U.S. manufacturing firms more flexible in response to fear of drop in demand

June 5, 2012

The economic slowdown in the European Union has led to increased fears for many sectors in the U.S., but American manufacturing executives remain optimistic about the industry being able to weather the storm.

Reuters reported that these executives are looking to flexible business strategy as a way to cope with the current economic recession in Europe, as they noted that they have little-to-no fears about a drop in demand hurting their business.

Officials from large industrial companies in the U.S. have looked to lean manufacturing and other efficiency models as a way to cope with the potential drop in demand from the EU.

According to the news outlet, despite the initial drop in demand from the continent, the decrease has not been as significant as first thought. However, these executives are not taking any chances, as they look to curb any losses through the use of more efficient practices and business models.

"You do have to be prepared and you do a lot of work ahead of time on flexibility," Rich Lavin, group president at Caterpillar who oversees emerging markets and construction operations, told Reuters.

Despite the current state of the global markets, innovation and efficient practices have helped the company do more than weather the storm – profits are expected to rise 2.8 percent for this year.

"In our particular case, we have a significant chunk of our workforce which is flexible, temporary, contract agency people," Lavin told an investor conference. "We have quite a bit of flexibility within our labor agreements to do temporary facility shutdowns, if need be."

His sentiment is not singular in the industry, as reactions to the slight drop in activity outlined in the recent ISM manufacturing report were optimistic and favored growth in the coming months.

"The majority of the respondents’ comments are positive and optimistic about business conditions and the direction of the economy," noted the authors of the report.

The ISM report noted that of the 18 manufacturing industries, 13 reported growth for May, and the gains that were seen were enough to generate confidence among the industry leaders. The slight decrease from April to last month has also been attributed to slowdowns in activity in other sectors.