it should be noted that 3D printing carries some additional considerations. Primarily, product manufacturers will need to utilize proper cybersecurity measures to protect their 3D printing technology and reduce the risk of data breaches or intellectual property theft (e.g., stolen product designs). Product manufacturers should also keep in mind that 3D printing could lead to potential liability litigation if their digital models are used to create products that end up causing damage or harming others.13
In addition to 3D printing, the acceleration of e-commerce has motivated more product manufacturers to consider offering direct-to-consumer (D2C) services. These services entail manufacturers selling the products they create directly to their customers through online sales platforms, eliminating the need for distributors or third-party retailers. D2C services have become increasingly popular among product manufacturers amid the pandemic, helping them eliminate disruptions, expand their customer reach and boost profits. Such services can also allow manufacturers to get their products on the market faster and increase overall brand strength by interacting directly with customers.
Yet, D2C operations also come with numerous workplace adjustments and potential risks. Instead of providing products in bulk and communicating to distributors or other parties, manufacturers will have to ship individual units work directly with their customers. This may require significant operational changes as well as updates to product packaging and shipping practices. Furthermore, product manufacturers will have to establish effective, trustworthy online sales platforms that their customers can easily navigate—presenting cybersecurity risks. To meet customers’ high expectations and address any problems they may encounter, manufacturers will also likely need to form customer service or support teams. Apart from handling customer interactions, product manufacturers could face channel conflict if their previous distributors or third parties encounter any revenue losses due to their decision to move toward D2C operations. Additionally, manufacturers may experience increased liability concerns by taking full responsibility for shipping and labeling processes that would otherwise fall on distributors or other third parties.14
Liability coverage adjustments
Lastly, the product manufacturing industry has recently encountered shifting expectations regarding liability coverage. In the past, many vendors and suppliers would permit manufacturers to be listed as additional insureds on their liability policies, extending coverage to these manufacturers amid liability incidents. While this practice offers some degree of protection, manufacturers could still be left underinsured and have to pay out-of-pocket expenses if they solely rely on vendors’ additional insured coverage rather than obtain their own liability policies. In today’s increasingly litigious environment and hard insurance market, some vendors and suppliers have even decided to prohibit manufacturers from being named as additional insureds on their policies in order to reduce premium expenses and minimize potential claim costs.
In fact, a series of costly liability lawsuits prompted online retailer Amazon to officially require all sellers on their platform with profits totaling over $10,000 per month to carry their own product liability coverage as of September 2021.15 This shift emphasized why it’s so important for all parties involved in the development and distribution of a product to obtain their own dedicated liability coverage and take steps to reduce their liability exposures.
Overall, it’s clear that various sector developments are currently impacting product manufacturers and have the potential to continue affecting these professionals in the months and years ahead. That’s why it’s important for product manufacturers to protect themselves and their operations by securing adequate insurance coverage. Nationwide offers a market for product manufacturing classes—including machinery, equipment, toys, sporting goods, cosmetics and auto parts.
Looking ahead, Nationwide is seeking to expand in this space further with our wholesale broker partners. Learn more about our Product Manufacturing vertical, including our expertise, capabilities, and appetite.