The manufacturing sector bears a disproportionate regulatory burden compared to other industries in the U.S. Small-to-medium size manufacturers, in particular, are feeling the weight of regulatory burdens on the industry.
In a recent Grayway Journal article[1] titled “Protecting Manufacturing’s Core,” Marlin Steel CEO and several other small to midsize manufacturing business owners highlighted the challenges faced by SMB manufacturers, why smaller manufacturers matter to the American economy, and what can be done to promote growth amongst this group.
Why Small-to-Medium Manufacturers Matter
When most people think of manufacturing, they picture some of the industry giants, companies like Ford, Boeing, or Dell—companies that all have massive production capacity and thousands of employees.
However, the vast majority of manufacturing businesses are not big businesses. In fact, according to the Grayway article, “out of the roughly 251,000 manufacturers in America, about 221,000 of them are considered ‘small-to-medium sized.’”
Consider that the manufacturing sector contributes more than $2 trillion to the U.S. economy, and you can easily see why small manufacturers matter: they are a driving force for employment and economic growth in the U.S.
Small manufacturers also pay a significant part of the tax burden: as Drew Greenblatt highlights in the article “right now, the average American factory is what’s called a pass-through, an S-corp or an LLC… We’re paying taxes at around 40 percent, and that doesn’t include health insurance.”
These financial burdens make it harder for American manufacturers to add new staff or equipment so they can grow. But, these aren’t the only burdens that manufacturers face. Many small manufacturers are drowning excessive (and often redundant) regulations.
Regulations and Small Manufacturing
Regulations are a vital part of protecting workers, consumers, and the environment. Some regulation will always be needed to protect the interests of the country and the industry. However, excessive regulation that doesn’t actually protect workers, consumers, or the environment simply add cost without creating benefits.
For example, in the Grayway article, Drew points out that “my bank is forced to require that I do a physical inventory audit, which costs me $8,000 a year… They take the audit paperwork, email it to a regulator, who then puts it on a shelf, only to prove that they have done it.”
Such an inventory audit does nothing to reduce waste or scrap production, nor does it make anyone safer—it’s just bean counting for the sake of bean counting.
Something as simple as a minor typo or missing initial/signature can also cost manufacturers thousands of dollars to fix. One incident happened a few years ago where Marlin filed a 50+ page-long regulatory document and missed one signature out of three on a single page. The cost to correct the error ran into the tens of thousands—all because of a missing signature.
There was no broken regulation, just a minor error on one page of a document that had dozens of other signatures throughout. Yet, this error cost thousands of dollars and months of negotiation to fix.
Did you know that, according to data from the National Association of Manufacturers (NAM), manufacturers face over 297,000 restrictions on their operations from federal rules and regulations?
Imagine if other industries were held to the same regulatory burdens? What if fast food employees had to file three reports for every burger they flipped or risk getting fined tens of thousands of dollars because they put too much pickle on one sandwich?
It would paralyze all but the biggest and most well-equipped fast food businesses. Yet, this is the reality every small-to-medium-sized manufacturer faces.
Fixing Small Manufacturing Regulation to Ensure Success
Simply eliminating pointless or redundant paperwork-based regulations could help manufacturers save untold amounts of money on their regulatory compliance. It shouldn’t take an army of lawyers for a small business to find out if they’re being compliant with every single regulation on the books.
The Trump administration has been making moves that are manufacturer-friendly in this regard, preparing to roll back many of the more redundant or misguided regulations imposed on manufacturers barely able to keep up with the demands placed on them.
A large-scale review of existing regulations is needed for the manufacturing industry as a whole so that repetitive or unnecessary regulations can be identified and merged or eliminated. This alone will help to make regulations much easier to follow.
This is the time for manufacturers to work with Capitol Hill to get things done, to rebuild the regulatory structure being applied to American businesses into something that will level the playing field against foreign competitors and encourage growth while still protecting the environment and the public good.
[1] “Protecting Manufacturing’s Core, Grayway: A Journal for Business & Industry, February/March 2017, Gray Engineering Architecture Construction, pgs. 2-5, Lexington, KY, 40507, USA
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