Controlling rising manufacturing costs

The manufacturing industry is set to stay in the national spotlight in 2025.

Taking office in less than two weeks, President-elect Donald Trump’s upcoming domestic policy agenda is centered around growing U.S. jobs, particularly in manufacturing. 

Trump plans to use aggressive tariffs to entice companies to build factories in the U.S. The president-elect has announced plans to impose 25% tariffs on imports from Canada and Mexico, as well as additional 10% duties on goods from China.

Whether that plan can work, however, hinges on how well the country can recruit and retain manufacturing talent, a challenge that has plagued the industry for years. 

In addition, artificial intelligence poses a challenge for manufacturers to integrate the technology in cost-effective ways. Doing so could help fill labor gaps, but with a hefty upfront price tag. 

These factors are set to shape the manufacturing industry over the next twelve months. Read on to learn how manufacturers are navigating the challenges and what experts say executives need to know for the year ahead. 

1. Tariff hikes will pose a manufacturing supply chain challenge

Trump’s tariff plan is putting pressure on manufacturers to shore up their supply chains. 

The move could mean higher prices for finished goods in the U.S. and make it more expensive for manufacturers to import needed components and raw materials, particularly from China. 

“The reality of the supply chain is that U.S. companies rely heavily on components and raw materials coming outside the U.S.,” said Cortney Morgan, a partner in Husch Blackwell’s international trade and supply chain practice. 

Given Trump’s intention to use tariffs as a tool to influence Canada and Mexico’s border policies, the duty hikes may be short-lived, Morgan said. Tariff hikes on China, however, are likely to remain in place longer. 

Even if Trump’s tariff threats don’t become reality, the Biden administration has already imposed duty hikes that will continue to impact manufacturers. In December, Biden announced increased Section 301 tariffs on some solar manufacturing equipment, and in September 2024, the administration finalized tariff hikes on a variety of goods from China. 

Against this contentious backdrop, many experts are encouraging manufacturers to diversify their suppliers, with a particular push to lessen reliance on China. 

Additionally, manufacturers should scrutinize their supplier contracts to share or even avoid bearing duties costs, Morgan said. 

“The best case would be if you can avoid being the importer altogether,” Morgan said. “If you can push that off and then somehow get the foreign supplier to agree to do the [delivery duty paid] transactions where they’re clearing the goods and paying the duties.”

Another option is to take a proactive approach to long-term supply agreements, Morgan said, to create contract terms in which if tariffs rise, the cost is shared between parties. 

2. Onshoring is happening, but industry impacts will take time

While Trump’s heavy tariff regime might spur more factories to open stateside, the domestic investment trend has more to do with cultural and technology factors than politics, said Tom Kurfess, chief manufacturing officer at the Georgia Institute of Technology and executive director of the Georgia Tech Manufacturing Institute. 

Kurfess pointed to supply chain fragility and national security as two issues influencing companies to onshore manufacturing, including for high-tech products like semiconductors. 

The Biden administration has taken more action in recent months to protect national security related to advanced manufacturing. Last month, the administration rolled out new export controls on advanced semiconductor equipment shipped to China, a move meant to protect U.S. national security. 

At the same time, more companies want to avoid possible logistics and supply hiccups by shortening their supply chains. For some, this could mean more, smaller, factories that rely on nearby suppliers, Kurfess said. 

However, even as manufacturing construction spending booms for new factories, it will take time for those projects to come online. In the meantime, companies need to focus on diversifying sourcing and boosting productivity and efficiency, said Steve Shepley, vice chair and U.S. industrial products and construction sector leader at Deloitte. 

“When they look at the type of supply that needs to be sourced from the U.S., of course, that will have a higher cost profile than the other locations that you have been using historically,” Shepley said. “So this is going to put a whole other level of focus on the productivity of what you source.”

As more domestic factories open in the months and years to come, it will highlight a challenge that has loomed over the industry for years — labor constraints. 

3. Talent recruitment and retainment will remain an obstacle

More than 55% of respondents surveyed for the National Association of Manufacturers’ Q4 2024 Outlook listed recruiting and retaining top talent as a primary business challenge. And while that’s actually a slight improvement over recent years, the issue remains a pivotal long-term operational challenge, Shepley said. 

Companies need to stop thinking about recruitment strategies as a “reactionary” tactic, Shepley said, instead creating proactive long-term plans. 

“A lot of companies are going to realize, not only do they need a bill of material for their products, they need a bill of labor, and that billable labor cannot be just at the general level of just 'I need this many technicians, and this many direct line workers,’” Shepley said. “You actually have to bring it down to the trade and grade levels that you're going to need over a three, four, five, six, maybe 10-year timeframe.”

Shepley encouraged manufacturers to work with trade schools and community colleges to train workers for skills that may not require a four-year degree. 

“If you can really understand exactly the talent that you need and the technical skills that they need, there are certainly ways for folks to get that education and to gain those skills much more affordably in the past,” he said. 

Many manufacturers are also exploring flexible work structures such as four-day workweeks and job sharing, said Ingrid Tighe, president of the Michigan Manufacturing Technology Center. 

Tighe mentioned one injection molding company in Michigan that employed recent retirees for 10 to 20 hours per week as a way to grow its workforce. Another manufacturer coordinated with employees to make vehicle repairs to ensure people could get to work. 

Both examples, Tighe said, illustrate creative ways in which companies are “meeting employees where they are.”

4. AI is here to stay. Manufacturers are on board

Manufacturers are increasingly integrating AI on the factory floor to boost production speeds, cut costs and fill labor gaps. 

Randy Carr, CEO of Florida-based emblem and patch manufacturer World Emblem, said the company is spending 25% of its technology budget on generative AI. Their goal is to see a return on investment within 12 months. 

“We just think that we should be able to ROI every single thing we do using generative AI really quick,” Carr said. 

Two of the manufacturer’s primary use cases for AI include improving customer interactions and expediting the design production process. World Emblem is now using AI to automate the process of taking hand-drawn designs and creating vector images. Carr said the goal is for AI to lead to a 15% increase in output. 

The CEO noted that the tech integration has been met with some reservations from employees, which will take time to overcome and prove the technology’s benefits. 

“With change, you get some resistance,” Carr said. “Clearly there is a situation where the better this technology improves, the likelihood that changes of employment could take place. We just have to be sensitive to that as we go down this path.”

Manufacturers are also using AI to perform predictive maintenance on equipment, as well as to aggregate and analyze operational data. 

As companies weigh how much of their budgets to dedicate to new technology, Shepley encouraged manufacturers to prioritize customer-side investments to more quickly meet and anticipate client needs, and then turn to operational investments that help predict demand over time. 

“Given the increasing cost of technology deployment, companies really need to focus more on how, through quick sprints, to try to drive value out of these technology transformations,” Shepley said. “As they look at their different initiatives, they do need to start to link those initiatives together a bit better.”

Deere & Co. reported muted sales in the first quarter of 2025 as it looks to mitigate tariff impacts on its farm and construction equipment costs and supply chains.

The tractor giant’s Q1 sales slumped 35% to $6.8 billion over last year, driven by sluggish global demand for agriculture and earthmoving equipment. Deere’s profits were slashed to $869 million for the period as efforts to cut production and reduce the company’s dealer inventories continued.

Amid a downturn in the farm economy, Deere and its competitors are also navigating a dynamic trade backdrop complicated by tariffs on aluminum and steel imports. The tariffs with China will have an “immaterial” impact on the business, SVP and CFO Joshua Jepsen said in an Feb. 13 earnings call.

Over the years, Jepsen said Deere has focused on supplier resiliency and cost management to better respond to external disruptions that stem from the COVID-19 pandemic and global trade issues — “which position us well to navigate the current environment.”

The tractor giant has leveraged its scale to become a net exporter of agriculture and turf equipment from the United States. More than 75% of Deere’s domestic sales account for products assembled at U.S. manufacturing facilities, Jepsen said. A small percentage of equipment parts come from other countries. 

“In terms of component sourcing, about 10% of our U.S. manufacturing cost of goods sold come from Mexico, with less than 2% coming from China and approximately 1% from Canada,” Jepsen said.

In terms of exports, Jepsen said more than half of Deere’s products are sent to Canada, with the remainder going to Europe, Brazil and Australia.

Deere, Agco and other tractor markers could face stronger headwinds following Trump’s recent tariff spree, which has opened up the U.S. to retaliatory measures from major trading partners and created market uncertainty. 

“The situation is certainly fluid and we continue to monitor changes in policy as they occur,” Jepsen said before reciprocal tariffs were proposed. “Teams across the organization are continually running potential scenarios to understand risks along with opportunities to mitigate these impacts.”

In addition to looming trade disruptions, Deere is working through supply challenges related to the farm economy downturn. In North America, large field equipment inventories were down 25% in 2024 over the previous year, with 220-plus horsepower tractors down twice as much as the industry, Josh Beal, Deere’s director of investor relations, said in the call. New combine orders have also been below expectations.

Additionally, the company reduced construction and forestry production by about 35% in Q1 to rightsize inventory for the remainder of the year, Beal said.

Despite the earnings declines amid a challenging quarter, Faisal Hersi, an equity analyst at Edward Jones, said in a research brief that Deere’s revenue and earnings per share slightly exceeded expectations. However, the company’s operating income for agriculture and turf, and construction and forestry equipment segments were well below expectations, he said.

Looking ahead, Deere is expecting net income between $5 billion to $5.5 billion this fiscal year as challenges persist, according to its earnings report.

“We think the markets will remain focused on whether 2025 marks the bottom of the agricultural-machinery cycle,” Hersi noted.

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After years of chasing growth and little else, manufacturers and distributors are waking up to a sober reality—the “Era of Profitability” is here. According to McKinsey, nearly two-thirds of B2B companies now view profitability, rather than market share or growth, as their top priority. While retail and direct-to-consumer (DTC) brands have been openly grappling with this shift, B2B organizations have largely escaped the spotlight. But no longer. Beneath the surface, they face identical forces reshaping the landscape of digital commerce, prompting a critical shift in strategic priorities.

In the decade leading up to 2020, B2B manufacturers and distributors enjoyed a steady environment—the "Era of Stability," where predictability and modest growth defined business plans. I you look at an ecommerce growth chart during this time, it was practically a straight line. The COVID-19 pandemic abruptly transitioned industries into the "Era of Growth at All Costs," driving businesses to ramp up digital investments, ecommerce capabilities, and customer acquisition efforts, often without a clear eye on profitability. However, by 2022, inflated growth began to lose steam as rising interest rates, supply chain issues, and inflation led to tightening budgets, pushing companies into a new, disciplined business environment—the "Era of Profitability."

Today’s B2B ecommerce executives face a landscape remarkably similar to their retail counterparts. According to Emarketer, B2B ecommerce grew 10.1% in 2023 and was forecast to grow 9.1% in 2024, slightly faster than B2C. And bear in mind the B2B market is significantly larger overall. Yet despite ecommerce continuing as the primary driver of growth in total commerce, it rarely serves as the driver of profitability. The law of large numbers has slowed ecommerce growth overall. In lieu of this, a recent Publicis Sapient study found that more than one-third of ecommerce merchants reported missing profitability targets—a clear warning to B2B distributors and manufacturers now experiencing similar challenges.

For B2B practitioners, digital commerce success now hinges on three critical pillars: doubling down on existing customers, maximizing long-tail product opportunities, and building a pragmatic technology stack centered around a modern digital commerce platform.

Firstly, profitability demands prioritizing existing customers. Acquiring new customers typically costs five times more than retaining existing ones (source: European Business Review). Manufacturers who invest in building deeper relationships, personalized experiences, and seamless product discovery platforms for existing customers stand to significantly increase lifetime value and profitability.

Secondly, manufacturers and distributors must optimize their approach to long-tail products and customers. Boston Consulting Group famously identified an 80/20 distribution of profitability, where just 20% of SKUs drive the majority of sales, leaving significant potential profit in the remaining 80%. Savvy businesses leverage these long-tail products by strategically using digital platforms to create targeted, customized product discovery journeys.

Take, for instance, industrial parts distributors. Product complexity, catalog depth, and technical specifications can overwhelm buyers, causing them to abandon digital channels in favor of competitors. A digital commerce platform enhanced with precise, intuitive search capabilities and rich product data can streamline discovery, reducing costs and increasing conversions. This approach fosters digital adoption, solidifies customer loyalty, and maximizes revenue from the critical long tail of inventory.

Finally, businesses must embrace pragmatic technology investments. The Era of Profitability necessitates rigorous evaluation of technology platforms. Rather than chasing flashy solutions, manufacturers must prioritize pragmatic, incremental changes that demonstrably boost efficiency, conversions, and margins. Adopting a "Pragmatic Composability" strategy—leveraging a centralized digital commerce platform while selectively integrating best-of-breed solutions—is critical. According to McKinsey, digital leaders who strategically prioritize targeted investments, including analytics and omnichannel engagement, achieve approximately 15% higher profitability. This approach allows manufacturers to maximize value by investing strategically in technologies directly tied to profitability while relying on core digital commerce platforms to handle foundational functions.

Ultimately, the Era of Profitability represents an inflection point for B2B sellers engaged in digital commerce. By shifting focus from growth-at-all-costs to strategic investments in existing customers, harnessing the long-tail potential of products, and adopting pragmatic technology solutions, manufacturers and distributors can not only weather this era but thrive in it. Companies that shift gears now will emerge stronger, leaner, and better positioned to capture sustained profitability and long-term market advantage in a landscape that demands nothing less.

The Chemours Co. saw a slight drop in its 2024 fourth quarter sales, down 1% to $1.4 billion over the previous year due in part to price declines, according to the company’s Feb. 18 earnings report.

The chemical maker posted an $8 million loss in Q4, a 55% improvement compared to the prior year’s $18 million loss, as a result of company-wide, cost-saving strategies, with a focus on the titanium technologies segment. 

Chemours’ full-year net income jumped to $86 million, compared to a $238 million net loss in 2023, due to costs related to a $1.2 billion class action lawsuit settlement over PFAS contamination that was finalized in February 2024.

Despite a decrease in sales, Chemours had a strong performance in Q4 as a result of its corporate growth strategy, which the company implemented in November 2024, President and CEO Denise Dignam said on the Feb. 18 earnings call. 

The strategy aims to build the company’s titanium technologies, thermal and specialized solutions and advanced performance materials segments by focusing on four pillars: operational excellence, enabling growth, portfolio management and “strengthening the long term.”

The overall cost-savings plan includes slashing an additional $125 million under another corporate blueprint, the Titanium Technologies Transformation Plan, initially announced in October 2023.

“Of our total $250 million cost target, we remain on track to deliver half of these run rate cost savings by the end of 2025,” Dignam said. “As we progress further into the year, we'll look to provide regular updates on those savings, which remain focused on optimizing our asset footprint and reducing overhead cost.”

Chemours is also working with suppliers to strengthen its segmented businesses. In December 2024, Chemours supplier PCC SE announced plans to build and operate a chlorine and downstream chemical plant in Pass Christian, Mississippi. Chemours also established another chlor-alkali production facility ran by a third party and co-located at Chemours’ New Johnsonville, Tennessee, site, according to a securities filing.

The planned facility and supply deal will allow Chemours to gain increased supply reliability through on-site chlorine at the chemical titan’s titanium dioxide plant, Dignam said in a December 2024 press release. The chlor-alkali facilities will ensure a domestic supply of titanium dioxide, Dignam said on the call. The facilities reduce the company’s need to transport chlorine, according to the filing.

The chemical company is also prioritizing expansion in spaces focused on data center cooling, refrigerants, semiconductor fabrication and electric vehicle batteries, while shedding de-prioritized segments. The company embarked on a plan to exit the surface protection solutions business in January, and it expects related production to cease by the end of Q2, Dignam said.

This isn’t Martin Pochtaruk’s first time navigating his company through a volatile trade environment under President Donald Trump.

The solar module manufacturer, established in 2010, began implementing changes to its production when Trump first placed 30% tariffs on solar modules and cells in February 2018.

Heliene has been preparing for the Trump administration’s heightened duties. In 2023, the solar module manufacturer expanded its manufacturing and assembly line at its Mountain Iron, Minnesota, facility. The company also raised $170 million the same year in an effort to expand and create clean energy manufacturing jobs within the clean energy transition.

In August 2024, Heliene and solar module maker Premier Energies announced plans to build a joint solar cell facility in the Minneapolis – St. Paul, Minnesota, area. The company also signed a module supply agreement with UGE, as well as a silicon wafer supply agreement with NorSun, set to begin in 2026.

Most recently, Heliene entered a multi-year contract with Origami Solar to offer steel-framed solar modules to the North America market, according to a Feb. 19 press release. Heliene’s 144 and 156 half-cut bifacial modules, as well as Origami Solar’s steel frames, will be available in April, along with aluminum frame options.

With all the actions Heliene implemented since Trump’s first tariffs go-round, the solar module manufacturer is prepared for the next changes.

“As the saying goes, fool me once, shame on you. Fool me twice, shame on me, so that’s not happening again,” Pochtaruk said.

Manufacturing Dive spoke with Pochtaruk to talk about Heliene’s strategy and how the tariffs may impact solar manufacturers.

MANUFACTURING DIVE: How did Heliene adapt when Trump imposed heightened tariffs during his first presidential term?

MARTIN POCHTARUK: We made the decision [in March 2018] to invest in a new manufacturing line in the U.S., here in Minnesota, and by October, we started it up. So that was the first investment … we call it, line one. Then by 2021, we decided to double down and invest in another line that was built and started up in November 22. Then, because of the Inflation Reduction Act, we replaced the 2018 line with a brand new line . . . started up in November 2023.

So those are the two lines that we have and right now we are in the middle of the third investment in Minnesota for yet another line that will start up by the end of April.

The two lines that we have are in the same location, which is Mountain Iron, Minnesota. That is a mining area. So, 100% of the iron ore that is produced in this country comes from across the road from us. We’ve been there, proving that the diversification of the economy with the energy transition is possible. We employ 340 people on that site. The next facility is on the outskirts of Minneapolis.

Trump made plans to impose tariffs again, particularly on steel and aluminum. How would that impact solar manufacturers and the industry as a whole? 

It will affect the industry by increasing costs. Everything is made of steel and aluminum, and then the frames of the modules are aluminum or steel. If you buy imported, it will be 25% more expensive. But what always happens when there is a restriction on the market, is that the domestic price also goes up [adjusting] to that cost increase. Market price increase will happen. 

Costs will not only be placed on the company but also passed on down to the customers.

Always does, right? So, if somebody has a fixed price contract . . . then they will need to absorb this cost increase. But if they work like us on costs, we sell the module on cost plus the contribution, so we make our costs transparent. 

How did the Origami Solar deal come about? And was this in the process before the proposed tariffs?

It [took] a year, because one of the things that Origami claims is that the modules made with steel frames versus aluminum, which is what we've been using since 2010, have a higher mechanical resistance. So we had to make samples, right? Those samples had to be put into modules, and those modules have to be tested. Some of the testing that we do takes 2000 hours, which is four months. We’ve been testing these modules for six months, and then we started negotiating the contract. So it has been a one year ongoing thing. We started, I would say, February or March 2024.

What advice can you give to other solar manufacturers on how to adapt and on what to do to keep customer relations and still make a profit despite the tariffs?

Well, it's major cost transparency, right? Work open book so your your client can see that your contribution, what you are making, is not offensive but the margins that we have are slim and that, I think, this is impossible to absorb. 

[We] show [customers] what the costs are, what is the change and again, in an era where everybody will fight you legally for one penny, you need to be able to have your contracts written in a way that if there is an increase in costs, those could pass through. That's why I mentioned if companies have a fixed price contract, then they wouldn't be able to pass through any people.

Honeywell International announced plans on Feb. 6 to streamline its portfolio by spinning off its automation and aerospace businesses into independent public companies.

Honeywell Automation will focus on the industrial sector and offer technologies, solutions and software to boost customers’ productivity, according to a news release. Honeywell Aerospace will supply commercial and defense aircraft customers with products such as aircraft propulsion, cockpit and navigation systems.  

The split is expected to be complete in the second half of 2026. The news comes months after Honeywell announced it was separating its advanced materials business, which is set to be complete by year’s end or early 2026.

Honeywell has been evaluating its offerings since Vimal Kapur took over as CEO in 2023, with the goal of simplifying the industrial giant’s portfolio, Kapur said in a Feb. 6 LinkedIn post.

“We believe the planned separation of automation, aerospace and advanced material will benefit all stakeholders and position all three stand-alone companies for long-term profitable growth,” Kapur said in an earnings call on Feb. 6. “The part will enable three pure-play companies to pursue simplified go-forward strategies that are clearly aligned to the unique purpose of each business and to address the specific needs of their end markets.”

The company has made strategic moves since 2023 to streamline its portfolio as it shifts focus to automation, aviation technology and clean energy. The industrial giant announced plans to exit the personal protective equipment business in November 2024 and sell the PPE portfolio for $1.3 billion to Protective Industrial Products, a deal expected to close later this year.

Honeywell also made several acquisitions over the past year with the goal of driving growth in those three priority areas. The company completed the acquisitions of cloud-based service company Carrier Global Access Solutions, navigation technology company Civitanavi Systems, electronics company CAES and Air Products’ liquefied natural gas business.

In December 2024, Honeywell entered a research and development agreement with aerospace component maker Bombardier, valued at $17 billion. The two companies will work on enhancing jet engines and creating satellite communications technologies for Bombardier’s planes. The deal also resolved an eight-years-long lawsuit brought by Bombardier regarding jet engine prices, The Gazette reported.

Additionally, the manufacturer is making technical and commercial progress on growing its integrated quantum computing subsidiary, Quantinuum, Kapur added. In January, Japan-based firm Softbank Corp. and Quantinuum announced a partnership to develop quantum computing solutions.

“We will continue to make M&A a consistent part of our operational rhythm seeking to acquire accretive bolt-on that further shape the portfolio and enhance the value proposition of each business during the dependency of the separation process,” Kapur said. “We are confident that our dynamic capital deployment strategy, including acquisitions, further share repurchases and optimizing our operations will lead to an enhanced financial profile for Honeywell that is more attractive to investors.”

Adhesive manufacturer H.B. Fuller said it plans to reduce its production footprint from 82 to 55 facilities by 2030 as part of an ongoing restructuring effort.

The St. Paul, Minneapolis-based company is also looking to scale back its warehouses in North America from 55 to 10 over the next three years.

H.B. Fuller’s plan is expected to yield about $75 million in annual cost savings once it’s fully implemented in fiscal year 2030, according to the company’s Q4 2024 earnings report.

The company expects to sell or shutter 16 facilities by the end of 2025, which has been in motion over the past couple of years, President and CEO Celeste Mastin said in a Jan. 16 earnings call.

In March 2023, the company announced plans to close two manufacturing facilities in North America and Argentina. Four months later, H.B. Fuller announced it was closing three more plants that were part of a deal to acquire industrial adhesive manufacturer Beardow Adams.

H.B. Fuller sold its flooring business in December 2024 to private equity firm Pacific Avenue Capital Partners, which included six plants in the deal. The divestiture is part of H.B. Fuller’s plans to reorganize its building and construction segments.

“These actions will not only reduce costs through improved capacity utilization, they will also enable us to reduce future capital expenditure requirements and better serve our customers,” Mastin said. 

Still, the scale-down is a work in progress, EVP and CFO John Corkrean said on the call. The company expects to save $5 million this year in addition to a recurring $8 million in savings when they initially announced the restructuring plan in March 2023 to optimize operations and integrate acquired businesses.

“I think that number steps up to closer to $20 million in 2026,” Corkrean said. “And then I would say it’s kind of pro-rata over the next three years to get to the $75 million run rate.”

With the restructuring, the adhesive maker aims to achieve greater than 20% margin profitability and financial performance. While Mastin is proud of the progress H.B. Fuller made in fiscal year 2024, she’s also disappointed the company was unable to finish the year as strong as expected, she said in the release. 

H.B. Fuller generated revenue of $3.6 billion in fiscal year 2024, up 1.6% over the previous year. Net income fell 10% to $130 million over the same period with an adjusted EBITDA at $594 million, up 2.2% YOY and the adjusted EBITDA margin expanded YOY to 16.6%.

During Q4, revenue totaled $923 million, up 2.3% year-over-year. H.B. Fuller posted a net loss of $7.4 million driven by higher raw materials costs and unfavorable pricing compared to last year.

“Yes, it is an aggressive plan, I think it’s also a very achievable plan,” Mastin said. “But when you think about it from a big picture, we’ve got a big global footprint. And within that footprint, there is redundancy in some technology production in some regions, but there’s also opportunities for us to grow capacity for some technology in regions where we may not have enough where we may not be able to grow in an end market as fast as we would like.”